Friday, August 29, 2008

George and Buddy, welcome to Wal-Mart


George is broke. His friend has money. His friend has good stuff to sell. George likes good stuff.

George says, "Hey buddy, I'd really like to buy some of your stuff. But I'm broke."
Buddy says, "OK, I'll lend you ten dollars. Just pay me back eleven dollars later."
George: "Wow, you really are my buddy."

George: "Hey Buddy, sell me some of that stuff."

Buddy thinks, "George is an idiot. I just lent him $10, he owes me $11, and now he wants to use the money I lent him to buy some of my stuff. I can charge him whatever I want because I know how much he wants my stuff."

Buddy says, "Sure George. And because you are my friend I'll give you a great deal. I normally sell my stuff to my other friends for $20 but I know you only have $10 so I'll sell it to you for just the $10!"
George: "Deal!!!"

So, Buddy makes $1 interest on the $10, gets the $10 back by selling the stuff that cost him $1 for the original $10. So George is still broke, has $1 worth of stuff, and owes Buddy $11.

If you are wondering, George is the United States and Buddy is China. And it's all true. We borrow money every day from China, billions, we buy their stuff and owe them the billions plus interest. And they sell us stuff, lots of stuff.

Welcome to Wal-Mart.

1 comment:

Melina said...

Very interesting blog!
I have given some thoughts on this article. What if George uses his loan to buy the goods that he needs from other person with higher price, isn't that making the situation worse? China is helping American's economy at this point. We all need to admit that!