Results 1 to 7 of 7

Thread: Bailout Explained

  1. #1
    Veteran Member
    Joined
    Sep 2005
    Posts
    426
    Thanks
    0
    Thanked 9 Times in 9 Posts

    Default Bailout Explained

    Since most of you have been getting your information from clueless economists and tree-hugging hippies, I'll explain in very simple terms what this bailout means.


    There are two neighbours, one of them is an expert lawn-mower and another a skilled gardener

    Lets say,
    A cost of 1 lawn mow = cost of 1 Gardening = $20.
    (The $ figure doesn't really matter, you can put it at $1000)

    In normal times,
    The Lawn mower cuts his own lawn and his neighbors
    and the gardener attends his own garden and his neighbor's. They pay each other $20 for the services (They can pretty much pay each other $1000 and it doesn't matter)

    The GDP of these two houses is 2 Lawn Mows and 2 Gardening or 4 Lawn Mows
    equivalent

    Note GDP is always measured in real output items, like 4 Lawn Mows as opposed to money ($4000 or $80)

    Now, there is suddenly a rumor that people have run out of money.

    The Gardener being very skeptical of his neighbor will not perform any services because he thinks his neighbor has no money to pay
    The Lawn mower thinks the same and he will not mow his neighbors lawn

    What's the result? Assuming both will attend to their own garden and lawn, the GDP has plunged to 1 Lawn Mow and 1 Garden or 2 Lawn Mows i.e 50% reduction in GDP

    What about unemployment? Since both are not performing services to the other, they are twiddling their thumbs for 50% of the time and the unemployment has dropped 50%

    How can this be prevented?
    If a third person (FED) comes and says, look I'll give both of you $20 (or even just say it), the confidence returns and both will operate at full capacity

    This is exactly the reason, why US got out of the Gold standard. i.e it can print money whenever it chooses to. The $700B is really meaningless. It is the cost of printing paper

    Now, Clueless Idiots will come and say, what is the value of the $? if you print too much money, won't it lose its value?.

    As has been proven recently, clueless idiots think that only americans shit stink and the europeans and chinese and Indian shit are edible.

    But, in reality everybody's shit stinks and the currency of the country whose shit stinks the least relatively appreciates and that country is the US of A

    Goal of US Fed == Keep economy at its full capacity (i.e 4 Lawn Mows) even if it has to print money.

    Europeans Goal == Keep inflation down (it doesn't matter if nobody mows their lawn, as long as the cost is $10)

    Only the USA has got it right.
    PS: US can always raise interest rates if it thinks people have too much money, a concept clueless idiots still don't understand

  2. #2
    Featured Member
    Joined
    Nov 2006
    Posts
    950
    Thanks
    1
    Thanked 651 Times in 272 Posts

    Default Re: Bailout Explained

    Not exactly, Xan.

    The Fed's goal ( just as it is for any PRIVATELY owned organization) is to make profit for it's shareholders!

  3. #3
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Bailout Explained

    actually, Xan has it partly right. US bailout policy's goal IS to have all of the lawn mowers mowing lawns and all of the gardeners weeding gardens. But what Xan didn't tell you about are the 'side effects'

    - the same US$10 earned from mowing each lawn will only buy the same amount of food or gasoline or imported products that US$8 used to buy, meaning that the lawn mowers and gardeners must work 20% harder in order to maintain the same standard of living

    - the bankers that will loan the lawn guy the money to buy a new commercial mowing machine when his old machine wears out will charge him a higher interest rate

    - taxes will be raised on the lawn guy's and the gardener's businesses, leaving them a smaller percentage of gross earnings with which to reinvest / expand / hire more employees, or to pay their own salaries


    The problem with Xan's classical theory is that it only works if the economy involved is 'self-contained'. Unfortunately, with today's globalization, in order to still make the classical theory work it would either be necessary to lock down the US border against imports (impossible, on oil / energy needs alone), or to establish a 'New World Order' where every economy in the world uses the same currency and must follow the same 'rules'.

    ~
    Last edited by Melonie; 10-03-2008 at 03:32 AM.

  4. #4
    Veteran Member person's Avatar
    Joined
    Sep 2007
    Posts
    633
    Thanks
    33
    Thanked 34 Times in 23 Posts

    Default Re: Bailout Explained

    Quote Originally Posted by xanfiles1 View Post
    Since most of you have been getting your information from clueless economists and tree-hugging hippies, I'll explain in very simple terms what this bailout means


    Quote Originally Posted by xanfiles1 View Post
    Only the USA has got it right.
    PS: US can always raise interest rates if it thinks people have too much money, a concept clueless idiots still don't understand
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

  5. #5
    Veteran Member StuartL's Avatar
    Joined
    Feb 2006
    Location
    European Man Of Mystery
    Posts
    648
    Thanks
    1
    Thanked 21 Times in 7 Posts

    Default Re: Bailout Explained

    Quote Originally Posted by xanfiles1 View Post
    Now, Clueless Idiots will come and say, what is the value of the $? if you print too much money, won't it lose its value?.

    As has been proven recently, clueless idiots think that only americans shit stink and the europeans and chinese and Indian shit are edible.

    But, in reality everybody's shit stinks and the currency of the country whose shit stinks the least relatively appreciates and that country is the US of A

    Goal of US Fed == Keep economy at its full capacity (i.e 4 Lawn Mows) even if it has to print money.

    Europeans Goal == Keep inflation down (it doesn't matter if nobody mows their lawn, as long as the cost is $10)

    Only the USA has got it right.
    PS: US can always raise interest rates if it thinks people have too much money, a concept clueless idiots still don't understand
    I'm all for freedom of speech. An important aspect of freedom of speech is that other people get a turn whether you like their opinions or not. But really, being able to write about economics and actually writing about economics are clearly very different things.

    This is about as close to economic theory as the Swiss franc is to the Zimbabwe dollar, or the soon to be American peso...

  6. #6
    Featured Member
    Joined
    Nov 2006
    Posts
    950
    Thanks
    1
    Thanked 651 Times in 272 Posts

    Default Re: Bailout Explained

    Ah, freedom of speech... How much longer?...

  7. #7
    God/dess Deogol's Avatar
    Joined
    Dec 2003
    Posts
    5,493
    Thanks
    120
    Thanked 50 Times in 35 Posts

    Default Re: Bailout Explained

    Quote Originally Posted by Adelina View Post
    Ah, freedom of speech... How much longer?...
    We already have freedom of speech zones.

    Even on this forum. Don't worry. It's all for the better of the community.

Similar Threads

  1. Quantitative Easing Explained
    By person in forum Dollar Den
    Replies: 2
    Last Post: 11-15-2010, 02:10 PM
  2. Replies: 9
    Last Post: 05-23-2009, 02:36 PM
  3. Stimulus Package explained ...
    By Melonie in forum Dollar Den
    Replies: 44
    Last Post: 03-02-2009, 11:28 PM
  4. I explained it like this.
    By Mare in forum The Lounge
    Replies: 0
    Last Post: 06-20-2008, 02:47 AM
  5. 5 Douchebag Behaviors Explained by Science
    By Budai in forum The Lounge
    Replies: 18
    Last Post: 05-21-2008, 06:18 AM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •