The Hot Air Balloon Economy

The interplay between debt and income can be a difficult thing to understand. Here is a useful analogy. Imagine a hot air balloon lying on the ground preparing for take-off. The fuel tank, used to heat the air, is the balance sheet in this analogy while the loft of the balloon is the income statement. The pilot begins by firing the burner, causing the balloon to inflate with hot air and slowly stand up. With a little more fuel, the balloon lurches from the ground into the air. It took a good bit of fuel (debt) to get the balloon rising (income).