[Porsche-O-Phile]

(Part 2, continuation of above):

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"What's the third reason for this inflation?" asks John.

To which I reply:

"The third reason isn't related to greed. It is due to the prosperity of the people over in Potatoville. As Potatoville develops its economy, they grow and sell more potatoes. This increases their own demand for oil. That increased demand pushes oil prices up. Again, because our economy runs on energy, Potatoville's prosperity is contributing to the inflation you are seeing here in Tomatoville."

To my amazement, the men, acting as if they have been enlightened by some deep philosophical discourse, all nod their heads in agreement at the utter nonsense I have just spewed. We then resume the game.

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! How am I going to pay off my debts to the town's merchants? 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)

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There's a lot more good discussion on the web site (no affiliation, just found it interesting).