The L-Word

'As the private sector deleverages, the Fed levers up.'

These were the happy words of some PIMCO official on CNBC, many weeks ago.

The U.S. government's leverage is breathtaking. Hundred billion dollar credit lines extended in zigzags across the economy. 2 or 3 trillion dollars disbursed to banks and insurers in about a month. If even one major bank fails (read: Citibank), I suspect the Treasury won't get back its CRAP loans - then you'll really see a crisis of confidence.

The tragedy in all this is that the real economy, as opposed to the virtual or fictional economy, is quite sound. Think of all the paintbrush manufacturers, the makers of picture frames, PEZ candy dispensers, coffee mugs, guitars, optometrist equipment and parking meters. The real economy has never been so manifold. Now this precious latticework is threatened by monsters out of fiction, like leverage.