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Once You Understand DEBT, You’ll Never See Money the Same Way [DOCUMENTARY] — Transcript

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0:02How is money created?
0:04Where does it come from?
0:06Who benefits
0:08and what purpose does it serve?
0:12>> What is a money system? What is the
0:14money behind the money system?
0:17>> For centuries the mechanics of the
0:18monetary system have remained hidden
0:21from the prying eyes of the populace.
0:24Yet its impact both on a national and
0:26international level
0:28is perhaps unsurpassed.
0:32For it is the monetary system that
0:34provides the foundations for
0:35international dominance and national
0:38control.
0:43Today
0:44as these very foundations are being
0:46shaken by crises
0:48the need for open and honest dialogue on
0:50the future of the monetary system
0:53has never been greater.
0:55>> This economic crisis is like a cancer.
0:57If you just wait and wait thinking this
0:59is going to go away just like a cancer
1:01it's going to grow and it's going to be
1:03too late. What I would say to everybody
1:05is get prepared.
1:07This is not a time right now to
1:10wishful thinking the government is going
1:11to sort things out. The governments
1:12don't rule the world. Goldman Sachs
1:15rules the world.
1:17>> Statistical analysis has found that
1:20every time an empire begins to near its
1:22own demise you'll find that its currency
1:25will be debased.
1:27>> There is no guide to how this whole
1:28system operates.
1:30To give you an example a researcher at
1:32the BBC working on the Robert Peston
1:33documentary went to the Bank of England
1:36and said can you give me a you know a
1:38guide to how money is created
1:40and they just said no.
1:42>> This documentary will investigate and
1:44explain this ever changing system
1:47and the impact it has both on a national
1:50and international level.
2:27>> In 2010, the total UK money supply stood
2:30at 2.15 trillion pounds.
2:332.6% of this total was physical cash.
2:3753.5 billion.
2:39The rest, 2.1 trillion or 97.4%
2:43of the total money supply, was
2:45commercial bank money.
2:48>> The 3% of money,
2:50um, is created, uh, through the central
2:52bank. And that money, essentially, if
2:56you created a 10-pound note, you could
2:58sell that to a bank to put into their
3:00ATM, and the bank would have to repay
3:03that 10-pound or buy it for 10 pounds.
3:05There'd be no interest made, uh, charged
3:07on that money, but that money is then
3:10essentially transferred to the Treasury.
3:12And it's a it's a it's a form of
3:14fundraising,
3:16um, for the government. It's called
3:17seigniorage.
3:27>> When the Bank of England creates a
3:2910-pound note, it
3:31cost it about three or four pence to
3:33actually print that note. And it sells
3:35it to the high street banks at face
3:37value, so at 10 pounds.
3:39And
3:41the profit, the difference between
3:43printing the note and actually selling
3:45it for 10 pounds,
3:47goes directly to the Treasury.
3:49So, in effect, all the profit that we
3:51get on creating
3:53physical money, uh, uh banknotes,
3:56goes to the Treasury and it reduces how
3:58much taxes we have to pay.
4:00Um over the last 10 years, that's raised
4:03about 18 billion pounds.
4:05>> In 1948,
4:07notes and coins constituted 17% of the
4:10total money supply.
4:12This was one contributing factor in the
4:14government's ability to finance post-war
4:16reconstruction.
4:17This included the establishment of the
4:19NHS.
4:22In only 60 years, notes and coins have
4:24shrunk to less than 3%.
4:33Prior to 1844, banknotes were created by
4:35private banks and the government did not
4:38profit from their creation.
4:41>> Pre-
4:42industrialization, there was multiple
4:44forms of money coexisting. And so, the
4:47kind of rise of kind of
4:49of government-sponsored fiat money is a
4:51relatively recent, um phenomenon.
4:54>> In the 1840s, there was no law to stop
4:57banks from creating their own banknotes.
4:59So, they used to issue,
5:01um paper notes as as kind of a a
5:04representative of what you had in the
5:06bank account. Instead of you taking your
5:08heavy metal coins out of the bank and
5:10then going and paying somebody with
5:12them, you could get your paper which
5:14said how much money you had in the bank
5:16and you could give that to somebody and
5:17they could use that to go and get the
5:18heavy metal coins from the bank.
5:20Now, over time, these paper notes became
5:24as good as money. People would use the
5:26paper notes instead of going and getting
5:27the real money from the bank. And
5:30obviously, as soon as the banks realized
5:32that
5:33what they were creating had become, you
5:35know, the dominant type of money in the
5:37economy, they realized that by by
5:39creating more of it, they could generate
5:41profits. You know, they can just print
5:42up some new notes, lend it and get the
5:45interest on top of that. And they did
5:47that, you know, up until the 1840s. In
5:49the 1840s, they pushed it just a little
5:51bit too far. And that caused inflation.
5:53It destabilized the economy.
5:56So, in 1844,
5:57the conservative government of Robert
6:00Peel actually passed a law
6:03that took the power to create money away
6:04from the commercial banks
6:06um and brought it back to the state. So,
6:08since then, the Bank of England has been
6:10the only
6:12organization authorized to to create
6:15paper notes.
6:19Since then, everything's gone digital.
6:21And what we now use as money is the
6:23digital numbers that commercial banks
6:25can create out of nothing.
6:29>> The problem was
6:31that they did not include in that in
6:33that legislation um the deposits, the
6:36demand deposits, um held in banks by
6:40individuals
6:41or um electronic forms of money, which
6:45is essentially what those demand
6:46deposits are today. Most of the money
6:49in circulation is is electronic money.
6:52Um and it's bank it's bank um demand
6:55deposits
6:56um that just that that sit in our, you
6:58know, our accounts. So, in a way, the
6:59legislation has got needs to catch up
7:03with developments in in in electronic
7:05money uh uh and the way that banks
7:08actually operate.
7:10>> Money held in bank accounts are called
7:12demand deposits.
7:14This is an accounting term the banks use
7:16credit.
7:18Banks follow the same process when they
7:20create loans.
7:22All money held in bank accounts is an
7:25accounting entry.
7:34>> The reality is now that most money is
7:36not paper and it's not metal coins. It's
7:39digital. It's just numbers in a computer
7:41system, you know? It's your Visa debit
7:43card, it's your electronic, you know,
7:45ATM card. Um it's this, it's plastic,
7:49you know? It's numbers in the computer
7:50system.
7:51You move money from one computer system
7:53to another. It's all a big database. And
7:57this digital money is what we're now
7:59using to make payments with. It's what
8:01we actually use to run the economy.
8:03>> I think a lot of people in the UK
8:05probably think that the government or
8:07the central bank um it it is in control
8:10of most most money in circulation and
8:13issues new money
8:15into circulation, but that's uh not the
8:17case. It's private banks that creates
8:20the vast majority of new money in
8:22circulation and also decide uh how it's
8:25allocated.
8:30>> The official terminology for this
8:31accounting entry
8:33is commercial bank money.
8:36When banks issue loans to the public,
8:38they create new commercial bank money.
8:41When a customer repays a loan,
8:43commercial bank money is destroyed.
8:46The banks keep the interest as profit.
8:50>> There's a lot of misconceptions about
8:52the way banks work. There was a a poll
8:54done by the Cobden Centre where they
8:57asked people, you know, how how they
9:00thought banks actually operated. Around
9:0230% of the public think that when you
9:04put your money into the bank, it just
9:06stays there and it's safe. And you can
9:08understand why because, you know, every
9:10every child has a piggy bank where you
9:12keep putting money in and then when it's
9:14a rainy day, you smash it and you take
9:16that money out and you spend it. So, a
9:18lot of people keep this this idea of
9:20banking, you know, it's somewhere safe
9:22to keep your money so that it's there
9:23for whenever you need it.
9:25Um another the other 60% of people
9:28assume that when you put your money in,
9:31that money is then being moved across to
9:33somebody who wants to borrow it. So, you
9:35have a pensioner who keeps saving money
9:37her entire life and then her life
9:40savings have been lent to some, you
9:42know, young people who want to buy a
9:43house. But, actually banks don't work
9:45like that.
10:05>> At the moment in the UK, money creation
10:09and control is is largely in the hands
10:11of private banks.
10:13About 97 to 98% of money
10:16that's that's created is is created as
10:19bank
10:20bank debt money you could call it
10:22when banks issue money into circulation
10:25as as loans, essentially.
10:27This is very poorly understood fact.
10:31>> It's not a conspiracy theory. It's not a
10:35It's not a crackpot theory. It's the way
10:37the Bank of England describes the
10:38process. When banks make loans, they
10:40create new money.
10:54A few economists will realize the way
10:57the money system works. But, if you
10:58don't you don't realize the way that
11:00money works and you think that, you
11:02know, everybody saving is going to work
11:04well for the economy. What really
11:06happens once you understand the way the
11:08money system works is that if everybody
11:09starts saving
11:11the amount of money in the economy
11:13shrinks and we have a recession. So,
11:15most economists don't have this this
11:17full picture. They don't understand all
11:19elements of the system. They rely on
11:22assumptions on, you know, received
11:25knowledge without actually going into
11:27the details. And,
11:29you know, money is money is a center of
11:31the economy. If you don't understand
11:33where it comes from, who it creates who
11:35creates it, and when it gets created,
11:37then how can you understand the entire
11:38economy?
11:46When the vast majority of money that we
11:48use now is not cash, but it's electronic
11:51money,
11:52then whoever's creating the electronic
11:53money is getting the proceeds of
11:55creating that money. And obviously,
11:56creating electronic money is much more
11:58profitable than creating cash cuz you
12:00don't have any production cost at all.
12:03So, while we've got 18 billion over the
12:06course of a decade
12:08in profit from creating cash,
12:10the banks have actually created 1.2
12:12trillion pounds.
12:14>> Between 1998 and 2007, the UK money
12:17supply tripled.
12:191.2 trillion pounds was created by
12:21banks,
12:23whilst 18 billion pounds was created by
12:25the Treasury.
12:29>> A lot of people think when I say this,
12:31or when you say this, or when Positive
12:32Money say this, that we're all just a
12:34bunch of nutters. But on the 9th of
12:36March in 2009,
12:38the governor of the Federal Reserve, um,
12:41Ben Bernanke, gave the first ever
12:43broadcast interview the governor of the
12:45Central Bank of the United States of
12:47America had ever given.
12:49And uh, the day before that, he'd bailed
12:51out AIG,
12:52um,
12:53uh, which is a insurance company, not
12:55even a bank, actually, to the tune of
12:57about 160 billion dollars.
12:59>> So, the journalist system
13:01Now, Mr. Bernanke, where did you get 160
13:04billion dollars to bail out AIG?
13:07>> Is that tax money that the Fed is
13:08spending? It's not tax money. The banks
13:11have, um, accounts with the Fed, much
13:14the same way that you have an account in
13:16a commercial bank. So, to lend to a
13:18bank, we simply use the computer to mark
13:21up the, uh, size of the account that
13:22they have with the Fed. So, it's much
13:24more akin,
13:26uh, although not exactly the same, but
13:27it's much more akin to printing money
13:28than it is to borrowing.
13:32>> Banks create new money
13:34whenever they extend credit buy existing
13:37assets or make payments on their own
13:39account which mostly involves expanding
13:42their assets.
13:45When a bank buys securities such as a
13:47corporate or government bond
13:49it adds the bond to its assets
13:52and increases the company's bank
13:53deposits by the corresponding amount.
13:58New commercial bank money enters
13:59circulation when people spend the credit
14:02that has been granted to them by banks.
14:06>> I found that
14:07talking on the doorstep from August last
14:10year round to August 2009 round to
14:14the general election 8 9 8 9 months I
14:17suppose knocking on doors
14:19is that when you try to explain how the
14:21money system works
14:24there's
14:25an almost inbuilt refusal of people to
14:28accept that such a bizarre situation
14:31could actually exist.
14:34No, it can't possibly, you know.
14:36You mean it can't banks can't banks
14:39don't create money out of thin air.
14:41That's ridiculous. They can't do that.
14:42They lend out their depositors' money.
14:45Most people have an idea of of how money
14:47is. They're used to their own way of
14:48handling money
14:50and they try and implement their own
14:53idea of how how their small household
14:56economy works
14:58into the national economy. And of course
15:00it just doesn't work out. It just
15:01doesn't work out at all.
15:03>> By 2008 the outstanding loan portfolio
15:06of bank created credit also known as
15:09commercial bank money
15:11stood at over 2 trillion pounds.
15:14As recently as 1982 the ratio of notes
15:17and coins to bank deposits was 1 to 12.
15:21By 2010 the ratio had risen to 1 to 37.
15:27That is for every pound of treasury
15:28created money,
15:30there was 37 pounds of bank created
15:32money.
15:35In the 10 years prior to the 2007
15:37crisis,
15:39the UK commercial bank money supply
15:41expanded by between 7 to 10% every year.
15:45A growth rate of 7% is the equivalent of
15:48doubling the money supply every 10
15:50years.
15:52>> The amount of money they're creating out
15:54of nothing is just incredible. 1.2
15:56trillion in the last 10 years. Um and
15:59there's that money has been distributed
16:01according to the priorities of the
16:03banking sector. You know, not the
16:05priorities of society.
16:08>> Banking sector
16:10itself grew from 1980, 2.5 trillion
16:14dollars,
16:16to 40 trillion dollars by assets. In
16:191980, global bank assets were worth 20
16:22times the then global economy.
16:25By 2006, they were worth 75 times,
16:27according to the UN.
16:30>> As the following chart shows, total bank
16:33assets of UK banks as a percentage of
16:36GDP remained relatively stable at 50 to
16:3960% up to the end of the 1960s.
16:43After that, they shot up dramatically.
16:46>> And the real money in in the world
16:49to be made today is not by producing
16:50anything at all. It's simply by forms of
16:53speculating, basically making money from
16:55money. That's the most profitable and
16:57and by far and away
17:00the the biggest form of of activity of
17:03economic activity that exists in the
17:04world today.
17:07>> Today,
17:08banks are no longer restricted by how
17:10much they can lend
17:12and as such, how much new credit they
17:14can create out of nothing.
17:17They are restricted solely by their own
17:19willingness to lend.
17:24>> The issue with allowing banks to create
17:25money uh there's two main issues.
17:27Firstly, the fact that they create this
17:29money when they make loans.
17:31So, it guarantees that, you know, we
17:33have to borrow all our money for the
17:35economy from the banks.
17:38>> As such,
17:39to have a healthy growing economy, the
17:41government needs to put in place
17:42strategies
17:43to allow for ever-increasing debt.
17:47>> The only way the government can create
17:49additional purchasing power is by
17:51getting itself and us into more debt.
17:55>> The second big issue with allowing banks
17:57to create money
17:59is that they have the incentive to
18:01always create more. You know, they
18:03create more money if they issue a loan,
18:05they get the bonuses and the commissions
18:07and the incentives to create, you know,
18:08to lend as much as possible.
18:10>> You have to develop a sales culture.
18:12What did they do? They recruited an
18:14amazing guy, lovely guy, Andy Hornby,
18:17who came from Asda,
18:19to turn the bank into a supermarket
18:22retailing operation.
18:23>> If you trust bankers to control the
18:26money supply, the money supply will just
18:28grow and grow and grow,
18:30as will the level of debt, until the
18:31point where it crashes, you know, when
18:34some people can't repay the debt, and
18:35then they'll stop lending.
18:38>> You hear politicians and journalists
18:40saying, you know, we've we've been
18:41living beyond our means, we've become
18:43dependent on debt, we need to rein in
18:45our spending and live within our means.
18:48Um it's not possible in the current
18:50system. You know,
18:52the reason why everyone is in debt now
18:54is not because they've been recklessly
18:55borrowing.
18:57Um we haven't borrowed all this money
18:59from, you know, an army of pensioners
19:00who've been saving up their whole whole
19:02lives.
19:03Money in the current system is debt. You
19:05know, it's created when banks make
19:07loans. So, the only way in the current
19:09system that we can have any money in the
19:11economy, you know, the only way we can
19:12have money for businesses to trade is if
19:15we borrowed it all from the banks.
19:20>> And it's the very opposite of what the
19:22Tory parties are arguing today, which is
19:25that you have to create savings before
19:27you can help the National Health
19:28Service.
19:29And it's because economists have
19:31completely confused those things both in
19:34monetary policy terms,
19:36but also in economic thinking. And
19:37because most people still harbor the
19:40old-fashioned view that you need savings
19:42before you can invest.
19:44That we have the mess that we're in
19:46today. Now, one of the reasons why we
19:49find it difficult to understand the
19:52banking system and credit creation is
19:53that we leave school without any money.
19:57And we go and get a job working as an
19:59apprentice to a plumber.
20:00We work really hard all month, and at
20:02the end of the month somebody puts money
20:04in our bank. And so for us the logic is
20:07you work and then you get money. You get
20:10savings. In reality, you would never
20:12have got that job if credit hadn't been
20:15created in the first instance. It's a
20:17really important
20:19um
20:21conceptual misunderstanding.
20:24And it isn't something that the public
20:25just are guilty of. Economists don't
20:27understand this stuff.
20:28>> Money doesn't come out of economic
20:30activity.
20:31A lot of people I've come across have
20:33kind of assumed that if you've got
20:35people if you've got businesses and you
20:36got people doing things that somehow
20:39money somehow
20:40emerges out of the process of people
20:42doing things, doing economic making
20:44things and growing things and selling
20:46things and producing things. That
20:48somehow money just emerges.
20:50It's not It's like oil in a car. You
20:52have to put it in.
20:53>> When I see David Cameron talking about
20:56how um we need an economy not based on
20:58debt, but we need an economy based on
21:00savings. He just doesn't know what he's
21:03saying. It's ridiculous. It's absolutely
21:04absurd and it shows his complete lack of
21:07understanding of how our money system
21:10actually works. What he's essentially
21:12saying is that we need an economy with
21:15no money. If everyone was saving, we'd
21:18have mass disappearing of money, which
21:21is essentially what a bank write-off is.
21:23Essentially, it's people defaulting on
21:24their debt, which which essentially is
21:27just money disappearing. But, if people
21:29weren't taking on the debt, then it's
21:32just it's just such a joke. It's just
21:35amateur understanding of how our economy
21:37works and how the monetary system works
21:40and how money is actually created. So,
21:42um I really do get a laugh out of
21:43watching what people are actually
21:45saying. And they're all just
21:46regurgitating what they've learned off
21:48each other and you just hear the same
21:49things and it just makes me it it really
21:53gets on my nerves when I hear people
21:55talking about um yeah, we need more
21:57regulations, we need to regulate the way
21:59banks are actually and the bonus It's
22:02all just one big smoke screen and
22:04working on all the symptoms of a greater
22:06disease, which is really you need to
22:08look at the the money system, the way
22:11money is created. And I if we don't want
22:13any debt, then we're essentially saying
22:15we don't want any money and we want a
22:17money-less economy with the exception of
22:18the 3% that's created debt-free.
22:22>> You know, it's a paradox under the
22:23current system. If you
22:25if we as the public go into further
22:27debt, then that's going to put more
22:28money into the economy and we're going
22:30to have a boom. When you have a boom,
22:32it's easier to borrow, so people get
22:34into even more debt. And eventually, you
22:36know, this this cycle continues. It gets
22:37easier and easier to get into debt until
22:40some people get over in debt and then,
22:42you know, they default. They can't repay
22:45their mortgage. That's what happened in,
22:47you know, it happened first in subprime
22:48America.
22:49Um and then, you know, that just
22:52brings through a wave of defaults, which
22:53will ripple across the entire economy.
22:56Banks go insolvent, then we're into a
22:58financial crisis.
23:00Um and then the banks stop lending. And,
23:03you know, they they were excessively
23:05lending in the boom, and then they
23:07stopped lending, and then that makes the
23:09recession even worse. People lose their
23:11jobs, and then they become even more
23:12dependent on debt just to survive,
23:15basically. You know, we have a a system
23:17where we have to borrow in order to have
23:20an economy. We have to be in debt to the
23:22banks.
23:23And that that guarantees, you know,
23:25massive profit for the banks.
23:28>> This is the boom bust cycle.
23:33>> And I have said before, Mr. Deputy
23:34Speaker, no return to boom and bust.
23:44>> Net bank lending must forever increase.
23:49>> We're paying interest on every single
23:50pound, even if even if you think the
23:52money belongs to you.
23:54Somebody somewhere is paying interest on
23:56that money.
23:56>> The banking system has such a huge
23:59impact on the world,
24:01but only because it supplies our
24:03nation's money supply.
24:05We have to protect them. We have to
24:06subsidize them. We have to allow them to
24:09continue because the the disaster of of
24:12a a bank collapse affects us all in a
24:14huge way, and anyone that says that we
24:16shouldn't have bailed out the banks
24:18doesn't quite understand the the the
24:20nature of our monetary system. That's
24:22like eliminating a huge chunk of our
24:24money,
24:25but also bailing out the banks is
24:28perpetuating a system which is never
24:30going to work anyway. So, whatever we
24:32do, we're always going to have this
24:34cycle until we separate how money is
24:36created and the activities of banking.
24:39Then the banks can do as they wish.
24:40They're a normal business like everyone
24:41else.
24:42>> There's a a major democratic issue here
24:45as well. I mean, you have these
24:48private profit-seeking banks creating up
24:50to 200 billion pounds a year and pumping
24:52that into the economy
24:54wherever they want, basically. Wherever
24:55it suits them.
24:57Whether they're pumping it into, you
24:58know, these toxic
25:00derivatives or putting money into
25:02housing bubbles, just making houses more
25:04expensive. 200 billion pounds in 2007 of
25:08new money coming into the economy,
25:10created out of nothing. And where that
25:13gets spent determines, you know, the
25:14shape of our economy effectively. So, if
25:17we're going to allow anybody to create
25:19new money out of nothing, then we should
25:21at least have some democratic control
25:23over how that money's used. I mean, it
25:25it Would we rather have had that money
25:27used for healthcare, you know, to deal
25:29with some of the environmental issues,
25:31to reduce poverty, or do we rather have
25:33it to make houses more expensive so that
25:35none of us can afford to to live in a
25:37house?
25:41>> You can see it as a subsidy, a special
25:45super subsidy to the banks
25:48for the right to create money,
25:51which should be for the benefit of the
25:53public and spent through a democratic
25:56process.
26:03>> There's also another form of money,
26:06which is effectively an electronic
26:08version of cash.
26:09And it's a type of money that the
26:11commercial banks use themselves to make
26:13payments between each other. The high
26:16street banks don't want to be carrying
26:17around huge quantities of money cuz it's
26:20dangerous and it's, you know,
26:21inconvenient and it's, you know,
26:22expensive. You have to hire security
26:24guards for that type of money. So, what
26:26they do is they pay each other in what
26:29is an electronic version of cash,
26:31which in the industry is known as
26:34central bank reserves.
26:36They keep this electronic cash in
26:39accounts at the Bank of England.
26:41But, as a member of the public, you
26:43can't access this electronic cash. You
26:45can't get an account with the Bank of
26:47England. What they do is they they
26:49effectively sell this central bank money
26:52to the banks.
26:54And they do this by creating it out of
26:56nothing and using this money to pay for
26:59bonds, to buy bonds from the high street
27:02banks.
27:03So, the high street bank will come along
27:05with a bond, which is, you know,
27:06effectively government debt.
27:08And it will give it to the Bank of
27:09England, and in return the Bank of
27:11England will type some new numbers into
27:14the bank's account at the Bank of
27:15England. So, effectively they're
27:17creating central bank reserves out of
27:19nothing.
27:20>> The Bank of England creates central bank
27:21reserves
27:23by increasing the available credit in
27:25the settlement bank's account with the
27:27Bank of England.
27:28The settlement bank, in return, posts
27:30bonds
27:31or sells assets as collateral for the
27:33reserves.
27:37A total of 46 banks hold central reserve
27:40accounts at the Bank of England.
27:42Smaller or foreign banks hold accounts
27:45with one of these 46 banks to allow them
27:47to accept or make payments in pounds
27:50sterling.
27:52Prior to March 2009, the Bank of England
27:56would ask each of the major settlement
27:57banks how much reserve currency they
27:59needed.
28:01The settlement banks would then swap a
28:03bond for the reserve currency
28:05and agree to repurchase the bond for a
28:07specific amount
28:09at a specified future date.
28:13The settlement banks would then receive
28:15interest at base or policy rate for the
28:17central bank reserves they held.
28:21>> Since the crisis, settlement bank
28:23central reserves have shot up
28:25dramatically.
28:40When bank customers transfer funds from
28:42their account to another person's
28:44account,
28:45a process called intraday clearing
28:47occurs.
28:49The amount of central reserve currency
28:51Bank A has at the Bank of England
28:54is reduced by the corresponding amount
28:56that Bank B receives.
28:58This is the importance of central
29:00reserve currency to banks.
29:03Before the credit crisis,
29:05if a bank was short of central reserves
29:07at the Bank of England to meet its
29:09obligations,
29:11then the bank would have to loan
29:12reserves from other banks with interest.
29:26>> If you sell something on eBay, you know
29:28that that deal's not complete until you
29:29get some money put into your account.
29:31You know, most people actually want to
29:32see the money in their account before
29:34they're happy to close on a deal. Now,
29:36the banks are pretty much the same, but
29:38they want to see the money in their
29:40account at the Bank of England before
29:42they consider a deal complete. So, for
29:44example, if you if you're buying a house
29:46from somebody who banks with a different
29:48bank, then what what will happen after
29:50you spend quarter of a million on a
29:52house is you'll tell your bank to
29:54transfer some money to this house
29:56seller's bank.
29:58And what the bank will do is actually
30:00instruct the Bank of England to move
30:03250,000 from their account at the Bank
30:05of England to the bank of the house
30:09seller.
30:10And that money will actually move across
30:11between the accounts at the Bank of
30:12England.
30:13Um when that money's moved across, then
30:15the banks will consider that that
30:17payment has been made. You know, it's
30:19been settled.
30:20Um they
30:22don't really deal in the kind of money
30:24that we have in our accounts. They deal
30:26in this special money that's can only be
30:28used at the central bank.
30:32>> There are millions of people across the
30:34country all transferring money to each
30:36other using only a few major banks.
30:40These banks can keep a tally on their
30:41computer systems.
30:43And usually many of the movements cancel
30:45each other out at the end of the day.
30:48The five major banks RBS, Lloyds,
30:52HSBC,
30:54Barclays and Santander
30:56hold over 85% of all deposits.
31:02As there are a limited number of banks
31:04in the system,
31:06the central reserve money can only be
31:07moved around them in a closed loop.
31:10>> The money is just circulating through
31:12the system over and over again. And if
31:15you think about it, a £1 coin could be
31:18used to make a billion pounds of
31:19payments if it was circulated a billion
31:22times. And that's effectively the system
31:24that you have now is you have a small
31:25pool of real money that's just going
31:27around and around the system and it's
31:29been used to make a a huge quantity of
31:31payments on our behalf. Just before the
31:33crisis, there was only 20 billion pounds
31:36in the accounts at the central bank.
31:41If they don't have enough of this
31:43central bank money, then effectively
31:45they can't make payments. And if that
31:47happens, then pretty quickly the entire
31:49system seizes up.
31:50So the Bank of England has the
31:52responsibility of making sure there's
31:54enough of this money in the system.
31:58>> The requirements for banks to hold a
32:00specific amount of reserves has changed
32:02many times since 1947.
32:05At that time, banks needed to hold a
32:07minimum ratio of 32% of reserves, cash
32:11or treasury bonds to deposits.
32:14In 2006, the corridor system was
32:17introduced
32:18in which banks could set their own
32:20reserve targets each month.
32:25The rules changed again in March 2009
32:29when the Bank of England introduced
32:30quantitative easing.
32:32Quantitative easing in effect gives
32:34settlement banks the central reserve
32:36currency, for free.
32:41The central reserve currency is what is
32:43referred to as the real money in the
32:45fractional reserve model.
32:48But, the fact is banks can have as much
32:50of this as they want.
32:52And central reserve currency itself is a
32:54form of fiat money, which is backed by
32:56nothing.
32:58As a consequence, there is no longer a
33:00meaningful fractional reserve.
33:14>> If you look over the history of the last
33:15150 years or so, you you start off
33:18um with the development of a
33:20a gold standard that really comes to
33:21form in the 1880s, 1890s, where
33:24essentially uh countries peg themselves
33:26to a particular defined value of gold,
33:28and then they have an agreement to uh
33:31fix that value, to hold that value, and
33:33to trade gold amongst themselves to the
33:34to make sure the balances are all there,
33:36and also to try and uh restrict or
33:39expand or contract um activity in their
33:41own economies uh to make sure that that
33:44the balance that particular fixed price
33:45is is maintained. That disintegrates uh
33:48in the well, after the First World War.
33:50I mean, this is where the whole thing
33:51breaks apart. Very major dislocation in
33:54the international monetary system at
33:55that point. Not really resolved until
33:57you get Bretton Woods agreements at the
34:00end of the Second World War, in which
34:02everything is pegged to the dollar, and
34:03the dollar is pegged to the gold. So,
34:05you kind of one remove from gold backing
34:07or saying that there is a definite, you
34:09know, sort of solid commodity money
34:12behind the paper money and the credit
34:13money that we're all using over here.
34:15You're kind of one remove from it.
34:17>> After Hiroshima, Tokyo wondered when the
34:20next atom bomb would fall.
34:23They did not wonder long.
34:30>> In 1944
34:32at Bretton Woods,
34:34the US and the UK began to negotiate how
34:37to govern the world economy, the world
34:40monetary system, and came up with the
34:42World Bank and the IMF and a series of
34:44other institutions designed to manage
34:47the global currency. And there was still
34:49a gold standard, but this gold standard
34:51was going to be tied to the dollar. All
34:53of the world's gold had moved from
34:56London
34:57to Fort Knox.
34:59And all of the world's currencies were
35:01tied to the dollar.
35:03This system was designed to manage the
35:06sorts of imbalances to avoid credit
35:08crunches, or for countries the credit
35:11crunches are known as balance of trades
35:13deficits, i.e. when they can't pay their
35:15bills and their currency collapses. The
35:18currencies were managed
35:20and the system was stable as long as the
35:23Americans played the role of oversight.
35:28Now, who knows the great story about how
35:30that all came to an end?
35:33So, the quantity of money that was
35:34needed to pay for the Vietnam War.
35:37That's
35:37exactly what I was trying to get at. Oil
35:39shocks was another one. That meant that
35:41the Americans were no longer respecting
35:43their role or playing their role
35:44governing the monetary system. They were
35:46inflating the value of their own
35:47currency, but ostensibly it was meant to
35:49be tied tied to gold and to every other
35:51currency.
35:53So, what did the French do?
35:55The French were a little bit worried
35:56that President Nixon wasn't entirely
35:58honest.
36:01And they were worried that they were
36:03that precisely what we described,
36:06that Nixon was printing money when he
36:09shouldn't have been, was going on. And
36:11they were worried there wasn't enough
36:12gold to honor the exchange rate of the
36:15French franc. So, they
36:18sent a gunboat to New York Harbor to
36:20ever so politely ask for our gold back,
36:22please.
36:24Did they get their gold back?
36:27Go on, guess.
36:29They didn't. And the Bretton Woods
36:31system came to an end.
36:34And this is the point in which we enter
36:36the modern era of the financial system.
36:47>> Historically,
36:48money creation was pegged to a
36:49commodity,
36:51often gold,
36:52but today, it is pegged to nothing.
36:56>> Which means there is nothing backing our
36:58money.
37:00This piece of paper
37:02is just a piece of paper.
37:06Where does this leave us?
37:09If money's based on nothing,
37:11why do we think it has any value?
37:15Sorry?
37:18Cuz we can still go and exchange it.
37:19What? What somebody else was going to
37:20shout?
37:22Great little Latin fact, the word for
37:23credit comes from
37:27belief.
37:28Correct.
37:36>> Since the collapse of the dollar gold
37:38standard in 1971
37:40and the deregulation of the financial
37:42system,
37:43money creation has grown exponentially.
37:47>> The World Economic Forum meeting in in
37:49Davos
37:51at the present time have called on a
37:54need for
37:55the credit within the
37:59economy, uh the global economy, to be
38:02expanded by
38:04100 trillion dollars, 100 trillion US
38:08dollars. Uh
38:11trillion is 12 naughts, so 100 trillion,
38:14if you want to imagine, is a one
38:16followed by 14 naughts.
38:19>> They believe this credit expansion will
38:21create a boom
38:22because there is now more money in the
38:23economy with which to make investments.
38:27>> It's fascinating that this the emergence
38:29of digital currencies, how it's
38:30transformed everything, really. Um
38:32because it just completely unleashed
38:35private banks
38:37to dominate and create the money system
38:39that works for them and works for the
38:41people who run private banks.
38:47>> If you want to grow an economy under the
38:49current system, we have to have growing
38:51debt. You can't
38:53you know, this is something that very,
38:55very few people really understand,
38:57especially not the politicians who are
38:59managing the economy, which is a a scary
39:01thought.
39:09>> As the money supply grows, more money is
39:12available
39:13which can be invested in productive
39:14avenues.
39:16However, it can also be used to gamble
39:18and drive up asset prices.
39:36Inflation is a rise in the general level
39:38of prices of goods and services in an
39:40economy over a period of time.
39:43When the general price level rises,
39:46each unit of currency buys fewer goods
39:48and services.
39:50As the money supply grows and there is
39:52more currency available,
39:54more money is available for investment
39:56which can lead to growth.
39:58But more money is also available for
40:00purchases of goods and speculation
40:03which leads to inflation.
40:07>> Essentially, inflation is what happens
40:10when too much money is chasing too few
40:14goods and services.
40:16So, that that there's too much money for
40:19the the actual output of the economy.
40:24>> In the 7 years between 2000 and 2007,
40:28the money supply doubled and the banks,
40:31you know, the central bank, the Bank of
40:32England in this time was under the
40:34impression that they had it under
40:35control because they were saying, you
40:37know, prices aren't going up that much.
40:39Of course, they were only looking at
40:40prices in, you know, in your local con-
40:43corner shop. They weren't looking at the
40:44price of housing and housing is, you
40:46know, the biggest expenditure that most
40:49people will make.
40:58>> Increasing house prices
41:00uh it may may make you feel like you're
41:03you're becoming wealthier,
41:05but as your wealth increases, the effect
41:09is that your children's wealth is
41:11actually decreasing. So, in fact,
41:12there's no net gain in wealth because
41:15your children
41:16are going to have to pay even more
41:19when they want to buy a house. So, in in
41:22effect, there's no there's no kind of
41:23net increase. They're going to have to
41:25earn even more. They're going to have to
41:26go into even more debt.
41:29So, the
41:30rising house prices do not create
41:33additional uh net GDP value to the
41:36economy. It They They Actually, what
41:38they do is they redistribute wealth
41:41uh towards those people who already have
41:43houses, i.e. wealthier people, and
41:45remove it from poorer people who can't
41:48afford to get on the housing ladder. So,
41:50it's another example of a very
41:52regressive policy, actually, to allow
41:54house prices to simply inflate. Uh it
41:57makes everybody feel kind of like things
42:00are going well
42:01uh uh and people spend more money on
42:02other stuff. They take equity out of
42:04their houses, but it it's not creating
42:06new jobs. It's not uh en- enhancing the
42:09quality of the economy. It's not helping
42:12our balance of trade. It's not helping
42:13the public deficit. Um it's a it's a
42:16zero-sum game.
42:19>> As of August 2011,
42:2285.5%
42:23of consumer bank lending was secured as
42:26mortgages on dwellings.
42:28>> If you have somebody creating money that
42:30can only be spent on one thing, which is
42:32housing, then the price of that thing is
42:34going to go up. Between 2000 and 2010,
42:38they created over a trillion pounds of
42:39new
42:41500 billion pounds just in the 3 years
42:43before the crisis. That's why house
42:45prices went up the way they were.
42:47There's nothing, you know, special about
42:49houses. It was just all this funny money
42:51being pumped into that market.
42:53>> If money is spent into the economy,
42:56into into a lot of money goes into
42:58houses, for example, into mortgages,
43:00um that's an increase in the amount of
43:03money in the economy without a
43:05corresponding increase in activity, in
43:08output, in GDP. It's non-GDP based
43:13um spending.
43:14Uh that's what causes inflation. And and
43:17and in the UK, we've we've had it in
43:19spades. We've had, you know, this
43:21massive uh housing boom.
43:24And the the main cause for the housing
43:26boom, in my opinion, is the huge amount
43:29of speculative credit created by the
43:31banks to go into houses. If houses were
43:35cheaper,
43:36um they would be easier to build, more
43:40be more of them would be built. There
43:42would be less huge houses with hardly
43:44any people in them. London would not be
43:47the center of a a kind of very rich um
43:51speculative orgy where where all the
43:53richest people in the world wants want
43:54to get a property in London cuz it's
43:56seen as a as a great asset. You know,
43:58houses would be seen as places to live
44:00primarily rather than places to invest.
44:03Important thing to think about is if
44:05you're a bank
44:07and you've got to make a loan
44:09you have choices. You can you can give
44:11that loan to um a small business
44:15and you'll know that the risk to you of
44:17that loan failing, defaulting, is
44:20actually quite high because that small
44:22business, the owners of that business
44:24have limited liability.
44:26Which means if the business goes bust
44:28you as a bank are getting nothing back
44:31essentially. You know, that that's it.
44:32So, that's kind of high risk compared to
44:35loaning your money to somebody with some
44:38collateral, with a house behind them,
44:40like a mortgage. So, there's a there's a
44:42kind of simple incentive for banks to
44:44prefer putting money into housing than
44:47into a a small business.
44:49Now, that's a real problem
44:51or if you if you if you widen that out
44:53across the whole economy
44:54because it means there's an incentive,
44:57you know, to put money into speculative
44:58rather than productive investments. So,
45:01again, we have to think about how we
45:03create a monetary system that is more
45:06balanced between those two kinds of
45:08speculative and productive investment.
45:11The government showing very little uh
45:13enormous reluctance to regulate the
45:15housing market and to again regulate the
45:18amount of money that that banks put into
45:20houses.
45:21>> We don't decide who creates credit for
45:23what. No, we leave that to a couple of
45:25chaps in a bank to decide basically.
45:35>> A bubble occurs when there is very high
45:37inflation in the price of a specific
45:38good or service over a short period of
45:41time.
45:45>> The idea of the tulips and their
45:46relevance is that we have saw the first
45:48ever financial bubble and crash.
45:52The craze for tulips, black tulips being
45:55a mythical ideal of what somebody could
45:59genetically engineer through cultivation
46:02after many generations became a mania in
46:06the Netherlands in the 1630s.
46:08What they didn't realize was that many
46:10of the very very rare patterns on tulips
46:12were caused by a virus and weren't
46:14genetic at all.
46:16But, they traded them to the extent that
46:18tulip bulbs got to the point where they
46:20were worth 10 times the average annual
46:22salary
46:23of a person working in the Netherlands.
46:26There was a futures market in tulip
46:28bulbs because obviously you plant them
46:29now, but you don't know what's going to
46:30come out of the ground. So, we see
46:32already 400 years ago that a money
46:35system or a financial system is not
46:37something that exists in the abstract,
46:39somewhere out there in the ether, but
46:42something that was to do with states,
46:45power, trade, and how they interact with
46:48each other.
46:51>> Unlike tulips, which are a disposable
46:53luxury,
46:55houses are both a necessity and a
46:57luxury.
46:58And as such, they are ideal as a vehicle
47:01for money and bubble creation.
47:04A dwelling
47:05is perhaps the most prized possession of
47:07value most people aspire to.
47:13Inflating house prices in this way
47:15allows a nation to expand its money
47:17supply
47:18without affecting inflation data.
47:22The additional purchasing power created
47:24increases the perceived wealth in
47:26relation to other nations
47:28and thus it creates relative power.
47:32It is a way of increasing monetary power
47:34without investing in the productive
47:35growth of industry.
47:40>> But certainly if you look at Britain and
47:41America as outstanding examples of this,
47:43these are countries with very high rates
47:45of private home ownership. So, you've
47:46got a good base to try and perform this
47:49sort of policy off the back of. I think
47:51it was quite deliberate in the case of
47:52the US, almost explicit. There's Alan
47:55Greenspan as head of the Federal
47:56Reserve,
47:57when confronted by a stock market crash
48:00at the end of the 1990s, quite
48:03deliberately slashed interest rates to
48:06almost zero. Everyone can borrow very,
48:09very cheaply. In particular, it's very
48:11easy to borrow against a house because
48:13this is an asset and it's potentially
48:15something that bank can say, "Well,
48:16okay, we're not just lending you money
48:18unsecured. You actually do have a house
48:19and that's great cuz you we can
48:21repossess it." They won't tell you this
48:22when you take the mortgage, but they can
48:24do this. And that bubble is then what
48:26fuels expansion such as it is inside the
48:29US.
48:30And inside the UK where something
48:31similar takes place for the next decade
48:33or so. It's also a reflection of an
48:36underlying weakness of these
48:37governments. That they they simply lack
48:40the will and possibly the ability, but I
48:42think it more comes down to a will to
48:45challenge financial markets, to
48:46challenge big capital and say, "We're
48:49going to do something different now and
48:51you're going to have to go along with it
48:53because we've been democratically
48:54elected and you lot frankly haven't and
48:56we have mandate to do this and we're
48:57going to make this happen."
48:58>> Just remember it's all part of the plan.
49:02What are you yapping about? You voted
49:04for it.
49:07>> In Holland or in the Netherlands, what
49:10we had over a period of trying to get
49:13independence initially from Spain and
49:15trying to raise money to get an army to
49:17free themselves
49:18was financial innovation. They innovated
49:21public lotteries to get money together.
49:23They had public subscription. This was
49:25the idea that led to the idea of public
49:27shares, a piece of the action that
49:29anybody could invest in. That meant that
49:30something like 2/3 of the population was
49:33investing in tulip bulbs by the 1630s.
49:36After independence, these these
49:38instruments were applied to financing
49:40expansion.
49:41Why was such a small country able to
49:44hold its own against so much bigger
49:46countries, for example, Spain and
49:48Portugal that had the benefits of their
49:50empires for over a century
49:53in respect of the Netherlands. Why could
49:55they compete on what resource basis?
49:57Well, they had a more efficient, a more
50:00involved, and a broader-based financial
50:03system with these instruments that
50:05they'd innovated that allowed them to
50:07bring more money to bear at one point
50:09than anybody else more quickly.
50:14>> Incredible.
50:16But true.
50:24>> Now, inflation can be avoided
50:27if the amount of money that goes into
50:29the economy
50:30um
50:31is regulated in a way that it doesn't
50:34exceed the actual activity that's
50:37happening in the economy.
50:39Now,
50:40the best way to do that, in my opinion,
50:42is to make sure that money is issued
50:45into the economy only for productive
50:49investment for productive goods and
50:52services. So, money goes in
50:54to help a small business start up, which
50:57creates jobs, which creates additional
51:01purchasing power,
51:02um which means there's no there's no
51:04inflation.
51:05>> During their history, almost all central
51:07banks have employed forms of direct
51:09credit regulation.
51:11The central bank would determine desired
51:13nominal GDP growth,
51:15then calculate the necessary amount of
51:17credit creation to achieve this,
51:20and then allocate this credit creation
51:22both across the various banks and type
51:24of banks and across industrial sectors.
51:28Unproductive credit was suppressed.
51:32Thus, it was difficult or impossible to
51:35obtain bank credit for large-scale,
51:37purely speculative transactions,
51:40such as today's large-scale bank funding
51:42to hedge funds.
51:44The World Bank recognized in a 1993
51:46study that this mechanism of
51:48intervention in credit allocation
51:50was at the core of the East Asian
51:52economic miracle.
51:54>> There's all sorts of things that
51:55governments have done in the past very
51:57successfully in a number of cases and
51:59and not often not unsuccessfully in this
52:01country. But you know, the examples that
52:02spring to mind like South Korea, Japan,
52:05often in East Asia where governments
52:06been quite targeted about how they going
52:08to rebalance the economy and picking
52:10sectors and deciding where the
52:12investment should take place. I think
52:13that has to start happening in the UK
52:15because we're in a demand side recession
52:17rather than looking at crisis of of
52:19supply.
52:20>> You you have to have a system
52:22where credit is put into productive
52:26avenues where credit is put into
52:28building high speed rail lines, where
52:30credit is put into
52:32building houses rather than giving
52:34people money to inflate the price of of
52:36houses. So it's it's quite simple really
52:39in that way. Um and
52:43the current system is simply set up not
52:45to do that basically.
52:48>> The creation of money by private banks
52:50for non-productive usage causes real
52:52inflation and as such it is a tax on the
52:55purchasing power of the medium of
52:57exchange.
53:05>> The figures for the UK are are quite
53:07stark actually that
53:09average median real incomes for so
53:12that's you know, what the bit in the
53:14middle uh for most people over the last
53:17eight years or so. They're now in quite
53:18sharp decline as as we go into the
53:20recession being the sharpest really
53:21since
53:22it looks like since about the 1930s put
53:24it that way. So real incomes are
53:25declining.
53:28>> Bank created fiat currency allows the
53:30private banks to suck wealth from the
53:31economy
53:33and over time results in a gradual
53:34decrease in the standard of living.
53:38As people become poorer they become even
53:40more dependent on debt.
53:43And this is a time when efficiency and
53:45machination have improved dramatically.
53:48>> If you know, you go back to the 1960s
53:50and we were expected to to we were
53:53looking forward to the an age of
53:54leisure. What will people What they were
53:56talking television programs saying,
53:58"What's people going to do with all
53:59their spare time?"
54:01You know.
54:02And now we've got more people working
54:04harder than ever.
54:06Spending more than ever.
54:08Which looks great, you know. Everyone's
54:10spending more. Everyone says, "Oh, yeah,
54:11we
54:12you know."
54:13But if you're not actually benefiting
54:15from what you're spending, if you're
54:17having to spend the money on child care
54:18costs, on commuting costs, you know, and
54:21so forth. Just you know, it's costs that
54:24people didn't in the past used to have
54:26to pay.
54:27Because you know, you could walk to work
54:29and you know, one member of the family
54:31remain was able to to stay at home and
54:33be a permanent homemaker. Then you're
54:35not actually much You're not actually
54:36any better off.
54:37You know, everyone's under Everyone's
54:39under such enormous pressures
54:41nowadays. You know. I am conscious that
54:45let's say my four nephews and nieces
54:48are facing difficult times.
54:50She's going to find themselves having to
54:52work
54:54you know, um
54:56very hard just to to keep just to keep a
54:59a roof over their just to get a roof
55:01over their just keep a roof over their
55:02head.
55:03>> People are getting poorer in real terms.
55:05It's because prices always going up
55:07because all this new funny money's being
55:09pumped into the system by the banks.
55:12And they're creating it all as debt. So,
55:15at the same time as prices are going up
55:16and things are getting more expensive,
55:18we're getting further and further into
55:19debt. And you know, our our wealth and
55:22the return that we get from actually
55:24working is getting less and less all the
55:25time. And you can't deal with poverty
55:28when you have a financial system and a
55:30money system that distributes money from
55:32the poor to the very rich.
55:34Any distribution that you try and do in
55:36the opposite direction is
55:38um, you know, it's effectively pissing
55:40in the wind. If you look at issues like,
55:42you know, increasing inequality,
55:45one obvious way to tackle inequality is
55:48to have, say for example, a
55:49redistributive tax system. You know, you
55:51tax the rich, you give some money to the
55:53poor, you move that money down down the
55:55scale.
55:56Um,
55:57that's all very well, but if you
55:59completely overlook the fact that
56:01there's another redistributive system
56:03which is taking money from the poor and
56:05giving it to the rich,
56:07then you're not really going to tackle
56:08this inequality. And um, the way
56:12a debt-based money system works, it
56:14guarantees that for every pound of money
56:16there's going to be a pound of debt.
56:18Now, that debt is typically going to end
56:19up with, you know, the poor,
56:21uh, the sort of lower middle classes.
56:23Those people end up with the debt and
56:25they end up paying interest on that
56:27money, which then goes back to the
56:28banking sector and gets distributed to
56:30the people working in the city or in
56:33Wall Street. Um, and what this what this
56:35system does overall is it distributes
56:37money from from the poor to the rich,
56:40essentially. Distributes money from, you
56:43know, the poorer regions of the UK back
56:45to the city of London.
56:48And it it also distributes money from
56:49all the small businesses, you know, all
56:51the little factories, um, around the UK
56:54and distributes that money back into the
56:56financial sector.
56:57>> We have a system whereby the activity of
57:01actually supplying our nation's money
57:04supply occurs under the very same roof
57:06as the same organization that's
57:08responsible for profiting from putting
57:11together borrowers and lenders, i.e. a
57:12bank.
57:13So, a bank creates our nation's money
57:16supply as well as
57:18um, making loans,
57:20uh, for profit.
57:21>> The government cannot allow the banking
57:22system to fail
57:24because if it did,
57:26over 97% of all money would disappear.
57:29This is why in the event of a crisis,
57:32the risk is transferred to the taxpayer.
57:35But even during normal times, banks
57:37receive numerous guarantees and benefits
57:39beyond the right to create money.
57:42>> Well, by the way, I know the Bank of
57:43America is a very big bank. It happens
57:45I've got $32 in myself.
57:47Just between us, what assurance do I
57:49have that this money is safe?
57:52>> Well, all deposits up to $10,000 are
57:55assured or insured by the federal
57:57government in Washington.
57:58>> That's my guarantee.
57:59>> Yes.
58:00>> Have you heard that the federal
58:01government is about $280 billion in the
58:04hole?
58:09>> Banks receive large safety nets from the
58:11government.
58:12The taxpayer guarantees £85,000 as
58:15deposit insurance.
58:17And the Bank of England provides
58:19liquidity insurance in case a bank runs
58:21out of reserve currency.
58:28>> Someone wrote that a big investment bank
58:31is like a giant vampire squid
58:35wrapped around the face of humanity
58:38hypnotizing politicians who throw money
58:40at the banks.
58:42No strings attached. No matter what
58:45damage is done.
58:47Trashing the planet.
58:49Forcing cuts to things that make life
58:51better.
58:53Goodbye schools.
58:55Goodbye playgrounds.
58:57Goodbye jobs.
59:00The bankers that we bailed out then gave
59:03themselves bonuses that were bigger than
59:06the first wave of public spending cuts.
59:10Britain alone gave the banks more money
59:13than it cost to put a man on the moon
59:16six times over.
59:19Where did our money go?
59:21Who let the banks get away with it?
59:24Why?
59:26Can vampire squids ever be useful?
59:30No government yet is brave enough to
59:32tame them.
59:34Perhaps
59:35they need a plan.
59:55>> The spending cuts agenda is an attempt
59:57by the government to shift debt from its
59:59account to that of the public.
1:00:03This is the government's response to the
1:00:04bank bailouts and is necessary in a
1:00:07debt-based monetary system
1:00:09where increased purchasing power is the
1:00:11result of growing debt
1:00:13and where a diversification of debt
1:00:15provides overall stability and market
1:00:17confidence.
1:00:19Policies such as student fee increases
1:00:22and the privatization of public
1:00:23services, assets, and industry follow
1:00:26the same model.
1:00:28>> The problem we're facing, I think, is
1:00:30that uh
1:00:31there's been there's this transference
1:00:32from the the public debt to to the
1:00:34private debt, which is a which is
1:00:36essentially a a way of transferring
1:00:38risk, actually, away from sort of UK PLC
1:00:42and the government onto the the heads of
1:00:45individuals. And it's going to be the
1:00:46most vulnerable individuals who are
1:00:48going to have the most debt. Uh thus,
1:00:50it's a very unprogressive, regressive uh
1:00:53policy framework that that the
1:00:55government's embarking on, where the
1:00:57risk is moved onto those who are most
1:00:59vulnerable. And if there is another
1:01:02financial shock, if there's an oil
1:01:03shock, for example, the people who will
1:01:05pay the penalty are those are the
1:01:07poorest people in society or homeowners,
1:01:09for example, who will fall into negative
1:01:12equity if interest rates go up even 1 or
1:01:142% uh there'll be real, really big
1:01:17problems. So, I don't think it's a a
1:01:19sensible way forward at the moment at
1:01:21all, and it's uh it's regressive, and
1:01:23it's certainly not fair
1:01:25in the terms that
1:01:27that the government's talking about, and
1:01:28it's certainly not a case of we're in
1:01:30this together.
1:01:32>> As more of a country's resources and
1:01:34industries are privatized, the private
1:01:36sector takes on more debt.
1:01:38As a result, more money is created, and
1:01:41there is a boom.
1:01:44Some private equity companies have taken
1:01:46this theory to the extreme,
1:01:48engaging in a practice known as a
1:01:50leveraged buyout,
1:01:53where a company is purchased at an often
1:01:55inflated price, and the purchase price
1:01:58is transferred to the business as a
1:01:59debt.
1:02:02The company becomes responsible for the
1:02:04funding of its own purchase.
1:02:06These debts are often so great that the
1:02:09company needs to reduce staff, salaries,
1:02:12and research activities.
1:02:16>> When you have to factor interest as a
1:02:17business, if you have to factor interest
1:02:19repayment into your goods and services,
1:02:22then you have to charge a perpetually
1:02:24higher price as you take on more and
1:02:25more debt.
1:02:27>> An increase in the diversification of
1:02:29debt results in an increase in the money
1:02:31supply.
1:02:33When the money supply increases, more
1:02:35money is available for productive
1:02:37activities and consumption,
1:02:39which is the condition for a boom.
1:02:43>> It's questionable whether we're going to
1:02:45get out of this recession or whether
1:02:46we'll just keep ticking along the way
1:02:48that we are now.
1:02:49Um however, if we do,
1:02:52then when we come out of this recession,
1:02:54when growth starts again, look at what
1:02:56happens to debt. It will rise, and it
1:02:58will keep rising, and the faster the
1:03:00economy is growing, the faster the debt
1:03:01will rise. And then, give it another
1:03:043 to 5 years,
1:03:06we'll be back where we were. You know,
1:03:07the debt will become too much, people
1:03:09will start defaulting again.
1:03:10Um it's kind of the system that we're
1:03:12locked into now is we can't we can't
1:03:14grow the economy without growing the
1:03:16debt, and the debt is the very thing
1:03:18that will bring down the economy.
1:03:20The only option going forwards is to
1:03:21reform it, to stop banks from creating
1:03:23money as debt.
1:03:25By fixing the monetary system, we can
1:03:27prevent the banks from ever causing
1:03:29another financial crisis, and we can
1:03:31also make the the current, you know,
1:03:33public service cuts and the tax rises,
1:03:35and the increase in national debt
1:03:37unnecessary.
1:03:40>> The current monetary system allows the
1:03:42banking sector to extract wealth from
1:03:44the economy whilst providing nothing
1:03:46productive in return.
1:03:49>> I mean, why is it that we've got all
1:03:51this technology, um
1:03:53you know, all this new efficiency, and
1:03:55yet it now requires two people to
1:03:57finance a household,
1:03:59whereas in the '50s it only needed one
1:04:01person working? And the reason for that
1:04:04is not because, you know, these washing
1:04:06machines and everything are more
1:04:07expensive, it's because of all the debt.
1:04:10And it's because, you know, effectively
1:04:11the banking sector's creaming it off
1:04:13from everybody else. So, a growing
1:04:15banking sector isn't a sign, you know,
1:04:17it's not a good thing. If the banking
1:04:19sector's growing, it's either that it's
1:04:21becoming less efficient, or it's
1:04:22becoming a parasite on the rest of the
1:04:24economy.
1:04:25And that's, you know, we can talk about
1:04:26the banking sector becoming 4%, 5%, 6%
1:04:29of GDP,
1:04:31what's happening to the rest of the
1:04:32economy? It's becoming 96%, 95%, 94% of
1:04:35GDP. We've got to get switched on to
1:04:37this now. You know, if you want to
1:04:39if you want to have a chance of tackling
1:04:41any of the other big social issues,
1:04:43you've got to figure out the money
1:04:44issue.
1:04:45>> The poorest in the world pay for crises,
1:04:48even when they've not benefited from the
1:04:50the often reckless and speculative
1:04:53booms, like the housing boom in in
1:04:55Ireland that that preceded
1:04:57that crisis. You know, over the last 30
1:04:59years we've seen income differentials
1:05:02increase, so that the rich have got
1:05:04much, much richer,
1:05:06and ordinary people haven't. They've
1:05:07stayed the same, or they've they've got
1:05:09poorer.
1:05:10And one of the ways that the economy was
1:05:11kept going was by providing cheap
1:05:14credit. Was provide providing debt to
1:05:15those very people who couldn't really
1:05:17afford things anymore. Um, so they kept
1:05:19buying. Um, and when it collapses, it's
1:05:22those same people that that have to pay
1:05:24once again. Even though in in many ways
1:05:26they were the victims the first time
1:05:28round.
1:05:29>> As a result of the crisis, the Bank of
1:05:31England has bought corporate debt
1:05:33and repackaged it at lower rates of
1:05:35interest.
1:05:37Yet the average person is being asked to
1:05:39pay more than ever to borrow on
1:05:41overdrafts and credit cards.
1:05:44>> Debts between the very wealthy, um, or
1:05:47between governments can always be
1:05:49renegotiated and always have been
1:05:51throughout world history. They are not
1:05:53anything set in stone. It's generally
1:05:55speaking when you have debts owed by the
1:05:57poor to the rich that suddenly debts
1:05:59become a sacred obligation, more
1:06:00important than anything else.
1:06:02Um, the idea of renegotiating them
1:06:04becomes unthinkable.
1:06:07>> Can you pin down exactly what would keep
1:06:09investors happy, make them feel more
1:06:12confident?
1:06:14>> Uh, that's a tough one. Um,
1:06:17personally, uh, it doesn't matter.
1:06:18That's it. See, I'm a trader. Uh, I
1:06:20don't really care about that kind of
1:06:21stuff.
1:06:25If I see an opportunity to make money, I
1:06:27go with that. Um, so for most traders,
1:06:30we don't really care that much how
1:06:32they're going to fix the how they're
1:06:33going to fix the economy, how they're
1:06:34going to fix the uh, the whole
1:06:35situation.
1:06:36Our job is to make money from it. And
1:06:39personally, I've been dreaming of this
1:06:41moment for 3 years.
1:06:43If you know what to do, you can make a
1:06:45lot of money from this. Uh, I I I had a
1:06:46confession which is
1:06:48uh, I go to bed every night, I dream of
1:06:49another recession. I dream of another
1:06:51moment like this.
1:06:53I dream of another recession. I dream of
1:06:54another moment like this.
1:06:56You can make a lot of money from this.
1:07:00>> Bruno, Virginia hurt somebody real bad.
1:07:05You ought to hate her.
1:07:07>> Incoming!
1:07:10>> The way in which you can look across
1:07:12Europe now and see that the new prime
1:07:15minister of Greece, not elected, is
1:07:16essentially imposed Papademos, former
1:07:18employee of Goldman Sachs, the new prime
1:07:21minister and finance minister of Italy,
1:07:23Mario Monti, former employee of Goldman
1:07:24Sachs, the new president of the European
1:07:26Central Bank, former employee of Goldman
1:07:28Sachs. It's quite, you know, you kind of
1:07:30see these people popping up absolutely
1:07:31everywhere.
1:07:32>> That's the way to change what we have,
1:07:34take all power and all freedoms away
1:07:36from the people, and collect everything
1:07:38into the hands of one small group with
1:07:40absolute power.
1:07:43From the people,
1:07:45without the people,
1:07:47against the people.
1:07:49>> What's been interesting out of all this,
1:07:51I suppose, is the question of democracy
1:07:53that's been opened up very starkly in
1:07:55Europe, that that you have a government
1:07:56of bankers essentially imposed on you.
1:07:58It's bankers who more or less got us
1:08:00into this mess, to put it rather
1:08:02crudely, but that's a good first
1:08:03approximation to it. And then you say,
1:08:06"Okay, bankers are the people who are
1:08:07therefore going to get us out of it."
1:08:08And incidentally, they're going to run
1:08:09your your country now. There's there's
1:08:10there's a serious question of democracy
1:08:12that's opened up here.
1:08:13>> By the way, the banking crisis
1:08:15drove more than a hundred million people
1:08:19back into poverty.
1:08:22The mortality statistics of people who
1:08:25go into poverty rise hugely
1:08:28for a whole range of reasons. So, the
1:08:31banking crisis isn't just about becoming
1:08:33poorer, it was about killing people as
1:08:34well.
1:08:36And guess what?
1:08:38We haven't really got to the bottom of
1:08:40it. We never held anybody to account,
1:08:42and we haven't done the radical
1:08:43reforming job that we really needed to
1:08:45do.
1:08:46Because we mistakenly thought
1:08:50if we destabilize the position any
1:08:51further, it'll make matters worse. And
1:08:54guess who took the decisions? All the
1:08:56people who were there in the first
1:08:57place.
1:09:00>> I think you ought to know that the
1:09:02business of one of these businessmen is
1:09:04murder.
1:09:11>> Their weapons are modern.
1:09:13Their thinking
1:09:152,000 years
1:09:17out of date.
1:09:26>> Look, I was there when the secretary and
1:09:28the chairman of Federal Reserve came
1:09:30those days and talked with members of
1:09:32Congress about what was going on. It was
1:09:35about September 15th. Here's the facts
1:09:37and we don't even need talk about these
1:09:39things. On Thursday at about 11:00 in
1:09:43the morning the Federal Reserve noticed
1:09:46a tremendous drawdown of
1:09:50uh
1:09:51money market accounts in the United
1:09:53States to the tune of $550
1:09:56billion
1:09:58was being drawn out in a matter of an
1:10:00hour or two. The Treasury opened up its
1:10:05window to help. They pumped $105 billion
1:10:09in the system and quickly realized that
1:10:11they could not stem the tide. We were
1:10:13having an electronic run on the banks.
1:10:17They decided to close the operation,
1:10:19close down the money accounts and
1:10:22announce a guarantee of $250,000
1:10:25per account so there wouldn't be further
1:10:27panic out there and that's what actually
1:10:29happened. If they had not done that
1:10:31that their estimation was that by 2:00
1:10:34that afternoon $5.5 trillion
1:10:38would have been drawn out of the money
1:10:40market system of the United States,
1:10:42would have collapsed the entire economy
1:10:45of the United States and within 24 hours
1:10:47the world economy would have collapsed.
1:10:51>> When money is withdrawn internationally
1:10:52from one currency to another
1:10:55the reserve currency shifts from the
1:10:57National Bank of one country
1:10:59to the reserve account of the foreign
1:11:01bank.
1:11:03Foreign banks have relationships with
1:11:04local banks that allow them to hold
1:11:07foreign reserve currencies whilst not
1:11:09being a part of the central bank scheme
1:11:12at the local central bank.
1:11:17For example,
1:11:18when 1,000 pounds is transferred into
1:11:20euros,
1:11:23a UK bank will agree an exchange rate
1:11:25with a euro area bank,
1:11:28perhaps 1.15 euros to the pound.
1:11:32The UK bank will then transfer 1,000
1:11:34pounds of the central reserve currency
1:11:37to the UK partner bank of the European
1:11:39bank.
1:11:40Whilst the European bank will transfer
1:11:431,150
1:11:44euros of reserve currency to the
1:11:47European partner bank of the UK bank.
1:11:51>> What happens when currencies and the
1:11:53exchange rate system is no longer
1:11:54managed? What are some of the first
1:11:56consequences?
1:11:58Devaluations,
1:11:59speculation,
1:12:01imbalances where some countries would
1:12:04accrue more and more and more
1:12:05what? What would they accrue?
1:12:08Other currencies.
1:12:10Other currencies.
1:12:14>> The reserve currency needs to be spent
1:12:15in the country of origin
1:12:17or exchanged into other currencies.
1:12:21Most foreign banks do not have deposit
1:12:24taking accounts outside of their
1:12:25national borders
1:12:27and as such, the foreign reserves they
1:12:29hold do not come back to them in the
1:12:31form of deposits.
1:12:35When a country accumulates trade
1:12:36imbalances,
1:12:38it either accumulates foreign reserve
1:12:40currencies
1:12:41in the case of surplus
1:12:43or spends its own reserves
1:12:46in the case of negative trade balances.
1:12:49>> Balance of trade is is basically uh
1:12:52the
1:12:53between what you're selling abroad
1:12:55and what you're buying from abroad. Now,
1:12:57the feature on the UK is that for a very
1:13:01long period of time it's had a deficit
1:13:04on something called visible balance of
1:13:05trade, which is trading things things
1:13:07that you can see. So, that is goods that
1:13:10you'd recognize, stuff you can put in
1:13:11containers, it's cars, computers, things
1:13:14that you'd see in a shop. That's been in
1:13:16substantial deficit for I think opened
1:13:19up in in the
1:13:20did open up in the early 1980s and
1:13:23essentially it hasn't it hasn't gone
1:13:24away since if anything has got wider and
1:13:26wider.
1:13:27>> Foreign exchange reserves cannot be
1:13:29directly used for domestic spending.
1:13:32The money can only be spent abroad
1:13:35or on imports.
1:13:39A country with a large balance of trade
1:13:41deficit
1:13:42relies on its creditors to spend the
1:13:44imbalances accrued in its own market.
1:13:48>> I mean there there have been proposals
1:13:49in the past to try and create a
1:13:51mechanism
1:13:53for those imbalances to to match up.
1:13:55So, Keynes for instance, John Maynard
1:13:58Keynes,
1:13:59at the end of the Second World War, his
1:14:00original proposal for
1:14:02what became Bretton Woods and the set of
1:14:04institutions set up there like the IMF
1:14:06and the World Bank was that there would
1:14:07be a kind of international clearing
1:14:09union. This is particularly relating to
1:14:11to the trade side rather than the sort
1:14:13of the financial side directly. But, the
1:14:15principle was that, you know, once trade
1:14:16balances had opened up everybody would
1:14:18bank through an international clearing
1:14:20bank
1:14:21and that would kind of force everyone to
1:14:23to eventually reconcile the imbalances
1:14:25that appeared in the real economy.
1:14:28>> But, no such mechanism exists.
1:14:31The accumulated net trade imbalance for
1:14:34the UK is around 800 billion pounds.
1:14:46>> In essence, what has happened is that
1:14:48over many years some countries have had
1:14:50big trade surpluses and others big trade
1:14:52deficits.
1:14:53The countries with trade deficits have
1:14:55been spending more than they've been
1:14:57earning, so they've had to borrow from
1:14:58abroad. And they've been doing this year
1:15:01after year.
1:15:02Countries like that are the United
1:15:04States,
1:15:05ourselves, and some other countries in
1:15:07Europe. That cannot go on.
1:15:10And there are two ways in which this can
1:15:11come to an end. Either, and we're seeing
1:15:13this in some other countries in Europe,
1:15:15if they can't find new ways to become
1:15:17competitive, then their ability to repay
1:15:20the debts is called into question.
1:15:22Another way of doing it, which we
1:15:23followed, is that we got a credible plan
1:15:26to repay our debts.
1:15:27And the value of sterling has fallen by
1:15:2925% to make our exports more competitive
1:15:33and attractive to overseas buyers.
1:15:35And it to be more attractive for British
1:15:37consumers to buy from British producers
1:15:39rather than overseas producers. That is
1:15:42what we have done to put in place a
1:15:43framework to rebalance our economy, and
1:15:46I'm sure that's the right way to do it.
1:15:49>> Currency war,
1:15:50also known as competitive devaluation,
1:15:53is a condition where countries compete
1:15:55against each other to achieve a
1:15:57relatively low exchange rate for their
1:15:59currency.
1:16:00As the price to buy a particular
1:16:02currency falls,
1:16:03so too does the real price of exports
1:16:05from that country.
1:16:08Domestic industry receives a boost in
1:16:10demand both at home and abroad.
1:16:14>> It's made British exports appear rather
1:16:16cheaper, so they've kind of recovered a
1:16:18little bit, but because the rest of the
1:16:19world is now looking really quite ropy,
1:16:21they've started to fall back down again.
1:16:23So, what we're looking at is something
1:16:24that that
1:16:25almost a kind of anarchy. And in a way,
1:16:28the increasing anarchy. This is what's
1:16:29happened over the last few years where
1:16:31you know, the Brazilian finance minister
1:16:33has been most vocal about this, talking
1:16:35about currency wars, talking about the
1:16:37desire of national governments when
1:16:40confronted by a major recession. They
1:16:42think if we could export more, we could
1:16:44dig ourselves out of this recession. If
1:16:46we want to export more, we depreciate
1:16:48our currency. That makes our goods
1:16:50cheaper, everyone else buys them, we'll
1:16:52all be better off. Now, the issue here
1:16:54is that if you depreciate, it's like
1:16:56everybody else appreciates against you.
1:16:58Their stuff becomes more expensive. So,
1:17:00they're not too happy about that. They
1:17:01also want to depreciate. And this is
1:17:03where you can see a competitive round of
1:17:04devaluations breaking out.
1:17:07>> To decrease the value of its national
1:17:09currency,
1:17:10a national central bank sells reserve
1:17:12currency into the market.
1:17:15It creates this currency out of nothing
1:17:17by typing numbers into a computer.
1:17:33During the long phase of commodity
1:17:35money,
1:17:36the exchange rate would depend on the
1:17:37amount of gold, silver,
1:17:40or copper contained in the coins of each
1:17:42country.
1:17:43Similarly, after the advent of paper
1:17:46money and the gold standard,
1:17:49the exchange rate depended on the amount
1:17:51of gold a government promised to pay the
1:17:52holder of the bank notes.
1:17:54These amounts did not vary greatly in
1:17:56the short term.
1:17:58And as such, exchange rates between
1:18:00currencies were relatively stable.
1:18:05After the Second World War, currencies
1:18:07were pegged to the dollar,
1:18:09and the dollar was backed by gold.
1:18:12This system came to an end in 1971.
1:18:15>> So, we have a modern financial system
1:18:18where money
1:18:19is now chaotically organized. There is
1:18:22no exchange rate because there's no gold
1:18:24standard system to sustain.
1:18:26So, we don't need it. In fact, we
1:18:28believe the market will resolve all of
1:18:29the problems of exchange. Whether your
1:18:31currency should be worth more than mine
1:18:33is a reflection of your economy relative
1:18:35to mine. And if that changes, the
1:18:37currency and the exchange rate can
1:18:38change. And if we need that to happen,
1:18:41it'll happen magically by the efficiency
1:18:42of market and profit seeking and you
1:18:45guys know the rest, I think.
1:18:48>> A currency's value in relation to
1:18:49another currency is determined by the
1:18:51market.
1:18:53If more people want to buy a currency
1:18:55than sell it, its value increases.
1:18:58If more people want to sell,
1:19:01its value decreases.
1:19:03The value is set by individual banks.
1:19:06As they buy and sell currencies, they
1:19:08will adjust the exchange rate.
1:19:11>> In the la- last study I read in 2007,
1:19:15each day on currency markets, 3.2
1:19:19trillion dollars are traded each day.
1:19:24Who knows what the global GDP is?
1:19:2850. Again, Brucey, higher.
1:19:3260, that's closer.
1:19:33The point is, think about that exchange
1:19:36happening every single day. There's
1:19:38about 260 business days a year.
1:19:41It takes a few weeks to match the global
1:19:45value of every economic transaction that
1:19:48happens everywhere, every day in a year.
1:19:52And it takes a few weeks.
1:19:54>> Obviously, all of us trade currency
1:19:56very, very regularly. If you go abroad,
1:19:58you exchange into another currency.
1:19:59That's a form of currency trading.
1:20:01You're swapping your pounds into
1:20:03whatever euros or yen or whatever it
1:20:05might be. That happens very regularly,
1:20:07and that's a conventional part of the
1:20:09trading process. Now, large corporations
1:20:11have to do this
1:20:12on a regular basis. Where it becomes
1:20:14something that people question,
1:20:16where you get people saying, "Well, hang
1:20:18on, this is speculation." is when you
1:20:19get people realizing that currencies
1:20:21move around next to each other. And if
1:20:23they move around in value next to each
1:20:24other, there's always an opportunity to
1:20:25try and make money out of those changes
1:20:27in value. And therefore, you can
1:20:29speculate on it. And that's that's the
1:20:30more sort of questionable end of the
1:20:32market. That's the bit of the market
1:20:33that things like a financial
1:20:35transactions tax would try and chop away
1:20:37at. Because the the assumption there,
1:20:39and it's it's kind of not incorrect, is
1:20:41that this just produces instability for
1:20:43everyone else. That these people want
1:20:45volatility in the market cuz that's how
1:20:47they make their money. They want to
1:20:48encourage it and they do encourage it by
1:20:50uh, trading and speculating in the way
1:20:51that they do.
1:20:53>> By 2010,
1:20:55the foreign exchange market had grown to
1:20:57be the largest and most liquid market in
1:20:59the world,
1:21:01with an average of $4 trillion of
1:21:03currency being exchanged every day.
1:21:09>> Volatility creates a need. What does it
1:21:12do to countries, especially perhaps
1:21:15small ones like developing countries, if
1:21:18there are suddenly huge and instantly
1:21:21fluctuating financial flow?
1:21:25What do they have to do to cope?
1:21:27>> Their production of the products that
1:21:29they're selling on the
1:21:29>> Increase their production and sell more?
1:21:33Lowering the price?
1:21:35>> possibly even poorer.
1:21:36>> And becoming possibly even poorer?
1:21:37>> Once you start talking about the
1:21:38international system, it it becomes
1:21:40really quite a peculiar uh, quite
1:21:43peculiar thing in that a lot of it
1:21:45depends on simply sentiment and beliefs
1:21:48about what an economy is like, rather
1:21:50more than it depends on anything the
1:21:51economy might or might not actually be
1:21:52doing. And that can shift very very
1:21:54rapidly because, you know, if if it's
1:21:55just somebody's belief about a currency
1:21:57is supportable,
1:21:58uh, then you know, they can carry on
1:22:00believing this until well, till
1:22:01whenever. If that belief changes, it can
1:22:03change very rapidly in a financial
1:22:05market, the process of financial
1:22:07contagion can can take place, you know,
1:22:09in just minutes, seconds even. That you
1:22:12can just move from being apparently
1:22:14quite a stable, robust economy to being
1:22:18one that suddenly sentiment has turned
1:22:20against you and you find that markets
1:22:23are picking on you. And it can often be
1:22:24not much more than you're simply the
1:22:26next door neighbor of, uh, you know, a
1:22:28country that's currently in trouble.
1:22:32>> Many of the world's financial crises in
1:22:34the past 30 years have been caused by
1:22:37rapid withdrawals of the nation's
1:22:38currency
1:22:40or the currencies of an entire region.
1:22:43This type of activity is often referred
1:22:45to as financial warfare.
1:22:49>> It's benefited
1:22:51major institutions really quite
1:22:53substantially. Goldman Sachs, yeah, for
1:22:55example, or any large bank has done
1:22:58somewhat better out of this set of
1:23:00arrangements than it would have done in
1:23:02a formal regulated environment. It's
1:23:03made people very very wealthy. It's
1:23:05allowed financial markets to expand
1:23:07absolutely enormously.
1:23:09Anybody involved in that is keen on
1:23:11seeing a deregulated world. In the case
1:23:13of the UK, you have a government which
1:23:15has been quite overtly and deliberately
1:23:18and aggressively arguing against any
1:23:20forms of regulation being imposed on
1:23:22those financial markets. But it's not
1:23:24the case that someone's behind the
1:23:25scenes pulling the strings. It's It's
1:23:27that This is This is how the thing works
1:23:29quite deliberately, quite, you know,
1:23:30overtly in front of you. That's the
1:23:32world as it is. It's making some people
1:23:33very rich, and they're quite happy with
1:23:35it.
1:23:38>> I think it is a form of
1:23:40economic warfare.
1:23:42Much of the the change in the in the way
1:23:45that the global economy works over the
1:23:47last 30 years result from this this debt
1:23:50this third world debt because it's given
1:23:53rich countries and banks and financial
1:23:55sector enormous amounts of power and
1:23:57control over the poorer bits of the
1:24:00world where a lot of the resources are
1:24:01that we like using. And that's been used
1:24:05in a way that many people have compared
1:24:07to a form of colonialism. It's a very
1:24:09real direct form of of power that's been
1:24:13used over those countries to force those
1:24:15countries to do what are really in the
1:24:17interests of the richest segments of the
1:24:19world that they do. And as a result of
1:24:22that, not only have corporations become
1:24:24absolutely in very, you know, made huge
1:24:27amounts of profits and become absolutely
1:24:29enormous and
1:24:30and all pervasive,
1:24:32but the financial sector has become even
1:24:34bigger than that and the and the real
1:24:36money in in the world
1:24:38to be made today is not by producing
1:24:40anything at all. It's simply by forms of
1:24:43speculating, basically making money from
1:24:45money. That's the most profitable and
1:24:47and by far and away the the biggest form
1:24:51of of of activity of economic activity
1:24:53that exists in the world today.
1:24:56>> To protect themselves, vulnerable
1:24:57countries need to accrue currency from
1:25:00rich countries
1:25:01who create these currencies out of
1:25:03nothing.
1:25:05>> The Netherlands first governor-general
1:25:07of Indonesia, the man who built the
1:25:09trade routes, fortified them.
1:25:12What I mean by that is built forts along
1:25:14them and fought Spanish fleets and
1:25:16British fleets said about the
1:25:18development of the of the of the
1:25:21Netherlands empire, Netherlands trade
1:25:24was we cannot make trade without war,
1:25:27nor war without trade.
1:25:31Money and power.
1:25:39So, reserves have become the way in
1:25:41which you can insure yourself against
1:25:43what? Speculation. You said speculation.
1:25:46Speculative attack.
1:25:48>> Fall in the market.
1:25:49>> Fall in the market.
1:25:51Bubbles.
1:25:54>> When a country succumbs to a speculative
1:25:56attack, it is asked to deregulate its
1:25:58markets and conform its financial system
1:26:02to that of the dominant party.
1:26:06>> The big problem that's faced by most
1:26:08developing countries who got into a debt
1:26:09crisis was that they were told by the
1:26:12powers that be in the world, the
1:26:13International Monetary Fund, which is in
1:26:15many ways governs the the the global
1:26:17financial system, that the way to get
1:26:19out of debt actually is first of all to
1:26:22to restructure your economy, especially
1:26:24to increase your exports, so you're
1:26:26earning more more dollars, and then you
1:26:28can pay off your your debt, which is
1:26:30normally in dollars or some other
1:26:31foreign currency.
1:26:33Unfortunately, time and time again that
1:26:35was proved to to not be the case at all.
1:26:37Actually, countries cut back their
1:26:39public spending to the bone, so they
1:26:40stopped growing, they stopped having any
1:26:43potential for growth. Um and what they
1:26:46did produce was was
1:26:48was aimed at the export market, was
1:26:49aimed at creating dollars or so on. So,
1:26:50they were paying off their debts, but
1:26:52they weren't
1:26:53developing their own economy at all.
1:26:55They were paying far far far more in
1:26:57debt repayments than they were spending
1:26:58on health or education or anything else.
1:27:00And their debts just kept getting bigger
1:27:01and bigger and bigger.
1:27:03>> The country becomes a vassal state,
1:27:05allowing large corporations to exploit
1:27:08its natural resources and workforce.
1:27:16>> It's not It's not even shadowy. It's
1:27:17There's no great mystery about about
1:27:19what what's happening here and about the
1:27:20way the world operates. It's not It's
1:27:22It's quite blunt. I mean, for for the
1:27:23last 30 years, you've got something
1:27:25pretty much everywhere, or certainly
1:27:27spreads pretty much everywhere, that
1:27:28generally gets labeled neoliberalism,
1:27:30this idea that you should have floating
1:27:33exchange rates, you know, weak
1:27:35regulation, particularly financial
1:27:36markets, minimal government interference
1:27:39or involvement with what market it does.
1:27:40And that's that's more or less how the
1:27:41world operates. And then there are
1:27:43institutions, and the outstanding one at
1:27:45this point is the IMF, that that will
1:27:47actively try and enforce this state of
1:27:48affairs. So, it's it's not greatly
1:27:51shadowy, if you see what I mean. That
1:27:52that there are people behind the scenes
1:27:54somewhere trying to manipulate stuff.
1:27:55It's actually This is quite This is
1:27:56quite overt. This This is happening. And
1:27:58this is how
1:27:59for entire my entire adult life,
1:28:02actually, is what it starts to look
1:28:03like, this is how the world the world
1:28:05has operated. And it's made some people
1:28:07very very wealthy. It's produced
1:28:08enormous concentrations of wealth.
1:28:10>> So, when the International Monetary Fund
1:28:12comes in in order to try and uh
1:28:15alleviate a country's debt problems, it
1:28:17imposes a set of conditions. And in the
1:28:191980s and 90s, they called that set of
1:28:21conditions structural adjustment,
1:28:22structural adjustment program. And it
1:28:24tends to take very similar forms
1:28:26wherever it happens. And indeed, we can
1:28:27see structural adjustment programs in
1:28:29essence happening today in countries
1:28:30like Greece, and Portugal, and Ireland,
1:28:33where countries are instructed to uh
1:28:38decrease the amount that they spend on
1:28:40the public sector.
1:28:41Um they are instructed to liberalize
1:28:44their their trade market, and liberalize
1:28:46their capital market, so money can much
1:28:50more easily come in and out of their
1:28:51economy.
1:28:52And the idea is that this will encourage
1:28:54investment to come in from richer parts
1:28:56of the world, and that all of their
1:28:58problems will be solved from this
1:29:00investment. And in actual fact, this has
1:29:01proved um time and time again to be um
1:29:05completely without foundation. In actual
1:29:07fact, what happens is it destroys
1:29:09fledgling industries and capacities in
1:29:11these developing countries. And
1:29:12developing countries become completely
1:29:14dependent on goods and services from
1:29:16developed countries, and also from
1:29:17capital from developed countries. Uh one
1:29:20of the things the International Monetary
1:29:21Fund is very is very um keen on is um
1:29:24telling countries to lower the taxes um
1:29:27that should be paid by multinational
1:29:28corporations when they come and operate
1:29:30in a country, cuz then you'll encourage
1:29:31more multinational corporations to come
1:29:33in. Of course, what it also means is the
1:29:35profits that are made by those
1:29:36multinational corporations leave the
1:29:38country just as quickly, and the country
1:29:40itself doesn't benefit. And today, you
1:29:42have many developing countries which
1:29:44have got um almost no tax base. Um
1:29:46they've not developed a tax base at all.
1:29:48And so, they're even more dependent on
1:29:51international capital markets, on the
1:29:52money markets, on creating debt. Um and
1:29:55that's why you have so many countries in
1:29:57the world that have really been robbed
1:29:58of their sovereignty. It's very
1:30:00difficult to see how democratic
1:30:01societies can evolve or function when
1:30:03actually a government is more more
1:30:05on the dictates of the International
1:30:07Monetary Fund and the money markets than
1:30:09it is on their own people.
1:30:17>> What we've seen since the 1970s is a
1:30:20dramatic increase
1:30:21in a series of phenomena that have had a
1:30:25a stimulative effect on the changes in
1:30:27the financial system that have brought
1:30:29us to the gleaming, shining metal in
1:30:31steel
1:30:32business that's over there.
1:30:34In case you don't know, that's the City
1:30:35of London I'm pointing at.
1:30:37>> To compensate for the lack of a defined
1:30:39commodity-based value underlying
1:30:42currencies,
1:30:43financial institutions developed
1:30:45securitization
1:30:47as a means to manage risk.
1:30:50>> You know, you develop securitization as
1:30:52a means to try and stabilize the whole
1:30:54system. This is a set of financial
1:30:56processes and financial innovations that
1:30:58really accelerate from the '70s, '80s
1:31:01onwards.
1:31:01>> You had a chaotic system that needed to
1:31:03manage risk. And you had to innovate.
1:31:06You needed derivatives, options,
1:31:09futures. You have new markets in
1:31:12volatility management tools. Who knows
1:31:14what the term hedging is?
1:31:15>> Spreading your risk. Managing your risk.
1:31:18Insuring against your risk. Precisely.
1:31:21>> Well, until very recently, you know, up
1:31:23until the 1960s, the Securities and
1:31:25Exchange Commission would be quite clear
1:31:27that, you know, derivatives that weren't
1:31:29based on real products like agricultural
1:31:31products, so pork belly futures or
1:31:33whatever, would in fact be essentially
1:31:35kind of gambling. And therefore, you
1:31:37weren't allowed to trade them. That that
1:31:38changes in the '60s, and everybody can
1:31:40trade, you know,
1:31:41uh currency futures,
1:31:43things that are not based on real
1:31:45products being traded at some point in
1:31:47the future, but based on movements of
1:31:48currency prices.
1:31:50Once you have the system of fixed
1:31:52exchange rates breaks down, obviously
1:31:53this thing accelerates enormously. So,
1:31:55as you get the roll back of government
1:31:57regulation here, you get the market
1:31:59taking over with its own products here.
1:32:01And the theory is that the market's
1:32:03better at regulating itself. It's more
1:32:05stable than if you have a government
1:32:06interfering all the time. The efficient
1:32:08markets hypothesis, the idea that, you
1:32:10know, you set up a financial market,
1:32:12they're fast, everybody in them is well
1:32:14informed, they all keep a very careful
1:32:16eye on what everyone else is doing,
1:32:17you'll therefore
1:32:18be very stable, and it reflects real
1:32:20changes in the economy. It's not going
1:32:22to be driven by, you know, panics and
1:32:24manias and speculative bubbles. None of
1:32:27this really going to happen. If if there
1:32:28is movement up and down, it's because
1:32:30something real is happening, and traders
1:32:33and investors in financial market
1:32:34responding to it. So, that's the
1:32:35efficient markets hypothesis. The
1:32:37practice, but I think what you see in
1:32:392008 is a kind of end of that process.
1:32:41The appearance of this crisis so major,
1:32:43the the belief that it will simply be
1:32:46self-stabilizing, self-regulating really
1:32:48can't carry on. I mean, the practice
1:32:50carries on anyway, but you can't really
1:32:51argue in the same way that you used to
1:32:52that it's good or it's necessary or this
1:32:54is okay for the world.
1:33:00>> In the last decade, we had a new
1:33:01innovation, something called the credit
1:33:02default swap, a way of buying insurance
1:33:05against the company you've invested in
1:33:06going bust.
1:33:07And in 2002,
1:33:10they were less worth in total less than
1:33:12a trillion dollars. In 2007, they were
1:33:15worth 60 trillion dollars.
1:33:18That's 5 years.
1:33:20>> Everybody suddenly sitting there and
1:33:22thinking, "Oh, these CDOs we've made
1:33:25don't in fact provide the kind of
1:33:27stability that we thought. The maths
1:33:30that's inside of the risk is complete
1:33:31nonsense, it turns out.
1:33:33There's far more risk attached to
1:33:36trying to securitize risk and securitize
1:33:38debt in the way that we have done this
1:33:40than we thought, and we think these
1:33:42things are now worthless."
1:33:46The attempt to get more and more complex
1:33:48ways of regulating and shaping a
1:33:50financial market and trying to make a
1:33:52quick buck out of it as well, actually
1:33:54helped produce the the opposite effect
1:33:57of what its kind of apologetics said,
1:33:59which is that it led to led to a
1:34:00spectacular crash.
1:34:06>> What we saw as a result of this very
1:34:08different situation was one phenomenon
1:34:12above all. One sector above all grew,
1:34:15and that was the financial sector.
1:34:18>> While the financial sector benefits
1:34:20enormously from the current monetary
1:34:22system, the system is neither stable nor
1:34:25fair.
1:34:26>> The assumption
1:34:28in what the Bank of England does right
1:34:30now is that the cash that we hold is
1:34:33backed up by government debt. The
1:34:35government can back up its promises by
1:34:37the fact that it can tax the public. So,
1:34:40what they're implying is that cash is
1:34:42backed up by government debt, when get
1:34:44government debt is backed up by the
1:34:45ability of government to get cash from
1:34:47the public.
1:34:48>> Time and time again over the last 30
1:34:49years, we've seen uh private debts being
1:34:52transformed into into public debts. And
1:34:56um
1:34:56the ultimately the price of that debt is
1:34:58paid by uh by the public in the in the
1:35:01debtor country.
1:35:04>> This is why spending cuts are necessary.
1:35:07The system is designed to make certain
1:35:09people very rich at the expense of a
1:35:11nation's citizens and taxpayers.
1:35:15The system lowers the standard of living
1:35:17of the majority
1:35:19and distributes this wealth among the
1:35:21privileged.
1:35:23>> So, what we're left with is a financial
1:35:26system since the early '70s that has no
1:35:28fixed exchange rates,
1:35:30that suddenly has increasingly open
1:35:33financial borders,
1:35:35that has central banks having to manage
1:35:38without having any control because
1:35:40there's
1:35:41nothing here
1:35:42where the gold used to be.
1:35:44Chaotically, they have to ease
1:35:47quantitatively. They have to lend as a
1:35:51lender of last resort.
1:35:53>> Throughout history,
1:35:54monetary systems were designed to give
1:35:56the dominant international power
1:35:59an advantage.
1:36:00And this power is fiercely defended and
1:36:03expanded on.
1:36:12>> And they flee in terror from an
1:36:14incredible bogeyman.
1:36:18>> An American flag is burned at the height
1:36:19of a demonstration. Both President
1:36:21Johnson and Francisco Franco were
1:36:23vilified. A new law in public protest
1:36:26added strain on Spanish-American
1:36:28relations.
1:36:31>> Order in the court. Order in the court.
1:36:36>> I want Americans in all the world to
1:36:38know
1:36:38>> Come on. Fire.
1:36:39>> I want Americans in all the world to
1:36:41know America has no regard for
1:36:44conventions of war or rules of morality.
1:36:48>> Fire.
1:36:56>> Objection overruled.
1:37:11>> And what I would like to see
1:37:13is um
1:37:15a a new kind of currency that is backed
1:37:18by
1:37:19uh something that that is scarce and
1:37:21that we really need and we really value.
1:37:24Something like energy or renewable
1:37:26energy, for example. So, a a sort of
1:37:28kilowatt-hour backed
1:37:29currency would be would be very
1:37:31interesting to me. We need to start
1:37:33valuing the things that are most scarce
1:37:36um and and that we need to survive as a
1:37:39human race in the long run. And backing
1:37:42an international currency with something
1:37:43like that will generate enormous
1:37:46investment in, for example, renewable
1:37:48energy.
1:37:50If that's the, you know, the primary
1:37:51international um unit of account that's
1:37:55that's that's being used. Uh another
1:37:57option is is a basket of of currencies,
1:38:00so you you know, you you mix up the
1:38:02value of of of different currencies
1:38:05um
1:38:05to to create a very solid currency that
1:38:07people have confidence in.
1:38:11>> Perhaps even better would be a basket of
1:38:14commodities with which to back up
1:38:16international currencies.
1:38:19>> Now, if it was possible
1:38:21internationally, some way or another, to
1:38:22get all these competing and increasingly
1:38:25competing national economies together
1:38:27and say,
1:38:28uh we're all going to sit down and write
1:38:30out an agreement, somewhat like the
1:38:31Bretton Woods agreement, which will
1:38:32allow for, unlike Bretton Woods, allow
1:38:35for, you know, some currencies to to be
1:38:37pegged against different baskets of
1:38:39goods that more appropriate to to their
1:38:41national economies. And you could sort
1:38:43of arrange this. If you could have
1:38:44arranged that to happen, then that would
1:38:46be nice. And you can see how that would
1:38:48start to create a kind of order in the
1:38:50international macroeconomy, which is
1:38:51otherwise lacking. The The real
1:38:52difficulty there is just political. It's
1:38:54like, who in earth is going to do this?
1:38:56Who Who is the force that that's going
1:38:58to kind of make this thing happen?
1:39:02>> Creating a monetary system which is both
1:39:04fair and stable
1:39:06is possible and can be achieved.
1:39:09What are international organizations for
1:39:13if not for such a purpose?

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