a cautionary tale on deleveraging!, page-15

It is about owing more than is owe to you, how could this tale work say if the butcher only owed the farmer $80 dollars, the chain of events would be broken, and the hotel operator would be in jail, the tale is just that, there was $500 borrowed and $500 lent, all the $100 allowed was "liquidity' to settle those transactions.

Your house mortgage is not just an obligation on the future, most loans can be called at short notice, they are a DEBT, how many US citizens are underwater on their homeloans, and what about all the other debts like credit card, personal loans, auto loans that have turned sour, the game of easy money is coming to and end.
90% of this money was created by the fractional banking system anyway, and then bailed by the government.

The example is correct in this tale only, because each has a debt of $100, and a now liquid asset, of exactly $100, and agree to settle immediatly with the other party. This would not happen in the real world .

What happened in the GFC would be more like, the tourist puts his money down, the hotel operator rushes to the butcher, but the tourist notices mould in the stairwell and changes his mind half way up the stairs, comes down and the $100 is gone, he sues the hotel owner, who goes broke, the reciever then chases the prostitue for the $100 owing, she does a runner, and all the local men, have no one to bring them comfort, or she threatens to tell the co-op guys wife of his miss behavings, if he doesnt pay his debt to her, this could lead to family and society breakdown. This chain of events ultimately kills the town, because the hotel is still in recievership, has stopped buying from the butcher, who doesnt need as many animals, and less animals means less feed needed, and the prostitute has learnt her lesson and doesnt take IOUs anymore.

cheers grant