Guest Post: Money from Nothing - A Primer On Fake Wealth Creation And Its Implications (Part 1)

Tyler Durden's picture

Submitted by Zeus Yiamouyiannis, from Of Two Minds

Money from Nothing: A Primer On Fake Wealth Creation And Its Implications (Part 1)

"Only God can create… value out of nothing"—Justice Martin V. Mahoney in First National Bank of Montgomery vs. Jerome Daly.

"(I’m) doing God’s work." – Goldman Sachs CEO, Lloyd Blankfein


What is fraud except creating “value” from nothing and passing it off as something?

Frauds interlink and grow upon each other. Our debt-based money system serves as the fraud foundation. 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.

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.

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.

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.

In the court case referenced in the heading quote, Justice Mahoney ruled against a bank acting in conjunction with the Federal Reserve Bank of Minneapolis in its efforts to foreclose upon and “buy” a U.S. citizen’s house by simply creating “the entire $14,000.00 foreclosure purchase in money or credit upon its own books by bookkeeping entry.” Further, “Mr. Morgan (the plaintiff/bank representative) admitted that no United States Law or Statute existed which gave him the right to do this.” (First National Bank of Montgomery vs. Jerome Daly)

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. This mechanism 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. (Unhinged: When Concrete Reality No Longer Matters to the Market (and What to Do About It)).

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. (How Goldman Sachs Helped Corrupt Politicians to Screw the Greek People) 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. Apparently England has no legal limit on how many times collateral can by rehypothecated (Shadow Rehypothecation, Infinite Leverage, And Why Breaking The Tyranny Of Ignorance Is The Only Solution):

Simply said: when one truly digs in, MF Global exposes the 2011 equivalent of the 2008 AIG: virtually unlimited leverage via the shadow banking system, in which there are practically no hard assets backing the infinite layers of debt created above, and which when finally unwound, will create a cataclysmic collapse of all financial institutions, where every bank is daisy-chained to each other courtesy of multiple layers of "hypothecation, and re-hypothecation." (Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else)

Note: For a concise explanation of the related mechanisms of collateralized debt obligations (CDO’s), synthetic CDO’s, credit default swaps (CDS’s), naked short selling, and high frequency trading (HFT), see When The Market Has Cancer.

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.

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 Shock Doctrine) 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. Active, civil resistance is necessary to stop the loss of public sovereignty to private interests. Creative, viable alternatives to the currently corrupt and fraud-ridden global economic system are vital. These alternatives and the implications of our current counterfeit wealth trajectory will be explored tomorrow in Part 2 of this article.

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cat2's picture

Chicks for free (hotel maids anyway)

Pinch's picture

That's what happens when you're in dire straits!

SilverTree's picture

Money from Nothing - Hyperinflation: Buy Silver & Gold Bitches (Part 2)

true brain's picture

Very instructive article. Any thoughts on what will happen to the balance sheets of the fed and ECB down the line. The ECB three years LTRO is due of course in three years. My guess is that they will come up with some other names to keep the ponzi going, like reverse double down operation twisted, or sterilzed double cooked QE, or stripped naked bernaked QE. Or something like that to keep the money flowing. Maybe they are betting that the system would be in complete collapse in three years anyway. 

Xkwisetly Paneful's picture

Yea lint like interest rates are too much of a burden.

Money for nothing and chick's for free.



markmotive's picture

Maybe it's time to start brushing up on Social Collapse Best Practices...

Dmitry Orlov can help

forexskin's picture

agreed, since:

Now that phantom paper profits are collapsing for the counterfeiters, real assets must be taken over to fill in the gaps.

has been the plan all along.

Bansters-in-my- feces's picture

..."Money from nothing and chicks for a fee"...............

Widowmaker's picture

Good comment.

"No one saw it coming."  -- Alan Greenslime

LowProfile's picture



Current bubbles being considered include the handheld electronics bubble, the undersea-mining-rights bubble, and the decorative office-plant bubble. Additional options include speculative trading in fairy dust, which lobbyists point out has the advantage of being an entirely imaginary commodity to begin with, and a bubble based around a hypothetical, to-be-determined product called "widgets."


The most support thus far has gone toward the so-called paper bubble. In this appealing scenario, various privately issued pieces of paper, backed by government tax incentives but entirely worthless, would temporarily be given grossly inflated artificial values and sold to unsuspecting stockholders by greedy and unscrupulous entrepreneurs.


Via The Onion.

FROM 2008.


DaveyJones's picture

...and your chicks suffer from inflation

SheepDog-One's picture

HA HA! I was reading a story about how some broke chick in a trailer won $10,000 in the lotto, and spent it all on fake boobs. Ah...AMERICA summed up in 1 story!

carbonmutant's picture

Either that or blowing it on Champage in a London nightclub...

I'm sure she'll get more use out of her investment, you only rent champage.

DaveyJones's picture

actually, if she spends ten thousand on the first product, some idiot is likely to finance the second.

Hippocratic Oaf's picture

Wasn't that the movie Bad Teacher?

Honey Badger's picture

That's capitalism for the world's oldest profession.  Boobs for her are a capital asset.

SheepDog-One's picture

She bought another year or 2 on the stripper pole maybe.

MolotovCockhead's picture

Actually, she was rather smart in a stupid way. She was compensating her lack of brain with a large pair of boobs to boost her self confidence. With enough self confidence she may become a high achiever ;)

prains's picture

debt expansion is the pink slime of the world and only causes fatal mad debt serf disease

john39's picture

you could sum it all up in one word, "parasites".

cat2's picture

leeches of capitalism destroying the host (it's already on life support)

Alcoholic Native American's picture

capital seeking more and more capital.  Capitalism is parasitic to big government.

359766's picture

just hear everybody crying and moaning ... but my question ... what are you gonna do?
this is unsustainable ... but who cares?

cat2's picture

The real capitalists care.  Who is John Galt?

359766's picture

yeah ... got it. but what are the real capitalists doing? buying gold and making sure their wealth is okay doesn't mean fighting for prinicples.

SheepDog-One's picture

People wont do anything until that day when theyre suddenly bankrupted by another designed market collapse. 

Ive planned for this crap for a long time so for the time-being anyway I can just watch the shitclouds gathering.

cat2's picture

The fight is about liberty and the rule of law.  Some are fighting (and losing).  But fight on we must.

cat2's picture

In case that wasn't clear, the fight is currently manifested in Ron Paul.  But sadly we are losing the fight.  The only option is to win from the ground up, (from the county level, then state, then national).  So how are YOU fighting?

Waterfallsparkles's picture

This Video by David Icke explains it very well.  About 33 min long.

Watched it over the weekend and loved it.


lunaticfringe's picture

So I see this article on CNN Money about the great bull market and whether or not it can continue. With this red-hot economy maybe the FED will have to ratchet up interest rates to put the brakes on...


aleph0's picture

Good post ... and while reading , I thought this must have come from the likes of "Of Two Minds"

Well said ... and I was indeed right.

Atomizer's picture

The Law of Diminishing Returns.

SheepDog-One's picture

Their only 'trade' left is making .25% laundering fake Treasuries. 

847328_3527's picture

Excellent! ZH needs to set up a glossary defiing all the abbreviations and specialized terms used in the new games of financial trickery and VooDoo.

espirit's picture

Let's See: 8 Step Primer.

1. Max out all debt.

2. Pay minimum interest on said debt.

3. Through secondary entity, buy insurance against debt default.

4. Withhold debt interest and feign default.

5. Write down debt.

6. Secure more debt if possible.

7. Default on debt.

8. Collect insurance on default amount.

Wash, rinse, repeat. Geez, I guess that's why I'm poor. 


Widowmaker's picture

Actually it's only three steps:


1. Lie

2. Print

3. Repeat

LawsofPhysics's picture

Those who can, are using whatever capital they can to purchase physical assets and insure local alliances are in place for the coming correction while keeping our businesses going and employees employed.  I suggest everyone do the same.  Always pay attention to what successfull folks do and not what they say.

Baleful Runes 4 U's picture

"they can to purchase physical assets and insure local alliances are in place for the coming correction"

haha  correction?  that has to be the euphemism of the millenium.  

" Always pay attention to what successfull folks do and not what they say."

   They are buying up land in Paraguay to get the fuck out of dodge.

gwar5's picture

Excellent advice. I try to watch what direction the Chinese are going. I sense their information is good and they're market makers. It's clear they are dumping USD for gold, energy, and hard assets for the long term. You're right, it's a no brainer.


Squid pro quo? Our current central planner policies seem determined to give the Chinese discounted resources by killing Western demand, eg.,  like the global warming madness. Looks like TPTB intentionally just want to kill Western demand for global resources so it can be reallocated to China, the banker's golden goose for the 21st Century. The Keystone pipeline was just another BRIC in the wall.

WTF?:  A New York bank (JPM?) recently got China to stop PAGE from opening, the Pan Asian Gold Exchange, which would have allowed real price discovery of gold. IOW, China agreed to stop PAGE per just a single Wall Street banker phone call. So, there is high level extra-governmental Wall Street communication and coordination with the Chicoms on many things.

The Good news: The PAGE exchange will move, and still open, probably this summer. 


Snakeeyes's picture

Seriously, bank regulators have clamped down on lending (forcing government controi of ALL lending) Look at the numbers!

Financial Repression: Banks Increase Treasury Purchases, Deposits Up, Banks Still Not Lending (Thanks to Regulators)

buckethead's picture

Great post.


Understandable to those of us with even the most basic grasp of the markets.


C/Ping this all over the intewebs...

mendigo's picture

What I think the analysis tend to leave-out in an effort to simplify -

There's two knids of debt:

1) The debit that you and I take - it is expected to be repaid.

2) Sovereign debt - will nevvvver be repaid.

Bank debt is increasingly looking like sovereign debt.

Check it out:

Pinky's picture

Daly Case:


In the late 1960s, attorney Jerome Daly was a defendant in an unlawful detainer action in the justice of the peace court in Credit River Township in Scott County, Minnesota. The First National Bank of Montgomery foreclosed on Daly's property and sought possession. The jury and the justice of the peace decided against the bank, agreeing with Daly's argument that the bank had not actually lent him any money, but had simply created credit on its books. Daly argued that since nothing of value had been advanced by the bank, it was not entitled to the property that secured the loan. The justice of the peace, Martin V. Mahoney, entered his decision in defiance of the Minnesota Supreme Court. For conspiracy theorists, we note he died "mysteriously" within 6 months of his decision. Ultimately, the decision of the justice of the peace court was nullified and Daly was subsequently disbarred.

This case made its way onto the Internet, where groups who oppose federal banking laws assert that the case invalidated the Federal Reserve and voided Federal Reserve notes. Even though it has no value as precedent, litigants continue to cite to the case, even as recently as 2007. See Sneed v. Chase Home Fin. LLC, 2007 U.S. Dist. LEXIS 46536, 2007 WL 1851674 (S.D. Cal. June 26, 2007).

In cooperation with Scott County Court Administration, the scanned documents from this case are available on our website. For more detailed information on the case, see our FAQ.