ChrisCook:

I'm sure you'll get to the bottom of it, if anyone can

And here I thought you were the expert...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

ChrisCook:

I'm probably out by a factor of ten, but hey, a trillion here and a trillion there, and we're soon talking real money. ;-)

Well, there are degrees of fuckedness. A factor of 10 actually matters, because it's the difference between 2 times world GDP which is unpossible and 150% US GDP which while catastrophic might be manageable.

And the system is no less fucked.....

And there are flavours of fuckedness. The fact that there has been a credit binge in the real economy (households and firms) is somewhat independent of the off-balance-sheet black hole created by the finance firms among themselves. Even if there were not $150 trillion in off-balance sheet liabilities for the banking sector, there are few creditworthy households and firms left because everyone is maxed-out on their credit. That is one flavour of fuckedness that cannot be fixed except by waiting. The other flavour of fuckedness is the $150 trillion black hole. BruceMcF has suggested a way of severing the link between the money-center, deposit, payment-clearing part of banking and the rest. That is a flavour of fuckedness that can be fixed.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith