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I commend Mr Leonard for this article (and indeed for all his work) and for his curiosity for things that belong in "the other world". But I don't think derivatives are the real problem. For more than a decade, US consumption has been fueled by ever increasing debt, largely mortgage refinancing. With house prices no longer rising, that source of easy money is disappearing. People will now have to live with what they earn - that is, with much less than they used to. Their discretionary spending will dry up, since debt service, fuel and food will use up most or all of their income as of now. The subprime problems add to that, but they would have been manageable in a balanced economy. The point is that the economy may be doing fine in absolute terms, but it's not balanced. The people who produce don't consume and vice versa. That can't go on forever. Hence the stock market panic, the volatility on currency markets, etc. Everyone fears that the moment of reckoning has finally arrived.
