Only in a debt-based money system could debt be curiously cast as an asset. We’ve made “extend and pretend” a quaint phrase for a burgeoning market for financial lying and profiteering aimed toward preventing the collapse of a debt- (or lack-) based system that was already doomed by its initial design to collapse. This primer will detail the major components and basic evolution of fake wealth creation, accelerating debt expansion, hollowing out of the economy, and inevitable financial implosion. Words: 1583
So says Zeus Yiamouyiannis in edited excerpts from a guest editorial on www.oftwominds.com (which Lorimer Wilson, editor of www.munKNEE.com, has further edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in its entirety in any article re-posting to avoid copyright infringement.)
Yiamouyiannis goes on to say:
What is fraud except creating “value” from nothing and passing it off as something?
Financialization: In our debt-based money system, debt must grow in order to create money. Therefore, there is no way to pay off aggregate debt with available money. More money must be lent into the system to make the payments for old debts. This causes overall debt to expand as new money for actual people (vs. banks) always arrives at interest and compounds exponentially. This process is called financialization; the process of making money from nothing in which debt (i.e. poverty, lack) is paradoxically considered an asset (i.e. wealth, gain). In current financialized economies “wealth expansion” comes from the parasitic taxation of productivity in the form of interest on fiat lending. This interest over time consumes a greater and greater share of resources, assets, labor, and livelihood until nothing is left.
Stage one: Fiat money origination, multiplication, and distribution
The U.S. Federal Reserve System (“The Fed”): A private, non-transparent entity, formed in 1913, representing and serving private, profit-driven banks that creates money from nothing (fiat) and to which the U.S. government has delegated and effectively ceded its constitutional power to coin money.
The Fed essentially lends our “sovereign” public money to us at interest, paying for things like government debt with more debt, thus expanding debt. By contrast, the Fed currently gives away money to its constituent private banks at zero percent interest, allowing those banks to buy U.S. Treasury bonds, which yield a 2-3 percent interest mark-up to be paid by taxpayers, adding to citizen debt.
Fractional reserve: Private fiat fabrication of exchangeable public “money” as a bookkeeping entry through “multiplication” of public fiat held in private bank reserves. Holding 100,000 dollars of depositors’ money may allow me, as a bank, to lend out 1,000,000 dollars. By what authority? None, really, just my say-so and my action…
Stage two: Delusional, unregulated value assignment, manipulation, and expansion
After money is created out of thin air, other market mechanisms have been propagated to magnify, funnel, and package value-from-nothing further still, creating financial vehicles that add more numbers without adding more value.
Leverage: The practice of arbitrarily multiplying one’s alleged value in order to acquire controlling interest in another property.
The mechanism of leverage is a favorite of now-discredited corporate raiders and leveraged buy-out firms that currently go under the euphemism “private equity firms”. This claimed private equity can be a fictitious multiplication of self-assessed asset value used to buy a controlling interest in a productive company. Typically the acquired company is put into debt, its real assets hollowed out and harvested, and then the acquired company is allowed to go bankrupt thus making a killing for the raiders while destroying the ability of displaced workers to make a living…
Over the counter (OTC) derivatives: Purely unregulated, non-transparent, and malignant uncollateralized bets and hedges on market movements requiring no assets or stake in assets.
Of the over 700 trillion dollars of “notional value” in disclosed OTC derivatives by International Bank of Settlements for 2011, the majority were supposedly “benign” interest rate and currency swaps, not the more toxic credit default swaps. However, it was a Goldman Sachs currency swap with “a fictitious exchange rate” that sunk Greece, nearly doubling its liability on just one deal from about 2.8 billion euros to over 5 billion euros…Also remember the undisclosed OTC derivatives market may easily be bigger than the disclosed market.
Rehypothecation: The process of recycling or using the same collateral with multiple deals and entities…
Stage three: Usurping democracies and cannibalizing functioning capitalism
A cartel of international wealth counterfeiters have boldly made claims on Greece’s national wealth through super-national entities like the European Central Bank. These claims are not backed by clear legal authority or logic but they are being enforced anyway, administered by unelected technocrats and “agreed to” by complicit politicians acting against the interests of actual citizens.
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Greece (with more countries to come) is being treated like a company town where “costs” (i.e. social services) are to be cut, productivity milked through greater taxation, and debt servitude reinforced. Corrupted capitalism continues thus to metastasize. Now that phantom paper profits are collapsing for the counterfeiters, real assets must be taken over to fill in the gaps.
Greece’s national assets have been put up for sale endangering its national sovereignty and right to control its own property. Greek well-being is being diminished through austerity programs. This has only caused the economy to contract at an accelerating rate. Seizing control of productive assets, and cannibalizing real wealth to feed counterfeit demands seem to be the primary unstated goals of these strategies because the empirical results of these strategies clearly run counter to stated objectives.
Disaster capitalism: The intentional infliction of insecurity, suffering, and scarcity on a population to cause panic, compliance, and amenability to exploitation and extraction of wealth.
It is a thoroughly vicious business model that operates in plain sight. When abuse no longer has to be organized and covered by conspiracy, one can confirm that capitalism’s illness is in advanced stages. It is amazing how easily assets can be acquired and individual rights denied (as with fraudclosure) when people are overwhelmed by corruption on all sides.
Stage four: Implosion of the body politic or necessary transformation and redirection?
This stage has yet to be fully entered, but the fraying of Greece’s current social and political order sends a strong signal for the future of the wider world: Passivity equates with more abuse and exploitation, more austerity, and greater hijacking of national and personal assets…
- Unregulated, unenforced rules (particularly for derivatives)
- license to “mark to model” (assign your own values to your assets)
- ability to peg present value to irrational expected future returns (based on unlimited, exponential growth)
- infinite leverage (no effective requirements for reserve capital in unregulated “shadow” markets)
- massive size, so that the bank or company is “too big to fail”
- non-transparency and non-accountability.
So here we have a system where you can:
- make up your own rules,
- any value for any asset you choose,
- inflate that value a hundred fold based on ostensible future value and returns,
- leverage that inflated value another thousand or a million fold simply on your say-so, enough to buy up multi-billion dollar firms if you choose,
- lean on taxpayer bailouts when you get into trouble,
- do this without any disclosure or accountability, all based upon a self-interested formula you concoct to enrich yourself and to this we can now add:
- effective take-over of national governance by private financial interests, meaning zero prosecution for large-scale control fraud, continuing complicity with and backdoor subsidies to big banks, and the stripping of national assets to pay for illegitimate debts,
- making uncertain the very notion of private property by promoting illegal and nonsensical assignment and title processes in the mortgage market. and
- shameless annihilation of pensions and investor funds by simply leveraging those funds out of existence and charging enormous fees to do so.
How can this widening gap between multiplied debt and productivity-backed money be reconciled? The short answer is, “It cannot.” It is an inherently unsustainable system where:
- debt will eventually eclipse the entire value of all world resources, assets, and productive effort unless debt is simply forgiven at some point,
- we must come to terms with the unjust and completely unsustainable nature of debt-based money.
If fraud is something from nothing, then solutions to fraud involve re-establishing exchange systems based upon something from something. These systems are already being developed with local currency experiments, bartering, and a host of other emerging alternate economic models and practices.
Our task is to:
- identify fraud in all its forms,
- stop our participation in them,
- pursue a counteroffensive and
- commit to moving our money, time, and value to genuine, prosperous, health-affirming, financial commitments and practices.
We can see increasingly that we have nothing to lose and much to gain not only in terms of financial stability but personal and community fulfillment.
*Part One: http://www.oftwominds.com/blogmar12/money-from-nothing-pt1-3-12.html Part Two: http://www.oftwominds.com/blogmar12/money-from-nothing-pt2-3-12.html (Copyright March, 2012 by Zeus Yiamouyiannis, Ph.D. To access the article please copy and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
Systemic-solvency and liquidity issues continue to plague the Fed and to restrain U.S. economic activity. Bank lending remains impaired, household income has taken a new hit, annual and monthly growth in the broad money supply appears to be stalling, again and U6 unemployment levels are at staggering levels. These ongoing financial problems have horrendous implications for the markets and systemic stability. [Let me explain.]
Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660
“An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.” [This article discusses the reality of the current economic crisis and] what is required to revive the economy. Words: 1666
Today’s western financial world operates much like government-sponsored medical systems. Mask the problem and give the bankers the pharmaceutical drugs (bail out money) to help them dull the pain and keep them on life support. Letting the free markets work in curing the ailment is not an option because then there would be little need for doctors (governments) or the manufacturers of these drugs (central banks). The banks are sick and should be allowed to pass on…so the virus known as debt does not affect the rest of the population. Unfortunately, the governments and central bankers have only one prescription drug of choice to keep them alive [and that seems to be the supposed cure-all of] printing money… [Let me explain further.] Words: 970
When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 – devolution.] Words: 1520
The developed economies of the world have opened the money spigots…[and this] massive money and credit creation is sitting in the banking system like dry tinder just waiting for a spark to set it ablaze. How quickly it happens is anyone’s guess, but once it does we are likely to be enveloped in a worldwide inflation unlike anything before ever witnessed. [Let me explain further.] Words: 625