The original $1.3 billion of credit the Fed created yesterday will, in a few days, turn into $100 billion of money borrowed by consumers. In fact, these numbers are borne out by the Fed’s balance sheet has grown by about $30 billion over the last year, while total credit market instruments outstanding grew by $3.5 trillion.

But that's just traditional pyramiding. Today, we also have the derivatives markets, in which JPMorgan can take that credit and lever it 100-to-1 by underwriting derivatives. (I don’t mean to pick on JPMorgan, although it is by far the largest derivatives dealer in the world; others, like AIG (AIG), are doing the same).

So of that $1.3 billion, let’s say JPMorgan keeps $300 million, then sells options to customers. It uses that credit as capital to support the trade; the trade itself is $150 billion in notional contingent liabilities. The notional amount of derivatives over the same period of time has grown by a scary $88 trillion.

Derivatives are lending on steroids.

All this liquidity is driving nominal asset prices higher and higher. And ironically, they must do so, in order to keep the borrowing bubble bubbling.

But risk is increasing exponentially, and threatens our country’s very solvency. The only reason things seem so terrific is because other central banks around the world are willing to keep creating credit themselves and lending it to us. Todd calls this the elasticity of debt: How much debt will the market accept before it can’t take anymore? I don’t know the answer to that, but when it occurs there will be no escape.

We are really, really good at creating credit. Are we good at paying it back?