4 ms·

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 profi

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.
        drugstorecowboy 5y ago
        So if I'm understanding correctly in this case the buying and selling of the staple goods is totally incidental and the only goal is to take a loan and purchase a non-inflating currency to hold. Is that correct? I can understand that logic, but feel like surely this would be priced in somehow. I think most likely, nobody would ever give you a loan that wasn't pegged to another currency or to the inflation rate. In general I find that businesses don't like to make incredibly stupid loans that they know full well won't be paid back or will be paid back in worthless currency as the OP states. Maybe I'm wrong though and should move to Argentina
        5y ago
  - sasawpg 5y ago
    Not necessarily true. It devalues if you hold onto the money in local currency. It does not devalue if you exchange (usually gray/black market) to another currency. In ex-Yu, this would have usually meant Deutschmark. It also does not devalue (in the same manner) if you use it to purchase real estate which you hold onto for a long time. Much of this money was used to purchase apartments, houses, buildings, businesses, etc. Or you don’t care and are just looking for an increase in cash flow.
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.

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.
      - drugstorecowboy 5y ago
        So if I'm understanding correctly in this case the buying and selling of the staple goods is totally incidental and the only goal is to take a loan and purchase a non-inflating currency to hold. Is that correct? I can understand that logic, but feel like surely this would be priced in somehow. I think most likely, nobody would ever give you a loan that wasn't pegged to another currency or to the inflation rate. In general I find that businesses don't like to make incredibly stupid loans that they know full well won't be paid back or will be paid back in worthless currency as the OP states. Maybe I'm wrong though and should move to Argentina
        5y ago
- sasawpg 5y ago
  Not necessarily true. It devalues if you hold onto the money in local currency. It does not devalue if you exchange (usually gray/black market) to another currency. In ex-Yu, this would have usually meant Deutschmark. It also does not devalue (in the same manner) if you use it to purchase real estate which you hold onto for a long time. Much of this money was used to purchase apartments, houses, buildings, businesses, etc. Or you don’t care and are just looking for an increase in cash flow.

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.