Once upon a time, in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and, as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20 for a monkey.
This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each, and the supply of monkeys became so small that it was an effort to even find a monkey, let alone catch it! The man now announced that he would buy monkeys at $50!
However, since he had to go to the city on some business, his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35, and when the man returns from the city, you can sell them to him for $50 each."
The villagers rounded up all their savings and bought all the monkeys.
They never saw the man nor his assistant again, only monkeys everywhere!
Now you have a better understanding of how the stock market works.
1 comment:
So when the villagers complained to the the local government official, the official reported it to the treasury which then taxed the villagers for selling thousands of monkeys at $10, hundreds of monkeys at $20 and dozens of monkeys at $25.
The government then taxed the villagers against future earnings in order to set up a monkey breeding programme (monkey bail out plan) to replace those monkeys lost in the wild so that when the villagers' financial situation improved, the villagers would again be able to go and catch monkeys once the nice man returned.
Now you have an even better understanding of why governments encouraged markets to behave the way they did!
Regards, Karol
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