Economy A Light Look at Economics

[Antigone]

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 €100.00 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs, thinking he could stay the night.

The owner gives him the 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 to the supplier of feed and fuel.

The man at the Farmers' C0-0p takes the €100 note and pays his drinks account at the local taverna.

The tavern owner slips the money 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 prostitute then rushes to the hotel owner and pays off her room bill with the €100 note.

The hotel proprietor then places the €100 note back on the counter. At that moment the traveller comes back down the stairs, picks up the €100 note, states that the rooms are unsatisfactory, 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 a lot more optimism.

And that is how bailout packages work.......

 

[edao]

Although the story doesn't take interest into account, by the time the money got back to the German it would be €200 of debt.:grin:

I think Germany would quite like to see Italy and Spain bailed out in IMF/EU packages so then they can dictate terms 100%. They seem totally unprepared to put any German money behind these countries to support them and would rather see them got through the mill to teach them a lesson.

Germany are concentrating on long term reform rather than putting out the fire engulfing them. Long term reform is a bit pointless if the house collapses in the short term. Also as has been pointed out stricter fiscal rules in the inception of the Euro would have made little difference, Spain was a model economy with excellence finances and growth, but it was the implosion of the economy when hit with recession that has put them in a poor position, not excessive government spending.

The bail out fund (EFSF) was meant to be created by getting international investors involved. What they seem to forget is Europe is like the rich man in the top hat going round working class neighbourhood asking for money to invest in his future success and prosperity with a promise of paying their loan back with interest. It is any wonder why Brasil, China and America have offered nothing. All the money needed to tide this debt crisis over until healthy grow returns is held in Europe, its just a problem of wealth distribution.

 

[Yetos]

My well done, and well said,

you have just prove the real face of the problem,

the Credit problem that is created by loans of the Banks,

to expand more I will try to say the example of Harry and the donkeys,

A donkey in a greek island cost 50 E as a normal price,

Harry is a business man, that has a cousin banker, and a brother as his right hand,
Harry thought of a good trick to earn money,
he borrows from his cousin a few thousands Euros, and goes to the island,
he announce to the people that he will buy, donkeys at a prize of 100 E,
the locals thought that is a good prize and start selling their donkeys,
in 2 months time Harry goes back and ask again the donkeys for 200 E,
so the locals say it is time to earn money from a crazy guy, and start to sell,
after 2 months again harry goes back and ask donkeys for 400 Euros, now all donkeys belong to Harry,
after 2 months Harry goes back to buy donkeys with 600 E each, but no donkey left,
the same time his brother wents to island and starts selling the donkeys for 500 to the locals,
the locals thought that they will earn 100 dollars and buy the donkeys at 500 E each,
remember most of them were 1rst time sold 100 so many put an extra 400 E by their own money,
But Harry never bought the donkeys with 600, he just sell them for 500 to the owners, and then said 'NO MONEY GLOBAL CRISIS' I can not afford to buy and left

Now Harry and his brother are in Carribean, under the sun in a forgoten by time and civilization island,
the banker is happy cause the locals in order to buy the donkey took loans, and now the half island belongs to him !!!!

the major of the town who did not buy donkeys, and took dirty money from Harry to allow him sell and buy without taxes, is now happy also cause he can be elected cause he also gave money as help to the locals and voters, so the other half of the island is now his own

that is a way some guys with no money can be rich, call it whatever you like,
but Harry manage to enslave a whole island, with 0 money, only using the money of the locals, and a small extra help by his cousin the banker, to whom the locals trusted their money, and from whom the locals took loans,

 

[Antigone]

I can't take credit (pun intended!) for the story, it was sent to me by a friend and I have no idea who originally wrote it.

But I thought it was a fun illustration, and as Edao has pointed out it doesn't take interest into account.

 

[LeBrok]

Well, it would work if everybody had borrowed same amount of money for same period of time. For example if everyone borrowed 90 Euro and interest accumulated to 10 Euro, then 100 Euro would do the trick paying all back. It is a hypothetical scenario and there is a work around to make it work too. Unfortunately life is way more complicated than that, and in my opinion it is complicated beyond abilities and smarts of bureaucrats and politicians to figure out sense out of it and run it correctly, or make bureaucrats see farther than own pockets. I'm not saying that bureaucrats in banks are much better, but at least they rely on system to correct their mistakes.
In my opinion the best way is to find a system, good self correcting and balancing system, instead of relying on human judgment to run it. That's the reason socialistic economies never worked. The best systems are natural ones (for lack of better expression). What I mean is that these systems follow some laws, like physics, mathematics, human nature, statistics, evolution. They are also open to changes and adaptations.
Capitalism, started naturally 500 years ago and evolved into what we call now capitalistic, free market economy.
Financial system started with invention of money, and is so needed, vital, and adaptable that it works till today.
Communism was invented by philosophers and implemented by force. Very unnatural and therefore never successfully run. It stopped in socialistic form and failed rather quickly. It would fail even quicker if not sustained by force and terror.

 

[Yetos]

this a bank
this is modern capitalism after 1927

this a model made by crazy mathematics and philosophers tha does not work and soon will create a new boom time like early 20 century

search the case of Lehman brothers

soon i will write how crisis help greek people and not EU

same in italy,


le brok plz man understand

THE CAPITALISM BEFORE 500 YEARS IS NOT THE SAME

before 500 gold silver etc were values stable, cause they were metals

modern capitalism is bubble cause dollar euro or what ever is not stable, it is an idea

consider that if 100 t of gold is all the money then we knew that this is the amount of total money
but in case of $ or E is chaos
cause modern capitalism mints but also creates money
look at video