97% Owned (Global Finance Documentary) | Real Stories

how is money created where does it come

from who benefits and what purpose does

it serve what is a money system what is

the money behind the money system for

centuries the mechanics of the monetary

system have remained hidden and the

prying eyes of the populace yet its

impact both on a national and

international level is perhaps

unsurpassed for it is the monetary

system that provides the foundations for

international dominance and national

control today as these very foundations

are being shaken by crises the need for

open and honest dialogue on the future

of the monetary system has never been

greater this economic crisis look is

like a cancer if you just wait and wait

thinking this is gonna go away just like

a cancer is gonna grow and it's gonna

too late what I would say to everybody

is get prepared there's not a time right

now to wishful thinking the government's

gonna store things out the government's

don't rule the world

Goldman Sachs rules the world we're on

the verge of a perfect storm in a

position like corrupt and entrenched

interests that lurk in the corridors of

power the whom there are no reasons to

relinquish privileges they feel are

justly deserved

reform plan for the NHS has he got a

police report has he got a plan to cut

the deficit

[Applause]

do you trust the government

[Applause]

calm down and behave like an adult and

if you can't if it's beyond you leave

the chamber get out

there's no coincidence that boomin bar

so they've become a real cyclical issue

around about the 1700s when William

Paterson founded the Bank of England

[Applause]

only in your mind is it funny it's not

funny at all it's disgraceful the system

is inherently unstable as a result of

the international power it provides to

the dominant parties for at the heart of

it lies the idea of how can I get

something for nothing

statistical analysis have found that

every time an empire begins to near its

own demise

you'll find that its currency will be

debates there is no guide to how this

whole system operates to give you an

example a researcher at the BBC working

on a roll the person documentary went to

the Bank of England the so can you give

me a you know a guide to how money is

created and they just said no this

documentary will investigate and explain

this ever-changing system and the impact

it has both on a national and

international level

[Music]

in 2010 the total UK money supply stood

at 2.15 trillion pounds 2.6 percent of

this total was physical cash fifty three

point five billion the rest two point

one trillion or 97.4% of the total money

supply was commercial bank money the

three percent of money is created

through the central bank and that money

essentially if you created a ten pound

note you could sell that to a bank to

put into their ATM and the bank would

have to repay that 10 pound or buy it

for ten pounds

there'd be no interest may charged on

that money but that money is then

essentially transferred to the Treasury

and it's it's a form of fundraising for

the government is called sinirage

[Music]

when the Bank of England creates a

ten-pound note it costed about three or

four pence to actually print that note

and it sells it to the high street banks

at face value so at ten pounds and the

profit the difference between printing

the note and actually selling it for ten

pounds goes directly to the Treasury so

in effect all the profit that we get on

creating physical money bank notes goes

to the Treasury and it reduces how much

taxes we have to pay over the last ten

years that's raised about eighteen

billion pounds in 1948 notes and coins

constituted 17% of the total money

supply this was one contributing factor

in the government's ability to finance

post-war reconstruction this included

the establishment of the NHS in only 60

years notes and coins have shrunk to

less than 3%

prior to 1844 banknotes were created by

private banks and the government did not

profit from their creation pre

industrialization there was multiple

forms of money coexisting and say the

kind of rise and if kind of of

government-sponsored fiat money it's a

relatively recent phenomenon in the

1840s there was no law to stop banks

from creating their own banknotes so

they used to issue paper notes as kind

of a representative of what you had in

the bank account instead of you taking

your heavy metal coins out of the bank

and then going and paying somebody with

them you could get your paper which said

how much money you had in the bank and

you could give that somebody and they

could use that to go and get the heavy

metal coins from the bank now over time

these paper notes became as good as

money people would use the paper notes

instead of going and getting the real

money from the bank and obviously as

soon as the banks realized that what

they were creating had become you know

the dominant type of money in the

economy they realized that by by

creating more of it they could generate

profits you know they can just print up

some new notes lend it and get the

interest on top of that and they did

that you know up into the 1840s in the

1840s they pushed it just a little bit

too far and that caused inflation it

destabilize the economy so in 1844 the

Conservative government of Robert Peel

actually passed a law that took the

power to create money away from the

commercial banks and brought it back to

the state so since then the Bank of

England has been the only organization

authorized to to create paper notes

since then everything's gone digital and

what we now use is money is the digital

numbers that commercial banks can create

out of nothing the problem was that they

did not include in that in that

legislation the deposits the demand

deposits held in banks by individuals or

electronic forms of money which

essentially what lays demand deposits

are today most of the money in

circulation is electronic money and it's

bank it's bank demand deposits that just

that that's sitting on you know our

account so in a way the legislation has

got needs to catch up with developments

in in electronic money and the way that

banks actually operate money held in

bank accounts are called

demand deposits this is an accounting

term the banks use when they create

credit banks follow the same process

when they create loans all money held in

bank accounts is an accounting entry the

reality is now about most money is not

paper and it's not metal coins it's

digital it's just numbers in a computer

system no it's your Visa debit card it's

your electronic you know ATM card it's

this is plastic

you know it's numbers in a computer

system you move money from one computer

system to another it's all a big

database and this digital money is what

we're now using to make payments with us

what we actually use to run the economy

I think a lot of people in the UK

probably think that the government or

the central bank is in control of most

most money in circulation and issues new

money into circulation but that's not

the case

it's private banks that create the vast

majority of new money in circulation and

also decide how its allocated

the official terminology for this

accounting entry is commercial bank

money when banks issue loans to the

public they create new commercial bank

money

when a customer repays alone commercial

bank money is destroyed the banks keep

the interest as profit there's a lot of

misconceptions about the way banks work

there was a a poll done by the Cobden

centre where they asked people you know

how how they thought banks actually

operated around 30% of the public think

that when you put your money into the

bank it just stays there and it's safe

and you can understand why because you

know every every child has a piggy bank

where you keep putting money in and then

when it's a rainy day you smash it then

you take that money out and you spend it

so a lot of people keep this this idea

of banking you know it's somewhere safe

to keep you money so that it's there for

whenever you need it

another the other 60% of people assume

that when you put your money in that

money saying be moved across to somebody

who wants to borrow it so you have a

pensioner who keeps saving money or her

entire life and then her life savings

have been lent to some you know young

people who want to buy a house but

actually banks don't work like that

at the moment in the UK money creation

and control is largely in the hands of

private banks about 97 to 98 percent of

money that's that's created is created

as Bank bank debt money you call it when

banks issue money into circulation as as

loans essentially this is very poorly

understood fact it's not a conspiracy

theory it's not a crackpot theory it's

the way the Bank of England describes

the process when banks make loans they

create new money

a few economists will realize the way

the money system works but if you don't

we don't realize the way that money

works and you think that you know

everybody saving is going to work well

for the economy what really happens once

you understand the way the money system

works is that if everybody starts saving

the amount of money in the economy

shrinks and we have a recession so most

economists don't have this this fall

picture they don't understand all

elements of the system they rely on

assumptions on you know receive

knowledge without actually going into

the details and you know money is money

is the center of the economy if you

don't understand where it comes from who

creates who creates it and when it gets

created then how can you understand the

entire economy

when the vast majority of money that we

use now is not cash but it's electronic

money then whoever's creating the

electronic money is getting the proceeds

of creating that money and obviously

creates an electronic money is much more

profitable than creating cash because

you don't have any production cost at

all so while we've got eighteen billion

over the course of a decade in profit

from creating cash the banks have

actually created 1.2 trillion pounds

between 1998 and 2007 the UK money

supply tripled 1.2 trillion pounds was

created by banks whilst 18 billion

pounds was created by the Treasury

a lot of people think when I say this or

when you say this or in positive money

say this that we're all just a bunch of

nutters but on the 9th of March in 2009

the governor of the Federal Reserve Ben

Bernanke gave the first ever broadcast

interview the governor of the Central

Bank of the United States of America

ever given and the day before that he'd

bailed out AIG and which is a insurance

company Vinh a bank actually to the tune

of about 160 billion dollars so the

journalist system now mr. Bernanke where

did you get 160 billion

[Music]

banks create new money whenever they

extend credit by existing assets or make

payments on their own account which

mostly involves expanding the assets

when a bank buys securities such as a

corporate or government bond it adds the

bond to its assets and increases the

company's bank deposits by the

corresponding amount new commercial bank

money enter circulation when people

spend the credit that has been granted

to them by banks

I found that talking on the doorstep

from August last year round to their

August 2009 round to the general

election or eight nine eight nine months

I suppose nothing on doors is that when

you try to explain how the money system

works there's an almost in built refusal

of people to accept that such a bizarre

situation could actually exist I can't

possibly you know you mean you can't

bring thanks [ __ ]

thanks don't create money after thin air

that's ridiculous they can't do that

they lend out their depositors money

most people have an idea of how money is

they're used to their own way of

handling money and they try and

implement their own idea of how their

small household economy works into the

national economy and of course it just

doesn't work out it just doesn't work

out at all by 2008 the outstanding loan

portfolio of Bank created credit also

known as commercial bank money stood at

over two trillion pounds

as recently as 1982 the ratio of notes

and coins to bank deposits was one to

twelve by 2010 the ratio had risen to

one to 37 that is for every pound of

Treasury created money there was 37

pounds of Bank created money

in the ten years prior to the 2007

crisis the UK commercial bank money

supply expanded by between seven to ten

percent every year a growth rate of

seven percent is the equivalent of

doubling the money supply every ten

years the amount of money that they're

creating out of nothing is just

incredible 1.2 trillion in the last 10

years and there's that money has been

distributed according to the priorities

of the banking sector you know not the

priorities of society bank sector itself

grew from nineteen eighty two point five

trillion dollars to 40 trillion dollars

by assets in 1980 global bank assets

were worth 20 times the then global

economy by 2006 they were worth 75 times

according to the UN as the following

chart shows total bank assets of UK

banks as a percentage of GDP remain

relatively stable at fifty to sixty

percent up to the end of the 1960s after

that they shot up dramatically and the

real money in the world to be made today

is not by producing anything at all it's

simply by forms of speculating basically

making money from money that's the most

profitable and and by far in a way the

the biggest form of activity of economic

activity that exists in the world today

today banks are no longer restricted by

how much they can lend and as such how

much new credit they can create out of

nothing they are restricted solely by

their own willingness to lend

the issue with allowing banks to create

money there's two main issues firstly

the fact that they create this money

when they make loans so it guarantees

that you know we have to borrow all our

money before the economy from the banks

as such to have a healthy growing

economy the government needs to put in

place strategies to allow for

ever-increasing debt the only way the

government can create additional

purchasing power is by getting itself

and us into more depth the second big

issue with allowing banks to create

money is that they have the incentive to

always create more you know they create

more money if they issue a loan they get

the bonuses and the Commission's and the

incentives to create you know to lend as

much as possible you have to develop a

sales culture what did they do they

recruited an amazing guy lovely guy Andy

Hornby who came from Asda to turn the

bank into a supermarket retailing

operation if you trust bankers to

control the money supply the money

supply will just grow and grow and grow

as well the level of debt until the

point where it crashes when some people

can't repay the debt and then they'll

stop lending you hear politicians and

journalists saying you know we've we've

been living beyond our means we've

become dependent on debt we need to rein

in our spending and live within our

means it's not possible in the current

system you know the reason why

everybody's in debt now is not because

they've been recklessly borrowing

we haven't borrowed all this money from

you know an army of pensioners who can

saving up their all whole lives money in

the current system is that you know it's

created when banks make loans so the

only way in the current system that we

can have any money in the economy you

know the only way we can have money for

businesses trade is if we borrowed it

all from the banks

and it's a very opposite of what the

Tory parties are doing today which is

that you have to create savings before

you can help the National Health Service

and it's because economists have

completely confused those things both in

monetary policy terms but also in

economic thinking and because most

people still Harbor the old-fashioned

view that you need savings before you

can invest that we have the mess that

we're in today now one of the reasons

why we find it difficult to understand

the banking system and credit creation

is that we leave school without any

money and we go and get a job working as

an apprentice to a plumber we work

really hard all month at the end of the

month somebody puts money in our bank

and so for us logic is you work and then

you get money you get savings in reality

you would never have got that job if

credit hadn't been created in the first

instance it's a really important

conceptual misunderstanding and it isn't

something that the public just are

guilty of economists don't understand

this stuff money doesn't come out of

economic activity a lot of people I've

come across as kind of assume that if

you've got people if you've got

businesses and you've got people doing

things that somehow money somehow

emerges after the process of people

doing things doing economic making

things and growing things and selling

things and producing things but somehow

money just emerges it's not it's like

oil in the car you have to put it in and

I see David Cameron talking about how we

need an economy not based on debt but we

need an economy based on savings he just

doesn't know what he say it's ridiculous

it's absolutely absurd and it shows his

complete lack of understanding of how

our money system actually works what

he's essentially saying is that we need

an economy with no money if everyone was

saving we'd have mass disappearing of

money which is essentially what a bank

write-off is essentially is people

defaulting on their debt which which

essentially is just money disappearing

but if people weren't taking on the debt

then it's just it's just such a

such as a amateur understanding of how

our economy works and how the monetary

system works and how money is actually

created so I really do get a laugh out

of watching what people are actually

saying and they're all just

regurgitating what they've learned off

each other and you just hear the same

things and it just makes me it really

gets on my nerves when I hear people

talking about yeah we need more

regulations we need to regulate the way

banks are actually and the bonus it's

all just one big smokescreen and working

on all the symptoms of a greater disease

which is really you need to look at the

the money system that way money is

created and if we don't want any debt

then we're essentially saying we don't

want any money and we want a moneyless

economy with the exception of the 3%

that's created debt-free you know it's a

paradox under the current system if you

if we as the public go into further debt

then that's going to put more money into

the economy and we're gonna have a boom

when you have a boom it's easier to

borrow so people get into even more debt

and eventually you know this the cycle

continues it gets easier and easier to

get into debt until some people get over

in dead and then you know they default

they can't repay their mortgage that's

what happened in you know it happened

first in subprime America and then you

know that just brings through a wave of

defaults which will ripple across the

entire economy the banks go insolvent

then we're into a financial crisis and

then the bank's stopped lending and you

know the they were excessively lending

in the boom and then they stopped

lending and then that court makes the

recession even worse people lose their

jobs and then they become even more

dependent on debt just to survive

basically you know we have a system

where we have to borrow in order to have

an economy we have to be in debt to the

banks and that guarantees you know

massive profit for the banks

this is the boom-bust cycle

I've said before mr. Deputy Speaker

North return to bull and bass net bank

lending must forever increase we're

paying interest on every single pound

even if even if you think the money

belongs to you somebody somewhere is

paying interest on that money the

banking system has such a huge impact on

the world but only because it supplies

our nation's money supply we have to

protect them we have to subsidize them

we have to allow them to continue

because the the disaster of a bank

collapse affects us all in a huge way

and anyone that says that we shouldn't

bailed out the banks doesn't quite

understand the the nature of our

monetary system that's like eliminating

a huge chunk of our money but also

bailing out the banks is perpetuating a

system which is never going to work

anyway so whatever we do we're always

going to have this cycle till we

separate how money is created and the

activities are banking then the banks

can do as they wish they're a normal

business like everyone else

there's a a major Democratic issue here

as well when you have these private

profit-seeking banks creating up to 200

billion pounds a year

into the economy wherever they want

basically wherever it suits them whether

they've pumping it into unit least toxic

derivatives or putting money into

housing bubbles she's making housing

more expensive two hundred billion

pounds in 2007 of new money coming into

the economy create out a Norfolk and

where that gets spent determines the

shape of our economy effectively so if

we're gonna allow anybody to create new

money out of nothing then we should at

least have some democratic control over

how that money to use I mean it would

rather have had that money used for

health care you have to deal with some

of the environmental issues to reduce

poverty or do you rather have it to make

houses more expensive so that none of us

can afford to live in a house

you can see it as a subsidy special

super subsidy to the banks for the right

to create money which should be for the

benefit of the public and spent through

a democratic process

there's also another form of money which

is effectively an electronic version of

cash and it's a type of money that the

commercial banks use themselves to make

payments between each other the high

street banks don't want to be carrying

around huge quantities of money because

it's dangerous and it's inconvenient and

it's you know expensive you have to hire

security guards for that type of money

so what they do is they pay each other

in what is an electronic version of cash

which in the industry is known as

central bank reserves they keep this

electronic cash in accounts at the Bank

of England but as a member of the public

you can't access this electronic cash

you can't get it an account with the

Bank of England what they do is they

they effectively sell this central bank

money to the banks and they do this by

creating it out of nothing and using

this money to pay for bonds to buy bonds

from the high street banks so the high

street bank will come along with a bond

which is you know effectively government

debt and it will give it to the Bank of

England and in return the Bank of

England will type some new numbers into

the bank's account at the Bank of

England

so effectively they're creating central

bank reserves out nothing the Bank of

England creates central bank reserves by

increasing the available credit in the

settlement banks account with the Bank

of England the settlement Bank in return

post bonds or sells assets as collateral

for the reserves a total of 46 banks

hold central reserve accounts at the

Bank of England smaller or foreign banks

hold accounts with one of these 46 banks

to allow them to accept or make payments

in pounds sterling

prior to March 2009 the Bank of England

would ask each of the major settlement

banks how much reserve currency they

needed the settlement banks would then

swap a bond for the reserve currency an

agreed to repurchase the bond for a

specific amount at a specified future

date the settlement banks would then

receive interest at base or policy rate

for the central bank reserves they held

since the crisis settlement banks

central reserves have shot up

dramatically

when bank customers transfer funds from

their account to another person's

account a process called intraday

clearing occurs the amount of central

reserve currency Bank a has at the Bank

of England is reduced by the

corresponding amount that Bank B

receives this is the importance of

central reserve currency to banks before

the credit crisis if a bank was short of

central reserves at the Bank of England

to meet its obligations then the bank

would have to loan reserves from other

banks with interest

if you sell something on eBay you know

that that deal is not complete until you

get some money put into your account you

know most people actually want to see

the money in their account before

they're happy to close on a deal now the

banks are pretty much the same but they

want to see the money in their account

at the Bank of England before they

consider a deal complete so for example

if you if you're buying a house from

somebody who banks with a different bank

then what will happen after you spent a

quarter of a million on a house is

you'll tell your bank to transfer some

money to this house sellers bank and

well the bank will do is actually

instruct the Bank of England to move two

hundred fifty thousand from their

account at the Bank of England to the

bank of the house sound and that money

will actually move across between the

accounts at the Bank of England when

that money's moved across and the banks

will consider that that payment has been

made you know it's been settled

they don't really deal in the kind of

money that we have in our accounts they

deal in this special money that's can

only be used at the central bank there

are millions of people across the

country all transferring money to each

other using only a few major banks these

banks can keep a tally on their computer

systems and usually many of the

movements cancel each other out at the

end of the day the five major banks RBS

Lloyd's HSBC Barclays and Santander hold

over 85% of all deposits

as there are a limited number of banks

in the system the central reserve money

can only be moved around them in a

closed loop the money is just

circulating through the system over and

over again and if you think about it a

one pound coin could be used to make a

billion pounds of payments if it was

circulated a billion times and that's

effectively the system that you have now

is you have a small pool of real money

that's just going round and round the

system and it's been used to make a huge

quantity of payments on our behalf just

before the crisis there was only 20

billion pounds in the accounts at the

central bank if they don't have enough

of this central bank money then

effectively they can't make payments and

if that happens and pretty quickly the

entire system seizes up so the Bank of

England has the responsibility of making

sure there's enough of this money in the

system their requirements for banks to

hold a specific amount of reserves has

changed many times since 1947 at that

time banks needed to hold a minimum

ratio of 32 percent of reserves cash or

Treasury bonds to deposits in 2006 the

corridor system was introduced in which

banks could set their own reserve

targets each month the rules changed

again in March 2009 when the Bank of

England introduced quantitative easing

quantitative easing in effect gives

settlement banks the central reserve

currency for free

[Music]

the central reserve currency is what is

referred to as the real money in the

fractional reserve model but the fact is

banks can have as much of this as they

want and central reserve currency itself

is a form of fiat money which is backed

by nothing as a consequence there is no

longer a meaningful fractional reserve

[Music]

if you look over the history last

hundred fifty years or so you'd start

off with the development of a gold

standard that really comes to for in the

1880s 1890s where essentially countries

pegg themselves to a particular defined

value of gold and then they have an

agreement to fix that value to hold that

value in to trade gold amongst

themselves to make sure the balances are

all there and also to try and restrict

or expand or contract activity in their

own economies to make sure that the

balance that particular fixed prices is

maintained that disintegrates in after

that first world war I mean this is

where the whole thing breaks apart very

major dislocation in the international

monetary system at that point not really

resolved until you get Bretton Woods

agreements at the end of the second

world war in which everything is paid to

the dollar and the dollar is paid to the

gold so you kind of one remove from gold

backing or saying that there is a

definite you know sort of a solid

commodity money behind the paint the

money in the credit money that we're all

using over here you've had one removed

from it after Hiroshima Tokyo wondered

when the next atom bomb would fall they

did that wonder long

[Music]

in 1944 at Bretton Woods the US and the

UK began to negotiate how to govern the

world economy the world monetary system

and came up with the World Bank and the

IMF in a series of other institutions

designed to manage the global currency

and there was still a gold standard but

this gold standard was going to be tied

to the dollar all of the world's gold

had moved from London to Fort Knox and

all of the world's currencies were tied

to the dollar this system was designed

to manage the sorts of imbalances to

avoid credit crunches or for countries

that credit crunches are known as

balance of trades deficits ie

when they can't pay their bills and

their currency collapses the currencies

were managed and the system was stable

as long as the Americans played the role

of oversight now who knows the great

story about how that all came to an end

so the quantity of money that was needed

to pay for the Vietnam War that's

exactly what I was trying to get at oil

shocks was another one that meant that

the Americans were no longer respecting

their role or playing their role

governing the monetary system they were

inflating the value of their own

currency but ostensibly it was meant to

be tied tied to gold into every other

currency so what did the French do the

French were a little bit worried that

President Nixon wasn't entirely honest

and they were worried that they were

that precisely what we described that

Nixon was printing money when he

shouldn't have been was going on and

they were worried there wasn't enough

gold to honor the exchange rate of the

French franc so they sent a gunboat to

New York Harbor - ever so politely ask

for our gold back please did they get

their gold back go on guess

they didn't and the Bretton Woods system

came to an end and this is the point in

which we enter the modern era of the

financial system

historically money creation was pegged

to a commodity often gold but today it

is pegged to nothing which means there

is nothing backing our money this piece

of paper is just a piece of paper where

does this leave us and if money is based

on nothing why do we think it has any

value sorry because we can still go and

exchange it what what somebody else was

gonna shout great little lat in fact the

word for credit comes from belief

correct

since the collapse of the dollar gold

standard in 1971 and the deregulation of

the financial system money creation has

grown exponentially the World Economic

Forum meeting in in Davos at the present

time have called on a need for the

credit within the economy the global

economy to be expanded by 100 trillion

dollars 100 trillion US dollars a

trillion is 12 knots so hundred trillion

if you want to imagine is a 1 followed

by 14 knots they believe this credit

expansion will create a boom because

there is now more money in the economy

with which to make investments it's

fascinating the this the emergence of

digital currencies how its transformed

everything really because it just

completely unleashed private banks to

dominate and create the money system

that works for them and works for the

people who run private banks if you want

a growing economy under the current sail

we have to have growing debt you can't

you know this is something that very

very few people really understand

especially not the politicians who are

managing the economy which is a scary

thought as the money supply grows more

money is available which can be invested

in productive avenues however it can

also be used to gamble and drive up

asset prices

[Music]

inflation is a rise in the general level

of prices of goods and services in an

economy over a period of time when the

general price level rises each unit of

currency buys fewer goods and services

as the money supply grows and there is

more currency available more money is

available for investment which can lead

to growth but more money is also

available for purchases of goods and

speculation which leads to inflation

essentially inflation is what happens

when too much money is chasing too few

goods and services so there's too much

money for the the actual output of the

economy

in the seven years between 2000 and 2007

the money supply doubled and the banks

you know the central bank the Bank of

England in this time was under the

impression that they had it under

control because they were saying you

know prices aren't going up that much of

course they were only looking at prices

in you know in your local corner shop

they weren't looking at the price of

housing and housing is you know the

biggest expenditure that most people

will make

increasing house prices it may make you

feel like you're you're becoming

wealthier but as your wealth increases

the effect is that your children's

wealth is actually decreasing so in fact

there's no net gain in wealth because

your children are going to have to pay

even more when they want to buy a house

so in effect there's no there's no kind

of net increase they're going to have to

earn even more they're going to have to

go into even more debt so the rising

house prices do not create additional

net GDP value to the economy it actually

what they do is they redistribute wealth

towards those people who already have

houses are you wealthier people and

remove it from poor people who can't

afford to get on the housing ladder so

it's another example of a very

regressive policy actually to allow

house prices to simply inflate it makes

everybody feel kind of like things that

go well and people spend more money on

other stuff they take equity out of

their houses but it it's not creating

new jobs it's not enhancing the quality

of the economy it's not helping our

balance of trade it's not helping the

public deficit it's a zero-sum game

as of August 2011 85.5% of consumer bank

lending was secured as mortgages on

dwellings if you have somebody creating

money that can only be spent on one

thing which is housing then the price of

that thing is going to go up between

2000 and 2010 they created over a

trillion pounds of new money 500 billion

pounds just in the three years before

the crisis

that's why house prices went up the way

they were there's nothing you know

special about houses it was just all

this funny money being pumped into that

market if money is spent into the

economy into into a lot of money goes

into houses for example into mortgages

that's an increase in the amount of

money in the economy without a

corresponding increase in activity in

output in GDP it's non GDP based

spending that's what causes inflation

and in the UK we've we've had it in

spades we've had you know this massive

housing boom and that the main cause for

the housing boom in my opinion is the

huge amount of speculative credit

created by the banks to go into houses

if houses were cheaper they would be

easier to build more a bit more of them

would be built there would be less huge

houses with hardly any people in them

London would not be the centre of a kind

of very rich speculative orgy where all

the richest people in the world wants

want to get a property in London because

it's seen as a great asset you know

houses would be seen as places to live

primarily rather than places to invest

important thing to think about is if

you're a bank and you've got to make a

loan you have choices you can you can

give that loan to a small business and

you'll know that the risk to you of that

loan failing defaulting is actually

quite high because that small business

the owners of that business have limited

liability which means if the business

goes bust you as a bank getting nothing

back essentially you know that that's it

so

that's kind of high risk compared to

loaning your money to somebody with some

collateral with a house behind them like

a mortgage so there's a there's a kind

of simple incentive for banks to prefer

putting money into housing than into a

small business now that's a real problem

or if you if you if you widen it out

across a whole economy because it means

there's an incentive you know to put

money into speculative rather than

productive investments so again we have

to think about how we create a monetary

system that is more balanced between

those two kinds of speculative and

productive investment the government

showing very little enormous reluctance

to regulate the housing market and to

again regulate the amount of money that

that banks put into houses we don't

decide who creates credit for what no we

leave that to a couple of chaps in a

bank to decide basically

a bubble occurs when there is very high

inflation in the price of a specific

good or service over a short period of

time the idea of the tulips and their

relevance is that we've saw the

first-ever financial bubble and crash

the craze for tulips black tulips being

a mythical ideal of what somebody could

genetically engineer through cultivation

after many generations became a mania in

the Netherlands in the 1630s what they

didn't realize was that many of the very

very rare patterns on tulips were caused

by a virus and weren't genetic at all

but they traded in them to the extent

that tulip bulbs got to the point where

they were worth ten times the average

annual salary of a person working in the

Netherlands there was a futures market

in tulip bulbs because obviously you

plant them now but you don't know what's

gonna come out the ground so we see

already four hundred years ago that a

money system or a financial system is

not something that exists in the

abstract somewhere out there in the

aether but something that was to do with

states power

trade and how they interact with each

other

unlike tulips which are a disposable

luxury houses are both a necessity and a

luxury and as such they are ideal as a

vehicle for money and bubble creation a

dwelling is perhaps the most prized

possession of value most people aspire

to

inflating house prices in this way

allows the nation to expand its money

supply without affecting inflation data

the additional purchasing power created

increases the perceived wealth in

relation to other nations and thus it

creates relative power it is a way of

increasing monetary power without

investing in the productive growth of

industry but certainly if you look

Britain and America as outstanding

examples of this these are countries

with very high rates of private home

ownership so you've got a good base to

try and perform this sort of policy off

the back of I think was quite deliberate

in the case of the u.s. always explicit

as Alan Greenspan

as head of the Federal Reserve when

confronted by a stock market crash at

the end of the 1990s quite deliberately

slashed interest rates to almost zero

everyone can borrow very very cheaply in

particular it's very easy to borrow

against a house because this isn't

assets and is potentially something that

an Bank can say well ok we're not just

lending your money

I'm secured you actually do have a house

and that's great because you know we can

repossess it we will tell you this when

you take them always but they can do

this and that model is then what fuels

expansion such as it is inside the US

and inside the UK where something

similar takes place for the next decade

or so putting also reflection of an

underlying weakness of these governments

that they simply like the will and

possibly the ability but forget more

comes down to a will to challenge

financial markets to challenge big

capital and say we're going to do

something different now and you're going

to have to go along with it because

we've been democratically elected and

you lot frankly haven't and we have

mandate to do this and we're going to

make this happen

is all part of the plan what are you

yapping about you voted for it in

Holland or in the Netherlands what we

had over a period of trying to get

independence initially from Spain and

trying to raise money to get an army to

free themselves was financial innovation

they innovated public lotteries to get

money together they had public

subscription this was the idea that led

to the idea of public shares a piece of

the action that anybody could invest him

that meant that something like two

thirds of the population was investing

in tulip bulbs by the 1630s after

independence these these instruments

were applied to financing expansion why

was such a small country able to hold

its own against so much bigger countries

for example Spain and Portugal that had

the benefits of their empires for over a

century in respect of the Netherlands

why could they compete on what resource

basis well they had a more efficient a

more involved and a broader based

financial system with these instruments

that they'd innovated that I love them

to bring more money to bear at one point

than anybody else more quickly

[Music]

now inflation can be avoided if the

amount of money that goes into the

economy is regulated in a way that it

doesn't exceed the actual activity

that's happening in the economy now the

best way to do that in my opinion is to

make sure that money is issued into the

economy only for productive investment

for productive goods and services so

money goes in to help a small business

startup which creates jobs which creates

additional purchasing power which means

doesn't there's no inflation during

their history almost all central banks

have employed forms of direct credit

regulation the central bank would

determine desired nominal GDP growth

then calculate the necessary amount of

credit creation to achieve this and then

allocate this credit creation both

across the various banks and title banks

and across industrial sectors

unproductive credit was suppressed thus

it was difficult or impossible to obtain

bank credit for large-scale purely

speculative transactions such as today's

large-scale bank funding to hedge funds

the World Bank recognized in a 1993

study that this mechanism of

intervention in credit allocation was at

the core of the East Asian economic

miracle there's all sorts of things that

go and have done in the past very

successful in it in a number of cases

and not often not unsuccessful in this

country but yet the examples that spring

to mind like South Korea Japan often in

East Asia where governments be quite

targeted about how they go to rebalance

the economy and picking sectors and

deciding where the investments should

take place I think that has to start

happening the UK because we're in a

demand-side recession rather than

looking at crisis of supply you you have

to have a system where credit is put

into productive avenues where credit is

put into building high-speed rail links

where credit

put into building houses rather than

giving people money to inflate the

prices of houses so it's it's quite

simple really

in that way and the current system is

simply set up not to do that basically

the creation of money by private banks

for non-productive usage causes real

inflation and as such it is attacks on

the purchasing power of the medium of

exchange

the fingers for UK are quite stark

actually that's average median real

incomes for us and that's you know what

bit in the middle for most people

declined over the last eight years cut

also they're now in quite sharp decline

as as we go into the recession meaning

the sharpness really since it looks like

since about the 1930s but it that way so

real incomes are declining bank created

fiat currency allows the private banks

to suck wealth from the economy and over

time results in a gradual decrease in

the standard of living as people become

poorer they become even more dependent

on debt and this at a time when

efficiency and machination have improved

dramatically if you know you go back to

the 1960s and we were expected to be

looking forward to an age of leisure

what would be what they were talking

television programs saying what people

can do with all their spare time you

know and now we've got more people

working harder than ever spending more

than ever which looks great

you know when spending more there was

his eye area you know but if you're not

actually benefitting from what you're

spending if you have me to spend the

money on childcare costs on commuting

costs you know and so forth just you

know the cost that people didn't in the

past used to have to pay because you

know you could walk to work and you know

one member the family remained was able

to stay at home and be a permanent

homemaker then you're actually mention

you're not actually any better off you

know everyone's under it when that's

such enormous pressures there are days

you know I unconscious that the st. my

four nephews and nieces are facing

difficult times she's gonna find

themselves having to work you know very

hard just to keep just to keep a roof

over there just to get a roof over there

just to keep a roof over the head people

are getting poorer in real terms it's

because price is always going up because

all this new funny money has been pumped

into the system by the banks

and they're creating it all this debt so

at the same time as prices are going up

and things are getting more expensive

we're getting further and further into

debt um you know our our wealth and the

return that we get from actually working

is getting less and less all the time

when you can't deal with poverty when

you have a financial system and a money

system that distributes money from the

poor to the very rich any distribution

that you try and do in the opposite

direction is you know it's effectively

passing in the wind if you look at

issues like you know increasing

inequality one obvious way to tackle

inequality is to have say for example a

redistributed tax system you know you

tax the rich you give some money to the

poor you move that money down down the

scale that's all very well but if you

completely overlook the fact that

there's another redistributive system

which is taking money from the poor and

giving it to the rich then you're not

really going to tackle this inequality

and the way a debt-based money system

works it guarantees that for every pound

of money there's gonna be a pound of

debt now that debt is typically gonna

end up with you know the poor there's

sort of lower middle classes those

people end up with the debt and they end

up paying interest on that money which

then goes back to the banking sector and

gets distributed to the people working

in the city or in Wall Street and what

this what this system does overall is it

distributes money from from the poor to

the rich essentially distributes money

from you know the poorer regions of the

UK back to the city of London and it

also distributes money from all the

small businesses you know all their

little factories around the UK and

distributes that money back into the

financial sector we have a system

whereby the activity of actually

supplying occurs under the very same

roof as the same organization that's

responsible for profiting from putting

together borrowers and lenders ie a bank

so a bank creates our nation's money

supply as well as making loans for

profit the government cannot allow the

banking system to fail because if it did

over 97 percent of all money would

disappear this is why in the event of a

crises the risk is transferred to the

taxpayer but even during normal times

banks received numerous guarantees and

benefits beyond the right to create

money well by the way I know the Bank of

America is a very big bank it happens

I've got $32 and myself just between us

what assurance do I have that this money

is safe well all deposits up to $10,000

are assured or insured by the federal

government in Washington that's my

guarantee yes have you heard that the

federal government is about two hundred

eighty billion dollars in the hole

[Music]

[Applause]

banks receive large safety nets from the

government the taxpayer guarantees

eighty five thousand pounds as deposit

insurance and the Bank of England

provides liquidity insurance in case a

bank runs out of reserve currency

someone wrote that a big investment bank

is like a giant vampire squid wrapped

around the face of humanity hypnotizing

politicians who throw money at the banks

no strings attached no matter what

damage is done

trashing the planet forcing cuts to

things that make life better

goodbye schools goodbye playgrounds

goodbye jobs the bankers that we bailed

out then gave themselves bonuses that

were bigger than the first wave of

public spending cuts Britain alone gave

the bank's more money than it costs to

put a man on the moon

six times over where did our money go

who let the banks get away with it why

can vampires squids ever be useful no

government yet is brave enough to tame

them perhaps they need a plan

the spending-cuts agenda is an attempt

by the government to shift debt from its

account to that of the public this is

the government's response to the bank

bailouts and is necessary in a debt

based monetary system where increased

purchasing power is the result of

growing debt and we're a diversification

of debt provides overall stability and

market confidence policies such as

student fee increases and the

privatization of public services assets

and Industry follow the same model the

problem we're facing I think is that

there's been is this transference from

the public debt to to the private debt

which is a which is essentially a way of

transferring risk actually away from

sort of UK plc in the government on to

the heads of individuals and it's going

to be the most vulnerable individuals

who are going to have the most debt thus

it's a very unprecedented at the

government's embarking on where the risk

is moved on today's who are most

vulnerable and if there is another

financial shot there's an oil shock for

example the people who will pay the

penalty are those are the poorest people

in society or homeowners for example

they will fall into negative equity if

interest rates go up even one or two

percent they'll be real really big

problems so I don't think it's a

sensible way forward at the moment at

all and it's it's regressive and it's

certainly not fair in the terms that

that the government is talking about and

it's certainly not a case of we're in

this together as more of a country's

resources and industries are privatized

the private sector takes on more debt as

a result more money is created and there

is a boom some private equity companies

have taken this theory to the extreme

engaging in a practice known as a

leveraged buyout

where a company is purchased at an often

inflated price and the purchase price is

transferred to the business as a debt

the company becomes responsible for the

funding of its own purchase these debts

are often so great that the company

needs to reduce staff salaries and

research activities when you have to

factor interest as a business if you

have to factor interest repayment into

your goods and services then you have to

charge a perpetually higher price as you

take on more and more debt an increase

in the diversification of depth results

in an increase in the money supply when

the money supply increases more money is

available for productive activities and

consumption which is the condition for a

boom it's questionable whether we're

going to get out of this recession or

whether we'll just keep taking along the

way that we are now however if we do

then when we come out of this recession

when growth starts again look at what

happens to debt it will rise and it will

keep rising and the faster the economy

is growing the faster the debt will rise

and then give it another 3 to 5 years

we'll be back where we were

you know the debt will become too much

people start defaulting again it's kind

of the system that we're locked into now

is we can't we can't grow the economy

without growing the debt and the debt is

a very thing that will bring down the

economy the only option going forwards

is to reform it to stop banks from

creating money as debt by fixing the

monetary system we can prevent the banks

from ever causing another financial

crisis and we can also make the the

current you know public service cuts and

the tax rises and the increase in

national debt are necessary the current

monetary system allows the banking

sector to extract wealth from the

economy whilst providing nothing

productive in return why is it that

we've got all this technology you know

all this new efficiency and yet it now

requires two people to finance a

household whereas in the 50s it only

needed one person working and the reason

for that is not because you know

these washing machines and everything

are more expensive it's because of all

the debt and it's because you

effectively the banking sectors creaming

it off from everybody else so a growing

banking sector isn't a sign you know

it's not a good thing if the banking

sector is growing it's either that it's

becoming a less efficient or it's

becoming a parasite on the rest of the

economy and that's you know we can talk

about the banking sector becoming 4% 5%

6% at GDP

what's happening to the rest of the

economy is becoming 96 95 94 percent of

GDP we've got to get switched on to this

now you know if you want to if you want

to have a chance of tackling any of the

other big social issues you've got to

figure out the money issue the poorest

in the world pay for crises even when

they've not benefited from the often

reckless and speculative booms like the

housing boom in Ireland that preceded

that crisis you know over the last 30

years we've seen income differentials

increase so that the rich have got much

much richer and ordinary people haven't

they've stayed the same or they've

they've got poorer and one of the ways

that the economy was kept going was by

providing cheap credit was provide

providing debt to those very people who

couldn't really afford things anymore

and so they kept buying and when it

collapses it's those same people that

they have to pay once again even though

in many ways they were the victims the

first time and as a result of the crises

the Bank of England has brought

corporate debt and repackaged it at

lower rates of interest yet the average

person is being asked to pay more than

ever to borrow on overdrafts and credit

cards

depths between the very wealthy or

between governments can always be

renegotiated and always have been

throughout world history there are not

anything set in stone it's generally

speaking when you have debts owed by the

poor to the rifts that suddenly depths

become a sacred obligation more

important than anything else the idea of

renegotiating one becomes unthinkable

can you pin down exactly what would keep

investors happy make them feel more

confident that's a tough one personally

it doesn't matter that that's you can

see I'm a trader I don't really care

about that cuz if I see an opportunity

to make money I go with that so for most

traders we don't really care that much

how they gonna face tea how they're

gonna fix the economy how they're gonna

fix the the whole situation our job is

to make money from it and personally

I've been dreaming of this one for three

years if you know what to do you can

make a lot of money from this I might I

had a confession which is I go to bed

every night I dream of another recession

I dream of another moment like this I

dream of another recession I dream of

another moment like this you can make a

lot of money from it

[Applause]

the way in which you can look across

Europe now and see that the new prime

minister is not elected essentially

imposed Papademos former employee of

Goldman Sachs the new Prime Minister and

Finance but it's derivative eight Mario

Monti former employee of Goldman Sachs

the new president of the European

Central Bank former employee of Goldman

Sachs it's quite you know they need

college to see these people poppy

absolutely everywhere what's been

interesting out of all this I suppose is

the question of democracy that's being

open till very starkly in Europe then

you have a government of bankers

essentially imposed on you bankers who

more or less got us into this mess to

put it rather crudely but that's a good

first approximation to it and then you

say ok bankers of the pink blue

therefore gonna get us out of it and its

deadly they're gonna run your your

country now if there's a serious

question democracy that's opened up here

by the way the banking crisis drove more

than a hundred million people back into

poverty the mortality statistics of

people who go into poverty rise hugely

for a whole range of reasons so the

banking crisis isn't just about becoming

poor it was about killing people as well

and guess what we haven't really cuts

the bottom of it we never held anybody

to account and we haven't done the

radical reforming job that we really

needed to do because we mistakenly

thought if we destabilize the position

any further

it'll make matters worse and guess who

took the decisions all the people who

were there in the first place I think

you ought to know that the business of

one of these businessmen is murder

weapons are modern they are thinking

2000 years out-of-date look I was there

when the secretary and the chairman the

Federal Reserve came those days and

talked with members of Congress about

what was going on it was about September

15 here's the facts and we don't even

need to talk about these things on

Thursday at about 11 o'clock in the

morning the Federal Reserve noticed a

tremendous drawdown of money market

accounts in the United States to the

tune of 550 billion dollars was being

written and drawn out in a matter of an

hour or two the Treasury opened up its a

window to help a pump 205 billion

dollars in the system and quickly

realize that they could not stem the

tide we were having an electronic run on

the banks they decided to close the

operation closed down the money accounts

and announced a guarantee of two hundred

and fifty thousand dollars per count so

there wouldn't be further panic out

there and that's what actually happened

if they had not done that that their

estimation was that by two o'clock that

afternoon five and a half trillion

dollars would have been drawn out of the

money market system of the United States

would have collapsed the entire economy

of the United States and within 24 hours

the world economy

of collapse when money is withdrawn

internationally from one currency to

another the reserve currency shifts from

the National Bank of one country to the

reserve account of the foreign bank

foreign banks have relationships with

local banks that allow them to hold

foreign reserve currencies whilst not

being a part of the central bank scheme

at the local central bank for example

when one thousand pounds is transferred

into euros a UK bank will agree an

exchange rate with the euro area bank

perhaps 1.15 euros to the pound the UK

bank will then transfer a thousand

pounds of the central reserve currency

to the UK partner Bank of the European

Bank whilst the European bank will

transfer 1,150 euros of reserve currency

to the European partner Bank of the UK

Bank what happens when currencies and

the exchange rate system is no longer

managed what are some of the first

consequences devaluations speculation

imbalances where some countries would

accrue more and more and more what what

would they accrue are there currencies

other currencies the reserve currency

needs to be spent in the country of

origin or exchanged into other

currencies most foreign banks do not

have deposit taking accounts outside of

their national borders and as such the

foreign reserves they hold do not come

back to them in the form of deposits

when a country accumulates trade

imbalances it either accumulates foreign

reserve currencies in the case of

surplus or spends its own reserves in

the case of negative trade balances

palace' trade is is basically due

difference between what you're selling

abroad and what you're buying from

abroad now

the feature on the UK is that for a very

long period of time it's heard a deficit

on something called a visible balance of

trade which is trade in things but

things that you can see so that is goods

that you'd recognize stuff you can point

containers it's cars computers things

that you'd see in a shop that's been a

substantial deficit for I think opened

up in India it did open up in the early

1980s and essentially it hasn't it

hasn't gone away since and if anything

has got wider and wider foreign exchange

reserves cannot be directly used for

domestic spending the money can only be

spent abroad or on imports a country

with a large balance of trade deficit

relies on its creditors to spend the

imbalances accrued in its own market

without the half being proposes in the

past to try and create a mechanism for

those imbalances to to match help so

Keynes for instance John Maynard Keynes

at the end of the Second World War his

original proposal for what became

Bretton Woods in the set institutions

set up there like the IMF and the World

Bank was that there will be a kind of

international clearing Union this is

particularly relating to the trade side

rather than didn't saw the financial

side directly but the principle was that

you know once the trade balances had

opened up everybody would bank through

an international clearing bank and

that's what kind of force everyone to

eventually reconcile the imbalances that

hid in the real economy but no such

mechanism exists the accumulated net

trade imbalance for the UK is around 800

billion pounds

in essence what has happened is that

over many years some countries have had

big trade surpluses and others big trade

deficits the countries with trade

deficits have been spending more than

they've been earning so they've had to

borrow from abroad and they've been

doing this year after year countries

like that of the United States ourselves

and some other countries in Europe I

cannot go on and there are two ways in

which this can come to an end either and

we're seeing this of some other

countries in Europe if they can't find

new ways to become competitive then

their ability to repay the debts is

called into question another way of

doing it which we followed is that we

got a credible plan to repay our debts

and the value of sterling has fallen by

25 percent to make our exports more

competitive and attractive to overseas

buyers and it to be more attractive for

British consumers to buy from British

producers rather than overseas producers

that is what we have done to put in

place a framework to rebalance our

economy and I'm sure that's the right

way to do currency war also known as

competitive devaluation is a condition

where countries compete against each

other to achieve a relatively low

exchange rate for their currency as the

price to buy a particular currency Falls

so too does the real price of exports

from that country domestic industry

receives a boost in demand both at home

and abroad it's made British exports

appear rather cheaper so they've kind of

recovered a little bit but because the

rest of the world is now looking really

quite ropey they decide to fall back

down again so what we're looking at is

something that we've almost kind of

anarchy and in a way the increasing

alikum this is what's happened over the

last few years where even Brazilian

finance minister has been most vocal

about this and talking about currency

wars talking about the desire of

national governments when confronted by

major recession they think if we could

export more we could dig ourselves out

of this recession if we want to export

more we depreciate our currency mix our

goods cheaper everyone else buys them

we'll all be better off now the issue

here is if you depreciate it's like

everybody else at least

against their stuff becomes more

expensive so they're not too happy about

that they also want to depreciate and

this is where you can see a competitive

rounded evaluations breaking out to

decrease the value of its national

currency a national central bank sells

reserve currency into the market it

creates this currency out of nothing by

typing numbers into a computer during

the long phase of commodity money the

exchange rate would depend on the amount

of gold silver or copper contained in

the coins of each country similarly

after the advent of paper money and the

gold standard the exchange rate depended

on the amount of gold the government

promised to pay the holder of the

banknotes these amounts did not vary

greatly in the short-term and as such

exchange rates between currencies were

relatively stable after the Second World

War

currencies were pegged to the dollar and

the dollar was backed by gold this

system came to an end in 1971 so we have

a modern financial system where money is

now chaotically organised there is no

exchange rate because there's no gold

standard system to sustain so we don't

need it in fact we believe the market

will resolve all the problems of

exchange whether your currency should be

worth more than mine is a reflection of

your cut economy relative to mine and if

that changes the currency and the

exchange rate can change and if we need

that to happen it will happen magically

by the efficiency of market and profit

seeking and you guys know the rest I

think a currencies value in relation to

another currency is determined by the

market if more people want to buy a

currency than sell it

its value increases if more people want

to sell its value decreases the value is

set by individual banks as they buy and

sell currencies they will adjust the

exchange

right in the last study I read in 2007

each day on currency markets three point

two trillion dollars are traded each day

who knows what the global GDP is fifty

again brucey higher sixty that's closer

the point is think about that exchange

happening every single day there's about

260 business days a year it takes a few

weeks to match the global value of every

economic transaction that happens

everywhere every day in a year and it

takes a few weeks obviously all of this

trade currency and very very regular if

you go abroad you exchange into another

currency that's a form of currency

trading you you're swapping your pounds

into whatever your rose or yen or

whatever it might be that happens fairly

regularly and that's a conventional part

of the trading process and they're large

corporations have to do this are on a

regular basis where it becomes something

that people question and where you get

people saying we'll hang on this is

speculation is when you get people

realizing that currencies move around

mixed to each other and if they move

around in value next to each other

there's always an opportunity to try and

make money out of those changes in value

and therefore you you can speculate on

it and that's that's more sort of

questionable end of the market that's

the bit in the market that things like a

financial transactions tax would try and

chop way out because the assumption

there and it's it's kind of not

incorrect is that this just produces

instability for everyone else but these

people want volatility in the market

because that's how they make their money

they want to encourage it and they do

encourage it by trading and speculating

in the way that they do

by 2010 the foreign exchange market had

grown to be the largest and most liquid

market in the world with an average of

four trillion dollars of currency being

exchanged every day volatility creates a

need what does it do to countries

especially perhaps small ones like

developing countries if there are

suddenly huge and instantly fluctuating

financial flow what do they have to do

to cope increase their production and

sell more lowering the price and

becoming possibly even poor once you

sell to him at the international system

it becomes really quite a peculiar quite

peculiar thing in a lot of it depends on

simply sentiment and beliefs about what

an economy is like rather more depends

aiding the economy might or might not

actually be doing and that can shift

very very rapidly because you know if

it's just some these belief about

currency is supportable then they can

carry on believing this until well till

whatever if that belief changes it can

change very rapidly in a financial

market the process of affluence or

contagion can can take place here in

just minutes seconds even then you can

just move from being apparently quite a

stable robust economy to being one that

suddenly sentiment has turned against

you and you find their markets are

picking on you and it can often be not

much more than your simply the next-door

neighbor of you know a country that's

currently in trouble many of the world's

financial crises in the past 30 years

have been caused by rapid withdraws of

the nation's currency or the currencies

of an entire region this type of

activity is often referred to as

financial warfare

it's benefited major institutions really

quite substantially

then Goldman Sachs if for example or any

large Bank has done somewhat better out

of this set of arrangements than it

would have done in a formal regulated

environment it's made people very very

wealthy it's a loud financial markets to

expand absolutely enormously anybody

involved in that this keen on seeing a

deregulated world in the case of the UK

you have a government which has been

quite overtly and deliberately and

aggressively arguing against any forms

of regulation being imposed on those

financial markets but it's not the case

that someone's behind the scenes pulling

the strings it's it's the this is this

is how the thing works quite

deliberately quite either a Vernie in

front of you that's the world as it is

it's making some people very rich

they're quite happy with it I think it

is a form of economic warfare much of

the the change in the in the way that

the global economy works over the last

thirty years

results from this this debt this

third-world debt because it's given rich

countries and banks and the financial

sector enormous amounts of power and

control over the poorer bits of the

world where a lot of the resources are

that we like using and that's being used

in a way that many people have compared

to a form of colonialism it's a very

real direct form of power that's been

used over those countries to force those

countries to do order really in the

interests of the richest segments of the

world that they do and as a result of

that not only have corporations become

absolutely in very you know made huge

amounts of profits and become absolutely

enormous and

and all-pervasive but the financial

sector has become even bigger than that

and the and the real money in in the

world to be made today is not by

producing anything at all it's simply

buying forms of speculating basically

making money from money that's the most

profitable and and by far in a way the

the biggest form of activity of economic

activity that exists in the world today

to protect themselves vulnerable

countries need to accrue currency from

rich countries you create these

currencies out of nothing the

Netherlands first governor-general of

Indonesia the man who built the trade

routes fortified them what I mean by

that is built forts along them and

fought Spanish fleets and British fleets

said about the development of the spat

of the of the Netherlands Empire

Netherlands trade was we cannot make

trade without war nor war without trade

money and power

so reserves have become the way in which

you can insure yourself against what

speculation who you sin speculation

speculative attack fall in the markets

bubbles when a country succumbs to a

speculative attack it is asked to

deregulate its markets and conform its

financial system to that of the dominant

party the big problem that's faced by

most developing countries who've got

into a debt crisis was that they were

told by the powers that be in the world

the International Monetary Fund which is

in many ways governs the global

financial system that the way to get out

of debt actually is first of all to

restructure your economy especially to

increase your exports so you're earning

more more dollars and then you can pay

off your your debt which is normally in

dollars or some other foreign currency

unfortunately time and time again that

was proved to not be the case at all

actually countries cut back their public

spending to the bone so they stopped

growing they stopped having any

potential for growth and what they did

produce was was was aimed at the export

market was aimed at creating dollars and

so on so they were paying off their

debts but they weren't developing their

own economy at all they were paying far

far far more in debt repayments than

they were spending on health or

education or anything else and their

debts just kept getting bigger and

bigger and bigger

the country becomes a vassal state

allowing large corporations to exploit

its natural resources and workforce

it's not it's not even shadowy there's

no great mystery about about what what's

happening caring about the way the world

operates it's light it's it's quite

blunt I mean for the last thirty years

you've got something pretty much

everywhere well that certainly spreads

pretty much everywhere that generally

gets labeled neoliberalism this idea

that you should have floating exchange

rates you know weak regulation

particularly financial market it's

minimal government interference our

involvement with what market does and

that's that's more or less how the world

operates and then there are institutions

and the outstanding one at this point is

the IMF that they will actively try and

enforce this state of affairs so it's

not greatly shadowing if you see what I

mean that there are people behind the

scenes somewhere manipulate stuff is

actually this is quite this is quite

overt this is happening and this is how

for entire my entire adult life actually

is where it starts to look like this is

how the world of the world is operated

and it's made some people very very

wealthy it's produced enormous

concentrations of wealth so when the

International Monetary Fund comes in in

order to try and alleviate a country's

and debt problems it imposes a set of

conditions and in the 1980s and 90s they

call that set of conditions structural

adjustment structural adjustment program

and it tends to take very similar forms

wherever it happens and indeed we can

see structural adjustment programs in

essence happening today in countries

like Greece and Portugal and Ireland

where countries are instructed to

decrease the amount that they spend on

the public sector they are instructed to

liberalize their their trade market and

liberalize their capital markets so

money can much more easily come in and

out of their economy and the idea is

that this will encourage investment to

come in from richer parts of the world

and that all of their problems will be

solved from this investment and in

actual fact this has proved time and

time again to be completely without

foundation in actual fact what happens

is it destroys fledgling industries and

capacities in these developing countries

and developing countries become

completely dependent on goods and

services from developed countries and

also from capital from developed

countries one of the things the

International Monetary Fund is very is

very

keen on is telling countries to lower

the taxes that should be paid by

multinational corporations when they

come and operate in a country because

then you'll encourage more multinational

corporations to come in

of course what it also means is the

profits that are made by those

multinational corporations leave the

country just as quickly and the country

itself doesn't benefit and today you

have many developing countries which

have got almost no tax base they've not

developed a tax base at all and so

they're even more dependent on

international capital markets on the

money markets on creating debt and

that's why you have so many countries in

the world that have really been robbed

of their sovereignty it's very difficult

to see how democratic societies can

evolve or function when actually a

government is more dependent on the

diktats of the International Monetary

Fund and the money markets then it is on

their own people

what we've seen since the 1970s is a

dramatic increase in a series of

phenomena that have had a serious

emulator effect on the changes in the

financial system that have brought us to

the gleaming shining metal in steel

business that's over there in case you

don't know that's the city of London I'm

putting up to compensate for the lack of

a defined commodity based value

underlying currencies financial

institutions developed securitization as

a means to manage risk you know you

develop securitization as a means to try

and stabilise the whole system this is a

set of financial processes and financial

innovations that really accelerate from

the 70s 80s onwards you had a chaotic

system that needed to manage risk and

you had to innovate you needed

derivatives options futures you have new

markets in volatility management tools

who knows where the term hedging is

spreading your risk managing your risk

insuring against your risk

precisely until very recently you know

up until the 1960s the Securities and

Exchange Commission would be quite clear

that Co derivatives that weren't based

on real products like agricultural

products so pork belly futures or

whatever would in fact be essentially

cutting gambling and therefore you

weren't allowed to trade with that and

that changes in the 60s and everybody

can trade you know currency futures

things that are not based on real

products being traded at some point in

the future but are based on movement of

currency prices once you have the system

of fixed exchange rates breaks down

obviously this thing accelerates

enormously so as you get the rollback of

government regulation here you get the

market taking over with its own products

here and the theory is that the market

is better at regulating itself it's more

stable than if you have a government

interfering all the time the efficient

market hypothesis the idea that you know

you set up a financial market they're

fast everybody in them is well-informed

they all keep a very careful eye on

everyone else's doing your therefore be

very stable and it reflects real changes

in the economy it's not only driven by

you know panics manias and speculative

bubbles unless really going to happen if

you've the wrist movement up and down

it's because something real is happening

and in traders and investors in

financial market responding to this I

see efficient markets hypothesis the

practice but I think what you see in

2008 is a kind of end of that process

the appearance of this crisis so major

the the belief that it will simply be

self-stabilizing self-regulating really

calm carry on I mean the practice

carries on anyway but you can't really

argue in the same way they used to that

it's good or it's necessary or this is

okay for the world in the last decade we

had a new innovation something called

the credit default swap a way of buying

insurance against the company you've

invested in going bust and in 2002 they

were less worth in total less than a

trillion dollars in 2007 they were worth

60 trillion dollars that's five years

everybody somebody sitting down thinking

oh these CDOs we've made don't in fact

provide the kind of stability that we

thought the maths that's inside of the

risk is complete nonsense it turns out

there's a far more risk attached to

trying to securitize risk and

securitized debt in the way that we have

done this than we thought and we think

these things are now worthless the

attempt to get more and more complex

ways of regulating and shaping

influential markets and try to make a

quick buck out of it as well actually

help produce the opposite effect of what

it's kind of apologists said which is it

led to led to a spectacular crash

what we saw as a result of this very

different situation was one phenomenon

above all one sector above all grew and

that was the financial sector while the

financial sector benefits enormously

from the current monetary system the

system is neither stable nor fair the

assumption in what the Bank of England

does right now is that the cash that we

hold is backed up by government debt the

government can back up as promises by

the fact that it can tax the public so

what they're implying is that cash is

backed up by government debt when

government debt is backed up by the

ability of government to get cash from

the public time and time again over the

last 30 years we've seen private debts

being transformed into into public debts

and the ultimately the price of that

debt is paid by by the public in the in

the debtor country this is why spending

cuts are necessary the system is

designed to make certain people very

rich at the expense of a nation's

citizens and taxpayers the system lowers

the standard of living of the majority

and distributes this wealth among the

privileged so what we're left with is a

financial system since the early 70s

that has no fixed exchange rates that

suddenly has increasingly open financial

borders that has central banks having to

manage without having any control

because there's nothing here where the

gold used to be chaotically they have to

ease quantitatively they have to lend as

a lender of last resort

throughout history monetary systems were

designed to give the dominant

international power an advantage and

this power is fiercely defended and

expanded on

and I free intelligence from an

incredible bogeyman

an American flag is burned at the height

of the demonstration

President Johnson and Francisco Franco

will

our new low in public projects had a

strain on spanish-american relations

or in the park water in in my heart

I want Americans in all the world to

know America has no regard for

conventions of war or lose

[Music]

when judging on the room

what I would like to see is a new kind

of currency that is backed by something

that that is scarce and that we really

need and we really value something like

energy or renewable energy for example

so I sort of kilowatt-hour backed

currency would be would be very

interesting to me we need to start

valuing the things that are most scarce

and and that we need to survive as human

race in the long run and backing an

international currency with something

like that will generate enormous

investment in for example renewable

energy if that's the you know the

primary international unit of account

that's that's that's being used another

option is a basket of currency so you

you know you mix up the value of

different currencies to create a very

solid currency that people have

confidence in perhaps even better would

be a basket of commodities with which to

back up international currencies now if

it was possible

internationally some way or another to

get all these competing and increasingly

competing national economies together

and say we're all going to sit down and

write out an agreement somewhat like the

Bretton Woods Agreement which will allow

for unlike Bretton Woods allow for you

know some currencies to be paint against

different buses and goods that more

appropriate into their national

economies you sort of arrange this if

you could arrange that to happen then

that would be nice and you can see how

that would start to create a kind of

order in the International macro economy

which is otherwise lacking the real

difficulty there is just political is

that who knows who's gonna do this who

who is the force that that's going to

kind of make this thing happen

creating a monetary system which is both

fair unstable is possible and can be

achieved

what are international organizations for

if not for such a purpose

this is George George worked in a big

bank in the City of London