Junk Deflation Part I

We met Melvin, a tow truck driver working always working overtime, a few years ago. Years later, Melvin crossed paths with us again. However, this time it was a little different, the setting that is. He was no longer the tow driver, Melvin was in business for himself. It was not the Melvin we met all those years back. He had transformed into a smart and calculated broker between junk car sellers and the scrap yard.

The business plan was simple. It was almost like a movie plot. Bear with us Dear Reader. We will get to the deflation (boring stuff) in just a moment. Recall we said Melvin was just a tow truck driver when we first met him? Well, let us assume he was working for Mr. X. Employer, Mr X, was in the business of junk car removal.During this time, major central banks around the globe were injecting freshly printed money through various forms and different names. Stock market values doubled as a result and so did commodities and metals.Therefore, the news outlets declared victory. We were told the authorities could foresee an economic recovery and that we must not worry.—But back to our story. Melvin was able to acquire the business from his former boss. Apparently, Mr X had lost sight and an account. Due to not meeting the required volume of junk cars scrapped in the yard, Mr. X was forced to stand down from his business.

Prices of metals, such as steel, alloy, palladium, and aluminum had all risen since the 2008 crisis. Supposedly, China was the reason why prices for this resources were appreciating. The Commy state was also growing at double digit rates according to some reports. That meant the demand for metals was dependent on the Chinese economy’s demand for a massive quantity of metals. After working for Mr. X for a few years, Melvin capitalized on the downfall of his former boss. His former boss, as a broker, bought junk cars himself and from individual tow truck drivers. These drivers preferred to receive immediate profit by selling junk cars to Mr. X. You need to imagine Mr. X working seven days and buying a minimum of 20 junk cars a day.

If we may ask you Dear Reader, have you ever seen signs posted on any surface on the side of the street claiming,"We buy junk cars! Pay up to $400?” Well folks, depending on the condition of the junk car; weight, content of metal, individual tow drivers and etc., one could be paid up to $400. The tow drivers who get your junk are forced to make a decision on how to profit off of it. All they need to do is take your junk to Mr. X. Since, Mr. X is a volume seller to the scrap yard, he is happy to pay an extra $150 for each junk car brought to him. 

For example, say you bought a junk car from your neighbor (assuming you are intelligent and know the soaring prices for metals). You offer your neighbor $300. Your neighbor is delighted because he has been relieved of his junk and it was removed from cluttering his driveway. Yet, you would just need to contact Mr. X to receive your payment of $450. You congratulate yourself since you just made a profit of $150. Then, you try to convince yourself that if you can buy just ten junk cars, you could easily make $1500 a day. 

That was then and this is now. Melvin is the new Mr. X. He has been successfully running the business for a couple of years now. After connecting with him recently, the question “How is business?” was necessary. That simple question led us to further investigate the state of the global economy.

Stay tuned,

Eskinder Haile