The BIG-Economic bubble!

One-hundred people own the same One-hundred rupees. Confused? Read along. This, however, isn’t supported by immaculate data but simple amateurish observations.

You earn a hundred rupees after a hard day’s/hour’s/minute’s/whatever’s labor.. (Hundred bucks since we don’t want to complicate an already seemingly complicated topic) So… You’re happy you made a century with money… and you go jovially to the bank and deposit your hard-earned bucks expecting interest off them. Now. The bank promises you an 8-10 odd percent of interest. But ever wondered where the hell do they (the banks) manage to make a 15% cut (I mean, they too need to earn right?) off your and thousands of others’ similar hundred bucks? Right? So, they loan your hundred bucks off to another party at 15% interest. Now, if this party is paying a 15% interest on the loaned principle, they too need to make their buck right? They too need to make profit! Which means they need to earn at least a 20% on that hundred bucks (which is yours, mind you) so as to run their enterprises! Now if they need to do that, they need to pass it off to another further party at a higher rate of return. So you get the picture. This chain is endless. And, notice! At the same time. You own that 100 rupees. The bank owns that 100 rupees. The party owns that 100 rupees. The further-party owns that 100 rupees. And so on, till wherever the chain runs to! Woah! Hard to digest? Well, here comes more!

The government taxes you on your hundred bucks. Ok. The government taxes the bank on the bank’s net asset value (which includes your hundred bucks and those of several thousands of people). The government taxes the people who take money on loan from the banks. The government taxes everybody in the friggin chain! So where the government should have earned a modest 30% (max) or 30 bucks on a 100 rupees. It is making thousands of bucks on the same, your hundred rupees. In reality, there is only a hundred rupees. But due to such woven complicated chains, we have inflated the country’s wealth. Which is why, perhaps, we’re looking forward to plunging in abysmally high rates of inflation in the future. Which is why, perhaps, we’re sitting on such high fiscal deficits. Which is why, perhaps, the rich are getting richer, and the poor are getting poorer. And so on.

To sum it all up. In reality, there is only a hundred rupees existing. But due to this network of unending economic on-paper chains, the same hundred rupees is owned by a hundred people which makes it an astounding ten-thousand bucks! You understand the deficit, right?

This might seem highly opinionated and unnecessarily blasphemous. Comments are welcome.

7 thoughts on “The BIG-Economic bubble!”

  1. I am not that convinced. You need to support this claim with some data. You are forgetting to take into consideration the resources involved in a transaction. Everyone is spending some resource(including time) over the earning. A nation's wealth is calculated on its natural resources(from what I remember from my economic studies)
    Anyways I am a techie…so I may also be completely wrong:)

  2. You're dead right.

    Time is an important factor. But here, I'm talking about a hundred people owning the same hundred rupees. So if this chain takes 5 years to complete or 10. DOesn't make any difference. Cause wealth, at the end of the day, has been inflated. The 100 bucks are, in 5 or 10 years, blown to 10,000. So, I don't really see the time being an extremely crucial factor here.

    And… Yes, to make things more convincing, I'll definitely need to have this argument supported by stats. I'm working on them..

  3. Hm…but dude…if five years are gone…won't money have come in from other countries by then, filling the deficit? Like, the guy who has taken the loan earns money from people buying his product or whateva…and him repaying some cash to the bank which has some more money to give to the common man? And yeah i know…we probably talking about global effects here! Like…in the end, the money is just goin around in huge circles? But don't the respective banks, like, print money from time to time? So the deficit is technically being filled, the world is growing richer as a whole, and things are becoming more expensive. And therefore-what cost, like, 10 paise before, costs like ten bucks now. But income has increased approximately proportionally…and voila-things are fine! See? So all in all things are pretty much the same…except things go up and down relative to the general average….like relative inflation…but not AS much as you say, nein?

  4. -Not the banks, but Government institutes print money, like in India we have the RBI printing money, in the States, its the fed. reserve and so on. And when they print money to fill in the deficits, it is that action that directly leads to inflation. When there is more money, and constantly reducing resources, we have inflation. Which is why indirectly, these “chains” and the “inflated” balances lead to inflation.
    -And no, the world isn't growing rich as a whole. Its the rich, who're getting richer. And they account for hardly 2% of the world's population.
    -Things aren't fine buddy. For example, go to a vegetable mart. Buying vegetables has become a literal luxury today. When did we make budgets We have countless strikes over rising-prices, insufficient salaries, etc.
    Everything is rising too fast. The rich are comfortable. But its the middle and poor classes that are really facing the brunt of things.
    -The up and down to the general average part. That is due to trading activities. Speculation/bets/etc.
    -If everything is alright, why do you think we faced this recession. It was a bubble that burst. Money that wasn't there in reality was on balance sheets. And yes, this is not any general downturn. Such a mammoth recession hasn't been faced for decades, the last one being in 1929. That was faced due to WWII, did we have a war this time? No. It was a credit and sub-prime mortgage crisis, which is nothing but exaggerated bank balances.

  5. And might I add. India was relatively better off than the Western nations during this downturn. Why? Cause Indians save 30% of their earnings on an average (which is a certified fact). Which means, that they don't put that 30% of real money (ie Gold, etc) into the money-inflating chains. Which is why, we were not completely hammered by the bubble-burst.

  6. Hm…nai dude…buying vegetables ain't a luxury yet. Nah. Everyone buys vegetables. Including the poor. :-P And i'm agreeing that inflation happens. But i'm saying that as prices rise, salaries also do rise…more or less proportionally [the more and less depends on the relative thing]. And the recession happened because American banks are too liberal about loans [your favourite 'Money on Paper'] and people keep on blowing the money and declaring bankruptcy…which leads to banks seizing the land and trying to sell them. But too many loans equals too much land for sale, leading to falling Real estate prices and banks recovering less money than they paid. Which means that the banks themselves declare bankruptcy, the people who had money in the banks suddenly realise they DON'T have as much money as they thought they did, and the so-called bubble bursts. Ergo, recession. So the banks aren't really the criminals here, they're some of the victims. And going on and on about the poor getting poor…you leaning towards communism maan?

  7. “and people keep on blowing the money” – Blowing the money to where? Mars?

    You go and deposit the money in banks. The banks Loan that money. The loaner blows it up into the chain. And so on. *Which is what has been my point throughout!

    Why do you confine the recession only to real estate. Banks deal in much more than real estate. RE accounts for just a portion of the banking business.

    I never said any one was a criminal.
    And buying vegetables has become a “literal” luxury. Fruits. Crazily expensive. Please do some research on vegetable/fruit price trends.

    You don't see the the gap between the rich and poor widening? Since the millennium year till 2007, before the recession waves hit the shores, the average percent rise in billionaires' wealth worldwide was 600%. The poor. well lets not even talk about their wealth. There is nothing communist about this.
    You're missing my point. Im not suggesting the government take over everything.

    Im just observing the current monetary systems. And how they inevitably lead to bubbles. Bubbles that further eventually burst. The Ping-pong irony.


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