

Ask HN: What is wrong with this? (How the Greek economy bailout works) - o1iver

It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note 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 the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism. And that, Ladies and Gentlemen, is how the bailout package works.
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nickolai
I'm no economist, but it seems to me that in the example, the debt owed by the
whole vilage to the outside world is essentially zero. The problem described
is a liquidity problem much more than a debt problem. We could in theory
imagine the villagers to trust each other enough to trade the IOUs between
each other and solve the problem without the rich german. For example if A
owes 100 to B who owes 100 to C who owes 100 to A, then A could give C's IOU
to B and have his debt cleared B would then give C's IOU to C in exchange of
his own bieng returned. No more debt and no germans involved. However this
assumes that B trusts C enough to accept his IOU as payement from A.

If we were to use the analogy In the case of Grece, the hotel owner would owe
a few thousand euros to different pawnbrokers in nearby villages, rush to pay
them, and the german is in for a nasty surprise after he's done inspecting the
rooms. Not that he wasnt expecting it to happen when he put a note on the
table or that losing the 100 euros is such a big deal to him.

As I said I'm no specialist so I may be wrong here.

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Egregore
I think that each step required fees to the government in form of taxes, so
back will be not €100 but may be €50.

