Basic Economics

We will start by about 15 of us living on a small island.
We have different talents.
Joe can build furniture, and Jerry can catch fish, and John well he is the best post and pan maker on the whole island.
We discover it is better to trade what we make for something someone else makes than for us to try to make something that we do not have the skills to make.
After trading for several years, we decide to just set aside Friday as trading day, and we will all meet at a designated place on the island at a certain time to do our trading, we will call that place the market.
After several years we get tired of carting all of our things to the market, and we know that 20 fishing hooks can always be traded for 2 fishing poles, and 50 hooks can be traded for 3 pots.
We decide to just carry fishing hooks and use that as our exchange item, because real assets never change value, we can always trade 50 hooks for 3 pots.
After a few years of carting hooks around in our pockets someone get to idea to put all of our hooks in drawers at the market, and just use paper to trade our hooks, write out how many hooks go from your drawer to the man with the pot, and now we just trade paper.
We will call the place where the hooks are stored the Hook Bank.
Someone at the hook bank gets all the paper and moves hooks from one drawer to another. What a system.
There is a ship that docks at our little island, and it is full of pots, pots from Pot Island.
Someone says we already have a man making pots, sorry we do not need you,
they say we really need fish hooks because the island where we come from we have no hooks.
MMM the value of the hooks are more off our island than they are on our island. A deal is cut, 12 hooks per pot. But what about John the pot maker, he can not compete. We will add a tax of 4 hooks, that will go to me because it is my island.
Now I collect hooks from a transaction, and no need for me to work. I will govern, and make laws. John still can not compete, and he goes out of business, no problem we have pots, and hooks. John can be retrained.
Time passes, and many ships come to our island, so many that no one on the island makes anything.
Then a ship comes in loaded with hooks, and they offer us so many hooks for what we have we just can not afford not to sell, after all we will be millionaires, our hook bank will be so full of hooks.
We look around and we have nothing but hooks everything we own is gone.
We make a trip to hook bank, now called the federal reserve bank of hook.
We ask for our hooks, after all they have some value, real money never changes value, and we can still get John to make us a pot for 50 hooks.
We are told hooks were hard to handle and the bank of hook decided along time ago to not do the physical transfer any longer, they just used the paper to keep track. The hook standard just wasn’t enough to keep up with all of the paper.
Here we set on our little island with a big piece of paper, and we have nothing, and we can buy nothing. This little island was raided right before our eyes.
America wake up.