Tuesday, November 23, 2010

Understanding the Global Economy

Just how does this global economy work? It's a question that many people ask and it's one that many with a firm, wide-ranging grasp of finance and economics do their best to avoid answering. And, with good cause as it's really quite trivial. But, if you missed out on 3rd grade (what is that anyway) education then this reasoning should help:

We are in a global market. And, as everyone knows global means circular (if you're two dimensional) or spherical (if you have more dimensions) which of course means we are in a circular market. This circular market is consumer-based. This means that when I buy something in store 1 then store 2 has to buy something from store 1 and all the way down the line until store N buys what I brought from store 1. Of course, the process isn't perfect and usually I end up selling the item for roughly 0.0001% of what I brought it for.

That's of course putting it quite simplistically in reality there are about 10 stores with about 20 million people buying things in store one etc and all these items are usually different (ipops, jelly babies, gobstoppers etc).

Now with this understanding it's easy to see what has gone wrong with the current system: we have run out of paper - more specifically we have run out of blue ink. So, in order for the people in store X to buy from store Y they need to the currency of store Y and detailed analysis by economists and fund managers (technically called mis-managers) have identified that the currency of store Y is predominantly blue in colour and store X does not have any blue ink with which to make the currency to make the purchase.

Once we manage to find some blue ink - which isn't cheap and typically costs around 4 Trillion pounds or dollars we should be able to get the market circulating again according to economic forecasters it could be a Tuesday.

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