One of the problems with the financial world is that the average American does not understand it. Take for example the popular wisdom about the Wall Street crisis. According to this view: No cog in the federal government’s machine of financial regulation let down the country by failing to prevent the latest—and largest—shakeout on Wall Street; the entire system did. In short, most people think the current financial meltdown is the culmination of 28 years of deregulation and lack of oversight. Although true, this view misses an important point.

Nowhere in the avalanche of bad news is the Federal Reserve called to account. Blaming the entire system or the Republicans or the Democrats or lax regulation conveniently ignores the Fed’s role in creating excess liquidity out of thin air—trillions of paper dollars backed by nothing in particular. Without the flood of cheap cash the Fed ginned up, credit would have retained a higher cost and been less available. When banks are awash in cheap paper, they seek to lend it. If there is so much paper that all the credit worthy borrowers have drunk their fill, then banks begin turning over rocks to expose the sub-prime and sub-prime borrowers.

Debt instruments have always been a source of interest revenue, but if the creation of these instruments is based on loans that have little chance of repayment, failure is inevitable in the long run. At this point, the holders of the paper look to the entity that “guarantees” the debt. In the end, it is the “full faith and credit” of the US government to whom they turn. Of course, that government has plenty of “faith,” but their “credit” is insufficient to make good the tsunami of bad paper and worthless debt obligations that are coming due.

What to do about the issue of the Fed’s illegitimate and self-destructive role in the debasement of our currency? There truly is nothing much that can be done to stem the tide of default. Certainly printing up even more “money” to bail out the hapless banks and shareholders, as the Bush administration proposes, will only exacerbate the problem and further debase the already anemic US dollar. And what is enough---$700 billion—$1 trillion—or MORE? Neither of the anointed candidates seems to have a clue as to the severity of the crisis, let alone any sort of real plan of action. At this point, the US economy is truly a lurching zombie, mindlessly stumbling from one disaster to another.

The future is not rosy. We look to history to get a peek at the future, and it does not look good. Think depression, or perhaps hyperinflation, or maybe massive deflation, or even stagflation. Without true leadership that faces the problem and pulls the country together to survive the debacle, it will even get worse. But, hey, this is all too depressing. Let’s concern ourselves instead with abortion rights, gun control or the phony “war on terror.” Let’s blow whatever capital we have left on brainless wars of occupation, military weaponry and desperate “bail-outs” of doomed banking entities. Better still, let’s ignore the whole mess and hope for the best. Sounds like a plan to me.