Trumpeting a credit crisis when larceny is the culprit

As the closing bell of the New York Stock Exchange stops ringing at the end of each session, there is this Chatty Cathy doll that makes this signature remark at America’s business news channel: “Do you know where your money is?” One might want to ask this “Money Honey” Maria whether she is referring to real or imaginary money; or both.

I came to accept imaginary numbers at a very early age; also made to understand by a dedicated mathematics teacher that they are abstractions as much as regular numbers, and definitely just as real. Of late, larcenous money handlers have been trying to tell us just that… what applies to exact sciences applies to inexact economics as well.

Welcome to the world of financial derivatives, collateralized debt obligations (CDOs) and myriad other ballooning schemes that create imaginary wealth where there might be little or none, capital that can be real or imaginary, genuine or counterfeit.

Einstein opened the universe to us with a rather simple equation (formula), e=mc². And it’s beginning to look as if in the world of economics, debt or credit can also be brought down to a simple equation that defines where we stand in the monetary universe; where the “paper value outstanding,” all floating around the world over burners of hot air, can be 4, 6, 8 or more times the annual gross domestic product (GDP) of the entire globe. I don’t know what that formula should be, or the econometric model required to arrive at it, but I have reached the conclusion that under our capitalist system, one with few or no controls, debt – imaginary and real – is turning out to be simply a function of larceny, or D=f(L). And even more inconceivable to me is that we don’t seem to understand or even care, putting ourselves at the mercy of financial predators and a government that is fiscally irresponsible, only concerned for those in society who represent power and monopolize wealth. Outstanding paper debt in excess of 4 or 5 times GDP is, in my estimation, likely to catapult us into a level of unconscionable risk, and deep recession.

But hey, we are already there! Depending where you get your numbers, the world is fast-drowning in debt – imaginary money that travels at wire-transfer speed – most particularly here in these United States. An annual global GDP of about $60 trillion has been “derivatized” one way or another by a multiplier of at least 7, perhaps 8 ($450-500 trillion appears to be the range); and if that isn’t economically suicidal, someone please tell me what is. In this new version of the Ponzi scheme, carrying the imprimatur of most governments around the world, many will get seriously hurt, some by virtue of their own greed tilting their leveraged debt on overvalued assets, others by being caught as innocent-bystanders in the great spiral of mismanagement by those long thought to be institutional low risk-takers – starting with the epitome of conservatism: pension funds.

Much as the dot-com bubble which burst six years ago, or the prior bout with Milken’s “junk bond” toxicity, both de facto consented by our economics-libertine Fed, the now-began recession is likely to affect the world economy in a measured way, particularly the emerging economies and energy-rich nations. Not so in the United States, where an unwarranted flattening of interest rates has created the perfect conditions for a major recession, one which could attain a life of its own in the cauldron of overvalued housing and investments, used as replaceable-manna for inexistent wealth and unreal growth. This long-lasting episode will turn out to be a larceny crisis, not the credit crisis the folks from Wall Street would like us to see. The chicken thieves, now that they have stolen all the chickens, are coming back to get any eggs they might have left in the coop. And they are succeeding, a quarter point, or even a half point at a time from the Fed, at a time when overall, and markedly understated, inflation is starting to run rampant!

Globalization has always been about the free movement of capital, and not free trade – with the unequivocal response, not of a synergistic global economy as we’ve been told, but of greater distancing between rich and poor. In similar fashion, liquidity, now truly global, will greatly shrink and lose its hot air after the ascent has taken us to the apex of the pyramid, and many trillions in overvalued assets will start to slide down, something that will keep the US economy sober for some time to come: at least a decade, perhaps longer. All indications are that we have reached this apex… that we are at the very top.

In the United States we may be hard-pressed to accept this moment of reckoning since we’ll probably be affected two or three times as hard as people elsewhere in the world. For one thing, if there is any bailing out, we’ll have to do it on our own, and no longer count on America’s most exclusive and profitable export since it islikely to find itself without any significant market in the world. No, we are not referring to weapons; or technology; or commercial aircraft; or entertainment… for the most profitable export in recent times has been of the intangible variety and one which requires neither labor nor material… only wizardry and salesmanship in presenting highly overvalued debt paper, and a currency to match. Many Americans were probably fuming a couple of days ago when Iran’s Ahmadinejad, at the OPEC meeting, stated that the American dollar wasn’t worth the paper it was written on – irritation being probably his intent – but his pejorative proclamation wasn’t really that irreconcilable from the truth.

Don’t blame “a few” unscrupulous operators in our free capitalist society for all the pain that is soon about to come our way. Yes, we are just welcoming the recession with our national anthem, and the game is about to start. But it’s not a few rotten apples that got us where we are today; we are all complicit in this feat in reverse: subprime lenders; greedy house-flippers; an exploitive and greedy real estate industry ready to serve… itself; a Fed ready to please whoever holds the political reins; a government out of control in blatant warmongering and empire-building; an economy far more dependent on consumption than productivity and savings; and a people who have been purposely kept ignorant in their gilded cage, told by politicians and preachers that greed is ok… the heart of our capitalist system, Blessed be the Lord.

There are trillions of dollars playing musical chairs and the music is about to stop; and from here one can see that many of the chairs are as imaginary as the phony capital that is about to sit on them. It’s going to be a long and bumpy ride… “Maria, do you know where your money is?”

It isn’t a credit crisis we are living through, but a two-decade larceny crisis. Instead of authoring “The Age of Turbulence,” Alan Greenspan should have opted for his very own confession, calling it “The Age of Larceny.”