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The Entire Financial System Explained: [Part 3] DOCUMENTARY — Transcript

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0:02How is money created? Where does it come
0:05from? Who benefits? And what purpose
0:08does it serve? Back
0:10>> up, you [ __ ]
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 in
0:21the prying eyes of the populace.
0:24Yet its impact both on a national and
0:26international level is perhaps
0:29unsurpassed.
0:32For it is the monetary system that
0:34provides the foundations for
0:35international dominance and national
0:38control.
0:43Today, as these very foundations are
0:46being shaken by crisis, the need for
0:49open and honest dialogue on the future
0:51of the monetary system has never been
0:53greater.
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,
1:02it's going to grow and it's going to be
1:03too late. What I would say to everybody
1:05is get prepared. Uh there's not a time
1:08right now to um wishful thinking. The
1:11government is going to sort things out.
1:12The governments don't rule the world.
1:14Goldman Sachs rules the world.
1:17>> Statistical analysis has found that
1:20every time an empire begins to near its
1:23own demise, you'll find that its
1:25currency will be debased.
1:27>> There is no guide to how this whole
1:29system operates. Uh to give you an
1:31example, a researcher at the BBC working
1:33on Robert Preston documentary went to
1:34the Bank of England and said, "Can you
1:36give me a, you know, a guide to how
1:39money is created?" and they just said
1:41no.
1:42>> This documentary will investigate and
1:44explain this everchanging system and the
1:47impact it has both on a national and
1:50international level.
1:53[Music]
2:27In 2010, the total UK money supply stood
2:30at 2.15 trillion.
2:332.6% of this total was physical cash,
2:3753.5 billion. The rest, 2.1 trillion or
2:4297.4% 4% of the total money supply was
2:45commercial bank money.
2:48>> The 3% of money um is created uh through
2:52the central bank and that money
2:55essentially if you created a£10 note.
2:58You could sell that to a bank to put
3:00into their ATM and the bank would have
3:02to repay that10 or buy it for £10.
3:05there'd be no interest made uh charged
3:08on 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 um for the government. It's
3:17called scenerage.
3:25[Music]
3:27When the Bank of England creates a 10
3:29pound note, it costed about three or
3:32four pence to actually print that note
3:34and it sells it to the high street banks
3:36at face value. So for £10 and
3:41the profit, the difference between
3:43printing the note and actually selling
3:45it for £10 goes directly to the
3:48treasury. So in effect all the profit
3:51that we get on creating physical money
3:55uh banknotes goes to the treasury and it
3:58reduces how much 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.
4:12>> This was one contributing factor in the
4:14government's ability to finance postwar
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, bank notes were created
4:35by private banks and the government did
4:38not profit from their creation.
4:41Pre-industrialization,
4:44there was multiple forms of money
4:45coexisting. And so the kind of rise of
4:48kind of of government sponsored fiat
4:51money is a relatively recent um
4:54phenomenon. In the 1840s, there was no
4:56law to stop banks from creating their
4:58own bank notes. So they used to issue um
5:01paper 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. Now
5:21over 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 what they were creating had become,
5:35you know, the dominant type of money in
5:37the economy, 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.
5:54and destabilize the economy. So in 1844,
5:58the conservative government of Robert
6:00Peele actually passed a law that took
6:03the power to create money away from the
6:05commercial banks um and brought it back
6:07to the state. So since then, the Bank of
6:09England has been the 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
6:24digital numbers that commercial banks
6:25can create out of nothing.
6:30The problem was that they did not
6:32include in that in that legislation
6:35um the deposits, the demand deposits um
6:38held in banks by individuals or um
6:42electronic forms of money, which
6:45essentially what those demand deposits
6:46are today. most of the money in
6:49circulation is is electronic money. Um
6:53and it's bank it's bank um demand
6:55deposits um that just that that sit in
6:58our in our account. So in a way the
7:00legislation has got needs to catch up
7:03with developments in in in electronic
7:05money uh and the way that banks actually
7:08operate.
7:10>> Money held in bank accounts are called
7:12demand deposits.
7:14This is an accounting term the banks use
7:16when they create credit.
7:18Banks follow the same process when they
7:20create loans.
7:22All money held in bank accounts is an
7:25accounting entry.
7:34The 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 a computer
7:50system. You move money from one computer
7:53system to another. It's all a big
7:55database. And this digital money is what
7:59we're now using to make payments with.
8:01It's what we actually use to run the
8:03economy. I think a lot of people in the
8:05UK probably think that the government or
8:07the central bank um is is in control of
8:11most most money in circulation and
8:13issues new money into circulation. But
8:16that's uh not the case. It's private
8:19banks that creates the vast majority of
8:22new money in circulation and also decide
8:25uh how it's allocated.
8:30The official terminology for this
8:31accounting entry is commercial bank
8:34money.
8:36When banks issue loans to the public,
8:38they create new commercial bank money.
8:41When a customer repays a loan,
8:44commercial bank money is destroyed. The
8:46banks 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 Center 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. Um, another
9:26the other 60% of people assume that when
9:30you put your money in, that money is
9:32then being moved across to somebody who
9:34wants to borrow it. So, you have a
9:36pensioner who keeps saving money her
9:38entire life and then her life savings
9:40have been lent to some, you know, young
9:42people who want to buy a house. But
9:44actually, banks don't work like that.
10:05At the moment in the UK, money creation
10:09uh and control is is largely in the
10:11hands of private banks. uh about 97 to
10:1498% of money um that's that's created is
10:17is created um as bank bank debt money
10:21you could call it um when banks issue
10:23money into circulation as as loans
10:26essentially um this is very poorly
10:29understood fact
10:31it's not a conspiracy theory it's not a
10:34um it's not a crackpot theory it's the
10:37way the bank of England describes the
10:38process when banks make loans they
10:40create new Okay.
10:54A few economists will realize the way
10:57the money system works. But if you
10:58don't, if you don't realize the way that
11:00money works and you think that you know
11:03everybody saving is going to work well
11:04for the economy, what really happens
11:07once you understand the way the money
11:08system works is that if everybody starts
11:10saving uh the amount of money in the
11:12economy shrinks and we have a recession.
11:15So most economists don't have this this
11:17full picture. They don't understand all
11:19elements of the system. They rely on uh
11:22assumptions on you know received
11:25knowledge without actually going into
11:27the details and you know money is money
11:30is the center of the economy. If you
11:32don't understand where it comes from,
11:34who it creates, who creates it, and when
11:36it gets created, then how can you
11:38understand the entire economy?
11:46When the vast majority of money that we
11:48use now is not cash, but it's electronic
11:51money, then whoever's creating the
11:53electronic money is getting the proceeds
11:55of creating that money. And obviously
11:57creating electronic money is much more
11:58profitable than creating cash because
12:00you don't have any production costs at
12:02all. So while we've got 18 billion over
12:06the course of a decade in profit from
12:08creating cash, the banks have actually
12:11created 1.2 trillion pounds.
12:14>> Between 1998 and 2007, the UK money
12:17supply tripled
12:191.2 2 trillion pounds was created by
12:22banks, whilst 18 billion pounds was
12:25created by the Treasury.
12:29A lot of people think when I say this or
12:31when you say this or when positive money
12:33say this that we're all just a bunch of
12:34nutters. But on the 9th of March in
12:372009, the governor of the Federal
12:39Reserve, um, Ben Bernani gave the first
12:42ever broadcast interview, the governor
12:45of the central bank of the United States
12:47of America had ever given. And uh the
12:50day before that he'd bailed out AIG
12:53um which is a insurance company not even
12:56a bank actually to the tune of about $
12:58160 billion. So the journalist says to
13:00him now Mr. Bernani where did you get $
13:04160 billion to bail out AIG.
13:07>> Is that tax money that the Fed is
13:09spending?
13:09>> It's not tax money. The banks have um
13:12accounts with the Fed much the same way
13:15that you have an account in a commercial
13:16bank. So to lend to a bank, we simply
13:20use the computer to mark up the uh size
13:22of the account that they have with the
13:23Fed. So it's much more akin uh although
13:26not exactly the same, but it's much more
13:27akin to printing money than it is to
13:29borrowing.
13:32Banks create new money whenever they
13:35extend credit, buy existing assets, or
13:38make payments on their own account,
13:40which mostly involves expanding their
13:42assets.
13:45When a bank buys securities such as a
13:47corporate or government bond, it adds
13:50the bond to its assets and increases the
13:53company's bank deposits by the
13:54corresponding amount.
13:58New commercial bank money enters
14:00circulation when people spend the credit
14:02that has been granted to them by banks.
14:06I found that talking on the doorstep
14:08from August last year round to know
14:11August 2009 round to
14:14the general election or 8 n 8 n months I
14:17suppose knocking on doors is that when
14:20you try to explain how the money system
14:22works
14:24there's uh an almost inbuilt refusal of
14:28people to accept that such a bizarre
14:31situation could actually exist. No, it
14:34can't possibly. You know what I mean?
14:37You can't banks can't banks don't create
14:40money out of thin air. That's
14:41ridiculous. They can't do that. They
14:43lend out their depositors money. Most
14:45people have an idea of how money is.
14:47They're used to their own way of
14:49handling money. Uh and they try and
14:52implement their own idea of how how
14:55their small household economy works into
14:59the national economy. And of course, it
15:00just doesn't work out. It just doesn't
15:02work out at all.
15:03By 2008, the outstanding loan portfolio
15:06of bank created credit, also known as
15:09commercial bank money, stood at over2
15:12trillion.
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
15:29created money there was £37 of bank
15:32created money.
15:35In the 10 years prior to the 2007 crisis
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 2
15:56trillion in the last 10 years. Um and
15:59there's that money is being distributed
16:01according to the priorities of the
16:04banking sector, you know, not the
16:05priorities of society.
16:09Bank sector itself grew from 1980 $2.5
16:14trillion
16:16to $40 trillion by assets. In 1980,
16:20global bank assets were worth 20 times
16:22the then global economy. By 2006, they
16:26were worth 75 times according to the UN.
16:30>> As the following chart shows, total bank
16:33assets of UK banks as a percentage of
16:36GDP remain relatively stable at 50 to
16:3960% up to the end of the 1960s.
16:44After that, they shot up dramatically.
16:46>> And the real money in in the world uh to
16:49be made today is not by producing
16:50anything at all. It's simply by forms of
16:53speculating. basically making money from
16:55money. Uh that's the most profitable and
16:57and by far in a way um the the biggest
17:01form of of of activity of economic
17:04activity that exists in the world today.
17:07>> Today banks are no longer restricted by
17:10how much they can lend and as such how
17:13much new credit they can create out of
17:15nothing.
17:17They are restricted solely by their own
17:19willingness to lend.
17:24The issue with allowing banks to create
17:26money uh there's two main issues.
17:27Firstly, the fact that they create this
17:29money when they make loans. So it
17:32guarantees that you know we have to
17:34borrow all our money for the economy
17:36from the banks.
17:38>> As such to have a healthy growing
17:40economy the government needs to put in
17:42place strategies to allow for
17:44everinccreasing debt.
17:47The only way the government can create
17:49additional purchasing power is by
17:51getting itself and us into more depth.
17:55The second big issue with allowing banks
17:58to create money is that they have the
18:01incentive to always create more. You
18:03know, they create more money if they
18:04issue a loan. They get the bonuses and
18:06the commissions and the incentives to
18:08create, you know, to lend as much as
18:09possible. You have to develop a sales
18:11culture. What did they do? They
18:14recruited an amazing guy, lovely guy,
18:16Andy Hornby, who came from Asda to turn
18:19the bank into a supermarket retailing
18:22operation.
18:24>> If you trust bankers to control the
18:26money supply, the money supply will just
18:28grow and grow and grow, as will the
18:30level of debt until the point where it
18:32crashes. You when some people can't
18:34repay the debt, and then they'll stop
18:36lending.
18:39You hear politicians and journalists
18:40say, you know, we've we've been living
18:42beyond our means. we've become dependent
18:43on debt. We need to reign in our
18:46spending and live within our means. Um
18:49it's not possible in the current system.
18:51You know, the reason why everybody's in
18:54debt now is not because they've been
18:55recklessly borrowing. Um we haven't
18:58borrowed all this money from, you know,
18:59an army of pensioners who've been saving
19:01up their whole whole lives. Money in the
19:04current system is debt. You know, it's
19:05created when banks make loans. So the
19:08only way in the current system that we
19:10can have any money in the economy, you
19:12know, the only way we can have money for
19:13businesses to trade is if we've borrowed
19:15it all from the banks.
19:20And it's the very opposite of what the
19:22Tory part is arguing today, which is
19:25that you have to create savings before
19:27you can help the National Health
19:28Service. And it's because economists
19:31have completely confused those things
19:33both in monetary policy terms, but also
19:36in economic thinking. And because most
19:38people still harbor the the oldfashioned
19:41view that you need savings before you
19:43can invest that we have the mess that
19:46we're in today. Now one of the reasons
19:48why we find it difficult to understand
19:52the banking system and credit creation
19:53is that we leave school without any
19:56money and we go and get a job working as
19:59an apprentice to a plumber. We work
20:01really hard all month and at the end of
20:03the month somebody puts money in our
20:05bank. And so for us, the logic is you
20:07work 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
20:20um conceptual misunderstanding.
20:24And it isn't something that the public
20:25just are guilty of. Economists don't
20:28understand this stuff.
20:28>> Money doesn't come out of economic
20:30activity. A lot of people I've come
20:33across kind of assume that if you've got
20:35people if you got businesses and you got
20:37people doing things that somehow money
20:39somehow emerges out of the process of
20:42people doing things doing economic
20:44making things and growing things and
20:46selling things and producing things that
20:48somehow money just emerges. It's not
20:51it's like oil in a car. You have to put
20:52it in. When I see David Cameron talking
20:55about how um we need an economy not
20:58based on debt, but we need an economy
21:00based on savings, he just doesn't know
21:03what he's saying. It's ridiculous. It's
21:04absolutely absurd. And it shows his
21:07complete lack of understanding of how
21:09our money system actually works. What
21:11he's essentially saying is that we need
21:14an economy with no money. If everyone
21:17was saving, we'd have mass disappearing
21:20of money, which is essentially what a
21:22bank write off is essentially is people
21:24defaulting on their debt, which which
21:26essentially is just money disappearing.
21:29But if people weren't taking on the
21:30debt, then it's just it's just such a
21:33joke. It's such a amateur understanding
21:36of how our economy works and how the
21:38monetary system works and how money is
21:40actually created. So, um I really do get
21:43a laugh out of watching what people are
21:45actually saying 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
22:00banks are actually and the boner. It's
22:02all just one big smoke screen and
22:04working on all the symptoms of a greater
22:07disease which is really you need to look
22:09at the the money system the way money is
22:11created and uh if we don't want any debt
22:14then we're essentially saying we don't
22:16want any money and we want a moneyless
22:17economy with the exception of the 3%
22:19that's created debtree.
22:22You know it's a paradox under the
22:23current system. If you if we as the
22:26public go into further debt then that's
22:28going to put more money into the economy
22:29and we're going to have a boom. When you
22:31have a boom, it's easier to borrow. So,
22:33people get into even more debt. And
22:35eventually, you know, this this cycle
22:37continues. It gets easier and easier to
22:38get into debt until some people get over
22:41in debt and then, you know, they
22:43default. They can't repay their
22:45mortgage. That's what happened in, you
22:47know, it happened first in subprime
22:48America. Um, and then, you know, that
22:51just brings to a wave of defaults which
22:53will ripple across the entire economy.
22:56The banks go in solvent, then we're into
22:58a financial crisis. Um and then the
23:01banks stopped lending and you know the
23:03they were excessively lending in the
23:05boom and then they stop lending and then
23:08that c makes the recession even worse.
23:10People lose their jobs and then they
23:12become even more dependent on debt just
23:14to survive basically. You know we have a
23:17a system where we have to borrow in
23:19order to have an economy. We have to be
23:21in debt to the banks and that that
23:24guarantees you know massive profit for
23:26the banks.
23:28This is the boom bust cycle.
23:32[Music]
23:33>> And I have said before, Mr. Deputy
23:35Speaker, no return to boom and bust.
23:42[Music]
23:44>> Net bank lending must forever increase.
23:49>> We're paying interest on every single
23:51pound. Even if even if you think the
23:52money belongs to you, somebody somewhere
23:55is paying interest on that money. The
23:57banking system has such a huge impact on
24:00the world, but only because it supplies
24:03our nation's money supply. We have to
24:06protect them. We have to subsidize them.
24:08We have to allow them to continue
24:10because the the disaster of of a bank
24:12collapse affects us all in a huge way.
24:15And anyone that says that we shouldn't
24:16have bailed out the banks doesn't quite
24:19understand the the nature of our
24:21monetary system. That's like eliminating
24:23a huge chunk of our money. But also
24:26bailing out the banks is perpetuating a
24:29system which is never going to work
24:31anyway. So whatever we do, we're always
24:34going to have this cycle until we
24:35separate how money is created and the
24:38activities of banking. Then the banks
24:39can do as they wish. They're a normal
24:41business like everyone else. There's a a
24:43major democratic issue here as well. I
24:46mean, you have these private
24:48profit-seeking banks creating up to200
24:51billion pounds a year and pumping that
24:52into the economy wherever they want,
24:55basically, wherever it suits them.
24:57Whether they're pumping it into, you
24:59know, these toxic deriv derivatives or
25:01putting money into housing bubbles, just
25:04making housing more expensive. 200
25:06billion pounds in 2007 of new money
25:09coming into the economy created out of
25:11nothing. And where that gets spent
25:13determines, you know, the shape of our
25:15economy effectively. So if we're going
25:18to allow anybody to create new money out
25:20of nothing, then we should at least have
25:22some democratic control over how that
25:24money is used. I mean, it it would we
25:26rather have had that money used for
25:28healthare, you know, to deal with some
25:30of the environmental issues to reduce
25:31poverty, or would we rather have it to
25:33make houses more expensive so that none
25:35of us can afford to to live in a house?
25:37What do we think of that?
25:41>> You can see it as a subsidy, a special
25:45super subsidy to the banks for the right
25:49to create money which should be for the
25:52benefit of the public and spent through
25:55a democratic process.
26:03There's also another form of money which
26:06is effectively an electronic version of
26:08cash and it's a type of money that the
26:11commercial banks use themselves to make
26:14payments between each other. The high
26:16street banks don't want to be carrying
26:17around huge quantities of money because
26:20it's dangerous and it's inconvenient and
26:21it's, you know, expensive. You have to
26:23hire security guards for that type of
26:25money. So what they do is they pay each
26:27other in what is an electronic version
26:30of cash um which in the industry is
26:34known as central bank reserves. Um they
26:37keep this electronic cash in accounts at
26:40the bank of England but as a member of
26:43the public you can't access this
26:45electronic cash. You can't get an
26:46account with the Bank of England. What
26:48they do is they they effectively sell
26:51this central bank money to 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. So the high street bank will come
27:05along with a bond which is you know
27:07effectively government debt and it will
27:09give it to the bank of England and in
27:10return the bank of England will type
27:12some new numbers into the bank's account
27:15at the Bank of England. So effectively
27:17they're creating central bank reserves
27:18out of nothing. The Bank of England
27:20creates central bank reserves by
27:23increasing the available credit in the
27:25settlement bank's account with the Bank
27:27of England. The settlement bank in
27:30return post bonds or sells assets as
27:33collateral for the reserves.
27:37A total of 46 banks hold central reserve
27:40accounts at the Bank of England. Smaller
27:43or foreign banks hold accounts with one
27:45of these 46 banks to allow them to
27:48accept or make payments in pounds
27:50sterling.
27:53Prior to March 2009, the Bank of England
27:56would ask each of the major settlement
27:57banks how much reserve currency they
28:00needed.
28:01The settlement banks would then swap a
28:03bond for the reserve currency and agree
28:06to repurchase the bond for a specific
28:08amount at 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.
28:21Since the crisis, settlement bank
28:23central reserves have shot up
28:25dramatically.
28:26[Music]
28:40When bank customers transfer funds from
28:42their account to another person's
28:44account, a process called intraday
28:47clearing occurs.
28:49The amount of central reserve currency
28:51bank A has at the Bank of England is
28:54reduced by the corresponding amount that
28:56bank B receives. This is the importance
28:59of central reserve currency to banks.
29:03Before the credit crisis, if a bank was
29:06short of central reserves at the Bank of
29:08England to meet its obligations,
29:11then the bank would have to loan
29:12reserves from other banks with interest.
29:26If you sell something on eBay, you know
29:28that that deal is not complete until you
29:30get some money put into your account.
29:31You know, most people actually want to
29:33see 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
29:57sellers bank. And what the bank will do
30:00is actually instruct the bank of England
30:02to move 250,000 from their account at
30:05the Bank of England to the bank of the
30:09house seller and that money will
30:11actually move across between the
30:12accounts at the Bank of England. Um when
30:14that money is moved across and the banks
30:16will consider that that payment has been
30:18made, you know, it's been settled. Um
30:21they don't really deal in the kind of
30:24money that we have in our accounts. they
30:26deal in there special money that's can
30:28only be used 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
30:42computer systems and usually many of the
30:44movements cancel each other out at the
30:46end of the day.
30:48The five major banks RBS, Lloyds, HSBC,
30:54Barclays, and Santandere
30:57hold over 85% of all deposits.
31:03As there are a limited number of banks
31:04in the system, the central reserve money
31:07can only be moved around them in a
31:09closed loop.
31:10>> The money is just circulating through
31:12this system over and over again. And if
31:15you think about it, a one pound coin
31:17could be used to make a billion pounds
31:19of payments if it was circulated a
31:21billion times. And that's effectively
31:23the system that you have now is you have
31:25a small pool of real money that's just
31:27going round and round the system and
31:28it's being used to make a a huge
31:30quantity of payments on our behalf. Just
31:33before the crisis, there was only 20
31:35billion pounds in the accounts at the
31:37central 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. So the Bank of England
31:52has the responsibility of making sure
31:54there's enough of this money in the
31:55system.
31:58The 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. Quantitative easing
32:33in effect gives settlement banks the
32:35central reserve currency for free.
32:41The central reserve currency is what is
32:44referred to as the real money in the
32:46fractional reserve model. But the fact
32:48is banks can have as much of this as
32:50they want. And central reserve currency
32:53itself is a form of fiat money which is
32:55backed by nothing.
32:58As a consequence, there is no longer a
33:00meaningful fractional reserve.
33:08[Music]
33:14If you look over the history, the last
33:16150 years or so, you you start off um
33:19with the development of of a a gold
33:20standard that really comes to four in
33:22the 1880s, 1890s, where essentially uh
33:25countries peg themselves to a particular
33:27defined value of gold. And then they
33:29have an agreement to uh fix that value
33:32to hold that value and to trade gold
33:34amongst themselves to to make sure the
33:35balances are all there and also to try
33:37and uh restrict or expand or contract um
33:40activity in their own economies uh to
33:43make sure that the balance that
33:45particular fixed price is maintained
33:46that disintegrates uh in the well after
33:49the first world war. I mean this is
33:51where the whole thing breaks apart. Very
33:53major dislocation in the international
33:55monetary system at that point. Not
33:57really resolved until you get Breton
33:58Woods agreements at the end of the
34:00Second World War in which everything is
34:03pegged to the dollar and the dollar is
34:04pegged to the gold. So you're kind of
34:05one removed from gold backing or saying
34:08that there was a definite, you know,
34:10sort of solid commodity money behind the
34:13paper money and the credit money that
34:14we're all using over here. You're kind
34:15of one removed from it. After Hiroshima,
34:19Tokyo wondered when the next atom bomb
34:21would fall. They did not wonder long.
34:25[Music]
34:30In 1944
34:32at Breton Woods, the US and the UK began
34:36to negotiate how to govern the world
34:39economy, the world monetary system, and
34:42came up with the World Bank and the IMF
34:44and a series of other institutions
34:46designed to manage the global currency.
34:49And there was still a gold standard, but
34:51this gold standard was going to be tied
34:52to the dollar. All of the world's gold
34:55had moved from London to Fort Knox. and
34:59all of the world's currencies were tied
35:01to 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 and the system
35:21was stable as long as the Americans
35:24played the role of oversight.
35:28Now, who knows the great story about how
35:30that all came to an end.
35:33>> So, the quantity of money that was
35:34needed to pay for the Vietnam War.
35:37That's exactly what I was trying to get
35:39at. Oil shocks was another one. That
35:41meant that the Americans were no longer
35:42respecting their role or playing their
35:44role governing the monetary system. They
35:46were inflating the value of their own
35:47currency, but ostensibly it was meant to
35:49be tied tied to gold and to every other
35:52currency.
35:53So, what did the French do? The French
35:56were a little bit worried that President
35:57Nixon wasn't entirely honest
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
36:13gold to honor the exchange rate of the
36:15French Frank. So they sent a gunboat to
36:19New York Harbor to ever so politely ask
36:21for our gold back, please.
36:24Did they get their gold back?
36:27>> Go on, guess
36:29>> they 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.
36:47Historically, money creation was pegged
36:49to a commodity, often gold. But today,
36:53it is pegged to nothing,
36:56>> which means there is nothing backing our
36:59money. This piece of paper
37:02is just a piece of paper.
37:06Where does this leave us?
37:09If money is based on nothing, why do we
37:12think it has any value?
37:15>> Sorry.
37:17>> Still go and exchange it.
37:18>> Because we can still go and exchange it.
37:19What? What? Somebody else is going to
37:20shout.
37:22>> Great little Latin fact. The word for
37:24credit comes from
37:27>> belief.
37:28Correct.
37:36Since the collapse of the dollar gold
37:38standard in 1971 and the deregulation of
37:41the financial system, money creation has
37:44grown exponentially.
37:47The World Economic Forum meeting in in
37:50Davos at the present time have called on
37:54a need for the credit within the
37:59economy uh the global economy to be
38:02expanded by
38:04100 trillion dollars 100 trillion US
38:08dollars.
38:11Trillion is 12 knots. So 100 trillion if
38:14you want to imagine is a one followed by
38:1714 knots.
38:19>> They believe this credit expansion will
38:21create a boom because there is now more
38:23money in the economy with which to make
38:25investments.
38:27>> It's fascinating that this the emergence
38:29of digital currencies how it's
38:30transformed everything really. um
38:33because it just completely unleashed
38:35private banks to dominate and create the
38:38money system that works for them and
38:41works for the people who run private
38:43banks.
38:45[Music]
38:47If we want a growing economy under the
38:49current setup, we have to have growing
38:51debt. You can't, you know, this is
38:54something that very very few people
38:56really understand, especially not the
38:58politicians who are managing the
39:00economy, which is a scary thought.
39:03[Music]
39:09As the money supply grows, more money is
39:12available which can be invested in
39:14productive avenues.
39:16However, it can also be used to gamble
39:18and drive up asset prices.
39:21[Music]
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, each
39:46unit of currency buys fewer goods and
39:49services.
39:50As the money supply grows and there is
39:52more currency available, more money is
39:54available for investment which can lead
39:56to growth. But more money is also
39:59available for purchases of goods and
40:02speculation
40:03which leads to inflation.
40:07Essentially inflation is what happens
40:10when too much money is chasing too few
40:14goods and services. So that there's too
40:17much money for the the actual output of
40:21the economy.
40:24In the seven years between 2000 and
40:262007, the money supply doubled and the
40:30banks, you know, the central bank, the
40:32bank of England in this time was under
40:34the impression that they had it under
40:36control 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
40:43corner shop. They weren't looking at the
40:45price of housing and housing is you know
40:47the biggest expenditure that most people
40:49will make.
40:58Increasing house prices
41:01uh it may may make you feel like you're
41:03you're becoming wealthier but as your
41:06wealth increases the effect is that your
41:10children's wealth is actually
41:11decreasing. So in fact, there's no net
41:14gain in wealth because your children are
41:17going to have to pay even more when they
41:20want to buy a house. So in effect,
41:22there's no there's no kind of net
41:24increase. They're going to have to earn
41:25even more. They're going to have to go
41:27into even more debt. So the rising house
41:31prices do not create additional uh net
41:35GDP value to the economy. It they they
41:38actually what they do is they
41:40redistribute wealth. uh towards those
41:43people who already have houses i.e.
41:44wealthier people and remove it from
41:47poorer people who can't afford to get on
41:49the housing ladder. So it's another
41:51example of a very regressive policy
41:53actually to allow house prices to simply
41:56inflate. It makes everybody feel kind of
41:59like things are going well and people
42:02spend more money on other stuff. They
42:03take equity out of their houses, but it
42:05it's not creating new jobs. It's not
42:08enhancing the quality of the economy.
42:11It's not helping our balance of trade.
42:13It's not helping the public deficit. Um,
42:15it's a it's a zero sum game.
42:19>> As of August 2011, 85.5%
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
42:40new money, 500 billion pounds just in
42:42the three years before the crisis.
42:44That's why house prices went up the way
42:46they were. There's nothing, you know,
42:48special about houses. It was just all
42:50this funny money being pumped into that
42:52market. If money is spent into the
42:54economy
42:56into into a lot of money goes into
42:58houses for example into mortgages
43:01um 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 um
43:13spending. Uh that's what causes
43:16inflation and and and in the UK we've
43:19we've had it in spades. we've had, you
43:21know, this massive uh housing boom and
43:24the the main cause for the housing boom
43:26in my opinion is the huge amount of
43:29speculative credit created by the banks
43:32to go into houses. If houses were
43:35cheaper,
43:36um they would be easier to build, more
43:39there would be more of them would be
43:41built. There would be less huge houses
43:44with hardly any people in them. London
43:47would not be the center of a a kind of
43:49very rich um speculative orgy where
43:53where all the richest people in the
43:54world want want to get a property in
43:56London because it's seen as a as a great
43:57asset. You know, houses would be seen as
43:59places to live primarily rather than
44:01places to invest.
44:03Important thing to think about is if
44:05you're a bank and you've got to make a
44:08loan, you have choices. You can you can
44:11give that 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
44:23business, the owners of that business
44:24have limited liability, which means if
44:27the business goes bust, you as a bank
44:29are getting nothing back essentially.
44:32You know that that's it. So that's kind
44:33of high risk compared to loaning your
44:36money to somebody with some collateral
44:39with a house behind them like a
44:41mortgage. So there's a there's a kind of
44:42simple incentive for banks to prefer
44:45putting money into housing than into a
44:48small business. Now that's a real
44:50problem or if you if you if you widen
44:52that out across a whole economy because
44:55it means there's an incentive you know
44:57to put money into speculative rather
44:59than productive investments. So again,
45:02we have to think about how we create a
45:04monetary system that is more balanced
45:07between those two kinds of speculative
45:09and productive investment. The
45:11government 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.
45:35A bubble occurs when there is very high
45:37inflation in the price of a specific
45:39good or service over a short period of
45:41time.
45:44>> The idea of the tulips and their
45:47relevance is that we saw the first ever
45:49financial bubble and crash. The craze
45:53for tulips, black tulips being a
45:56mythical 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 in them to the extent
46:18that tulip bulbs got to the point where
46:20they were worth 10 times the average
46:21annual salary of a person working in the
46:25Netherlands. There was a futures market
46:27in tulip bulbs because obviously you
46:29plant them now but you don't know what's
46:30going to come out 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.
46:51Unlike tulips which are a disposable
46:53luxury,
46:55houses are both a necessity and a luxury
46:58and as such they are ideal as a vehicle
47:01for money and bubble creation.
47:04A dwelling is perhaps the most prized
47:07possession of value most people aspire
47:09to.
47:13Inflating house prices in this way
47:15allows a nation to expand its money
47:17supply without 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
47:36growth of industry.
47:40But 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. you've got a
47:47good base to try and perform this sort
47:49of policy off the back of. I think it
47:51was quite deliberate in the case of the
47:53US almost explicit as Alan Greenspan as
47:56head of the Federal Reserve when
47:58confronted by a stock market crash at
48:00the end of the the 1990s quite
48:03deliberately slashed interest rates to
48:06almost zero. Everyone can borrow uh 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 the bank can say, well,
48:16okay, we're not just lending your money
48:18unsecured. You actually do have a house
48:20and that's great cuz we can repossess
48:21it. They won't tell you this when you
48:23take the mortgage, but they can do this.
48:25And that bubble is in what fuels
48:27expansion such as it is inside the US
48:30and inside the UK where something
48:31similar takes place for the next decade
48:33or so. I think it also a reflection of
48:36an underlying weakness in these
48:37governments that they they simply lack
48:40the will and possibly the ability, but I
48:43think it more comes down to a will to
48:45challenge financial markets to challenge
48:47big capital and say we're going to do
48:49something different now and you're going
48:51to have to go along with it because
48:53we've been democratically elected and
48:54you lot frankly haven't and we have a
48:56mandate to do this and we're going to
48:57make this happen.
48:58>> Just remember it's all part of the plan.
49:02>> What 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 was financial
49:19innovation. They innovated public
49:21lotteryies to get money together. They
49:23had public subscription. This was the
49:25idea that led to the idea of public
49:27shares, a piece of the action that
49:29anybody could invest in. That meant that
49:31something like twothirds of the
49:32population was investing in tulip bulbs
49:34by the 1630s.
49:36After independence, these these
49:38instruments were applied to financing
49:40expansion. Why was such a small country
49:43able to hold its own against so much
49:45bigger countries? 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?
49:58Well, they had a more efficient, a more
50:00involved, and a broaderbased 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,
50:17>> but true.
50:24Now inflation can be avoided if the
50:28amount of money that goes into the
50:29economy um is regulated in a way that it
50:33doesn't exceed the actual activity
50:37that's happening in the economy. Now the
50:40best way to do that in my opinion is to
50:43make sure that money is issued into the
50:45economy only for productive investment
50:50for productive goods and services. So
50:52money goes in to help a small business
50:56start up which creates jobs which
50:59creates additional purchasing power um
51:02which means there's there's no
51:04inflation. During their history, almost
51:07all central banks have employed forms of
51:09direct credit regulation.
51:11The central bank would determine desired
51:13nominal GDP growth, then calculate the
51:16necessary amount of credit creation to
51:18achieve this and then allocate this
51:21credit creation both across the various
51:23banks and type of banks and across
51:25industrial 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 such as
51:40today's large-scale bank funding to
51:42hedge funds.
51:44The World Bank recognized in a 1993
51:46study that this mechanism of
51:48intervention in credit allocation was at
51:51the core of the East Asian economic
51:53miracle. There's all sorts of things
51:55that governments have done in the past
51:57uh very successfully in a number of
51:58cases and not often not unsuccessfully
52:01in this country but you know the
52:02examples that spring to mind like South
52:04Korea, Japan often in East Asia where
52:06governments have been quite targeted
52:07about how they're going to rebalance the
52:09economy and picking sectors and deciding
52:12where the investment should take place.
52:13I think that has to start happening in
52:14the UK because we're in a a demand side
52:17recession rather than looking at crisis
52:19of of supply. You you have to have a
52:21system where credit is put into
52:25productive um avenues, where credit is
52:28put into building highspeed rail links,
52:30where credit is put into um building
52:32houses rather than giving people money
52:35to inflate the price of of houses. So,
52:37it's it's quite simple really in that
52:40way. Um and uh the current system is
52:44simply set up not to 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 attacks on
52:55the purchasing power of the medium of
52:57exchange.
53:05The figures for the UK are quite stark
53:07actually that average median real
53:11incomes for so that's you know what the
53:14bit in the middle uh for most people
53:16declined over the last 8 years or so.
53:18They're now in quite sharp decline as we
53:20go into the recession. I mean the
53:21sharpest really since it looks like
53:23since about the 1930s put it that way.
53:24So real incomes are declining.
53:28Bank created fiat currency allows the
53:30private banks to suck wealth from the
53:32economy and over time results in a
53:34gradual decrease in the standard of
53:36living.
53:38As people become poorer, they become
53:40even more dependent on debt
53:43and this at a time when efficiency and
53:45machination have improved dramatically.
53:49>> You know, if you go back to the 1960s
53:50and we were expected to to we were
53:53looking forward to an age of leisure.
53:55What will people what they were talking
53:57television program saying what's people
53:59going to do with all their spare time
54:01you know and now we've got more people
54:04working harder than ever
54:06spending more than ever which looks
54:09great you know everyone's spending more
54:11everyone says oh yeah we you know but if
54:13you're not actually benefiting from what
54:16you're spending if you're having to
54:17spend the money on child care costs on
54:19commuting costs you know and so forth uh
54:23just you know costs that people didn't
54:25in the past used to have to pay because
54:28you know you could walk to work and you
54:29know one member of the family remain was
54:32able to to stay at home and be a
54:33permanent homemaker then you're actually
54:35much you're not actually any better off
54:37you know everyone's under and everyone's
54:39under such enormous pressures nowadays
54:42you know I am conscious that I say my
54:46four nephews and nieces are facing
54:49difficult times just going to find
54:51themselves having to work you know um
54:56very hard just to to keep just to keep a
55:00roof over their just to get a roof over
55:01their head just to keep a roof over
55:02their head. People are getting poorer in
55:04real terms is because prices always
55:06going up because all this new funny
55:09money is being pumped into the system by
55:10the 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 the
55:23return that we get from actually working
55:24is getting less and less all the time. I
55:26mean you can't deal with poverty when
55:28you have a financial system and a money
55:30system that distributes money from the
55:32poor to the very rich. Any distribution
55:36that you try and do in the opposite
55:37direction is um you know it's
55:39effectively pissing in the wind. If you
55:41look at issues like you know increasing
55:44inequality, one obvious way to tackle
55:47inequality is to have say for example a
55:49redistributive tax system. You know you
55:52tax the rich, you give some money to the
55:53poor, you move a bit of money down the
55:56scale. Um that's all very well, but if
55:59you completely 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, then you're not
56:07really going to tackle this inequality.
56:10And um the way a debt based money system
56:13works, it guarantees that for every
56:15pound of money, there's going to be a
56:17pound of debt. Now that debt is
56:19typically going to end up with, you
56:20know, the poor, uh the sort of lower
56:22middle classes. Those people end up with
56:24the debt and they end up paying interest
56:26on that money which then goes back to
56:28the banking sector and gets distributed
56:30to the people working in the city or in
56:33Wall Street. Um, and what this what this
56:36system 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
56:46to the city of London and it it also
56:48distributes money from all the small
56:50businesses you know all the little
56:52factories um around the UK and
56:55distributes that money back into the
56:56financial sector. We have a system
56:59whereby the activity of actually
57:02supplying our nation's money supply
57:04occurs under the very same roof as the
57:07same organization that's responsible for
57:10profiting from putting together
57:11borrowers and lenders i.e. a bank. So a
57:14bank creates our nation's money supply
57:16as well as um making loans uh for
57:20profit. The government cannot allow the
57:22banking system to fail because if it did
57:26over 97% of all money would disappear.
57:30This is why in the event of a crisis the
57:32risk 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>> Bill, by the way, I know the Bank of
57:43America is a very big bank. It happens
57:45I've got $32 there myself.
57:48Now, just between us, what assurance do
57:49I have that this money is safe?
57:52>> Well, uh, all deposits up to $10,000 are
57:55assured or insured by the federal
57:57government in Washington.
57:58>> That's my guarantee.
58:00>> Yes. Uhhuh.
58:00>> Have you heard that the federal
58:02government is about $280 billion in the
58:04hole?
58:09>> Banks receive large safety nets from the
58:11government. The taxpayer guarantees
58:14£85,000 as deposit insurance.
58:17And the Bank of England provides
58:19liquidity insurance in case a bank runs
58:21out of reserve currency.
58:28Someone wrote that a big investment bank
58:31is like a giant vampire squid wrapped
58:35around the face of humanity,
58:38hypnotizing politicians who throw money
58:40at the banks. No strings attached, no
58:44matter what damage is done.
58:47trashing the planet.
58:49Forcing cuts to things that make life
58:52better.
58:53Goodbye schools.
58:55Goodbye playgrounds.
58:57Goodbye jobs.
59:00The bankers that we bailed out then gave
59:04themselves bonuses that were bigger than
59:06the first wave of public spending cuts.
59:10Britain alone gave the banks more money
59:13than it costs to put a man on the move.
59:16six times over.
59:19Where did our money go? Who let the
59:22banks get away with it? Why
59:26can vampire squids ever be useful?
59:30No government yet is brave enough to
59:32tame them. Perhaps they need a plan.
59:55The 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 where
1:00:10increased purchasing power is the result
1:00:11of growing debt and where a
1:00:14diversification of debt provides overall
1:00:16stability and market confidence.
1:00:19Policies such as student fee increases
1:00:22and the privatization of public
1:00:24services, assets and industry follow the
1:00:27same model. The problem we're facing, I
1:00:29think, is that uh there's been there's
1:00:32this transference from the the public
1:00:33debt to to the private debt, which is a
1:00:36which is essentially a a way of
1:00:38transferring risk actually away from
1:00:40sort of UK PLC and the government onto
1:00:44the the heads of individuals and it's
1:00:46going to be the most vulnerable
1:00:47individuals who are going to have the
1:00:49most debt. Uh thus it's a very
1:00:51unprogressive regressive uh policy
1:00:54framework that that the government's
1:00:56embarking on where the risk is moved on
1:00:58to those who are most vulnerable and if
1:01:01there is another financial shock if
1:01:03there's an oil shock for example the
1:01:05people who will pay the penalty are
1:01:06those are the poorest people in society
1:01:08or homeowners for example who will fall
1:01:11into negative equity if interest rates
1:01:13go up even 1 or 2% uh there'll be real
1:01:16really big problems so I don't think
1:01:19it's a sensible way forward at the
1:01:21moment at all. And it's uh it's
1:01:22regressive and it's certainly not fair
1:01:25uh in the terms that um that the
1:01:27government's talking about and it's
1:01:29certainly not a case of we're in this
1:01:30together.
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. As a result,
1:01:39more money is created and there is a
1:01:42boom.
1:01:44Some private equity companies have taken
1:01:46this theory to the extreme. engaging in
1:01:49a practice known as a leveraged buyout
1:01:53where a company is purchased at an often
1:01:55inflated price and the purchase price is
1:01:58transferred to the business as a debt.
1:02:02The company becomes responsible for the
1:02:04funding of its own purchase. These debts
1:02:07are often so great that the company
1:02:09needs to reduce staff salaries and
1:02:12research activities.
1:02:16When 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
1:02:26more debt. An increase in the
1:02:28diversification of debt results in an
1:02:30increase in the money supply.
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.
1:02:44It's questionable whether we're going to
1:02:45get out of this recession or whether
1:02:47we'll just keep ticking along the way
1:02:48that we are now. Um, 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 3 to
1:03:055 years, we'll be back where we were.
1:03:07You know, the debt will become too much.
1:03:09People will start defaulting again. um
1:03:11as kind of the system that we're locked
1:03:13into now is we can't we can't grow the
1:03:15economy without growing the debt. And
1:03:17the debt is the very thing that will
1:03:18bring down the economy. The only option
1:03:21going forwards is to reform it to stop
1:03:22banks from creating money as debt.
1:03:25By fixing the monetary system, we can
1:03:28prevent 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.
1:03:40The 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.
1:03:49I mean, why is it that we've got all
1:03:51this technology um you know, all this
1:03:54new efficiency and yet it now requires
1:03:56two people to finance 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. is because of all the debt
1:04:10and it's because you know effectively
1:04:12the banking sector is creming 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 is growing, it's either that it's
1:04:21becoming less efficient or it's becoming
1:04:23a parasite on the rest of the economy.
1:04:25And that's, you know, we can talk about
1:04:26the banking sector becoming 4% 5% 6% of
1:04:30GDP. What'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 we want to if we
1:04:39want to have a chance of tackling any of
1:04:42the other big social issues, you've got
1:04:43to figure out the money issue.
1:04:45>> The poorest in the world pay for crisis
1:04:48even when they've not benefited from the
1:04:50um the the often re reckless and
1:04:52speculative booms like the housing boom
1:04:55in in Ireland that preceded um that
1:04:58crisis. You know, over the last 30
1:04:59years, we've seen um income
1:05:01differentials increase so that the rich
1:05:04have got much much richer. Um and
1:05:06ordinary people haven't. they've stayed
1:05:08the same or they've they've got poorer.
1:05:10Uh and one of the ways that the economy
1:05:11was kept going was by providing cheap
1:05:14credit was by providing debt to those
1:05:16very people who couldn't really afford
1:05:18things anymore. Um so they kept buying.
1:05:20Um and when it collapses, it's those
1:05:22same people that that have to pay once
1:05:25again even though in in many ways they
1:05:27were the victims the first time around.
1:05:29>> As a result of the crisis, the Bank of
1:05:31England has bought corporate debt and
1:05:34repackaged it at lower rates of
1:05:36interest. Yet the average person is
1:05:38being asked to pay more than ever to
1:05:40borrow on overdrafts 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're 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
1:06:01important than anything else. Um the
1:06:03idea of renegotiating them becomes
1:06:04unthinkable.
1:06:07Can 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 that
1:06:19that's it. See, I'm a trader. Uh, I
1:06:20don't really care about that kind of.
1:06:26>> If 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 situation.
1:06:37Our job is to make money from it. And
1:06:40personally, I've been dreaming of this
1:06:41moment for 3 years. If you know what to
1:06:44do, you can make a lot of money from
1:06:45this. I I I have a confession, which is
1:06:48uh I go to bed every night. I dream of
1:06:50another recession. I dream of another
1:06:51moment like this. I dream of another
1:06:54recession. I dream of another moment
1:06:55like this.
1:06:56You can make a lot of money from this.
1:06:59[Applause]
1:07:00>> Bruno, Virginia hurt somebody real bad.
1:07:05You ought to hate her.
1:07:10>> The way in which you can look across
1:07:12Europe now and see that the new prime
1:07:15minister in Greece, not elected,
1:07:16essentially imposed, Papadimos, former
1:07:18employee of Goldman Sachs. The new prime
1:07:21minister and finance minister of Italy,
1:07:23Mariam Monty, former employee of Goldman
1:07:25Sachs. the new president of the European
1:07:27Central 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
1:07:43>> from the people
1:07:45without the people
1:07:48against the people. What's been
1:07:50interesting out of all this, I suppose,
1:07:52is the question of democracy that's been
1:07:53opened up very starkly in Europe that
1:07:56that you have a government of bankers
1:07:57essentially imposed on you. It's bankers
1:07:59who more or less got us into this mess
1:08:01to put it rather crudely, but that's a
1:08:03good first approximation to it. And then
1:08:05you say, okay, bankers are the people
1:08:07who therefore 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
1:08:11a serious question democracy that's
1:08:12opened up here. By the way, the banking
1:08:14crisis drove more than 100 million
1:08:18people back into poverty.
1:08:22The mortality statistics of people who
1:08:25go into poverty rise hugely for a whole
1:08:29range of reasons. So, the banking crisis
1:08:32isn't just about becoming poorer. It was
1:08:33about killing people as well. And guess
1:08:36what?
1:08:38We haven't really got to the bottom of
1:08:40it. We never held anybody to account and
1:08:42we haven't done the radical reforming
1:08:44job that we really needed to do because
1:08:47we mistakenly thought if we destabilize
1:08:51the position any further, it'll make
1:08:53matters worse. And guess who took the
1:08:55decisions? All the people who were there
1:08:57in the first place.
1:09:00>> I think you ought to know that the
1:09:02business of one of these businessmen is
1:09:04murder.
1:09:11Their weapons are modern. They are
1:09:14thinking 2,000 years out of date.
1:09:26Look, I was there when the secretary and
1:09:28the uh chairman of the Federal Reserve
1:09:30came those days and talked with members
1:09:32of Congress about what was going on. It
1:09:35was about September 15th. Here's the
1:09:37facts, and we don't even talk about
1:09:39these things. On Thursday at about 11:00
1:09:43in the morning, the Federal Reserve
1:09:46noticed a tremendous draw down of uh uh
1:09:50uh money market accounts in the United
1:09:53States to the tune of $550
1:09:57billion was being d drawn out in a
1:10:00matter of an hour or two. the Treasury
1:10:03opened up its uh uh uh window to help.
1:10:07They pumped $105 billion dollars in the
1:10:10system and quickly realized that they
1:10:12could not stem the tide. We were having
1:10:14an electronic run on the banks. They
1:10:17decided to close the operation, close
1:10:20down the money accounts, and announce a
1:10:23guarantee of $250,000
1:10:25per account so there wouldn't be further
1:10:27panic out there. And that's what
1:10:29actually happened. If they had not done
1:10:31that, that their estimation was that by
1:10:342:00 that afternoon, 5.5 trillion
1:10:38dollars would have been drawn out of the
1:10:40money market 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.
1:10:50When money is withdrawn internationally
1:10:53from one currency to another, the
1:10:55reserve currency shifts from the
1:10:57national bank of one country to the
1:10:59reserve account of the foreign bank.
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, when £1,000 is transferred
1:11:20into euros,
1:11:23a UK bank will agree an exchange rate
1:11:25with a euro area bank, perhaps 1.15 to
1:11:30the pound.
1:11:32The UK bank will then transfer £1,000 of
1:11:35the central reserve currency to the UK
1:11:37partner bank of the European bank,
1:11:40whilst the European bank will transfer
1:11:43€1,150
1:11:45of reserve currency to the European
1:11:47partner bank of the UK bank.
1:11:51>> What happens when currencies and the
1:11:53exchange rate system is no longer
1:11:55managed? What are some of the first
1:11:56consequences?
1:11:58>> Devaluations,
1:11:59>> speculation,
1:12:01Imbalances where some countries would
1:12:04acrue more and more and more what what
1:12:06would they acrue?
1:12:08>> Other currencies.
1:12:10>> Other currencies.
1:12:14>> The reserve currency needs to be spent
1:12:15in the country of origin or exchanged
1:12:18into other currencies.
1:12:21Most foreign banks do not have deposit
1:12:24taking accounts outside of their
1:12:25national borders and as such the foreign
1:12:29reserves they hold do not come back to
1:12:30them in the form of deposits.
1:12:35When a country accumulates trade
1:12:36imbalances, it either accumulates
1:12:39foreign reserve currencies in the case
1:12:42of surplus or spends its own reserves in
1:12:46the case of negative trade balances.
1:12:49balance of trade is is basically uh the
1:12:53difference between what you're selling
1:12:54abroad and what you're buying from
1:12:56abroad. Now the feature on the the UK is
1:13:00that for a very long period of time it's
1:13:03had a deficit on something called
1:13:05visible balance of trade which is
1:13:06trading things well things that you can
1:13:08see. So that is goods that you'd
1:13:10recognize, 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 it
1:13:18opened up in in the uh it did open up in
1:13:21the early 1980s and essentially it
1:13:23hasn't it hasn't gone away since. And if
1:13:25anything has got wider and wider,
1:13:27>> foreign exchange reserves cannot be
1:13:29directly used for domestic spending.
1:13:32The money can only be spent abroad or on
1:13:35imports.
1:13:39A country with a large balance of trade
1:13:41deficit relies on its creditors to spend
1:13:44the imbalances acred in its own market.
1:13:48I mean there have been proposals in the
1:13:50past to try and create a mechanism uh
1:13:53for those imbalances to to match up. So
1:13:56Kanes for instance John Maynard Kanes uh
1:13:59at the end of the second world war his
1:14:00original proposal for what became Breton
1:14:03Woods and the set of institutions set up
1:14:05there like the IMF and the World Bank
1:14:07was that there will be a kind of
1:14:08international clearing union. uh this is
1:14:10particularly relating to to the trade
1:14:12side rather than the sort of the
1:14:13financial 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 uh and that would kind of force
1:14:22everyone to to eventually reconcile uh
1:14:25the imbalances that appeared in the real
1:14:26economy.
1:14:28>> But no such mechanism exists.
1:14:31The accumulated net trade imbalance for
1:14:34the UK is around800 billion pounds.
1:14:46In 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. The countries with trade
1:14:54deficits have been spending more than
1:14:56they've been earning, so they've had to
1:14:58borrow from abroad. and they've been
1:15:00doing this year after year. Countries
1:15:03like that are the United States,
1:15:05ourselves, and some other countries in
1:15:07Europe. That cannot go on. And there are
1:15:10two ways in which this can come to an
1:15:12end. Either and we're seeing this in
1:15:14some other countries in Europe. If they
1:15:16can'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
1:15:24followed is that we got a credible plan
1:15:26to repay our debts and the value of
1:15:28sterling has fallen by 25% to make our
1:15:31exports more competitive and attractive
1:15:33to overseas buyers and it to be more
1:15:36attractive for British consumers to buy
1:15:38from British producers rather than
1:15:40overseas producers. That is what we have
1:15:42done to put in place a framework to
1:15:45rebalance our economy. And I'm sure
1:15:46that's the right way to do it.
1:15:49Currency war, also known as competitive
1:15:52devaluation,
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. As the price to buy a
1:16:01particular currency falls, so too does
1:16:04the real price of exports from that
1:16:06country.
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
1:16:20world is now looking really quite ropey
1:16:21they've started to fall back down again.
1:16:22So 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
1:16:30happened over the last few years where
1:16:31you the Brazilian finance minister has
1:16:33been most vocal about this uh talking
1:16:35about currency wars talking about the
1:16:38desire of national governments when
1:16:40confronted by a major recession. They
1:16:42think if we could export more, we can
1:16:44dig ourselves out of this recession. If
1:16:46we want to export more, we depreciate
1:16:48our currency. That makes holers cheaper.
1:16:50Everyone else buys them. We'll all be
1:16:52better off. Now, the issue here is that
1:16:54if you depreciate, it's like everybody
1:16:56else appreciates against you. Their
1:16:58stuff 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. To decrease
1:17:07the value of its national currency, a
1:17:10national 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, the exchange rate would depend on
1:17:38the amount of gold, silver or copper
1:17:41contained in the coins of each country.
1:17:44Similarly, after the advent of paper
1:17:46money and the gold standard, the
1:17:49exchange rate depended on the amount of
1:17:51gold the government promised to pay the
1:17:53holder of the bank notes. These amounts
1:17:55did not vary greatly in the 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 and the dollar
1:18:09was 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 is now chaotically
1:18:20organized. There is no exchange rate
1:18:23because there's no gold standard system
1:18:25to sustain. So we don't need it. In
1:18:27fact, we believe the market will resolve
1:18:29all of the problems of exchange. Whether
1:18:31your currency should be worth more than
1:18:32mine is a reflection of your economy
1:18:34relative to mine. And if that changes
1:18:37the currency 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. Think
1:18:48>> a currency's value in relation to
1:18:49another currency is determined by the
1:18:52market. If more people want to buy a
1:18:55currency than sell it, its value
1:18:57increases.
1:18:58If more people want to sell, its value
1:19:01decreases.
1:19:03The value is set by individual banks. As
1:19:06they buy and sell currencies, they will
1:19:09adjust the exchange rate. In the la last
1:19:12study I read in 2007
1:19:16each day on currency markets $3.2
1:19:19trillion dollar are traded each day. Who
1:19:24knows what the global GDP is?
1:19:28>> 50. Again, Brucey higher.
1:19:32>> 60. That's closer. The point is, think
1:19:34about that exchange happening every
1:19:37single day. There's about 260 business
1:19:40days a year. It takes a few weeks to
1:19:43match the global value of every economic
1:19:46transaction that happens everywhere,
1:19:50every day in a year. and it takes a few
1:19:53weeks.
1:19:54>> Obviously, all of us trade currency
1:19:56fairly fairly regularly. If you go
1:19:57abroad, you exchange into another
1:19:59currency. That's a form of currency
1:20:00trading. You're swapping your pounds
1:20:02into whatever euros or yen or whatever
1:20:05it might be. That happens fairly
1:20:07regularly and that's a conventional part
1:20:08of the trading process. Now, large
1:20:10corporations have to do this on a
1:20:12regular basis. where it becomes
1:20:14something that people question, where
1:20:16you get people saying, "Well, hang on.
1:20:18This is speculation." is when you get
1:20:19people realizing that currencies move
1:20:21around next to each other. And if they
1:20:23move around in value next to each other,
1:20:24there's always an opportunity to try and
1:20:26make money out of those changes in
1:20:27value. And therefore, you can speculate
1:20:29on it. And that's that's the more sort
1:20:31of questionable end of the market.
1:20:32That's the bit of the market that things
1:20:34like a financial transactions tax would
1:20:36try and chop away at because the
1:20:38assumption there and it's it's kind of
1:20:40not incorrect is that this just produces
1:20:42instability for everyone else that these
1:20:44people want volatility in the market
1:20:46because that's how they make their
1:20:47money. They want to encourage it and
1:20:48they do encourage it by uh trading and
1:20:51speculating in the way that they do.
1:20:53By 2010, the foreign exchange market had
1:20:57grown to be the largest and most liquid
1:20:59market in the world
1:21:01with an average of $4 trillion of
1:21:03currency being exchanged every day.
1:21:10Volatility creates a need. What does it
1:21:12do to countries especially perhaps small
1:21:16ones like developing countries if there
1:21:18are suddenly huge and instantly
1:21:22fluctuating financial flows? What do
1:21:25they have to do to cope
1:21:27>> production of the products that they're
1:21:29selling on the
1:21:30>> increase their production and sell more?
1:21:32>> Lowering the price of it,
1:21:33>> lowering the price
1:21:34>> and becoming possibly even poorer
1:21:36>> and becoming possibly even poorer. Once
1:21:38you start talking about the
1:21:38international system, it becomes really
1:21:40quite a peculiar uh quite peculiar thing
1:21:44in that a lot of it depends on simply
1:21:47sentiment and beliefs about what an
1:21:49economy is like rather more than depends
1:21:50on anything the economy might or might
1:21:52not actually be doing and that can shift
1:21:54very very rapidly because you know if if
1:21:55it's just somebody's belief about a
1:21:57currency is supportable uh then you know
1:21:59they can carry on believing this until
1:22:01well till whenever if that belief
1:22:02changes and can change very rapidly in a
1:22:05financial market the process of
1:22:07financial contagion can can take place,
1:22:09you know, in just minutes, seconds even,
1:22:11that you can just move from being
1:22:14apparently quite a stable, robust
1:22:17economy to being one that suddenly
1:22:20sentiment has turned against you and you
1:22:22find that markets are picking on you.
1:22:23And it can often be not much more than
1:22:25you're simply the next door neighbor of
1:22:28uh, you know, a country that's currently
1:22:29in trouble.
1:22:32Many 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 or the currencies of an entire
1:22:41region.
1:22:43This type of activity is often referred
1:22:45to as financial warfare.
1:22:50It's benefited uh major institutions
1:22:53really quite substantially that Goldman
1:22:55Sachs you for example or any large bank
1:22:57has done somewhat better out of this set
1:23:00of arrangements than it would have done
1:23:02in a far more regulated environment.
1:23:03It's made people very very wealthy. It's
1:23:06allowed financial markets to expand
1:23:07absolutely enormously. Anybody involved
1:23:10in that is keen on seeing a deregulated
1:23:12world. In the case of the UK, you have a
1:23:14government which has been quite overtly
1:23:17and deliberately and aggressively
1:23:19arguing against any forms of regulation
1:23:21being imposed on those financial
1:23:23markets. But it's not the case that
1:23:25someone's behind the scenes pulling the
1:23:26strings. It's it's that this is this is
1:23:28how the thing works quite deliberately,
1:23:30quite, you know, overly in front of you.
1:23:32That's the world as it is. It's making
1:23:33some people very rich. They're quite
1:23:35happy with it.
1:23:38>> I think it is a form of economic
1:23:40warfare. Um much of the the change in in
1:23:44the way that the global economy works
1:23:46over the last 30 years result from this
1:23:49this debt, this third world debt because
1:23:51it's given rich countries and banks and
1:23:55the financial sector enormous amounts of
1:23:57power and control over the poorer bits
1:24:00of the world where a lot of the
1:24:01resources are that we like using. And um
1:24:04that's been used in a way that many
1:24:06people have compared to a form of
1:24:08colonialism. It's a very real direct
1:24:11form of of power that's been used over
1:24:13those countries to force those countries
1:24:15to do what are really in the interests
1:24:18of the richest segments of the world
1:24:20that they do. And as a result of that um
1:24:22not only have corporations become
1:24:24absolutely uh in very you know made huge
1:24:27amounts of profits and become absolutely
1:24:29enormous and and um and all pervasive um
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 uh to be made
1:24:39today is not by producing anything at
1:24:41all. It's simply by forms of speculating
1:24:44basically making money from money. uh
1:24:46that's the most profitable and and by
1:24:48far and away um the the biggest form of
1:24:51of of activity of economic activity that
1:24:54exists in the world today.
1:24:56>> To protect themselves, vulnerable
1:24:58countries need to acrue currency from
1:25:00rich countries who create these
1:25:02currencies out of nothing.
1:25:06>> The Netherlands first governor general
1:25:07of Indonesia, the man who built the
1:25:10trade routes, fortified them. What I
1:25:12mean by that is built forts along them
1:25:14and fought Spanish fleets and British
1:25:16fleets. Said about the development of
1:25:19the spa of the of the Netherlands Empire
1:25:22and Netherlands trade was we cannot make
1:25:26trade without war nor war without trade
1:25:31money and power.
1:25:39So reserves have become the way in which
1:25:41you can insure yourself against what?
1:25:44Speculation. Who? You said speculation.
1:25:46Speculative attack.
1:25:48>> Fallen market.
1:25:49>> Fallen markets.
1:25:51>> Bubbles.
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.
1:26:06The big problem that's faced by most
1:26:08developing countries who've got into a
1:26:09debt crisis uh was that they were told
1:26:11by the powers that be in the world, the
1:26:13International Monetary Fund, um which is
1:26:15in many ways governs the the the global
1:26:17financial system that the way to get out
1:26:20of debt actually is first of all to to
1:26:22um restructure your economy especially
1:26:24to increase your exports so you're
1:26:26earning more more um dollars and then
1:26:28you can pay off your your debt which is
1:26:30normally in dollars or some other uh
1:26:31foreign currency. Um unfortunately time
1:26:34and time again that was proved to to not
1:26:36be the case at all. Actually countries
1:26:38cut back their public spending to the
1:26:40bone. So they stopped growing. They
1:26:42stopped having any potential um for
1:26:44growth. Um and what they did produce was
1:26:47was um was aimed at the export market.
1:26:49It was aimed at creating dollars and so
1:26:50on. So they were paying off their debts
1:26:52but they weren't uh developing their own
1:26:54economy at all. They were paying far far
1:26:56far more in debt repayments than they
1:26:58were spending on health or education or
1:26:59anything else. and their debts just kept
1:27:01getting bigger and 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.
1:27:16It's not it's not even shadowy. You see,
1:27:18there's no great mystery about about
1:27:19what's happening here and about the way
1:27:20the world operates. It's like it's it's
1:27:22quite blunt. I mean, for for the last 30
1:27:24years, you've got something pretty much
1:27:26everywhere. certainly spreads pretty
1:27:28much everywhere that generally gets
1:27:29labeled neoliberalism. This idea that
1:27:32you should have floating exchange rates,
1:27:34you know, weak regulation, particular
1:27:36financial markets, minimal government
1:27:38interference or involvement with what
1:27:40market does. And that's that's more or
1:27:41less how the world operates. And then
1:27:43there are institutions and the
1:27:44outstanding one at this point is the IMF
1:27:46that they will actively try and enforce
1:27:48this state of affairs. So it's it's not
1:27:50greatly shadowy, if you see what I mean,
1:27:52that that there are people behind the
1:27:54scenes somewhere trying to manipulate
1:27:55stuff. is actually this is quite this is
1:27:56quite avert this this is happening and
1:27:58this is how uh for entire my entire
1:28:01adult life actually is what it starts to
1:28:03look like this is how the world world
1:28:05has operated and it's made some people
1:28:07very very wealthy it's produced enormous
1:28:09concentrations of wealth so when the
1:28:11international monetary fund comes in in
1:28:13order to try and uh alleviate a
1:28:15country's um debt problems it imposes a
1:28:18set of conditions and in the 1980s and
1:28:2090s they called that set of conditions
1:28:21structural adjustment structural
1:28:23adjustment program and it tends to take
1:28:25very similar forms wherever it happens.
1:28:27And indeed, we can see structural
1:28:28adjustment programs in essence happening
1:28:30today in countries like Greece and
1:28:31Portugal and Ireland. Um where countries
1:28:35are instructed to uh decrease the amount
1:28:38that they spend on the public sector. Um
1:28:42they are instructed to liberalize their
1:28:44their uh trade market and liberalize
1:28:47their capital market so money can much
1:28:50more easily come in and out of their
1:28:51economy. And the idea is that this will
1:28:54encourage investment to come in from
1:28:55richer parts of the world and that all
1:28:58of their problems will be solved from
1:29:00this investment. And in actual fact,
1:29:01this has proved um time and time again
1:29:03to be um completely without foundation.
1:29:06In actual fact, what happens is it
1:29:08destroys fledgling industries and
1:29:10capacities in these developing countries
1:29:12and developing countries become
1:29:13completely dependent on goods and
1:29:15services from developed countries and
1:29:17also from capital from developed
1:29:19countries. Uh, one of the things the
1:29:21International Monry Fund is very is very
1:29:23um keen on is um telling countries to
1:29:26lower the taxes um that should be paid
1:29:28by multinational corporations when they
1:29:29come and operate in a country because
1:29:31then you'll encourage more multinational
1:29:32corporations to come in. Of course, what
1:29:34it also means is the profits that are
1:29:36made by those multinational corporations
1:29:38leave the country just as quickly and
1:29:40the country itself doesn't benefit. And
1:29:42today you have many developing countries
1:29:44which have 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
1:30:04actually a government is more dependent
1:30:05on the dictats of the International
1:30:07Monetary Fund and the money markets than
1:30:09it is on their own people.
1:30:17What we've seen since the 1970s is a
1:30:20dramatic increase in a series of
1:30:22phenomena that have had a ser a
1:30:25stimulative effect on the changes in the
1:30:28financial system that have brought us to
1:30:29the gleaming shining metal and steel
1:30:32business that's over there. In case you
1:30:34don't know, that's the city of London
1:30:35I'm putting out. To compensate for the
1:30:38lack of a defined commodity-based value
1:30:41underlying currencies, financial
1:30:44institutions developed securitization
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
1:31:04manage risk and you had to innovate. You
1:31:06needed derivatives, options, futures.
1:31:10You have new markets in volatility
1:31:13management tools. Who knows what the
1:31:14term hedging is?
1:31:16>> Spreading your risk.
1:31:16>> Spreading your risk, managing your risk,
1:31:18insuring against your risk. Precisely.
1:31:21Up 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
1:31:32products, so pork belly futures or
1:31:33whatever would in fact be essentially a
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, uh currency futures,
1:31:44things that are not based on real
1:31:45products being traded at some point in
1:31:47the future, but are based on movements
1:31:48of of currency prices. Once you have the
1:31:51system of fixed exchange rates breaks
1:31:53down, obviously this thing accelerates
1:31:54enormously. So as you get the roll back
1:31:57of government regulation here, you get
1:31:59the market taking over with its own
1:32:00products here. And the theory is that
1:32:02the market's better at regulating
1:32:04itself. It's more stable than if you
1:32:06have a government interfering all the
1:32:07time. the efficient markets hypothesis.
1:32:09The idea that, you know, you set up a
1:32:11financial market, they're fast.
1:32:13Everybody in them is well informed. They
1:32:15all keep a very careful eye on what
1:32:16everyone else is doing. It will
1:32:17therefore uh be very stable and it
1:32:20reflect real changes in the economy.
1:32:21It's not going to be driven by, you
1:32:23know, panics and manas and speckers
1:32:26bubbles. None of this really going to
1:32:27happen. If if there is movement up and
1:32:29down, it's because something real is
1:32:31happening and traders and investors in
1:32:33the financial market are responding to
1:32:35it. That's the efficient markets
1:32:36hypothesis. the practice and I think
1:32:38what you see in 2008 is a kind of end of
1:32:40that process. The appearance of a crisis
1:32:43so major that the belief that it will
1:32:45simply be self-stabilizing and
1:32:47self-regulating really can't carry on. I
1:32:49mean the practice carries on anyway, but
1:32:51you can't really argue in the same way
1:32:52you used to that it's good or it's
1:32:54necessary or this is okay for the world.
1:33:00In the last decade, we had a new
1:33:01innovation, something called a credit
1:33:02default swap, a way of buying insurance
1:33:05against a company you've invested in
1:33:06going bust. And in 2002, they were less
1:33:11worth in total less than a trillion. In
1:33:142007, they were worth $60 trillion.
1:33:18That's 5 years.
1:33:21Everybody suddenly sitting there
1:33:22thinking, "Oh, these CDOS's we've made
1:33:25uh don't in fact provide the kind of
1:33:27stability that we thought. The maths
1:33:30that's inside of them is is complete
1:33:31nonsense." It turns out uh there's far
1:33:34more risk attached to um trying to
1:33:37securitize risk and securitize debt in
1:33:39the way that we have done this than we
1:33:41thought. And we think these things are
1:33:43now 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 book out of it as well actually
1:33:54helped produce the uh the opposite
1:33:57effect of what its kind of apologist
1:33:58said which is it led to led to a
1:34:00spectacular crash.
1:34:06What we saw as a result of this very
1:34:08different situation was one phenomenon
1:34:12above all, one sector above all grew and
1:34:15that 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. The assumption in what the Bank of
1:34:29England does right now is that the cash
1:34:32that we hold is backed up by government
1:34:34debt. The government can back up as
1:34:37promises by the fact that it can tax the
1:34:39public. So what they're implying is that
1:34:41cash is backed up by government debt
1:34:43when government debt is backed up by the
1:34:46ability of government to get cash from
1:34:47the public. Time and time again over the
1:34:49last 30 years we've seen uh private
1:34:52debts being transformed into into public
1:34:55debts and um the ultimately the price of
1:34:58that debt is paid by uh by the public in
1:35:01the in the data 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 and distributes this
1:35:20wealth among the privileged.
1:35:23So what we're left with is a financial
1:35:26system since the early '7s that has no
1:35:28fixed exchange rates that suddenly has
1:35:31increasingly open financial borders
1:35:35that has central banks having to manage
1:35:38without having any control because
1:35:40there's nothing here where the gold used
1:35:43to be. chaotically. They have to ease
1:35:47quantitatively. They have to lend as a
1:35:51lender of last resort. Throughout
1:35:53history, monetary systems were designed
1:35:56to give the dominant international power
1:35:59an advantage.
1:36:01And this power is fiercely defended and
1:36:03expanded on.
1:36:12and they flee in terror from an
1:36:14incredible bogey man.
1:36:18>> An American flag is burned at the height
1:36:19of the demonstration. Both President
1:36:21Johnson and Francisco Franco were
1:36:23vilified. A new low in public protest
1:36:26added strain on Spanishame relations.
1:36:32>> In the corner in the corner,
1:36:36>> I want Americans and all the world to
1:36:38know.
1:36:38>> Come on, fire. I want Americans and all
1:36:41the world to know America has no regard
1:36:44for conventions of war or rules of
1:36:47morality.
1:36:49>> In the car
1:36:51in the car in the car.
1:36:56Objection overruled.
1:37:11What I would like to see is um a a new
1:37:16kind of currency that is backed by uh
1:37:19something that that is scarce and that
1:37:21we really need and we really value
1:37:24something like energy or renewable
1:37:26energy for example. So a sort of
1:37:28kilowatth backed currency would be would
1:37:31be very interesting to me. We need to
1:37:33start valuing the things that are most
1:37:35scarce um and and that we need to
1:37:38survive as a human race in the long run.
1:37:41And backing an international currency
1:37:43with something like that will generate
1:37:45enormous investment in for example
1:37:48renewable energy if that's the you know
1:37:51the primary international
1:37:53um unit of account that's that's that's
1:37:56being used. Uh another option is is a
1:37:58basket of of currencies. So you you know
1:38:01you you mix up the value of of of
1:38:03different currencies um to to create a
1:38:06very solid currency that people have
1:38:09confidence in.
1:38:12>> Perhaps even better would be a basket of
1:38:14commodities with which to back up
1:38:16international currencies.
1:38:19Now, if it was possible internationally
1:38:22some way or another to get all these
1:38:23competing and increasingly competing
1:38:25national economies together and say, uh,
1:38:28we're all going to sit down and write
1:38:30out an agreement somewhat like the
1:38:31Breton Woods agreement which will allow
1:38:33for, unlike Breton Woods, allow for, you
1:38:36know, some currencies to to be pegged
1:38:38against different baskets of goods that
1:38:39are more appropriate to to their
1:38:41national economies. And you can sort of
1:38:43arrange this. If you could arrange that
1:38:45to happen, then that would be nice. And
1:38:47you can see how that would start to
1:38:48create a kind of order in the
1:38:50international macroeconomy which is
1:38:51otherwise lacking. The real difficulty
1:38:53there is just political. It's like who
1:38:55on earth is going to do this? Who who is
1:38:57the force that's going to kind of make
1:38:59this thing happen?
1:39:02>> Creating a monetary system which is both
1:39:04fair and stable is possible and can be
1:39:07achieved.
1:39:09What are international organizations for
1:39:13if not for such a purpose?
1:39:21[Music]

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This page contains the full transcript of The Entire Financial System Explained: [Part 3] DOCUMENTARY by LITTLE BIT BETTER, generated from the public captions YouTube serves with the video. The transcript has 15,612 words across 2,407 segments, with the original timestamps preserved so you can click any line to jump to that moment in the embedded player.

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