WeAreTheKey

I delete 99% of email forwards, but this is one that I have to share.

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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.

An interesting little parable there... and a rather interesting concept. I'd like to know more about how exactly that applies to how the US is doing business though. I'm not sure exactly how the story applies to the real economy or the actions we're taking these days.....

If everyone in the nation was truly linked in a chain of debt like they are in the story, and they were all in debt the same amount, then they could theoretically do something exactly like they did.... in fact, they wouldn't even need the $100, they could just get together, acknowledge the circle of equal debt and simply decide to cancel it all out at once. No one gets "paid back", but they in turn won't need to pay back anyone they owe money to, it all just cancels itself out.

But since our world isn't elegantly linked in a chained circle of equal debt, no such "cancelling out" is really feasible....so again I'm curious how the analogy applies to the modern economy according to the author...?

An interesting thought experiment regardless!

Obviously, the equal debt is just an easy and fun way to tell the tale, and is actually inconsequential to the point. I think the main point that the storyteller is attempting is that the government is simply handing out cash to certain businesses in order to pay off debt, but without any labor performed, goods created, or services rendered, and in the end the government takes the money back. It lays out the idea that the entire government practice simply creates a "false economy" and with it a false sense of optimism.

It's an email forward and clearly not exactly "deep" in true economic theory, but it does make a good point with the analogy.

Side Note:
Cancellation of debt between business partners is, in fact, a common practice.

???
Really? I wasn't aware that they were just handing out cash to certain businesses?! Like who? Unless of course you count GM or.......all those godforsaken banks!
And then they... take the money back?! I'm confused. If a business uses the money to pay off its debts, then what money would be left for the gov't to 'take back'?

I can freely admit I am no economic scholar, so if I'm just missing something here, feel free to let me know

In the example, debts were being 'cancelled out' because there was a relative balance to the debt scheme, but simply handing out cash from a 3rd party (gov't) to actually pay off debt seems to me to be a whole different issue. In that sense, it is really everyone (aka gov't) collectively shouldering the burden to help businesses keep their balance sheets afloat. Which, in an 'emergency' I can see valid arguments for and against.

Now let's say the economy is a fly, and the government comes along and pulls off it's wings to save money. Will the fly die, or just walk everywhere for the rest of it's life??

Wait - that makes no sense.
Hahaha.... metaphors are a slippery thing. They make good points, but sometimes it's hard to tell just what points are being made