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Holy-Moly! They’re Pumping Up a Shoe Bubble

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Imagine if you saw me walking down the street sporting a new pair of Adidas Yeezy Boost shoes designed by Kanye West. With a $750 to $2,500 price tag, you’d probably assume I came into some extra cash, right?

But maybe not.

I might have financed my new kicks.

Yes, ladies and gentlemen, some retailers are offering the option to finance high-end shoes. That’s great for the cash-strapped teen who wants to make sure he’s on the cutting edge of the fashion scene, but could it be inflating the next big bubble?

Newsweek recently reported this new shoe financing trend.

Just over a week ago, the sneaker community discovered an unusual option on high-end sneaker shop Flight Club’s website: The online retailer was offering financing in collaboration with Affirm, a financial services company. Just underneath ‘Add to Cart’ was the option to finance a pair of $2,250 Yeezy kicks for “as low as $197.69 per month.” According to Sole Collector, a sneakerhead insider news source, Affirm offered 3-, 6- and 12-month payment options up to $10,000. The kicker (pun intended) was the interest rate, which started at 10% but went up as high as 30.”

Flight Club offers its financing for shoes through a company called Affirm. With the click of a button, a teenager can pay as little as $26.37 per month  for a $300 pair of Air Jordans – with a 10% interest rate.

Wow. Easy money for shoes. What could go wrong.

Affirm describes its mission thus: “pay over time for your most important purchases.”

Like sneakers.

So, could we be looking at the next big bubble? And what happens when the tennis shoe balloon pops?

It’s easy to look at this as a mildly amusing sideshow, but it does illustrate some important economic realities. Easy credit does indeed inflate asset bubbles. We need only think back to 2008 to see this truth vividly demonstrated. Cheap debt available in the mid-2000s incentivized Americans to pile into real estate. The boom was great for awhile – until it wasn’t. And having not learned the lesson, the Fed has once again managed to blow up a giant bubble – this time in the stock market.

George Pickering put the potential shoe bubble in this very context in an article published on the Mises Wire.

Amusing as this all may be, it nevertheless hints at a broader economic phenomenon which should be of concern not only to sneakers-wearing readers. Several online commenters on the article in question came considerably closer to identifying this problem than the author of the article himself, when they expressed concern that such unusually abundant cheap credit might lead to purchases being made by people who will not ultimately be able to pay the complete cost. The increasing prevalence of this problem throughout the economy at present is all the more concerning given the clear parallels it draws to the state of the American economy during the previous extended period of cheap and easy credit, in the run-up to the 2007–8 financial crisis.”

A bursting shoe bubble won’t likely wreck the American economy, but the same philosophy driving easy financing for shoes is at work in other areas of the economy including the automobile market and in the world of student loans. When those bubbles pop, we’re looking at much more significant consequences. Pickering offers us a poignant warning.

While expansionist monetary policy can create an illusion of great prosperity for a time — it can furnish with Air Jordans even those who would not otherwise have them — the extent of society’s saved resources, and the level of prosperity which can sustainably be afforded by them, are underlying economic realities which must eventually cause such bubbles to burst. For as long as central banks continue to maintain artificially low interest rates, and thereby deceive businesses and consumers into pursuing fundamentally unsustainable courses, we all stand to lose considerably more than our Jordans by their folly.”

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