4 ms·

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
      - kragen 5y ago
        Yup, that's right. We're not in hyperinflation. The currency isn't worthless. It's just not worth as much as it was a year ago. Or two weeks ago: I found out today that AR$11890.99 is no longer about US$58 as it was two weeks ago, but more like US$55 now. The annual inflation rate is about 50%, which is about 3.4% per month. If it's 50% per year over the next 12 months, the total value of those 12 monthly installments will be about US$46, which you'll notice is still more than the US$42 offered by the other seller without an installment option. So unless inflation goes higher in the next year, or the buyer defaults on the loan, the installment vendor is still making a pretty decent profit on the battery. They may not be "charging interest" but offering "interest-free" installments enables them to charge a sufficiently higher price that it's a profitable thing to do. They are taking the risk that inflation suddenly explodes three months from now and 9 of their 12 installments are much smaller than they had planned on. And the buyer is taking the risk that inflation suddenly stops six months from now, which would make their final installments are just as onerous as the first few. There have been a lot of loans pegged to the inflation rate in the past, as well as things like pensions. Unfortunately, since the government was the creditor for most of these, and also the government publishes the official inflation rate, they solved the problem in the early 02000s by faking the inflation rate statistics. Some economic consultancies published statistics showing the real inflation rate so the government prosecuted them for "commercial disloyalty". Retirees rioted in the streets and got tear-gassed by the police until the government agreed to raise their pensions faster than the fake inflation rate. Bondholders weren't so fortunate.
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.

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
    - kragen 5y ago
      Yup, that's right. We're not in hyperinflation. The currency isn't worthless. It's just not worth as much as it was a year ago. Or two weeks ago: I found out today that AR$11890.99 is no longer about US$58 as it was two weeks ago, but more like US$55 now. The annual inflation rate is about 50%, which is about 3.4% per month. If it's 50% per year over the next 12 months, the total value of those 12 monthly installments will be about US$46, which you'll notice is still more than the US$42 offered by the other seller without an installment option. So unless inflation goes higher in the next year, or the buyer defaults on the loan, the installment vendor is still making a pretty decent profit on the battery. They may not be "charging interest" but offering "interest-free" installments enables them to charge a sufficiently higher price that it's a profitable thing to do. They are taking the risk that inflation suddenly explodes three months from now and 9 of their 12 installments are much smaller than they had planned on. And the buyer is taking the risk that inflation suddenly stops six months from now, which would make their final installments are just as onerous as the first few. There have been a lot of loans pegged to the inflation rate in the past, as well as things like pensions. Unfortunately, since the government was the creditor for most of these, and also the government publishes the official inflation rate, they solved the problem in the early 02000s by faking the inflation rate statistics. Some economic consultancies published statistics showing the real inflation rate so the government prosecuted them for "commercial disloyalty". Retirees rioted in the streets and got tear-gassed by the police until the government agreed to raise their pensions faster than the fake inflation rate. Bondholders weren't so fortunate.

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.