If only it was this easy

This story has been sent to me by several different people in recent weeks and seems to have persuaded some that this is a real world scenario.

Would that it were so.

How the Greek economy bailout works

It is a slow day in a little Greek Village. 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 village, 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.Scrooge

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 taverna. The tavern owner 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 won’t 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 village 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.

Unfortunately, as you’ll have figured out if you thought about it, there is no analogy with the Greek bailout. In this village there is no net debt.  It’s all internal within the village and it balances out to a zero sum game. And nobody’s paying interest.

In the case of Greece (and New Zealand) the debt is external and there’s nobody to pass the parcel to. 

In the real world, the hotel owner, the butcher, the pig farmer, the feed supplier, the tavern owner, and the local prostitute, each owe their €100 to the Chinese laundry in the next town. The village is in the red for €600 and the only way the villagers can reduce the debt is by creating more economic activity or by blackmailing the ECB into devaluing the Euro.

John Key, Bill English, Phil Goff, et al are all in similar dream worlds.  Or they’re liars. Take your pick. Treasury’s economic forecasts are complete rubbish (just as they’ve proven to be for the last umpteen years) and the forecast growth upon which our self-serving politicians are predicating their rosy outlook will not happen. Our saviour China is in deep trouble. Our other saviour, Australia, will inherit that trouble.

We’re in deep schtuck.

4 thoughts on “If only it was this easy

  1. Totally concur. An economist at a conference recently said China is on the verge of a big meltdown and Australia is in no better shape. The mining industry is the only industry keeping the Australian economy churning over, just.
    As you have rightly pointed out our politicians are to caught up in their own self importance about leading (unsuccessfully) a soon to be third world country down the road to oblivion. Key having made a small fortune on the money markets should no better and his a liar and Goff being a “career politician” is just thick and doesn’t get it.
    Unfortunately there are no other aspiring people in any party that are standing up and challenging the direction these boffins are taking our country.
    We cannot keep giving handouts to people earning over 80k a year who are asset rich and individuals who keep having kids when they can’t afford to, or the individuals who just live off the state.
    Loop holes need to be closed, laws need to be changed, immigrants need to be vetted (including people from the islands), capital gains tax introduced (a KISS version not a half arse version like Labours where we employ even more bureaucrats) and GST increased to 20% and a corresponding adjustment to the tax system and dear I say it, retirement age raised to 67, of which I will be adversely affected. NZ inc cannot keep paying out 4-5 billion per 1/4 in welfare on a dwindling tax base. Key has shown he hasn’t the courage to make the hard decisions although he had the mandate in 2008 and sad to say I don’t see any of the above happening in the next term (what ever make up MMP serves up).
    Now I have had my rant I, like the other 60-70% of New Zealanders (not Maori, Chinese, pacific islanders, Korean, Indian and all the other races in this country, because first up WE ARE ALL NEW ZEALANDERS) will keep toiling away etching out a living (without expecting a handout) trying to save enough moola for a comfortable retirement away from the country I love.

  2. I mostly agree with you Jeff. I also think we should be looking seriously at Gareth Morgan’s Big Kahuna. I’m not sure about increasing GST, I’d rather we hit the capital gains tax harder. I’d go for 70 as the retirement age and I’d make the superanuation means tested—that would be a cost to me. 🙁 — Goff’s GST on fresh food is absolute nonsense. Working For Families has suddenly gone, according to Key, from Socialism by Stealth to being sound centre-right politics. Interest free student loans are just plain lunacy.
    Nothing is going to change unless we create a new way of operating democracy. The election of government by responding to the biggest bribes is set to continue indefinitely, as is our slide into the Third World.
    The only thing stopping me encouraging my mokopuna to bugger off to Australia is the worrying effect climate change will probably have across the ditch.
    Catching Australia? Yeah, right

  3. Just wanted to say thanks. I didn’t think it could be as easy as the story tells us. Even though I received this in an email with the subject ‘Economics for dummies’, I found it misleading. Your explanation clarifies things for me.

    Greetings from The Netherlands

  4. Weirdness. This post disappeared from view while I was checking it last night. It’s been resurrected, including Steven and Jeff’s comments, courtesy of Google’s cache.

Comments are closed.