How to Make Money out of Thin Air

I’m going to be rich! I just figured out a fool proof way to create wealth and because I’m such a nice guy I’m going to share it with you. Are you ready?  Here we go!

Step One:  Get someone to lend you $1000.00.  Tell that person that you will pay them back in one year, one lump sum with 10% interest.  So they make $100.00, they just have to wait for a full year.

Step Two: Lend $900 to someone else at 15% interest for one year.  They pay you back in equal monthly instalments of $86.25 per month.  At the end of the year you would have received back $1035.  Add that to the $100 you held in reserve from the original loan an you just pocketed $65. Not a whole lot but here`s the genius of the plan.

Step Three: Beginning on month two, from the payments on the $900 loan make several small loans of $80 each at 20% interest.  For each $80 loan you will make back $16 over the course of the year.  If you make just one loan a month 11 months you will have made an additional $528 over and above the original $1000 loan.  Mind you; after deducting $80 off the payments received on the original $900 loan for 11 months you would actually only have $683 in the bank so you would need to refinance your original loan to cover the $417 still owing but with such a strong `balance sheet` you wouldn`t have any trouble doing that would you?

So pay back $600 and refinance another $500 at 10%, hold $50 in reserve and repeat the process with the remaining $450, this time lending even smaller amounts of $40 at 20% interest.

At the end of 2 years you would have balance sheet of $1227 with which to pay out the second loan of $550 and you will still only have $677 in the bank and out-standing loans of $440.00, but $677 is now more than enough to pay back the second loan.  Now you will have profited $210 off original loans of $1500.

On the original loans you`ve made 14% in two years, or 7% a year.  That`s a pretty decent return, especially considering you haven`t spent one cent of your own money.  What you’ve actually done is created money out of nothing but time and patience.

This is called loan pyramiding and it is fool proof, all you need is one fool willing to give you $1000.  The only problem is; it`s illegal!

Well not exactly. It`s illegal for an individual like you and me to do it on a small scale but that is exactly what the banks, governments and other lending institutions do every day on a massive scale.

In banker speak step one is called a bond.  Governments and big business issue bonds everyday to raise money and pay it back at a fixed interest rate for a term of 1 to 10 years.  The investor cannot redeem the bonds until the end of the fixed term which allows the issuing institution to lend that money out again at a higher interest rate and for a shorter term in hope that the payments received will be enough to pay back the original bond holder on the maturation date.

Steps two and three are things like mortgages and credit cards issued to consumers who wish to make purchases on instalments.

The whole system works perfectly until someone can`t pay. If enough people stop paying the pyramid collapses on itself like the house of cards it truly is.  It stars innocently enough.  Individuals declare bankruptcy and the banks just write off the loss.  But then banks begin to fail so governments step in to prop them up.  Eventually though governments begin to default on their bonds and entire economies collapse taking the only really productive piece of the system with them.

Who gets hurt the most when the house of cards collapses?  The investor/taxpayer at the base of the pyramid who, through hard work and the creation of value added goods and services had access to the only real money available to in the system in the first place.

Pyramid and Ponzi schemes are illegal because they are inherently unstable and far too risky. They are peddled by slick con-men to unscrupulous and naive investors with promises of big pay outs if only they stay in long enough to reap the rewards.  Governments have written laws to protect investors from cons like this only to turn around and offer the same products, dressed up and backed by confidence in big business or government itself.

But a con is a con is a con, no matter how big the backer.  Indeed con is just short for confidence anyway right?

Governments and big business would rather you have confidence in them than Jimmy Knuckles up the street who offers investors a modest return while giving customers high interest loans out of the back of his van.  But at the end of the day there is no difference in what big government or two bit con-men are peddling.  It’s predatory finance, extractive investment, usury and a big fat con!

As the clock ticks down to Aug 2, debt default day for the United States, people all over the world are waking up to the fact that we’ve
been coned and when the pyramid collapses it will be the workers, the ones who truly create value who will be crushed by the weight of it all.  If you are heavily invested in the markets, especially in bonds, get out while you still can!

Cash is king; it’s the only real money in the system anyway.

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