In the big book of Folktales for money managers you’ll find this delightful story. It begins, as folktales do, when a stranger comes to town. As he checks into the hotel he asking Albert the desk clerk to store ten thousand dollars the money safely in the hotel safe. But Albert takes the money and pays off a debt to Bob. This triggers a cascade. Bob pays off a debt to Charlie, Charlie to Dave, etc. Later that evening Zed steps into the hotel and pays off a debt he owes to Albert. Greatly relieved Al then places the money into the safe. The next morning the stranger is chatting with Albert and reveals he’s a Fed. As he is retrieving his cash he jokes: “Man, these are lousy these counterfeit notes!”
Apparently this town was entangled in $270,000 worth of debt, but it took only $10,000 to unwind the problem.
When I originally read this story in a fun pamphlet on local script currency systems it triggered a reminding of an old Mad Magazine bit. Kids in high school all trying to act like the next coolest kid. They too were caught in an analogous cycle. It’s delightful the way the mind works; Mad Magazine, Mad Money… tis a slight relief: after skimming this piece. Apparently the global village is entangled in a similar cascade of interlocking debt. Sum it all up, divide by the village population, and what do you get? Every human on the planet has $190,000 of derivatives debit.
In the folktale the $270,000 of debt is unwound in a few hours with no transaction costs, no friction, and apparently no interest payments. We should be so lucky.