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How an Economy Grows and Why it Crashes by Andrew J. Schiff, Peter D. Schiff

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Chapter 17. THE FISH HIT THE FAN

THE FISH HIT THE FAN

As the daily deliveries of Sinopian fish slowed, things began to change.

When the Sinopians, the biggest buyers of Fish Reserve Notes, reduced their purchases, the supply of notes began to overwhelm demand. When there is more supply then demand, prices have to fall. As Fish Reserve Notes steadily drifted downward in value, no one wanted to be the one left holding the bag. The Bongobians and the Dervishes then joined the Sinopians in limiting their purchases. With plenty of sellers and no buyers, Fish Reserve Notes entered a death spiral.

THE FISH HIT THE FAN

Stuck with stacks of rapidly depreciating notes that he couldn't sell, the Sinopian king realized that events had moved beyond his ability to control. Knowing that his island's Fish Reserve Notes would soon be nearly worthless, he prepared his subjects to bite the bullet. At a mass rally he assured them that short-term pain would soon give way to long-term gain.

THE FISH HIT THE FAN

As expected, the value of Sinopians' savings of Fish Reserve Notes turned out to be a mirage. The Sinopian economy was pushed into disarray as some businesses closed. But as the peasant had predicted, other businesses soon stepped in and used the spare capacity to ...

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