Market crash, crash course…

Once upon a time, there lived a wise and benevolent king. Now, this king understood his people. He knew their needs, he knew they needed a stable money supply. So, unlike his rivals in neighboring kingdoms who traded IOUs from their the king as if it were money, his kingdom used real money - commodity certificates redeemable for commodities stored in the king’s warehouse. The people thrived, as prices were predictable, so farmers, shepherds, and wall street traders were able to steadily grow their businesses.

Then one day, the king’s son wanted an extravagant new castle with a turnstile for totally hot babes, and he also wanted a 10,000 pound urban assault vehicle to haul all those smokin’ hot babes around. The king’s son saw all the other kings’ sons in the neighboring kingdoms living like, …well kings, and he wanted that too. He tried to convince the king to remove the redeemability clause on their money supply, but the king refused.

Eventually, the king got old, as kings often do, and the prince took over. The prince called Congress together in the middle of the night and implemented a grand new central bank who’s purpose was to act as a printing press for the prince. The prince also repealed the redeemability clause on the money supply. Soon, the prince was printing all the money he wanted, and was able to buy the fancy new castle with the turnstile for hot babes, the urban assault vehicle he always wanted, and was even able to fund wars against other kingdoms who he felt threatened by, because they hated freedom.

The people seemed happy as well. They felt rich like never before. “Under the old king”, they would say, “I could only afford 5 pigs from the treasury. But under the Prince, I have enough money to buy 50 pigs!” It didn’t seem to matter to them that they could not actually redeem their money for pigs. “I have faith in the prince”, they would tell eachother, “and that’s all that really matters.”

But then something strange happened. The kings in the neighboring kingdoms realized what the prince was doing, and so they lowered the credit ratings on the kingdom. Now, a barrel of the finest first press baby oil skyrocketed from $30 to $100. The prince knew this was not good, so he slowed down the printing press.

But by now, the people had become accustomed to ever increasing prices. You see, with all the new found wealth, even peasants had been able to buy castles with zero down. But suddenly, they found their ARMs adjusted upward - these are the bad kind of ARMs, not the ones attached to your shoulders that adjust upward begging for help when markets crash - and they couldn’t make their payments. They began to default on their loans, which triggered a massive sell off in the markets.

…and they all lived happily ever after.