A $100 Bill (e-mail philosophy)

[wa3zrm]

Stay with this one. It is good (makes sense).

It's a slow day in the small town of Pumphandle and the streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.

A tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night. As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.

(Stay with this..... and pay attention)

The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op.
The guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner.

The hotel proprietor then places the $100 back on the counter so the traveler will not suspect anything. At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves.

No one produced anything. No one earned anything. However, the whole town now thinks that they are out of debt and there is a false atmosphere of optimism and glee.

And that, my friends, is how "Obama's government stimulus package" works!

[Snusdog]

The trick is that in the end no one has the spending potential provided by the capital (in other words, the 100 does not enter the system as buying potential and thus production stimulation)

The second trick is that it is an even playing field (everyone owes everyone the same)

The second trick is that it is a closed system........now were someone to run down to Western Union and wire the money to China......the chain breaks.......

However, it is a fun little scenario...demystified a bit if the traveler is simply the local bank......and the 100 is a loan

[whalen]

The prostitute is giving credit? Not in my town...!

[R.B. Kazenzakis]

If people are going to chime in on this, I'll bite. When many people hold each other's debt, you can get strange outcomes. Just like an individual debt call can trigger a nasty chain of bad outcomes when there is no slack left to absorb the hit (see Lehmann Brothers), an unexpected addition of funds to the same system can trigger a chain of retired debt (especially if the system is closed, as Snusdog pointed out, as there is no leakage out of the system).

In this scenario the reduction in net debt ($500 give or take, depending upon how bad my counting was) appears to yield a net increase in potential output: producers' ability to invest has increased (e.g., the pig farmer can obtain more inputs from the co-op, increasing output) and consumers' can spend more (e.g., the hooker can buy more penicillin from the local pharmacy now that she doesn't have to worry about the $100 she owed to the hotel). The net impact depends upon a lot of things (how much more the co-op will front the farmer, how much more the farmer gets out of supplies than he puts in, how much spending the whore was holding back on because of her debt to the hotel), but it isn't likely to be zero.

[Premium Parrots]

I think what we are missing here is that the tourist used funds from his social security check to begin with.

[Andy105]

I think what we are missing here is that the tourist used funds from his social security check to begin with.

Then he ordered snus, and the government stole the $100 back in taxes and duties. The economy of Pumphandle collapsed, starting the Zombie Apocalypse. F--king Obama.

[DanF]

I need to get a life.

Dan

[Thunder_Snus]

If that 100$ can go full circle then noone actually owed anyone anything in the first place. Everyone owed 100$ and everyone had 100$ in incoming payments. All the 100$ bill did was give physical capital for everyone to hand it off to each other. It's the same as running a barter system. If PP gives me 2 pigs in exchange for 3 chickens....I don't owe him 2 pigs...thats what I gave him the 3 chickens for. None of them were sitting in debt because each person had the same accounts receivable and accounts payable. They all could have defaulted and filed bankruptcy and everyone would be in the same economic situation.

In a similar situation I owe PP 5$ and I loan DanF 5$ I could give that money to DanF and say "you owe PP 5$."

Although I think anything related to an Obama idea is not worth ever giving thought to without declaring this health care crap be forgotten about........the situation in this is really nothing other than understanding logic as well as money you are owed and money you owe to others.

[Premium Parrots]

it appears I have $5 coming from thunder and $5 coming from Dan.

Better pay up soon....if you want to keep all your fingers.