(This is not about the main cause of the great recession. But it shows how the credit markets can affect the real economy.)
It’s a slow day in a little East Texas town. The sun
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 tourist from
back east – is driving through town.
He stops at the motel and lays a $100 bill on the desk –
saying he wants to inspect the rooms upstairs in order to
pick one to spend the night.
As soon as the man walks upstairs, the owner grabs the bill and
runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to
retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill at 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 had to offer her “services” on
The hooker rushes to the hotel and pays off her room bill
with the hotel owner.
The hotel proprietor then places the $100 back on the
counter so the rich traveler will not suspect anything.
At that moment, the traveler comes down the stairs, picks
up the $100 bill, 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 now looks to the
future with a lot more optimism.
And that, ladies and gentlemen, is how the United States
Government is conducting business today.