Phil Gramm was partly right when he said we were in a "mental recession." It's an incomparably insensitive thing to say, but he wasn't all wrong. Given the events of the last few days, it's tempting to say that he was mostly right. Tempting, but not necessarily correct.

I almost minored in economics, taking mostly banking courses after my intro class. One particular class focused almost entirely on the measurement of the nation's money supply. This might seem like overkill until you learn that even the chairman of the Fed can't come up with a reasonably precise figure stating the real supply of money floating around. There are lots of measurements, but all of them are fairly vague estimates.

They have to be, because every second banks are creating or destroying money. Not physically, of course, but in a very real sense nonetheless.

Let's say you deposit $100 in a bank. That bank is required to keep a certain percentage of deposits on "reserve," or within the bank proper. This varies as the Fed changes its policies, but on average it floats around ten percent. Taking reserves at ten perecent, as soon as your $100 goes in, the bank is free to lend $90. This is how banks create money. You have $100 in your account, and someone else has $90 from a loan. Let's say this is a line of credit or some other deposit within the same bank. Then that bank has another $81 that it may lend. So your $100 has turned into $271 almost instantly. And that $271 is just as real as the $100 you put in the bank.

As long as people believe the bank is good for its money, this sort of money creation can go on almost forever. But if people begin to believe that a bank isn't good for its money and take their deposits out, a bank can fall seriously behind on its reserve requirements. And then it can fairly easily become insolvent and be liquidated. This happens more often than you might think, even in good times, but in when enough banks go bad and no one is lending--or creating, to be accurate--money, more and more banks go belly up. Just today, Citibank bought Wachovia. And Wachovia is a pretty damned big bank.

Funny thing, but the financial markets work the same way. In fact, the herd mentality on Wall Street is much more pronounced than what you might see at your local bank. Everybody on Wall Street knows everybody else, and the slightest twitch can become an earthquake in a matter of minutes.

And so we see that the rejection of the current bailout plan by the House of Representatives has sent the market reeling. The stock market crashed today, with most stock market measures losing between seven and ten percent. The decline in prices means that a large chunk of "real" money simply disappeared, just because a few dozen folks on trading floors and in brokerages freaked out.

Or, as Phil Gramm might say, it's all mental.

Of course, it's not. There are lots of reasons why the market is skittish. In fact, there are lots of non-mental reasons why the government is contemplating spending upwards of a trillion bucks to shore up the economy. Most of them have to do with stupid decisions made by scads of people.

I suppose you might call that "mental," but I won't. Stupidity is one of the few traits that all people share. Some folks like boys, some like girls and some like sheep, but we're all stupid more often than we'd like to admit.

My almost-minor in economics doesn't help me when I try to parse the bailout plan. It looks to me like lots of money for exceptionally rich people and not much for the other 99 percent of us. I could be wrong about that, but then, no one has shared the inside information on our economy's trouble spots. Could be that FDIC and FSLIC might go bankrupt trying to insure the accounts at the banks that will fail without help. So in that case, we're out a trillion bucks (or more) anyway. Maybe $700 billion is a bargain.

Or maybe we just have to do like Phil Gramm says and think happy thoughts. Maybe it really is morning in America again and we're all imagining those dark clouds approaching the shore. I really don't know.

What scares me is that no one else seems to know, either.

Jon Worley is investing heavily in beer. Not beer companies, mind you. Just beer.