What is that little piece of paper worth?

Discussion in 'Economics' started by peilthetraveler, Feb 5, 2010.

  1. "It's a slow day in some little town.

    The sun is hot....the streets are deserted.

    Times are tough, everybody is in debt, and everybody lives on credit.

    On this particular day a rich tourist from back west is driving thru town.

    He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.

    As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher.

    The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

    The pig farmer takes the $100 and heads off to pay his bill at the feed store.

    The guy at the Farmer's Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit.

    She, in a flash, rushes to the motel and pays off her room bill with the motel owner.

    The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything.

    At that moment the the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves.

    NOW, no one produced anything...and no one earned anything...however the whole town is out of debt and is looking to the future with much optimism.

    And that, ladies and gentlemen is precisely how the U.S. and Canadian Governments are conducting business today!

    Remember it is only paper that represents value. Do you ever really see the cash you are paid for your labour? Hold it in your hands? Or is it just numbers on pieces of paper or whizzing across a computer screen? "

    I saw this on a message board today and thought it was pretty funny.
  2. nameless


    Didn't everybody in the little town also hold $100 credit to others at the same time. They weren't net in debt before the rich man came, weren't they?
  3. m22au


    I agree with nameless - it appears that the agents in the story each had receivables of $100 and debt of $100.
  4. 1. Yes, but if you can't collect on your recievables, you view them as worth $0 but your debt still intact (or -$100).

    2. Why don't they just 'net out'? It only takes one person to say, "No" and collapse the process.

    3. The example works well in a closed system - but its more likely to note that the feed guy owes $100 to the feed distributor outside the town who actually requires some money to settle his debt. See #2.

    4. The key is EARNINGS. If people have earnings, they are ok with taking on debt. No earnings or prospect thereof, no willingness to assume debt and risk, particularly if there is no way to 'reset' (old BK statutes, since replaced)
  5. The replies to this post is a great gauge of the people who frequent ET.

    It was just supposed to be a funny read and 3 people turn it into an economic debate full of negativity.
  6. The point is that you need accepted liquidity to make things move. The butcher obviously did not need $100 worth of stay at a hotel near his home so the debt is not transferred. The reason it is not net zero when debt is involved is because individuals can default on the debt if they don't receive a bailout.
  7. pitz


    When people stop working inside this so-called 'virtuous circle', and creating useful output, is when it all comes crashing down.

    The hotel owner that is just shuffling money around like this, has no ability to renovate his hotel. The prostitute can't get a boob-job or whatever cosmetic surgery she needs to keep her clientele. The farmer's truck wears out. Etc.

    And that's exactly what's happened in America today. The economy and its infrastructure has been most thoroughly capital-stripped. Whatever regenerative capacity existed, has been usurped by the banking parasites.

    It shows up in a declining ability to charge top dollar. What happens when the worn-out hotel room can only be sold for $60/night instead of $100/night. The hotel owner becomes short on his debt. Who then shorts everyone else up and down the chain, and just makes the situation even worse.