Lada 🏡 Prkic

3 years ago · 1 min. reading time · visibility ~100 ·

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An Intriguing Parable of How a Small Town Cleared All Debt

An Intriguing Parable of How a Small Town Cleared All Debt

Several years ago I found on the Internet a funny parable about the debt cycle. Lately, I stumbled upon it again and decided to share this humorous tale. 

There are many versions that differ in the name of the place where this tale and somewhat a riddle is taking place. The original author is still unknown.

Here's How It Goes
 

 

It's a slow and hot day in the little town somewhere in the middle of nowhere. Times are tough, everybody in town is in debt, and everybody lives on credit.

On this particular day, a rich tourist is driving through town. He stops at the only hotel in town and lays a $100 bill on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys, and as soon as the visitor has walked upstairs, the hotelier grabs $100 and runs next door to pay his debt to the butcher.

The butcher takes $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes $100 and heads off to pay his bill at the feed store.

The guy at the farmer's Co-op takes $100 and runs to pay his debt to the local prostitute who has also been facing hard times and has had to offer her services on credit.

She, in a flash, rushes to the motel and pays off her room bill to the hotel owner with the same $100 bill.

The motel owner now places the $100 bill back on the counter so the rich tourist will not suspect anything.

At that moment the tourist comes down the stairs after inspecting the rooms, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves the motel.

No one earned anything. However, the whole town is out of debt and looks to the future with a lot of optimism.

 

 

This story circulates the Internet for years and has even provoked respected financial experts to comment. Some experts think of it as a brain teaser that transferred on a larger scale can be used to comprehend the roots of the current financial crisis. Some others say it's a silly story with no real value.  
 

I am not a monetary policy expert, and see it as an intriguing example of clearing debt. I noticed a flaw in the final argument. Do you think one person wrote off his debt? 

 

 

 

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Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #20

#21
Gert, thank you for reading and commenting. I also found this tale interesting to discuss. We can think of this parable in several ways, and this is what makes it so intriguing. You described the way where $100 is considered as a loan or an actual short-term payment. But, I don't think the hoteliers’ book was squared off because there was no actual $100 transaction and for that reason, all debt is not balanced out. I'm glad we have different opinions. :-) That makes the thread more interesting.

Gert Scholtz

Gert Scholtz

3 years ago #19

Lada \ud83c\udfe1 Prkic Very interesting parable Lada – thank you for posting it. To me it illustrates how money introduced into a system, even if only for a short period of time, acts as an exchange instrument and resets the system. The liquidity introduced by the visitor, has the effect of repaying and cancelling out all debts, even though nothing of tangible value was produced, and the local town economy did not grow. I refer to the liquidity introduced by the visitor, as his $100 to the hotelier could have been a loan, or an actual payment for the room which shortly after he reimbursed/refunded when the visitor did not want the room any more. Either way the effect is the same and the final balance in the hoteliers’ book is squared off.

Sara Jacobovici

Sara Jacobovici

3 years ago #18

Great share and discussion Lada \ud83c\udfe1 Prkic. Thank you.

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #17

#14
I apologize for not commenting on time, but I'm trying to find some time between cooking, ironing and vacuum cleaning. :-) I would like we look at some facts a little more closely. A.) The hotel owner has a debt to the butcher. B.) The prostitute owes him the cost of the room. By the "borrowed" $100 bill, the hotel owner cleared his debt to the butcher, as everyone else in the circle did with the same bill changing hands. Every debtor was just passing money to their creditor. When the prostitute gave the hotel owner $100, it seemed that all debt cleared. BUT, in fact, he is out $100 because he gave the money back to the tourist and didn't actually charge the cost of the room. The fact that he owed and claimed the same amount of money is not relevant to this argument. Can we agree on the tricky part of the tale?

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #16

#15
Not tainted, just "borrowed." :-))

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #15

#13
Thanks for sharing, Debasish and CityVP \ud83d\udc1d Manjit. Manjit, hope your hands are getting better.

Harvey Lloyd

Harvey Lloyd

3 years ago #14

#1
I believe the story to be viable. Especially if we can start our economic viewpoint from this simple story. Economist all to often look at complex theory of dealing with your story here at the 320 million level. (Approx. Pop. USA). By starting from this very fundamental end we can begin to understand if we assume the pig farmer filed for bankruptcy protection and broke the chain. Realizing that the breakdown would stop the machine we call the economy, now enter the Federal reserve and treasury. By adding features to the story we can begin to see better how various institutions intergrated into the economy. For me the key is credit. From consumer to commercial and even federal debt. Understanding the debt cycle will blow your mind. Do a search on google for, “Monitary Policy Documentary”. There both left and right videos avaible. Great post and discussion starter.

Ken Boddie

Ken Boddie

3 years ago #13

Interesting tale, Lada, but you realise that the $100 is tainted. 'Taint the hotelier's, 'taint the butcher's, ....... 🤣😂🤣

Phil Friedman

Phil Friedman

3 years ago #12

#9
Yes, the cycle would have ended with the hotel owner having $100 in equity. But the paradoxical flavor is introduced precisely because the $100 that starts the cycle of debt retirement is borrowed and then repaid. — thereby retiring all the debt without adding any real value.

Debasish Majumder

Debasish Majumder

3 years ago #11

lovely buzz Lada \ud83c\udfe1 Prkic! enjoyed read and shared. thank you for the buzz.

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #10

#8
It sounds nicer. :-)

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #9

#6
Thank you for reading and commenting, Robert. Like your town, the small town in the tale represents a closed economy.

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #8

#5
Thanks for sharing and commenting Ali \ud83d\udc1d Anani, Brand Ambassador @beBee. I'm sure you see the paradox in this tale.

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #7

#3
Yes, all debt could have been zeroed by the residents, but it didn't. Would it be the difference for the hotel owner if he started clearing debt with earned $100?

Robert Cormack

Robert Cormack

3 years ago #6

Cute tale, Lada \ud83c\udfe1 Prkic, and probably not far off the mark. Since moving to a small town, I'm amazed how everyone is everyone's customer. It's a self-contained unit with a similar cycle. The next town over has the usual Walmart, Canadian Tire, Winners, etc., but we all shop locally whenever we can, especially during the warm months when we can buy fruits and vegetables. I'm not quite sure how Walmarts turn main streets in small towns into ghost towns. The locals here build loyalty with good service and reasonable prices. I guess if you don't, your customers end up at Walmart. Another parable. Thanks for the post.

Ali 🐝 Anani, Brand Ambassador @beBee

Back to square 1, but but deceptively every person circulated the money and at keast showed seriousness in paying off the debt. Nice sharing Lada \ud83c\udfe1 Prkic

Franci 🐝Eugenia Hoffman, beBee Brand Ambassador

#4
Thank you for your kind comment .

Phil Friedman

Phil Friedman

3 years ago #3

#1
and Lada \ud83c\udfe1 Prkic, I would say that this is not a silly story at all, but a way of understanding the nature of credit and currency. Each member of the circular chain has advanced goods or services to the "prior" member of the chain. This includes the tourist who, in effect, advances the hotel owner a loan. And when the prostitute pays her debt to the hotel owner, he has the cash to repay what was effectively a loan from the tourist. But because each member of the chain owes to someone exactly what he or she is owed by someone, it is a zero-sum game. If you listed each payable as a liability on a balance sheet for the entire group and each receivable as an asset, the balance sheet would show a zero balance. And the entire village economy should have been zeroed out prior to the arrival of the tourist and his $100 bill. Cheers!

Lada 🏡 Prkic

Lada 🏡 Prkic

3 years ago #2

#1
Yes it's intriguing. I'm just curious whether it will provoke discussion as on many social platforms over the past years.

Ian Weinberg

Ian Weinberg

3 years ago #1

Thanks for sharing this enticing little piece Lada \ud83c\udfe1 Prkic and other erudite folk.

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