4 ms·

Unfortunately there were plenty individuals/businesses that exploited inflation (among other things) during the war (and leading up to it) for massive gain. Th

Unfortunately there were plenty individuals/businesses that exploited inflation (among other things) during the war (and leading up to it) for massive gain. They'd borrow heavily, buy up as much staple as possible then quickly sell at a discount. By the time original debt was paid back, high inflation ate away at the original value of debt. So despite originally selling at a loss, it was still a profitable business. That of course is assuming they even bothered to pay anything back. Often enough it was a game of survival (business/personal). Nothing to pay back if the person is dead or business gone.

drugstorecowboy 5y ago
But why buy staples with the money to sell at a discount? Would you mind explaining this a little more, I'm curious and don't understand how that would be profitable. Buying staples and selling them later for inflation adjusted prices then using that to pay back the loan would make sense but not quickly selling at a discount.
- pessimizer 5y ago
  Debt inflates away.
- zamfi 5y ago
  Presumably they'd buy with an installment plan or debt financed over time. I.e., you buy $3000 worth of goods, but pay $200/mo for 30 months ($6k total). You sell for $2000 cash (not on installment). So far, you've paid $200 and gotten $2000, up $1800. If you paid back $200/mo in real terms, this would be a terrible deal! But every month your payment real value drops 10%, so you only really are only paying 200 + 180 + 162 + ... and over 30 months you only pay $1915 in original-value terms.
  - theresistor 5y ago
    But the $2000 you got from the sale also devalues...
    - kragen 5y ago
      No, because you get it up front, you can convert it into something that doesn't devalue. A rapidly inflating currency is a medium of exchange, not a store of value.
      - FabHK 5y ago
        > you can convert it into something that doesn't devalue Such as staples? But then, why sell them quickly at a discount? That was the question. Or, if something else, why not convert the loaned money into something that doesn't devalue directly?
        selimthegrim 5y ago
        Do you have a crystal ball that you can predict what the inflation is going to be in two weeks? Can you protect all these goods in meantime if there is a war going on?
        kragen 5y ago
        Right, maybe you buy some car batteries like https://articulo.mercadolibre.com.ar/MLA-695014148-bateria-de-auto-herbo-12x65-plus-max-promo-rebaja-10-off-_JM https://articulo.mercadolibre.com.ar/MLA-695014148-bateria-d... on installments. Those cost AR$11890.99, about US$58, if you pay up front or 12 installments of AR$990.92 "without interest", but I think https://articulo.mercadolibre.com.ar/MLA-911991344-bateria-para-auto-herbo-12x65-reforzada-plus-max-_JM https://articulo.mercadolibre.com.ar/MLA-911991344-bateria-p... is the same battery for AR$9100 with no installment option. But car batteries, though they can start cars, have certain disadvantages: they take up a lot of space, they're too heavy to take on vacation with you, if mistreated they may leak sulfuric acid all over your boss's desk downstairs (this got Thomas Edison fired once), it's difficult to sell half of one, and even just left quietly in a corner they may become worthless in a few years. So you might sell them immediately and convert the results into dollars or something. Dollars are actually less divisible than car batteries, since the US$20 bill trades at a heavy discount, but more so than, say, motorcycles. This is not a strategy I've ever used, but it does kind of make sense.
- sasawpg 5y ago
  They didn’t sell them later, they sold them immediately. Roughly: - borrow $1mln - buy $1mln of coffee, regular price $10/kg - sell immediately at $8/kg (lower price helps move the goods quickly) - pay back $1mln loan By the time you paid the loan back, $1mln no longer has the same value. And so the $1mln you paid back is really only worth way $500k. Add to this lack of stability due to war and you may not even pay it back … perhaps you refused to pay, company went out of business, you borrowed from someone who is no longer around (alive, fled the country, etc), or any other number of related reasons. In that case it ends up being pure profit for you. Not so easy to enforce or later track down.
  - drugstorecowboy 5y ago
    Where are these people that make these types of loans? This is so far out of my experience, I truly just cannot imagine these situations actually occurring. From a business perspective you would just be setting money on fire every time you made a loan, and you would know it.
stadium 5y ago
That's roughly how governments work too. Reduce spending, raise taxes, or devalue the currency to make debts less costly.
NikolaNovak 5y ago
Oh the war was a whole another story I'm not getting into. Suffice to say we have seen unfathomable depths to which some people will sink, and unbelievable heights to which others will rise. We got hugely helped and massively hurt by the least likely of sources at times. I'm in Canada now :)
- sasawpg 5y ago
  Yeah, it’s a depressing/upsetting series of thoughts. Also in Canada now :)

drugstorecowboy 5y ago

But why buy staples with the money to sell at a discount? Would you mind explaining this a little more, I'm curious and don't understand how that would be profitable. Buying staples and selling them later for inflation adjusted prices then using that to pay back the loan would make sense but not quickly selling at a discount.

pessimizer 5y ago
Debt inflates away.
zamfi 5y ago
Presumably they'd buy with an installment plan or debt financed over time. I.e., you buy $3000 worth of goods, but pay $200/mo for 30 months ($6k total). You sell for $2000 cash (not on installment). So far, you've paid $200 and gotten $2000, up $1800. If you paid back $200/mo in real terms, this would be a terrible deal! But every month your payment real value drops 10%, so you only really are only paying 200 + 180 + 162 + ... and over 30 months you only pay $1915 in original-value terms.
- theresistor 5y ago
  But the $2000 you got from the sale also devalues...
  - kragen 5y ago
    No, because you get it up front, you can convert it into something that doesn't devalue. A rapidly inflating currency is a medium of exchange, not a store of value.
    - FabHK 5y ago
      > you can convert it into something that doesn't devalue Such as staples? But then, why sell them quickly at a discount? That was the question. Or, if something else, why not convert the loaned money into something that doesn't devalue directly?
      - selimthegrim 5y ago
        Do you have a crystal ball that you can predict what the inflation is going to be in two weeks? Can you protect all these goods in meantime if there is a war going on?
      - kragen 5y ago
        Right, maybe you buy some car batteries like https://articulo.mercadolibre.com.ar/MLA-695014148-bateria-de-auto-herbo-12x65-plus-max-promo-rebaja-10-off-_JM https://articulo.mercadolibre.com.ar/MLA-695014148-bateria-d... on installments. Those cost AR$11890.99, about US$58, if you pay up front or 12 installments of AR$990.92 "without interest", but I think https://articulo.mercadolibre.com.ar/MLA-911991344-bateria-para-auto-herbo-12x65-reforzada-plus-max-_JM https://articulo.mercadolibre.com.ar/MLA-911991344-bateria-p... is the same battery for AR$9100 with no installment option. But car batteries, though they can start cars, have certain disadvantages: they take up a lot of space, they're too heavy to take on vacation with you, if mistreated they may leak sulfuric acid all over your boss's desk downstairs (this got Thomas Edison fired once), it's difficult to sell half of one, and even just left quietly in a corner they may become worthless in a few years. So you might sell them immediately and convert the results into dollars or something. Dollars are actually less divisible than car batteries, since the US$20 bill trades at a heavy discount, but more so than, say, motorcycles. This is not a strategy I've ever used, but it does kind of make sense.
sasawpg 5y ago
They didn’t sell them later, they sold them immediately. Roughly: - borrow $1mln - buy $1mln of coffee, regular price $10/kg - sell immediately at $8/kg (lower price helps move the goods quickly) - pay back $1mln loan By the time you paid the loan back, $1mln no longer has the same value. And so the $1mln you paid back is really only worth way $500k. Add to this lack of stability due to war and you may not even pay it back … perhaps you refused to pay, company went out of business, you borrowed from someone who is no longer around (alive, fled the country, etc), or any other number of related reasons. In that case it ends up being pure profit for you. Not so easy to enforce or later track down.
- drugstorecowboy 5y ago
  Where are these people that make these types of loans? This is so far out of my experience, I truly just cannot imagine these situations actually occurring. From a business perspective you would just be setting money on fire every time you made a loan, and you would know it.

stadium 5y ago

That's roughly how governments work too. Reduce spending, raise taxes, or devalue the currency to make debts less costly.

NikolaNovak 5y ago

Oh the war was a whole another story I'm not getting into. Suffice to say we have seen unfathomable depths to which some people will sink, and unbelievable heights to which others will rise. We got hugely helped and massively hurt by the least likely of sources at times. I'm in Canada now :)

sasawpg 5y ago
Yeah, it’s a depressing/upsetting series of thoughts. Also in Canada now :)