We may be headed for economic armageddon

The richest man in the world, Carlos Slim, is a fat Mexican tycoon who makes about $27 million a day while a fifth of the country gets by on less than $2 a day.

It’s hard to spend a day in Mexico and not put money in the pockets of this man. He owns more than 200 companies and his wealth represents seven percent of the country’s annual economic output. Do you see anything wrong with this?

How does the US avoid such wealth disparity and develop a strong middle class? Through just laws and taxation.

The “gilded age” of the 1890s, with the excesses of the likes of Rockefeller, Carnegie and J.P. Morgan, sparked a rebellion led by the great “trust buster” hero Teddy Roosevelt, who put the middle class back in control.

That faded into the greedy excesses of the “roaring ’20s,” which crashed in 1929, leading to the Great Depression, the darkest period of economic suffering in our history. FDR led us out of that wilderness to the greatest economic boom in our history, when organized labor cut a much bigger piece of the economic pie for the working middle class.

We repeat these cycles of boom and bust, of unbridled greed followed by deep suffering. Many sense we are about to plunge into another, perhaps cataclysmic, crash. Each month we learn that another pillar in our economic foundation crumbles beneath us.

The mega iceberg that may sink our ship is not Social Security debt or the sub-prime housing debacle but the corporate credit markets, where the exponential growth of credit derivatives has created an unprecedented financial leverage on corporate debt.

Respected fund manager Ted Seides described the enormity of corporate debt: “Credit default swaps contracts now total $45.5 trillion of outstanding credit risk, growing an amazing nine-fold in the last three years alone. Putting such a large number in perspective, $45 trillion is almost five times the US national debt and more than three times US GDP.”

If the economy loses steam, we could drift straight into this mega iceberg and nothing could save us.

Joe H. Crews