Charlie owns two things, a plot of land on the hillside and a can of sardines. Having an entrepreneurial spirit, he decides to use his two assets to generate wealth. He takes his can of sardines to Johnny and says “I have discovered diamonds on my land. I put some of them in this can. If you lend me some money I can buy equipment to mine more diamonds. I will leave this can of diamonds with you as collateral. I know it looks like a can of sardines but it really is diamonds.” Johnny had known Charlie all his life and had no reason not to believe him. So he lent him the money and kept the can of diamonds as collateral.
Charlie took the borrowed money and used it to build a successful business in Long Beach. Meanwhile Johnny took the can of diamonds to Jim and said “I got this can of diamonds from Charlie our trusted friend. He has a diamond mine on the side of the hill. If you lend me some money, I will give you these diamonds as collateral”. Jim had known both Charlie and Johnny all his life and had no reason to distrust either of them. So he lent the money to Johnny and took the diamonds as collateral.
Johnny took his borrowed money and started a successful business in Colorado. Now Jim took his can of diamonds to Steve, well you know what happen next… Jim end up with a successful business in San Francisco and Steve opened a profitable bank in Houston.
Everybody was happily making money, life was good.
The question for the World Economy is this, did someone open the can of sardines or is everyone standing around wondering what is actually in the can. If the can has been opened, we’ll need to find a new can before the economy can stage a long term recovery. If we are still just “wondering” maybe the stimulus packages of the world will restore the confidence.
Either way will know within the next 18 to 24 months.
Bob
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