Where did all our money go?

Hundreds of millions, billions, tens or hundreds of billions, trillions.  What's happened to our money? Where did it go?  What financial blindness created today's economic disaster? Yet, as bad as it is, careful observers predict that today's fiscal and monetary crisis will worsen. 
 
No simple answers explain the multiple causes … unless greed and ignorance are sufficient. However avarice and lack of awareness don't detail how the financial world got turned on its head. I asked my sons, both Stanford econ majors, about it.  They confirmed the lack of easy, comprehensible answers. 
 
In any case, critical triggers apparently went off together as our nation's overseers soundly slept. The result embroils us in a perfect financial storm, undermining our market-based economic structure and putting us all at serious monetary risk.
 
The bursting of America's home mortgage bubble publicly revealed the storm. Now observers, who early predicted the initial defaults, forewarn of another foreclosure round. In the bigger picture, however, the mortgage meltdown alone doesn't divulge the causes.
 
Another scenario might. A homespun case can tell truths that roughly parallel many of the irresponsible financial moves in our corporate, financial and government sectors.  This fictitious scenario, however, drastically simplifies those happenings on the larger stage. The scale of actions by key companies and governments is far more complex than my set-up piece.
 
One day I receive an unsolicited credit card application. I'm told that I can purchase $5,000 with this card. I presume that the spending limit reflects my net worth and debt-paying history. 
 
I say “Thank you very much” and sign-up.  Within days a plastic card cozily inhabits my wallet. I use it from time to time, sensibly at first.  Soon, however, I reach my dollar limit. Shamelessly I have maxed out, succumbing to its easy money allure. Even more ominously I find that I can now satisfy only each monthly minimum. 
 
Thankfully another company presents a similar deal. With appreciation I accept its offer. I get it because it enables me to pay the monthly minimums on the first card. 
 
I now have more debt than the first company believed I deserve. (If otherwise, they'd have offered a higher initial limit.)  Nonetheless I use my newly found treasure to guiltlessly charge more. Addictively I limit out again. A third financial institution rushes in. My wallet soon sports an even heftier plastic bulge.
 
Again and again others bail me out.  I accumulate six, eight, ten credit cards.  No problem, I say, the average American family reportedly has eight of these alternatives to real money. Why not me too?
 
Then disaster strikes. I lose my job; a medical emergency hits me while I'm uninsured; the adjustable mortgage rate for my home loan more than doubles. It's now impossible for me to make even the minimum payments on my expanding credit card collection. My high living on phony money abruptly ends. And while it affects me directly, this halt to my free spending days also affects others. 
 
Clearly I'm broke, but by inability to pay puts my lenders out $30,000, $40,000, maybe $50,000. I'm thankful that my insolvency alone doesn't undermine Visa, American Express, etc. Well it doesn't until thousands after thousands of people like me also fail to pay. Repayment defaults on this scale force companies to downsize and lay off employees. And, like me, those newly unemployed can't pay their debts. They, too, default. We've started the classic downward recessionary spiral.
 
Now these credit companies become very cautious about tossing around credit offers.  They stop making mass credit card invitations. No longer, then, can other debtors like you and me depend on our personal Ponzi schemes to keep us in the black. 
 
The bottom line is that similar scenarios exist on an incomprehensibly massive scale within huge institutions burdened with billions of dollars of debt. Their ongoing necessity to assume debt, similar to my credit card extravagance, is at the heart of the collapse of today's global economy. 
 
As things began slowing down, more and more of them-like you and me-were unable to find additional credit sources to keep afloat.
 
This scenario shows but the tip of the financial iceberg, but it is the substance of much in the larger picture that lies below the surface.


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Gary Knox is a retired Yuma area school superintendent and guest columnist for The Sun.