It is August. In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business happening. Everyone is heavily in debt.
Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro 100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.
The hotel owner takes the banknote in hurry and rushes to his meat supplier to whom he owes E100.
The butcher takes the money and races to his supplier to pay his debt.
The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.
The farmer triumphantly gives the E100 note to a local hair dresser who provided him his services on credit.
The hair dresser goes quickly to the hotel, as he owed the hotel for his room use a month back.
At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his E100 back and departs.
There was no profit or income. There was NO real economic activity. But everyone no longer has any debt and the small town people look optimistically towards their future.
That's the power of velocity of money!
the power of velocity of money
CA Harish Suwalka (Chartered Accountant ( Bhilwara )) (4125 Points)
06 January 2010
CAclubindia
