artes33_IHB
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REAL ECONOMICS AND A LESSON ON THE GROWTH BUBBLE.
You will find the answer to how the US economy melted. Please read patiently, and maybe ask yourself who of the 3 citizens you are (don?t worry, we won?t tell anyone ?):
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. John owned the land. Bob and Claire each owned 1 dollar.
2) Bob decided to purchase the land from John for 1 dollar. So, now John and Claire own 1 dollar each while Bob owned a piece of land that is worth 1 dollar.
* The net asset of the country now = 3 dollars.
3) Now Claire thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from John, and together with his own 1 dollar, he bought the land from Bob for 2 dollars.
* John has a loan to Claire of 1 dollar, so his net asset is 1 dollar.
* Bob sold his land and got 2 dollars, so his net asset is 2 dollars.
* Claire owned the piece of land worth 2 dollars but with her 1 dollar debt to John, her net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.
4) John saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to Claire. He then borrowed 2 dollars from Bob and acquired the land back from Claire for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, John now owned a piece of land that is worth 3 dollars. But since he owed Bob 2 dollars, his net asset is 1 dollar.
* Bob loaned 2 dollars to John. So his net asset is 2 dollars.
* Claire now has the 2 coins. Her net asset is 2 dollars.
* The net asset of the country = 5 dollars. Bubble is building up.
(5) Bob saw that the value of land kept rising. He also wanted to own the land. So he bought the land from John for 4 dollars. The payment is by borrowing 2 dollars from Claire, and the cancellation of his 2 dollars loan to John.
* As a result, John has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* Bob owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with Claire, his net Asset is 2 dollars.
* Claire loaned 2 dollars to B, so his net asset is 2 dollars.
* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation!
(6) Everybody has made money and everybody felt happy and prosperous.
(7) One day an evil wind blew, and an evil thought came to Claire's mind. "Hey, what if the land price stop going up, how could Bob repay my loan. There is only 2 dollars in circulation, and, I think after all the land that Bob owns is worth at most only 1 dollar, and no more."
(8) John also started thinking the same way.
(9) Suddenly, nobody wanted to buy land anymore.
* So, in the end, John owns the 2 dollar coins, his net asset is 2 dollars.
* Bob owed Claire 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* Claire has a loan of 2 dollars to Bob. But it is a bad debt. Although her net asset is still 2 dollars, her Heart is palpitating.
* The overall net asset of the country = 3 dollars again (weren?t fools, sharks and criminals all thinking it was 6?)
(10) So, who has stolen the 3 dollars from the country? Of course, before the bubble burst Bob thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper.
(11) Bob has no choice but to declare bankruptcy. Claire has to relinquish her 2 dollars bad debt to Bob, but in return he acquires the land which is worth 1 dollar now.
* John owns the 2 coins, his net asset is 2 dollars.
* Bob is bankrupt, his net asset is 0 dollar. (he lost everything )
* Claire has no choice but end up with a land worth only 1 dollar. (we are getting there*)
* The net asset of the country = 3 dollars.
************ **End of the story
My 2 cents, I think we are at Chapter 9 of the story. Also, who is John? who is Bob? who is Claire? ....
Artes
You will find the answer to how the US economy melted. Please read patiently, and maybe ask yourself who of the 3 citizens you are (don?t worry, we won?t tell anyone ?):
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. John owned the land. Bob and Claire each owned 1 dollar.
2) Bob decided to purchase the land from John for 1 dollar. So, now John and Claire own 1 dollar each while Bob owned a piece of land that is worth 1 dollar.
* The net asset of the country now = 3 dollars.
3) Now Claire thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from John, and together with his own 1 dollar, he bought the land from Bob for 2 dollars.
* John has a loan to Claire of 1 dollar, so his net asset is 1 dollar.
* Bob sold his land and got 2 dollars, so his net asset is 2 dollars.
* Claire owned the piece of land worth 2 dollars but with her 1 dollar debt to John, her net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.
4) John saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to Claire. He then borrowed 2 dollars from Bob and acquired the land back from Claire for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, John now owned a piece of land that is worth 3 dollars. But since he owed Bob 2 dollars, his net asset is 1 dollar.
* Bob loaned 2 dollars to John. So his net asset is 2 dollars.
* Claire now has the 2 coins. Her net asset is 2 dollars.
* The net asset of the country = 5 dollars. Bubble is building up.
(5) Bob saw that the value of land kept rising. He also wanted to own the land. So he bought the land from John for 4 dollars. The payment is by borrowing 2 dollars from Claire, and the cancellation of his 2 dollars loan to John.
* As a result, John has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* Bob owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with Claire, his net Asset is 2 dollars.
* Claire loaned 2 dollars to B, so his net asset is 2 dollars.
* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation!
(6) Everybody has made money and everybody felt happy and prosperous.
(7) One day an evil wind blew, and an evil thought came to Claire's mind. "Hey, what if the land price stop going up, how could Bob repay my loan. There is only 2 dollars in circulation, and, I think after all the land that Bob owns is worth at most only 1 dollar, and no more."
(8) John also started thinking the same way.
(9) Suddenly, nobody wanted to buy land anymore.
* So, in the end, John owns the 2 dollar coins, his net asset is 2 dollars.
* Bob owed Claire 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* Claire has a loan of 2 dollars to Bob. But it is a bad debt. Although her net asset is still 2 dollars, her Heart is palpitating.
* The overall net asset of the country = 3 dollars again (weren?t fools, sharks and criminals all thinking it was 6?)
(10) So, who has stolen the 3 dollars from the country? Of course, before the bubble burst Bob thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper.
(11) Bob has no choice but to declare bankruptcy. Claire has to relinquish her 2 dollars bad debt to Bob, but in return he acquires the land which is worth 1 dollar now.
* John owns the 2 coins, his net asset is 2 dollars.
* Bob is bankrupt, his net asset is 0 dollar. (he lost everything )
* Claire has no choice but end up with a land worth only 1 dollar. (we are getting there*)
* The net asset of the country = 3 dollars.
************ **End of the story
My 2 cents, I think we are at Chapter 9 of the story. Also, who is John? who is Bob? who is Claire? ....
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