The effects of our financial house-of-cards collapsing are everywhere: home foreclosures, unemployment, stock values cut in half, retirement savings lost. The cause, however, is a bit harder to discern as we are distracted by false leads (Fannie Mae and mortgage brokers) and side shows (Bernie Madoff and AIG bonuses).
To solve this case, we must remember to always ask the next question: What enables all of these sideshows? What economic force allowed for the housing bubble, too-big-to-fail financial firms, the trillions of bailout dollars and endless government deficit spending?

If the boom-bust cycle is ever to be stopped, we must walk past the sideshows, go inside the big-top and observe the main event. That event is a magic show called money creation, where, like pulling a rabbit out of a hat, the Federal Reserve creates money out of thin air.

All politicians know that raising taxes is a career-ender, but more handouts for their constituents is a career-extender. As legislators become addicted to spending, they know the money well will never run dry. Can't balance the budget? Need a monetary fix? No problem, the Fed is a licensed counterfeiter always ready to deliver the goods.

This is why Congress allows the Fed to carry on in secret with its unfettered expansion of the money supply. Congress is a money addict and the Fed is its enabler.

Injecting liquidity into the market would be one thing if this credit were backed by capital, but just the opposite is true.

With no gold reserves, all of our money is created out of debt. This is why every bill in your wallet says "Federal Reserve Note," not "silver certificate" or "gold certificate."

Modern dollar bills are instruments of debt, not of capital. Ben Bernanke is unquestionably a learned individual, but he must have been absent the day his professor discussed the definition of capital.