How to Understand the Economic Recession

The Squirrelmerica Story

“What a good country or a good squirrel should be doing is stashing away nuts for the winter. The United States is not only not saving nuts, it’s eating the ones left over from the last winter.” ~Bill Gross.

Imagine that America was a land of squirrels……………

Since its founding, Squirrelmerica had gone through ups and downs, a civil war, unrest, and a global war on Communism. But it kept chugging along, always creating more prosperity for the next generation. Every generation left more nuts stashed away in the hollows of the forest trees for young Squirrelmericans to enjoy.

But in the 20th century, a strange virus slowly infected Squirrelmericans, distorting their ability to make good decisions. The virus silently drifted through the dense nut forest without the knowledge of the squirrels. The trees began to mysteriously produce more nuts than ever before all on their own. Enormous harvests magically appeared.

This seemed like good news but Squirrelmericans didn’t realize they were under a curse—a magician, one of their own, had found a way to make it look like there were more nuts on trees than there really were.

It seemed like good news at first but it was slowly leading them down the road to nutconomic collapse. But it was not their nutconomy alone that would suffer. Their spirits would also suffer.

Their priorities changed from saving to spending [which is natural if there is really an abundance of nuts], from earning to entitlements, from peace to war and from work to idleness.

Because of the squirrelagician’s curse, Squirrelmericans carelessly ate way more nuts than they needed [but who could blame them, the magician had created the illusion of excess prosperity].

Every squirrel was extremely fat and happy—they’d just lived through an incredible nut party that had lasted 25 years. When they couldn’t eat any more, they threw away perfectly good nuts. They used their edible nuts to build yachts, giant screen TVs, mansions and skyscrapers. They bought giant cars called NUTS-UVs that consumed a great deal of nutsoline to run.

The Causes of the Nutconomic Recession

Throughout the party years, no one realized they weren’t planting new nut trees. Because the old trees seemed to mysteriously produce nuts all on their own, the squirrels stopped thinking of the future.

“The trees are blessed with strange magic, we need not work nor think of tomorrow!” they said.

So, the party just kept roaring along thanks to the great Squirrelagician; no one noticed the coming nutconomic catastrophe. Because they expected the magic to continue to work, Squirrelmericans doubled their rate of consumption and waste.

After eating all the nuts they had available, they devoured the nuts their parents and grandparents had saved up over the past 200 years (since the founding of Squirrelmerica when the first Squirrelitans arrived on Plymouth Nut).

After their nut inheritance was gone, they borrowed nuts from Chinese squirrels. For some reason, the Chinese squirrels were willing to eat much less, (and almost suffer hunger) in order to lend Squirrelmericans more nuts to consume.

After Squirrelmerica ate up all of its saved nuts, all of its nut inheritance and all of its borrowed nuts, a long, deep winter set in. Then tragedy struck, the squirrelagician’s potion stopped working! Squirrelmericans finally understood that the squirrelagician was a fraud and that the magic was a curse in disguise. As the weeks turned to months, Squirrelmerica’s citizens began to shiver in the cold and moan of hunger.

A great deal of anger was stirring in the forest as the suffering intensified. The unemployment rate was 20%, 40 million squirrels were on nut stamps and millions more turned to peanut kitchens to stay alive. Inhabitants joined protest groups such as nut militias and nut parties to give voice to their anger, to demand change.

The Proposed Fix

Squirreliticians on Nutcapital Hill became alarmed and quickly turned to their secret weapon to alleviate the pain (and to save their furs)—the money printing press.

“No need to fear”, said their central banker Ben Squirrelnanke, “we’ll keep printing nutty money (Squirrel Dollars) to avoid hunger and cold.” Its government also continued to borrow money from every other squirrel nation in order to stimulate the nutconomy.

Now, when trillions of dollars of nutty money entered the nutconomy, do you think more nuts (wealth) were created as a result? Was food more available? Of course not!

All Squirrelnanke and the Acorn Treasury did by flooding the nutconomy with nutty money was to increase the ratio of dollars to nuts, not nuts to squirrels. No more wealth was created because no more nut trees were planted, nor nut factories built [this is why stimulus do not work].

Sadly, when Squirrelmericans finally saw the importance of saving and investment in their nutconomy, they found they couldn’t do so! The nutconomy had changed.

When a lot of extra nuts (savings) were available, they could’ve invested in better factories and more fruitful nut trees. Doing so would’ve resulted in a surplus of nuts (wealth). But they decided to party instead when they had the chance to build a brighter future.

After all, thanks to their great Squirrelagician, Alan Squirrelspan, they had no idea they were over-consuming their nuts (capital)—they thought they were eating from a real surplus, from a miraculous and bountiful harvest.

But now, all available nuts must be used for survival (what economists call present consumption); it’s something Squirrelmericans call ‘living from nutcheck to nutcheck’.

As I explain the principles of wealth creation [practical economics] in the following letters, remember this story because it teaches us almost all we need to know about it.

~ THE END.

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