|
Hutchinson, MN | to paint a simple picture of our economic situation. This is a work in progress, so feel free to correct, amend, or even condemn. This is JMHO.
Scenario 1
Unit #1 has nothing, Unit #2 has $500. Unit 1 needs or desires something so it borrows $500 from unit 2. The economy now thinks there's $1000 where there was just $500 before. Unit 1 has the money, but unit 2 has an IOU so it considers itself to have $500 also. Unit 1 spends the money on something that isn't worth $500 but that's okay everybodies doin' it, but at a later date is unable to repay the IOU. Unit 2 repo's unit 1's collateral, but because there were other unit 1's doing the same thing the collateral is only worth $50. The economy lost $950 and nobodies happy.
Scenario 2
Unit #1 has nothing, Unit #2 has $500. Unit 1 needs or desires something so it borrows $500 from unit 2. The economy now thinks there's $1000 where there was just $500 before. Unit 1 has the money, but unit 2 has an IOU so it considers itself to have $500 also. Unit 1 spends the money, but at a later date is unable to repay the IOU. The guberment in its wisdom gives unit 1 $500, he repays unit 2 and everyone is relieved, but the economy lost $500. This is how "stimulus" money disappears. Unit 2 feels lucky to get his $500 back (see scenario 1) so no more loans to unit 1.
Layer 2
Unit 2 in the mean time has created "investments" with these IOU's selling them to unit #3. Unit 2 takes the proceeds from this sale and does the same thing over and over again. This creates untold wealth in the economy. When scenario 1 happens everybodies SOL, the lawyers end up with the $50.
At this point in time the untold wealth is disappearing before our very eyes, unit 1 can't borrow to buy the things which was its job to make hence unit 1 loses its job which accelerates the vicious circle
Summary;
Real economic growth happens when unit 1 earns or creates enough to repay
Real economic growth happens when unit 1 refrains from or isn't allowed to spend the borrowed $ on over valued unneeded items
Real economic growth happens when layer 2 is replaced by savings
Debt creates the illusion of wealth.
| |
|
A feeble attempt
