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The Keynes of our Discontent

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Heidi's Bar

Heidi is the proprietor of a bar in Detroit. She realizes that virtually
all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers' freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.

Consequently, Heidi's gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.



Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being
unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi's bar.

The new taxes mean that less government projects can be run and smaller numbers of workers employed in them. So the snow-ball gathers momentum until there is no demand above basics, because we are paying too much tax to cover the borrowed money for bail-outs to have additional money.

 

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I am a retired engineer whose has been studying macroeconomics for many years. I have developed an original and logical (scientific) theory to explain what it is and how it works. And I wish to share this information about how the social (more...)
 

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The author claims in his biography that he has bee... by James Hadstate on Thursday, Feb 18, 2010 at 8:03:19 AM
There seem to be two kinds of macroeconomists arou... by David Chester on Thursday, Feb 18, 2010 at 10:17:14 AM
First and foremost, the past administrations since... by James Hadstate on Thursday, Feb 18, 2010 at 12:07:57 PM
What my article and the Keynesian Theory are both ... by David Chester on Friday, Feb 19, 2010 at 5:11:19 AM
All right, Mr. Chester. If you want to think that ... by James Hadstate on Friday, Feb 19, 2010 at 8:29:04 AM