A tale about money – but is it true?

“It is August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig rancher.

The pig rancher takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, says that he did not like any of them, picks up his 100 Euro note, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

And that, ladies and gentlemen, is how the United States Government is doing business today.”

Okay, this is a quiz. Is this tale really the same as how the United States Government is doing business today? What’s missing from the fable which changes the outcome?

It starts with I and ends with T and that spells Interest. In the US, people expect to make money on their money, whereas in a small community people are willing to lend to one another without expecting more in return (in fact, they are glad they get it back at all).  So as that $100 runs around the world paying off debt, there would a 5% surcharge for each debt, imagining that the interest doesn’t compound and it isn’t at the usurious level we pay to credit card companies. The $100 would need to be $105 as it passed around the community. In the case of AIG, though, the expectation of ROI – return on investment – would be much higher. As our taxpayer dollars go to AIG they skim off profit as they pay off the banks they’ve insured who skim off profit as they pay out loans and on it goes. Every exchange has a skim. Bookies and Las Vegas call it “vigorish” – the amount off the top taken for every bet. So will the $100 comes back to the taxpayer intact? I don’t think so.

What do you think?

One Comment

  1. If the world worked like this little story nobody would have a reason to work anymore – if everyone stopped working, it’d even out. The way the real world works everyone needs to work as hard as possible to even “afford” getting loans.

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