The Government in action perhaps, or the velocity of money equation.

I read this on a trading blog  which I thought was really amusing. Some parts seem wrong but it does get the essence of what’s going on, particularly in the bailout and other government actions.

It is a slow day in the East Texas town of Madisonville. It is raining, and the little town looks totally deserted. Times are tough, everybody is in debt and everybody lives on credit. On this particular day a rich tourist from the East is driving through town. He enters the only hotel in the sleepy town and lays a hundred dollar bill on the desk stating he wants to inspect the rooms upstairs in order to pick one to spend the night. As soon as the man walks up the stairs, the hotel proprietor takes the hundred-dollar bill and runs next door to pay his debt to the butcher.

The butcher takes the $100 and runs down the street to pay his debt to the pig farmer. The pig farmer then takes the $100 and heads off to pay his debt to the supplier of feed and fuel.

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 lately had to offer her “services” on credit.The hooker runs to the hotel and pays off her debt with the $100 to the hotel proprietor, paying for the rooms that she had rented when she brought clients to that establishment.

The hotel proprietor then lays the $100 bill back on the counter so the rich traveler will not suspect anything.

At that moment the traveler from the East walks back down the stairs, after inspecting the rooms. He picks up the $100 bill and states that the rooms are not satisfactory…… Pockets the money and walks out the door and leaves town.

No one earned anything. However the whole town is now out of debt, and looks to the future with a lot of optimism.

That, ladies and gentlemen, is how the United States Government is conducting business today. If that doesn’t scare the hell out of you, then I don’t know what will.

9 thoughts on “The Government in action perhaps, or the velocity of money equation.

  1. If nothing else it is an amusing story. Clearly an honourable town (except perhaps for the dodgy inn keeper) given everybodies willingness to extend credit to others and their determination to repay their own debts at the first opportunity. Does it matter if the tourist is peddling counterfeit notes?

  2. Very amusing and it does get you thinking. I don’t know if it really explains much though. In the story everyone has extended credit without interest and the original credit provider, the tourist, didn’t even agree (or know) to his money being used as credit.

    Or is this is analogy?? The government is extended credit without tax payers agreeing to it??

  3. But every one in the town that had borrowed $100 from someone else also had $100 owed to them —> net position = O. The US gov just owes money without anyone owing money to them (unless you count taxpayers as the governments debtors).

  4. Sounds like something kindergarten simplistic Paul Krugman or any other idiotic ‘economist’ would push.

    Troy @ comment 3 obviously has more than 2 brain cells to rub together and correctly states the individual net position of each economic actor here.

  5. Damian:

    That’s correct, however how is that different from the economy at large. Borrowing and lending equal? Odd no 🙂

  6. “Damian:

    That’s correct, however how is that different from the economy at large. Borrowing and lending equal? Odd no”

    Obviously if you theoretically peel away the monetary world, if you get to the real issue of inter chronological trading of real stuff for stuff, this is 100% correct.

    The monetary world is constantly being forced into disharmony from the ‘stuff for stuff’ world way way more than otherwise would be possible in markets clearing freely (ie. no CB or state intervention, legally sound money and contract).

    Unfortunately a mass re-accounting and re-evaluation of nominal price levels now needs to take place in order to get closer to the ‘stuff for stuff’ world.

  7. EDIT:

    Unfortunately a mass re-accounting and re-evaluation of nominal price levels now needs to take place in order to get a closer mental subjective approximation of the ’stuff for stuff’ world.

  8. First, you need someone outside to bring money in, and the prostitute should probably also be billed for laundry costs, as it would have been her ‘work’ practices that rendered the rooms unsuitable. And how come no-one thought to invest the cash in an account? At the rate this town moves, some interest would have accrued from somewhere, and brought more paper money into the local economy.
    Why don’t people just leave for better places?

  9. Pingback: What goes around, comes around « King Valley Online

Comments are closed.