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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

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.
- drugstorecowboy 5y ago
  Thank you very much, I appreciate this detailed explanation and thats very informative. It would seem more or less that this is "priced in". That makes total sense
  - kragen 5y ago
    Maybe not always! Rapid inflation offers innumerable opportunities for ruinous errors.

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.

drugstorecowboy 5y ago
Thank you very much, I appreciate this detailed explanation and thats very informative. It would seem more or less that this is "priced in". That makes total sense
- kragen 5y ago
  Maybe not always! Rapid inflation offers innumerable opportunities for ruinous errors.