Charles Hugh Smith
Charles Hugh Smith is a novelist and economic commentator.
Frequent contributor Zeus Y. explains how the financial system creates fake “wealth” from nothing and why the entire delusional scheme is imploding.
“Only God can create… value out of nothing”—Justice Martin V. Mahoney in First National Bank of Montgomery vs. Jerome Daly.
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.
- Primary Cause for Economic Depressions: Economic Injustice (adask.wordpress.com)
- Guest Post: Counterfeit Money, Counterfeit Policy (zerohedge.com)