Wall Street Detects 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.
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a $100 bill on the reception counter, and asks for a meal and later goes to inspect the rooms upstairs in order to pick one. The hotel proprietor takes the hundred dollar bill and runs to pay his debt to the butcher.
The produce supplier and meat packaging supply guy takes the $100 bill and runs off to pay off his debt to the rancher. The rancher runs out with the $100 bill to pay for feed costs. The feed and grain merchant runs out and pays his bill for fuel costs.
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.
Seeing the $100 bill back in his hands, the hotel owner lays the bill back it its original location. The wealthy tourist finishes his meal and feels refreshed and decides on foregoing the room inspections and stay at the hotel. He returns to the front desk, pays for his meal with pocket change and takes back the $100 bill and leaves to continue his journey.
The story behind the tale is that, since everyone in the town was in debt, just the mere circulation of money with no real wealth created in any ones pockets, allowed for bills to get paid and improved everyone's balance sheet. No one put money in the bank but progress was felt.
Now the story gets more interesting. The stranger tells others about what a great town he discovered and about the tasty dinner he experienced. The local newspaper picked up the story. Later in the month, when 7 new tourists arrive and take rooms, the hotel proprietor senses a change. He begins planning raising his room rates, perhaps even adding some rooms sensing a future upsurge. The rancher wants to raise his cattle prices because of the increased demand. The feed and fuel supplier is thinking along the same lines. And, let's not forget the prostitute who'll have to charge more because room rates increased.
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. - 23208
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a $100 bill on the reception counter, and asks for a meal and later goes to inspect the rooms upstairs in order to pick one. The hotel proprietor takes the hundred dollar bill and runs to pay his debt to the butcher.
The produce supplier and meat packaging supply guy takes the $100 bill and runs off to pay off his debt to the rancher. The rancher runs out with the $100 bill to pay for feed costs. The feed and grain merchant runs out and pays his bill for fuel costs.
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.
Seeing the $100 bill back in his hands, the hotel owner lays the bill back it its original location. The wealthy tourist finishes his meal and feels refreshed and decides on foregoing the room inspections and stay at the hotel. He returns to the front desk, pays for his meal with pocket change and takes back the $100 bill and leaves to continue his journey.
The story behind the tale is that, since everyone in the town was in debt, just the mere circulation of money with no real wealth created in any ones pockets, allowed for bills to get paid and improved everyone's balance sheet. No one put money in the bank but progress was felt.
Now the story gets more interesting. The stranger tells others about what a great town he discovered and about the tasty dinner he experienced. The local newspaper picked up the story. Later in the month, when 7 new tourists arrive and take rooms, the hotel proprietor senses a change. He begins planning raising his room rates, perhaps even adding some rooms sensing a future upsurge. The rancher wants to raise his cattle prices because of the increased demand. The feed and fuel supplier is thinking along the same lines. And, let's not forget the prostitute who'll have to charge more because room rates increased.
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. - 23208
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posted by X - Men @ 5:08 AM
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