It all started because people thought it would be a good idea to buy a six-bedroom house in Riverside.

I do not pretend to understand economics. In fact, I am rather famous for my lack of understanding of economics, because I sit there with a highly confused expression on my face whenever the conversation gets past the law of supply and demand^*. (It's much like my attempts to play poker -- I have a "great poker face", according to my male friends who think poker night is the best way to while away the winter evenings when it's too cold to walk downtown for the bars, because I look confused no matter what my hand is.) This is, of course, in great contrast to my sister, who is a big important financial somethingorother at some big important financial something, which does something big and important with finances. I console myself with the thought that she probably can't talk about the X-ray crystal structures of SRP proteins at great length.

The point of this is to say, said financial wiz sister has been talking about the current economic crisis, and I have been trying not to look confused and, hopefully, nodding in all the right places. But I also have picked up enough to understand, I think, the very basics of what is going on (and again, it has to do with mass hallucinations).

It's like this: When I was in my senior year of high school, our history teacher, Ms. Converse, did a half-assed job of "teaching" us economics in the three weeks remaining in the school year after we had taken our IB exams. We didn't care about learning it, she didn't care about teaching it, because we had all finished what needed to be done for IB and that was what mattered, but being taught economics was a requirement to get a high school diploma in California, so by God, she taught us economics.

I remember very little of this, because I spent most of that time in the haze of exhaustion that comes after completing the two most grueling academic years of your life (still unmatched, even by a PhD program in the sciences), but I do remember two things: that damn supply and demand graph, and the following conversation:

Ms. Converse, having gone through the barter economy (which I understood) and the specie economy (which I didn't), then told us that we were now in, or at least partly in, a new "credit" economy, where money wasn't "real" (in the sense that it was represented by chickens, or pieces of gold/paper), but rather was, as she put it, "zeros in a computer". She claimed that this then meant, essentially, an infinite supply of money, and a credit economy hence avoided the "crashes" that occasionally occurred in a specie economy, because zeros in a bank could be manipulated in a way hard currency couldn't. To me, this seemed farcical, because to me it seemed that believing that zeros in the bank were money was no different from believing that a piece of printed paper was money, and therefore this new-and-improved "credit economy" was nothing more than a specie economy with a laptop and a blog. So indeed, while having money represented by zeros in a computer promoted lending in much the same way as having a ghetto of Jews (having been forced by increasingly oppressive laws to jobs in usury, the only job Christians wouldn't touch) in your city in the High Middle Ages promoted lending, it in no way prevented a crash because belief still dictated the market. In fact, it might promote it, as if people believed what Ms Converse believed, that is, that the zeros in the computer were actually free money, they would spend above and beyond their worth. And that, while the zeros in the bank may be manipulatable by someone who has a Pentium III processor and a good knowledge of calculus, eventually someone is going to ask where the money actually is.

I said as much to Ms. Converse, at the time, and was told that I obviously didn't understand economics or how the market worked (both true) and I was completely wrong (possibly not true). Since I had been told for at least four years that Ms. Converse knew what she was talking about, I didn't argue.

But it seems to me, now, looking at the current financial crisis, that I was correct on one fundamental thing: eventually, even in a credit economy, someone is going to ask where the money actually is. And then find that it isn't.

If that's not a recipe for a crash, I don't know what is.


^*I understand the barter system really well -- I have three chickens, you have a pair of shoes. You would like roast chicken for dinner, I would like to be able to walk without my toes sticking out of my shoes. We trade. End of deal. It's the transition to a monetary economy I don't get -- money is a mass hallucination where everyone agrees that they will all pretend that this piece of stamped gold (or this piece of printed paper) will be worth what it says it is, even though it has no intrinsic value in and of itself. The economists tell me that this is a good thing, because if you can convince people that a piece of stamped gold is actually worth MORE than it was, say, five days ago, you have actually created money without, say, having to go through the effort of raising another chicken. To which I reply, yes, but say your arch enemy decides to convince people that the piece of stamped gold is now worth less than it was five days ago (by, say, invading Belgium), then you've managed to LOSE money without, as it were, having your chicken eaten by foxes. And at the end of the day a roast chicken is a good meal in your belly, whereas a piece of stamped gold is merely the promise of a future meal in your belly, and reliant on finding a chicken farmer who shares the same hallucination you do about that particular stamp on a piece of gold. And then I am told that I am "remarkably unsophisticated" and have a view of economics that works only in "undeveloped rural economies", which is undoubtedly true (since I don't raise chickens and I highly doubt you do either), but which is also the only view of economics that makes any sense to me.