Your blogger re-read Blog 33 and thought it was not only unfunny, but, as an explantation of lenders' and borrowers' different attitudes towards inflation, it was somewhat thickish reading. (He might add, he was not the only reader who expressed that thought.) But that is not why you have had no postings for a month. Not sulking, just resting.
So, let me introduce you to - well let's just call him Mr. Fred Fewster. Mr Fewster is a nice guy. He lends his friends money. But he gets a little obsessive over bargains. For instance, when he saw his brand of fancy toothbrush - regular price, $4.89, on sale for $4.29, he bought 10 of them. On second thought, he went back and bought 6 more. Got a feel for Fred?
The same week, he loaned a young friend, a struggling student, $10,000 to pay for her last year at college. He did not charge any interest. Franny was the daughter of a friend. She was effusively grateful. Got a feel for Fred?
So Fred brushed his teeth, and Fanny finished college, got married, had children, and a career. Fred used up his sixteen toothbrushes at the rate of one a year.
Only then, did something remind Franny of the debt. She paid it off at once, with appropriate apologies.
Fred himself had also forgotten the loan. But it was time to buy some new toothbrushes. This time it cost him, with 16 years of inflation averaging 3% a year, exactly $6.89 per toothbrush. That was a sale price, of course.
So for lender Fred, toothbrushes were $2.60 more expensive than the last time he bought some. At the latest price he could get only 10 for the price he had paid for 16, sixteen years previously. If Fred had been a banker, that would not have been good business. Interest foregone on $10,000 for 16 years at say 3%, and an equal percentage of inflation loss on the toothbrushes..
Fortunately, friendly Freddy was not a bank. Just a generous friend of the family.
Who liked to book his dental care well in advance.
Dad, why does Mr. Banks complain of inflation?
He doesn't want to lend out "good money" and be paid back in "cheap money".
I still don't get it
Oh, well.
good articel, thanks before it..
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