Every country is borrowing money....who from???

[GraemeCook]

Maybe this is how it works!!

Stimulus package

It is a slow day in the small Saskatchewan town of Pumphandle, and 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 hotel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night......

The hotel proprietor then places the $100 back on the counter so the traveler will not suspect anything.
......

And that, ladies and gentlemen, is how a Stimulus package works.

No, Dareen.

You omitted to include what the economists call the multiplier effect in your analysis. Alternatively, the hotelier was the bane of all economists, an inept businessman who failed to act avariciously in his own best interests.

Consider the following stage 2 to your scenario:

After the hotelier receives the $100 note from the young business-lady he immediately goes down to the butchers and pays for $100 credit.
The butcher takes the $100 and arranges $100 credit with the pig farmer.
The pig farmer takes the $100 and arranges $100 credit with the co-op manager.
The Co-op manager takes the $100 note and arranges $100 credit with the young business lady.
She then takes the $100 and arranges $100 credit with the hotel.

The $100 note is then sitting on the counter waiting for the traveller ...

Stage 2 has created wealth - every person has a $100 asset in the credit owed to him. This is additional to Stage 1 which paid off a $100 owed by every person.

That is how a stimulus is supposed to work !

[Lappa]

your Stage 2 sounds very similar to a Ponzi scheme. In theory, if the business man stayed up inspecting for long enough, all the participants could have $1000000 credit!

[GraemeCook]

your Stage 2 sounds very similar to a Ponzi scheme.

Absolutely wrong. It has nothing to do with a Ponzi scheme.

In theory, if the business man stayed up inspecting for long enough, all the participants could have $1,000,000 credit!

True. And it would be very inflationary in the little Saskatchewan town of Pumphandle.

The business lady is probably closest to her clients, fully understands the concepts of supply and demand and market forces, and could respond quickest. Her next liaison with the co-op manager might be:

Either: I am a millionaire now; do you really think I will do it for you for $100?

Or: Honey, I have gone up market offering to more exclusive service only accepting millionaire clients. Would you like to see my new fees schedule?

[Dareen]

Hi GraemeC and Lappa,
I thought my original post was a simple solution. Now you financial geniuses have me totally bamboozled.
Cheers, Fred

[Lappa]

Semantics really as both involve using funds that aren’t theirs to pay someone else, besides that the business man came done after round one. So it had to stop there.


Dareen, no financial genius here. I loved the simplicity of your post then Graeme had to try and complicate it

[q9]

No one produced anything. No one earned anything...

Except everyone had already earned the money by providing goods and services on credit. Even the traveler got something for his money, the room inspection, so at the end everyone has settled their debts and walks away happy.

If we wanted more realism, the Govt would have swiped 10% at each step...

[DomAU]

No, Dareen.

You omitted to include what the economists call the multiplier effect in your analysis. Alternatively, the hotelier was the bane of all economists, an inept businessman who failed to act avariciously in his own best interests.

Consider the following stage 2 to your scenario:

After the hotelier receives the $100 note from the young business-lady he immediately goes down to the butchers and pays for $100 credit.
The butcher takes the $100 and arranges $100 credit with the pig farmer.
The pig farmer takes the $100 and arranges $100 credit with the co-op manager.
The Co-op manager takes the $100 note and arranges $100 credit with the young business lady.
She then takes the $100 and arranges $100 credit with the hotel.

The $100 note is then sitting on the counter waiting for the traveller ...

Stage 2 has created wealth - every person has a $100 asset in the credit owed to him. This is additional to Stage 1 which paid off a $100 owed by every person.

That is how a stimulus is supposed to work !

Except that in this example all of the people in the chain are no wealthier because they are all owed $100- and owe $100- to someone else. If that $100 was $1m dollars they would all have become debt slaves for many many years. And maybe some of those people decide they don't want to, or can't, pay so choose to default instead and the dominos would all fall over.

Cheers, Dom

[FenceFurniture]

Anyone got anything to contribute to the thread theme?

Apparently not.

[doug3030]

If we wanted more realism, the Govt would have swiped 10% at each step...

Actually 6%. This took place in Saskatchewan

[Lappa]

I believe the discussion on the stimulus keys nicely into the thread “Everybody country is borrowing money - who from?”

No need to borrow if there is no stimulus/handouts whatever.

[rwbuild]

At the end of the day you are borrowing from yourself