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[illriginal]

THE

GREAT TOMATO BUBBLE

DEDICATED TO CONGRESSMAN DR. RON PAUL. MAY HIS COURAGE AND DECENCY INSPIRE US ALL.

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DO YOU EVER WONDER?

Ever wonder about why our economy is in trouble? How can so many people can be in so much debt at the same time? Does it seem strange to you no matter how hard one works, and in spite of all the advances in society, most hard working people cannot escape the treadmill of perpetual debt?

Why are so many families losing their homes to foreclosure? Why are many households dependent upon credit cards to supplement their income? Why does it take TWO spouses to maintain a household when it used to take just one? Why have so many retirement savings been wiped out? Why do prices always creep up?


Did you know that roughly 1/4 of all income taxes are consumed to pay interest on the Federal Debt? (National Debt currently 11 TRILLION DOLLARS , or $100,000 per household.) Think about it. Every penny that you pay in income tax from January-March is consumed to pay interest! (*2008 Income Tax revenues: $1.25 Trillion / Interest owed on Debt: $261 Billion) And let's not even talk about the Government's unfunded future liabilities, estimated at 60 TRILLION. (an additional $600,000 per household.)

Add those staggering sums to your mortgage debt, car loan debt, student loan debt, credit card debt, State debt, County debt, City/Town debt, small business debt, big business debt, and you will see that the total of these debts actually exceeds (BY FAR) the amount of money supply in circulation.

So, how can such astronomical debt ever be repaid? Well, if you haven't figured it out yet - IT CAN'T. The only way to service just the interest on these monstrous debts is to constantly take on new debts.

Finally, on top of all your Federal, State, gasoline, and local taxes, (30% - 40% of your gross income) and on top of your personal debt service burden (another 25%-50%), there's this thing called "inflation", or "the cost of living." What exactly is "the cost of living?" What causes it? Why does a dollar buy less and less each year while wages stay flat?

Is the stress of perpetual debt and rising prices keeping you up at night? How many strokes, heart attacks, and even suicides are induced by financial stress each year? Money and debt may even have led to your drinking problem, or perhaps even to depression. Debt may have been the underlying cause of your divorce or that of some couple that you know.

You know in your gut that something isn't right in this country. But you don't have the "Economics education" to figure it out. It all seems too complicated for you to put your finger on, so you just keep slaving away to pay interest and taxes as your dollar buys less and less. All you can do is keep working like a dog and leave the matter to the Wall Street "experts" and politicians to handle for you.

But it's all quite simple really. So simple in fact, even a dummy can understand it when it is broken down to basic elements.

So then, how exactly did you all become such debt/tax/inflation slaves? Well, I'll let you in on my little secret. You will be amazed at how easy it is to understand.

My name is Mortimer M. Moneybags III and this is the true story of how I bankrupted and enslaved my hometown of Tomatoville, USA: THE SETUP

One night, Bill, Frank, John, and Mike came over to my place for a friendly game of poker. My four neighbors are all prosperous tomato farmers. Tomatoes actually serve as the currency of Tomatoville, USA.

Before starting, the five of us agree to each put up 10 tomatoes as our "risk capital." That's a total of 50 tomatoes. (Gross Domestic Product - GDP)

Play begins and we realize that trading tomatoes during our bets is awkward. I suggest that we utilize paper notes to represent our tomatoes instead. Because I hold a degree from Harvard, all agree that I should act as "Central Banker".

We place our tomatoes in the center of the table and I print 50 paper notes with the face of Tomatoville's founder on them (corresponding to the 50 total tomatoes, 10 notes for each player). Each paper note therefore represents 1 tomato....simple. (sound money/hard money/gold standard)

As play resumes, I have an unseen advantage over my guests. At 30 minute intervals, I repeatedly excuse myself for a "bathroom break." (Fed Meetings) During this time, I'm actually sneaking into my bedroom and printing up more 1 tomato notes (fiat money). The Money Magician creates money out of thin air. Upon returning, I gradually gamble and inject ever increasing amounts of notes (liquidity) into the game (the economy). By midnight, the original 50 notes has increased to 500 total notes.
After ebbs and flows, the game was remarkably even at midnight. The five of us, who had each started out with 10 notes apiece, now held 100 notes apiece. But the same 50 tomatoes -the true intrinsic value of the game - (GDP) remain in the jackpot.

Because we are getting so "rich" from the game, I propose that instead of ending the game, we leave everything as is and resume play the following month.

"Why don't you fellows spend some of your Tomato Notes, and save some to invest in next month's play. Tell the shopkeepers that each Tomato Note represents one tomato that is still sitting on this table. They'll accept the Notes as if they were actual tomatoes."

"Great idea Mortimer! The paper is so much more convenient to trade than the tomatoes." replied Mike.

All agree to suspend play and resume next month. Before they leave, I announce that I'm cashing in 20 of my 100 notes in order to make tomato sauce the following day.

At the original ratio of 1 note to 1 tomato, my 20 notes trade for 20 tomatoes. I have doubled my original "investment" of 10 tomatoes (profit taking), and still have 80 paper notes with which to resume the game next month. There are now only 30 total tomatoes remaining on the table.

As I expected, my friends have no intention of cashing in any of their "winnings" because the returns from the game are so high. They each hold 100 notes and really believe that their original 10 tomatoes have yielded a 10 to 1 return from playing the game (Bull Market, irrational exuberance). "Let's go shopping!" When the players explain to the town merchants that the Tomato Notes represent actual tomatoes that are stored at my house, the merchants gladly accept the notes as if they were actual tomatoes. During the ensuing month, the players spend many of their notes and take out various loans as well. Bill buys his wife a new sports car by putting down 25 Tomato Notes and taking a loan for the balance. (Detroit prospers.) Frank takes out a small business loan to open up that restaurant he's always dreamed about (job creation).

John puts down a 50 Note down payment and signs a contract for a new home mortgage (housing boom).

Mike spends 40 of his Tomato Notes and also goes on a credit card shopping spree (consumer confidence).

The local bank manager also trusts that the Tomato Note income of the borrowers represents true wealth, so he honestly believes that he is not engaged in risky lending when he lends out his depositors tomatoes to the successful poker winners. (Sub Prime mortgages, No Money Down Mortgages)

The bank then sells some of the loan notes to The Tomato Street investment houses. Blinded by greed, and ignorant of "the big picture", Tomato Street portfolio managers believe that the debts are solid investments for their clients. (secondary market ,mortgage backed securities)

So not only do the four players believe that they are prospering, but the businessmen that are now selling more goods to the wealthy poker players believe that they are earning more Tomatoes also! They too increase their personal spending and borrowing accordingly. (multiplier effect)

Me? I just rub my hands in glee and laugh at how foolish these people are.

The economy of Tomatoville is BOOMING......or so it seems.
THE STING



The Poker players and I meet again at my place and pick up where we left off the month before. After a few hours of more silent note injection, 1000 notes now circulate evenly among the players (200 each). My guests boast among themselves about all the new toys they have recently charged. They aren't worried about the debts they are incurring because, if necessary, they can always cash in their abundant paper notes for tomatos (equity) and pay everything off free and clear.


After a few more hours of play, I decide to trade in 20 more paper notes for 20 more tomatoes (insider trading). My friends ridicule me. "Mortimer! Why would you trade in notes for tomatoes when we are all making so much money?" they ask.

"I just want to lock in some of my winnings now. You never know if fortunes may turn." I replied.

I have now "earned" a total of 40 of the original 50 tomatoes from the table, quadrupling my initial investment. Whereas my scam was not obvious before, my victims now clearly see that the true value of the tomato jackpot has diminished (recession, Bear Market). They each started with 10 tomatoes. So how come they hold hundreds of notes when there are only 10 tomatoes left for the four of them to divide?

Bill panics. "I'm trading in!" he declares. He dumps all 200 of his notes and attempts to grab the remaining 10 tomatoes (stock market crash, bank run)."

Not so fast Bill!" declares Frank. "If you get those remaining tomatoes there will be none left for us!"

"Oh my God! Mortimer! What's happened here?" Mike asks.

My expression turns somber as I reply:

"Damn! I was afraid this might happen. Because we were doing so well, the game "overheated". The Tomato Note fell against the tomato. When that happens, the cost of playing goes up (inflation) and then a contraction occurs (recession). It's a natural cycle."

"So how do we allocate the remaining tomatoes?" John asks.

"Simple." I replied. "It's called currency devaluation. You four each have 200 notes in hand, and I have 160. That's a total of 960 notes in circulation (money supply). There are 10 tomatoes remaining. Divide the 960 notes by the remaining 10 tomatoes and the new cost of a tomato is therefore 96 notes (hyper-inflation). That means that your 200 notes can buy back 2 of the remaining 10 tomatoes for each of you."

The paper Tomato Note currency has lost its purchasing power (inflation, bubble bursting) and my 4 neighbors have each lost 8 of the original 10 tomatoes they had once owned. I walk away with 42 of the original 50 tomatoes. (real wealth)