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Minyan Mailbag: Zero Percent Financing

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Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.

Dear John,

More on the American way of financing which has arrived in Europe as well:

Early this morning a friend went to a home appliances store located about an hour and half from Rome that opened today. He told me that the store was already jammed at 9 a.m. Why? Not just because the prices are decent, but everything can be financed, zero % interest with the first payment due summer next year.

Minyan Mousie

Mousie,

This is all the first step in the process where the average person says, "I don't want this currency; I need to get rid of it!"

As central banks print money, it drives interest rates below the "real" rate. As inflation picks up as a result (whether or not the central banks who monitor these statistics admit to it or hide it), those nominal rates fall further below the real rate... and further and further.

This debases the currency until pretty soon no one wants it. They therefore spend it as fast as they can as prices get out of control.

We have bureaucrats making these decisions. By that I don't mean they are ignorant, I mean they are self-serving and weak. This leads to demanding instant solutions and pushing the problem off to the "next guy".

Well, at the rate we are going there might not be a next guy.

Peace.

No positions in stocks mentioned.

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