Wednesday 16 September 2009

A Song and a Reflection on NAMA DAY

It is the month of August, on the shores of the Black Sea. It is raining,
and the little town looks totally deserted. It is tough times, everybody is
in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town.
He enters the only hotel, lays a 100 Euro note on the reception counter,
and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 Euro note and runs to pay his debt to
the butcher.
The Butcher takes the 100 Euro note, and runs to pay his debt to the pig
The pig grower takes the 100 Euro note, and runs to pay his debt to the
supplier of his feed and fuel.
The supplier of feed and fuel takes the 100 Euro note and runs to pay his
debt to the town's prostitute that in these hard times, gave her "services"
on credit.
The hooker runs to the hotel, and pays off her debt with the 100 Euro note
to the hotel proprietor to pay for the rooms that she rented when she
brought her clients there.
The hotel proprietor then lays the 100 Euro note back on the counter so
that the rich tourist will not suspect anything.
At that moment, the rich tourist comes down after inspecting the rooms,
and takes his 100 Euro note, after saying that he did not like any of the
rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and
looks to the future with a lot of optimism..
And that, ladies and gentlemen, is how the Irish Government is doing
business today. (Author unknown)


John Barry said...

During the Celtic Tiger period proponents of boom and bust boasted that Irelands economy was the envy of Europe. They lost the run of themselves. Sadly we were floating on a sea of credit. We had "crazonomics".
Now that the bubble has burst Europeans view us once more as a feckless race which cannot manage its own affairs competently.
The government decision to run with NAMA could be the coup de grace. Hopefully I am wrong.

Póló said...

Unfortunately for those trying to use this sequence to slag the Government, this illustrates perfectly one of the functions of money: a medium of exchange.

If you look at the sequence carefully you will see that it is circular. Hotel > butcher > pig grower > feed provider > prostitute > hotel. There is no net debt in the circle from the start and the use of the note simply allows mutual debts to be cancelled.

Unfortunately this is not how the Irish Government played it. We have incurred huge net debt both via the State and private banks/developers over the last number of years and this will have to be redeemed at great expense to the taxpayer and others (eg pension funds).

So, there will be huge real losses to all sorts of people out of this. The only issue regarding NAMA or any other "solution" is the extent to which these losses can be minimised for the more deserving in our community.

QED, I'm afraid.

Póló said...

Am I right or am I right?

Stephen Neill said...

Yes I believe on reflection you are - apologies for my tardy reply