Ruminating...

[MSTRS:Me]

...on the recession. This is so close to the truth that I didn't think it belonged in J+H.

A simple lesson in economics

In a small town on the South Coast of France, holiday season is in full swing, but it is raining so there is not too much business happening.
Everyone is heavily in debt.
Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.
The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes €100.
The butcher takes the money and races to his supplier to pay his debt.
The wholesaler rushes to the farmer to pay €100 for pigs he purchased some time ago.
The farmer triumphantly gives the €100 note to a local prostitute who gave him her services on credit.
The prostitute goes quickly to the hotel, as she was owing the hotel for her hourly room use to entertain clients.
At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his €100 back and departs.
There was no profit or income. But everyone no longer has any debt and the small townspeople look optimistically towards their future.

Could this be the solution to the Global Financial Crisis ?

[mujambee]

That's great. But anyhow, that's how economy works, isn't it.

[Mully]

D'oh. One day I'll learn to read.

If every country is in debt, where did all the money go?

[Finn]

If every country is in debt, where did all the money go?

That's the problem, it wasn't "money". It was speculative or bullshit for a better word.

[Hitcher]

If every country is in debt, where did all the money go?

Grasshopper, the real question isn't where money goes, it's where it comes from.

[Mully]

That's the problem, it wasn't "money". It was speculative or bullshit for a better word.

Good point.

Have you read "Grip of Death"? I forget the author. It's got a lot about banks creating virtual "money" and that only 3% (I think) of all money is actually cash - the rest just exists on paper.

Apparently "mortgage" translates to "Grip of Death"

[MSTRS:Me]

That's great. But anyhow, that's how economy works, isn't it.

Essentially. A finite amount of money that keeps changing hands. Even if it's just on paper. Slow or stop the flow, and the whole cardhouse is shown for what it is...

[Hitcher]

Essentially. A finite amount of money that keeps changing hands.

That would work if Governments didn't keep printing the stuff.

[madbikeboy]

Good analogy, the monetary system is kind of more complex.

Banks required a certain percentage to be held, and they have a metric that allows them to lend more than the cash on hand.

The amount of money in the economy is fixed. There is no more or no less money in the economy than there was a few years ago. What has changed is actually psychology. People have stopped spending money, (either through lack of access to ready credit, or because they elect to not spend). the lack of money interchanging is what causes a recession/depression.

Before you argue that there is more or less money in the world - unless someone is printing money, then it's fixed. The banking systems around the world treat this as a given.

When countries print money, hyer-inflation is the result. Post war Germany. Zimbabwae under Robert Mugabe.

House prices are a good example - they fluctuate up and down, but it's only when the house is sold, or borrowed against, that the price is relevant. And even then, if you buy and sell in the same market, its largely irrelevant...

There's lots of information about the sub-prime mess, but essentially bad debt risk was overvalued, borrowed against, and of course, it went pear shaped. Irresponsible bankers are the cause of all this misery. Along with a media that hypes anything and everything.

[Pussy]

I've got it sussed... MSTRS, you lend me 50 bucks, but only give me 25.
That way, I owe you 25, and you owe me 25, and we're even!

[madbikeboy]

On the subject of printing money - more US dollars are held outside the US, than are used in the US.

As notes wear out, they are destroyed, and new ones that directly replace that value are issued.

There have been reports of countries printing money - but that makes no logical sense.

[rainman]

Could this be the solution to the Global Financial Crisis ?

Only if you leave out the interest charged on all of those loans... don't think the bankstards would go for that solution...

A finite amount of money that keeps changing hands.

Eh? Finite but changing over time, I assume you mean.

The amount of money in the economy is fixed....Before you argue that there is more or less money in the world - unless someone is printing money, then it's fixed. The banking systems around the world treat this as a given.

Bollocks. Heard of inflation?

As notes wear out, they are destroyed, and new ones that directly replace that value are issued.

There have been reports of countries printing money - but that makes no logical sense.

"Printing money" doesn't mean what you think it does. Money ain't just notes and coins, the volume of which is irrelevant.

I suggest you go watch the Chris Martenson crash course: (http://www.chrismartenson.com). Particularly Ch 7, but the whole thing is worthwhile.

[Brian d marge]

Grasshopper, the real question isn't where money goes, it's where it comes from.

it trickles down from above ,,,,,

Stephen

[mujambee]

House prices are a good example - they fluctuate up and down, but it's only when the house is sold, or borrowed against, that the price is relevant. And even then, if you buy and sell in the same market, its largely irrelevant...

Not irrelevant at all.

Say house prices stay at a level. I wan't to upgrade from my 500K$ valued house to a 1M$. Difference is 500K$.

Three years later, prices have gone up 20%. Now my house is valued at 600K$ and the target one at 1200K$. Difference is 600K$.

[P38]

Hahahaha Serves the hotel owner bloody right

Thats what ya when ya get rent ya rooms to a prostitute by the hour!


No wounder the businessman found the room unsatisfactory.

It was empty.

The bloody girl was off running errands when quite clearly there was work to be done and profits to be made.

Nice explaination though MSTRS