The Beach Ball Factory
Good evening girls and boys, this is Uncle Niresh Parag and tonight – I’m going to tell you the story about money.
It all began ‘Once upon a time’ like all good stories do. This is the story of the Beach Ball.
Once upon a time there were ten beach balls for sale. Beach balls provide a lot of fun, so when the people saw them, they all wanted one. Before long, ten people, who saved the quickest, bought themselves a beach ball each. All ten beach balls were gone, they sold instantly. It made others who had missed out and wanted a beach ball, to make higher offers, till one of them was willing to sell. It also inspired others to start working hard and save all their pennies to one day enable them to have enough to satisfy their aspirations of owning a beach ball.
Soon an entrepreneur saw what was happening and started a small shop making beach balls to satisfy the increased demand. In the process, he needed a hand and so created employment and employed a fellow named John. John worked till lunch time and went to the tea rooms during his break and ordered a nice cake with his cup of tea. He paid the tea room owner $1.00. At five o’clock that afternoon, the tea room owner went to the egg seller and spent the $1.00 to buy some more eggs to make more cakes. The egg seller took the $1.00 and went and spent it on some grains for his hens to eat. So far, that same $1.00 was spent three times. That same dollar moved to purchase three separate things, thus creating an economy. So that became known as the velocity of money. In this case, the same dollar was spent three times and so that one dollar had a velocity of three.
Soon, the beach ball shop grew through demand and the other businesses prospered in this new economy, all creating dollars that were moving all around the town creating another popular catch cry, ‘Jobs and Growth’.
One day a passing stranger, with really big muscles, saw the ball shop and its flow on effect on the town and decided to tap into this thriving economy. Since he had nothing to sell nor buy, he sold them an idea – he inflicted fear into them that someone could rob them of all their money. ‘Just give me five cents a month for each dollar and I’ll keep your money with me for safe keeping and you will have peace of mind’. The people saw how strong he was and so gave him their money for safe keeping.
Soon he was holding a lot of money and used all the five cents a month to rent a solid building.
‘I’ll call this building a Bank and I will manage it, so I am the Bank Manager’. As the bank grew with the town, it had to employ a cleaner. One day the cleaner called out to the Bank Manager, ‘You are holding a lot of money here, why don’t you let the people borrow some and they can pay back some extra for the privilege of borrowing? You can share the extra you get with those who have their savings here, since it’s in their ‘interest’, so it is a win, win’. The Bank Manager was excited with this idea of the cleaner and immediately promoted him. ‘You are now promoted to er… er … that’s it! You are a Financial Advisor!’
Once people heard about this wonderful thing called ‘Borrowing’, they realized that they didn’t have to save anymore. So they all ran to the bank, borrowed and placed their orders at the Ball shop for a Beach Ball. The ball shop could not cope with the demand and before long, it also borrowed money from the bank, and so moved into a big factory.
People from ‘Far Far Away’ heard of the Beach Ball Town and its success. They started coming in droves for their piece of the action. Many other institutions formed, including a thing called Government and a really weird thing called the Tax Office. The Big Beach Ball factory simply could not cope.
The next new cleaner at the bank, asked the ‘Financial Advisor’, ‘Why don’t you suggest to the Ball Factory owner, that he could sell some of his business – others could invest their money into it. Sell it in lots of small bits to get a lot of money. With that money, the ball factory could expand and keep on expanding?’ ‘Brilliant’, said the Financial Advisor, ‘They could all buy a share or two in the factory! Let’s call the small bits shares!’ With that the Financial Advisor promoted the cleaner, ‘From now on, you can look after the Share Market! You can be the go between, and you can be called the Broker’.
The people began to buy shares in the Ball factory and it grew bigger and bigger. Over a few years, the entire length and breadth of the land became involved in the Ball Factory and its Beach Balls.
Over generations, the model of the Beach Ball Factory was replicated all around the world. Everybody was investing in their Ball factory in their own and other countries. Different types of balls were made and sold between countries now.
The Bank had also grown to become Banks and the share market grew bigger – then one day a descendant of a Bank Cleaner asked, ‘Why don’t the people borrow to buy shares in the share market instead of balls? No need for balls, they can use the borrowed money to buy shares to make money?’ With that began a new wave, pay for one share and borrow the value of ten shares – just for the price of one. They called it “leverage”. Before long, with the amount of money sloshing around in the share market, the price of shares went up and up.
In fact it went so high that people were talking about how much they were making in trading these shares… nobody was talking about the ball factory anymore! They were pushing up the price of the shares, as demand was now for the shares and not the Balls.
More money flowed into the economy, as people bought the sizzle and not the sausage. A guy invented a typing thing called a computer. This computer thing could buy and sell thousands of shares at a ‘bat of an eyelid’. No human could compete with this robot. This machine could also hold and collect a thing called data – how many shares there are, what the price was etc etc. all in a screen. Nobody exchanged money from person to person anymore. Money was now counted in numbers on a screen and money was now spent as numbers on that screen.
With this came the sizzle of buying shares and investing in Future Demand for Future Balls and Future Ball Factories not even built nor sold yet… all on leveraged credit. The computers learnt how to borrow and lend the same borrowed money several times over. These Financial geniuses had invented ways to use the computers to reflect dimensions of the same money, like magic… tricks. Remember the velocity of money? Where John spent his money on cake at the tearoom and the tearoom owner bought more eggs etc., well they did that too except with no goods. They lent the money to others, who lent the same money to others, who lent it to others and others. It became a drunken orgy of money and had now grown into an illusion of prosperity.
Now boys and girls, remember how the old bank allowed the people to borrow the money from other people who had left it in the bank – and the bank paid some ‘interest’ to the lenders who kept the money in the bank? Well, there was more money to be made in this share thing, so the Banks Financial geniuses, took the saved money from the bank and gave it to the Financial geniuses to leverage in the share market.
Meanwhile, the original ball factory had too many unfair competitors but still had to pay big dollars for minimum wage, annual leave, health and safety, child care, union bribes and so on, whilst others from other countries didn’t have to do that and so sold the same balls cheaper. Even people from the original Ball Town now spent their money on buying the cheaper balls from elsewhere, because they were cheaper! It all began to fail.
Soon, people began to dump their shares in the ball factory and this sent ripples throughout the ball market. Ball share prices began to collapse and those who had borrowed one for ten or used the computers, which lent the same money several layers deep, suddenly had the impact of a game of one for ten but in reverse, with collapsing dominos, dominoes there and dominos not yet built! All the other businesses, the banks and all the people who were invested in shares, had now lost their BALLS!
With such a frightful event of entire economic collapse, the Government turned the computers on to add a few zeros to the money left… because they could. They could now create money out of thin air by the tap of their keyboard.
The Government then took this extra zeros “computer money” and gave it to the share market people, to get things going again – some money went to the owner of the ball factory – but he didn’t reinvest the money, instead he used it to buy back shares in his own company to keep the prices up and fend off eviction. The share, or rather, money market people, didn’t have balls – so spent the money on Aston Martins and themselves and invented other illusions and shameless gambling of sausage-less sizzles. To get the economy moving again, (remember the velocity of money?) the Government began to attack those who had saved their money in the bank. They gave them next to no interest for their money, so to force them to invest it elsewhere, to kick start the economy and also allow people to borrow their saved money for next to nothing so the borrowers could spend it. This set off “sausage-less sizzles” on steroids and the money market people now began to sell and buy from each other in their money market games of extreme, as they even leveraged the kitchen sink.
So it didn’t work for the Government and it failed. Not learning from their mistakes, the Government did it again, just as the new model Aston Martins came out… and again… that became known as ‘kicking the can down the road’, but in this case, ‘kicking the balls down the road’. More screen money dumped on the problem… ending with the same results – and amplifying the initial problem a hundred fold – recklessly gambling nothing money, to make even more nothing money, for nothing industries.
The descendants of the first bank cleaner, had now gone full circle – by ‘taking everyone to the cleaners’.
And in that, do you know what the first stock market floor call was? It still remains till this day… but for different reasons… ‘Balls Up!’
So boys and girls, here we are today, in the eye of the storm.
Since the beginning of time, ‘Never was so much, owed by so many, to so few’! (I borrowed that bit from a man called Winston Churchill)
Till next time, have a ball everyone, this is Uncle Niresh Parag
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