The answer to the debt crisis…

[TF_geepsterParticipant]

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 a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some 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 at the supplier of feed and fuel. The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along 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 hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, 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, Ladies and Gentlemen, is how the bailout package works.

[TF_toplights]

And the Hotel owner ends up loosing 100 euros.
Wheres the euro sign on my keyboard?

[TF_JohnH]

The hotel owner lost nothing. The scenario is they all owed 100 euro but were owed 100 euro from someone else. Most businesses will borrow against debt to free up cash to trade. Very important though that debts are paid as if only one fails no one can pay each other. That was why Leamans collapse was so devastating, the banks thought all the loans were good which turned out to be untrue.
Also, if you are considered too risky to lend to rates tend to go up as the Greeks have found. I know our government is unpopular but the rate we can borrow at support the fact that at least we have a credible plan international money markets believe in.

[TF_toplights]

The woman paid her debt with the Germans money, which the hotel owner gave him back,the hotel owner has not been paid.

[TF_Smed]

maybe he shared the room with the hooker?

[TF_Gary]

Euro key is hold down ‘Alt Gr’ and press ‘4’

toplights, the hotel owner was paid €100, but owed €100 to the butcher, which is why he ended up with nothing. He received the €100 owed by the prostitute and settled the €100 debt with the butcher. The fact that he effectively borrowed the €100 from the German tourist and it went on a round trip around the micro-economy is irrelevant.

Geeps’s intital analogy is not strictly true (vis. “no one has produced anything; no one has earned anything”). The only confusion is that consideration was not settled at the point when the goods changed hands or the services were rendered. This is called credit and is a standard feature of commerce.

The problem with the Greek debt crisis is that they owe lots of money but are not owed anything themselves. This is different to some of the other troubled sovereigns. Refer to my previous post regarding “the asset side” of the balance sheet. Think what would have happened in Geeps’s analogy if the butcher was not owed €100 by the hotelier because the hotelier had already settled his bill, but the butcher had blown the cash on excessive public sector pensions, rather than paying his feed and fuel supplier. This is where Greece is at.

[TF_Dodge]

And to think some have made an absolute fortune and are still doing so …….

No wonder so many are so _____d off because of a few ! Bankers eh ? 😡 😡 😡

[TF_stevied]

simples really.
imagine a small town with a little market and small shops.
suddenly a massive retail outlet opens up on the edge of town.
same customers, same disposable income.
therefore a number of retailers will lose trade. workers will be out of a job. owners will be out of money. then everyone will be skint.

this is what has happened to the world economy with china, and to a lesser extent, india joining the open market.

simple, but us thikos can only do simples.

[TF_Gary]

stevied, take your analogy to the next level…

The massive retail outlet opens on the outskirts of town and a number of local people who previously ran little shops in the town go and work for the retailer. The large retailer is able to purchase goods for a lower cost than the small shops in the town, meaning they can sell goods at a lower price. As such, the same customers can buy the same groceries with the same disposable income, but they will have some money left because the large retailer is cheaper. People can then use the surplus income to go for a beer, or take their family for a meal out or buy other services. So the small shops in the town turn into bars, restaurants, hairdressers, etc, all benefiting from the increase in disposable income arising from the large retailer’s purchasing efficiencies…

[TF_AnthonywatersParticipant]

@Gary wrote:

stevied, take your analogy to the next level…

The massive retail outlet opens on the outskirts of town and a number of local people who previously ran little shops in the town go and work for the retailer. The large retailer is able to purchase goods for a lower cost than the small shops in the town, meaning they can sell goods at a lower price. As such, the same customers can buy the same groceries with the same disposable income, but they will have some money left because the large retailer is cheaper. People can then use the surplus income to go for a beer, or take their family for a meal out or buy other services. So the small shops in the town turn into bars, restaurants, hairdressers, etc, all benefiting from the increase in disposable income arising from the large retailer’s purchasing efficiencies…

Gary I couldnt agree more, I dread to think how bad it would be if we had to source local produce from local shops, I know on the odd occasion when I use local farm shops / delicatessens, as nice and as wholesome they appear to be they offer no value for money in my opinion, at least large retailers pass on thier discounts to the consumers !

[Anonymous]

70 million people in the UK, government gives everyone a million pounds and tells them they must spend it all on UK goods.
Result everyone out of debt and happy, UK economy booming, for the cost of 1 years overseas aid.
Can someone tell me why this can’t be done? :confused:

[TF_bagging machineParticipant]

Your figures are wrong 70,000,000 people all given £1,000,000 each is 70,000,000,000,000 thats more than we give to overseas aid?
I think you mean give everyone £1 (wouldn’t buy half a pint of maggots)

[TF_caster robParticipant]

@TerryC wrote:

70 million people in the UK, government gives everyone a million pounds and tells them they must spend it all on UK goods.
Result everyone out of debt and happy, UK economy booming, for the cost of 1 years overseas aid.
Can someone tell me why this can’t be done? :confused:

1. That’s way more than our overseas aid budget.

2. Hardly anyone would bother going to work if they had a million quid to spend. Then our commercial sector would collapse and we’d have no businesses at all, unless they employed foreign labour, and everyone can see where that’s got us!

[Author]

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