Wall Street Minds, Asset Redistribution And The Fed
The tale begins on a town nestled alongside the shores of the Gulf of California in Mexico. The town was going through rough times and everyone was in debt and living on credit with a normal 1 visitor a month influx.
A well-heeled stranger shows up in town. He proceeds to the town's restaurant hotel and lays a $100 bill on the reception desk and asks to sit down in order to dine and later be shown the rooms. The owner of the establishment takes the $100 bill and runs out to pay his debt to the produce and meat packaging supply house.
With a fresh hundred dollar bill in hand, the butcher supply owner hastily pays his debt to the rancher who in turn scrambles to pay $100 for feed costs. The feed and grain guy seeing this fresh money makes his way to the fuel supplier for his machinery and uses the 100 bucks to pay part of his fuel bill.
Compelled to make good on past debts, the fuel dealer takes the $100 bill and pays his debt to his personal prostitute. Because of hard times she gave out her services on credit and she now pays her debt to the hotel for past rooms rented for her clients.
The hotel proprietor then lays the hundred dollar bill back on the counter so that the rich tourist will not suspect anything. After finishing a great meal and feeling refreshed he pays for the meal with pocket change and foregoes inspecting the rooms. Feeling energized and seeing the storm clouds lift, the rich tourist takes his hundred dollar bill and leaves town.
The moral of the story is that everyone in town was in debt, no one earned any money; they merely paid off debt and everyone feels a lighter burden. No wealth was created. This is analogous to the U.S. government shifting liabilities from one balance sheet to another.
When the wealth tourist happens to tell the newspaper service about the great little undiscovered town he happened upon and his great meal, the news story brings new tourist to the town. The hotel proprietor besieged with new rental prospects want to raise room rates. The butcher seeing business about to take off wants to raise his rates. On down the line the feeling to raise prices ensues. The rancher the feed supplier want an increase, the fuel merchant and even the prostitute who needs to charge more because of the increase in room charges.
The moral of the story is that as long as everyone is proactive paying off debts, money circulates. Bailouts haven't done anything other than pay off some liabilities transferring them from one balance sheet to another. However, when real positive news emerges and "green shoots" optimism takes hold, floods of new purchases will surge and off we go to the races. Will the dollar oversupply be too much? In order to be ahead of the crowd, get your Wall Street Journal subscription today. - 23199
A well-heeled stranger shows up in town. He proceeds to the town's restaurant hotel and lays a $100 bill on the reception desk and asks to sit down in order to dine and later be shown the rooms. The owner of the establishment takes the $100 bill and runs out to pay his debt to the produce and meat packaging supply house.
With a fresh hundred dollar bill in hand, the butcher supply owner hastily pays his debt to the rancher who in turn scrambles to pay $100 for feed costs. The feed and grain guy seeing this fresh money makes his way to the fuel supplier for his machinery and uses the 100 bucks to pay part of his fuel bill.
Compelled to make good on past debts, the fuel dealer takes the $100 bill and pays his debt to his personal prostitute. Because of hard times she gave out her services on credit and she now pays her debt to the hotel for past rooms rented for her clients.
The hotel proprietor then lays the hundred dollar bill back on the counter so that the rich tourist will not suspect anything. After finishing a great meal and feeling refreshed he pays for the meal with pocket change and foregoes inspecting the rooms. Feeling energized and seeing the storm clouds lift, the rich tourist takes his hundred dollar bill and leaves town.
The moral of the story is that everyone in town was in debt, no one earned any money; they merely paid off debt and everyone feels a lighter burden. No wealth was created. This is analogous to the U.S. government shifting liabilities from one balance sheet to another.
When the wealth tourist happens to tell the newspaper service about the great little undiscovered town he happened upon and his great meal, the news story brings new tourist to the town. The hotel proprietor besieged with new rental prospects want to raise room rates. The butcher seeing business about to take off wants to raise his rates. On down the line the feeling to raise prices ensues. The rancher the feed supplier want an increase, the fuel merchant and even the prostitute who needs to charge more because of the increase in room charges.
The moral of the story is that as long as everyone is proactive paying off debts, money circulates. Bailouts haven't done anything other than pay off some liabilities transferring them from one balance sheet to another. However, when real positive news emerges and "green shoots" optimism takes hold, floods of new purchases will surge and off we go to the races. Will the dollar oversupply be too much? In order to be ahead of the crowd, get your Wall Street Journal subscription today. - 23199
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posted by X - Men @ 4:03 AM
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