This tale begins in the month of July, in a small town. The weather is pleasant but with averaging one visitor a month the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Out of the blue, a wealthy tourist arrives into town and makes his way to the only hotel which also has a bar and restaurant and wants to be shown a room. He put $100 bill on the counter and asks if he could have a meal before he inspects the rooms. Seeing the $100 bill, the owner runs off and uses it to pay off his bill at butcher supply.
The produce supplier and meat packaging supply guy takes the $100 bill and runs off to pay off his debt to the rancher. The rancher runs out with the $100 bill to pay for feed costs. The feed and grain merchant runs out and pays his bill for fuel costs.
The fuel merchant owns a debt to the town prostitute who, because times were hard, offered her services on credit. With the $100 in hand, she runs over to the hotel and give the owner the $100 bill to pay down her bill for rooms she had to rent for past clients.
Now that the $100 has returned to the hotel owner he lays the $100 bill back down on the counter. The stranger now filled with a delicious meal pays for it with pocket change and decides not to rent a room and takes the $100 back and leaves town.
The moral of the story is that everyone in town was in debt, no one earned any money; they merely paid off debt and everyone feels a lighter burden. No wealth was created. This is analogous to the U.S. government shifting liabilities from one balance sheet to another.
Now the wealthy tourist was impressed by his meal and had nice things to say about the town and it became a news story. Soon after, 8 new tourists make their way to the town hotel. The owner overcome by the bonanza of new customers wants to raise his room charges and menu prices. The butcher, rancher and feed and fuel suppliers are in the throes of raising their prices. And the prostitute needed to raise her prices in order to cover the increased room rates.
The moral of the story is that as long as everyone is proactive paying off debts, money circulates. Bailouts haven't done anything other than pay off some liabilities transferring them from one balance sheet to another. However, when real positive news emerges and "green shoots" optimism takes hold, floods of new purchases will surge and off we go to the races. Will the dollar oversupply be too much? In order to be ahead of the crowd, get your Wall Street Journal subscription today. - 23309
Out of the blue, a wealthy tourist arrives into town and makes his way to the only hotel which also has a bar and restaurant and wants to be shown a room. He put $100 bill on the counter and asks if he could have a meal before he inspects the rooms. Seeing the $100 bill, the owner runs off and uses it to pay off his bill at butcher supply.
The produce supplier and meat packaging supply guy takes the $100 bill and runs off to pay off his debt to the rancher. The rancher runs out with the $100 bill to pay for feed costs. The feed and grain merchant runs out and pays his bill for fuel costs.
The fuel merchant owns a debt to the town prostitute who, because times were hard, offered her services on credit. With the $100 in hand, she runs over to the hotel and give the owner the $100 bill to pay down her bill for rooms she had to rent for past clients.
Now that the $100 has returned to the hotel owner he lays the $100 bill back down on the counter. The stranger now filled with a delicious meal pays for it with pocket change and decides not to rent a room and takes the $100 back and leaves town.
The moral of the story is that everyone in town was in debt, no one earned any money; they merely paid off debt and everyone feels a lighter burden. No wealth was created. This is analogous to the U.S. government shifting liabilities from one balance sheet to another.
Now the wealthy tourist was impressed by his meal and had nice things to say about the town and it became a news story. Soon after, 8 new tourists make their way to the town hotel. The owner overcome by the bonanza of new customers wants to raise his room charges and menu prices. The butcher, rancher and feed and fuel suppliers are in the throes of raising their prices. And the prostitute needed to raise her prices in order to cover the increased room rates.
The moral of the story is that as long as everyone is proactive paying off debts, money circulates. Bailouts haven't done anything other than pay off some liabilities transferring them from one balance sheet to another. However, when real positive news emerges and "green shoots" optimism takes hold, floods of new purchases will surge and off we go to the races. Will the dollar oversupply be too much? In order to be ahead of the crowd, get your Wall Street Journal subscription today. - 23309
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