Simple Economics

neil

Legendary member
5,167 747
Alternatively - "Circulation of Money"

Once upon a time............

It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.

On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.

The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money and leaves town.

No one produced anything. No one earned anything. However the whole village is now out of debt and looking to the future with optimism.

And that, Ladies and Gentlemen, is how a bailout package should works! "

The above ONLY works if all the parties absolve the others of paying any interest for their credit.

Could it work in practice?

(Source -http://moneyforums.citywire.co.uk/yaf_postst405_A-flawed-Greek-tragedy-joke---but-why.aspx )
 
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Jack o'Clubs

Experienced member
1,554 342
Actually, it's not a bailout, it's quantitative easing ;)

Ultimately, apart from happier eejits, nothing has changed. At the start everyone had a $100 debt (liability). But everyone also had $100 owed to them (asset). So at an individual level everyone's assets matche their liabilities and their net wealth from these transactions is zero. All the visitor has done is supplied (interest free) liquidity. That's allowed the assets and liabilities to be matched and cancelled, but nothing's changed and no value has been created. If anyone wants to buy anything else they'll need to do it on credit again, and the cycle will just repeat.

Alternatively the town could just have a bank...
 

Pat494

Legendary member
14,564 1,549
KALIMARA
Looks like only 4 possible solutions left to the Greeks.
1. Any further loans are asset backed in property or land
2. The Germans invade and take what they can grab.
3. Greece joins ISL and put up 2 fingers to the financiers
4. Invite the military to step in again.

1. OK so number 1 hasn't been used yet at a national level, but I don't see why not. It was valid from the beginning of time for personal/corporate finances, tough but good until the " pie-in-the-sky " lot of softies took over economics as their fiefdom and made a complete mess of it.
2. They tried it on 80 years ago and came unstuck
3. Greeks would have to admit Democracy is just not viable in the violent 3rd world and join ISL. But heads would roll.
4. Tried that and hated it.

:eek:
 
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