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Comment by sasawpg | Hacker News Reader

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.

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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 :)

Yeah, it’s a depressing/upsetting series of thoughts.

Also in Canada now :)

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.

Debt inflates away.

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.

But the $2000 you got from the sale also devalues...

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.

> 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?

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?

Right, maybe you buy some car batteries like 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-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.

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

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.

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

Maybe not always! Rapid inflation offers innumerable opportunities for ruinous errors.

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.

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.

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

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