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BAILING OUT THE IRISH - SIMPLE
It is a slow day in a damp little Irish town.
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 town, 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 pub.
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 town 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.
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Thanks for sending this Bryan. This is an interesting story for a few reasons.
First, it shows the insanity of the situation we find ourselves in. This is reflected in the fact that the people in this story have lost their ability to issue their own money. When this happens and money becomes scarce debt is the result.
Second, if contains the simple solution to the problem. The story seems (and is) hilarious because money enters the town via a tourist and while this tourist is occupied the town folk circulate his money and all their debts magically disappear.
Third, the story ends by stating that no one produced anything and no one earned anything. On the surface this seems true but the fact is that everybody produced something and everybody earned something.
It’s true that at the time the €100 note circulated through town no one produced anything and no one earned anything. That’s because the producing and earning had already occurred.
The butcher did produce meat for the hotelier and by doing so earned €100.
The farmer did produce a pig and did earn €100.
The supplier did produce the feed and fuel and did earn €100.
The pub owner did produce the drinks and did earn €100.
The prostitute did supply services and she did earn €100.
The hotelier did supply a room and he did earn €100.
The simple solution though, is not to give the hotelier (or any of the others) money to pay their debts but to return to every one of them the ability to issue their own promise to pay (their own money) so that they can pay for the goods and services at the time of purchase.
I have written on promises to pay. These articles can be read by following these links.
If, at the time the hotelier purchased the meat from the butcher he paid for it with his own promise to pay the meat would be paid in full. That promise to pay could then circulate through the town in the same fashion as the tourist’s €100 note and more importantly with the same results.
With everyone having the ability to issue promises to pay no one would have to wait for the hotelier’s promise to pay or the tourist’s money. Each could pay in full whatever they purchased at the time the sale occurred.
To explain the details of how all this (promises to pay) works would fill a chapter or two of a book. But it really is a simple solution as well as a necessary one to the global debt crisis of today.
Thanks again for sending it. It’s given me another post for my blog and may make the understanding our monetary problem easier to digest.
One final point Bryan, The final sentence in this story states that this is how the bailout works. That's not quite true. Like the tourist's money, bailout money must also leave the town as it is paid back to the bank. But it would leave behind an additional debt -- that of the interest charged.
David
David
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Comments to the author are welcomed. david.ealing@gmail.com
