97% OWNED | FREE FULL DOCUMENTARY | Financial Power, Money Manipulation

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

from 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 is like a cancer if

you just wait and wait thinking this is

going to go away just like a cancer is

going to grow and it's going to be too

late what i would say to everybody is

get prepared

this is not a time right now to

wishful thinking the government is going

to sort things out the governments don't

rule the world

goldman sachs rules the world

we're on the verge of a perfect storm

in opposition like corrupt and

entrenched interests

that lurk in the corridors of power

for whom there are no reasons to

relinquish privileges they feel

are justly deserved

has he got has he got a reform plan for

the nhs no has he got a police report

plan

[Applause]

do you trust the government

order try to calm down and behave like

an adult and if you can't if it's beyond

you leave the chamber get out we'll

manage without you this is about

there's no coincidence that boom bar

started to become a real cyclical issue

around about the 1700s

when william patterson founded the bank

of england

[Applause]

as far as the public no it's not funny

only in your mind is it funny it's not

funny at all it's disgraceful

[Applause]

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 debased

there is no guide to how this whole

system operates

to give you an example a researcher at

the bbc working on a robot pest and

documentary went to the bank of england

and said can you give me 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 of this total was physical cash

53.5 billion

the rest

2.1 trillion or 97.4 percent of the

total money supply was commercial bank

money

the three percent of money um is created

through the central bank and that money

essentially

if you created a 10-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 10 pounds

there'd be no interest made charged on

that money but that money is then

essentially transferred to the treasury

and it's a it's a it's a form of

fundraising

for the government is called sinaraj

48 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 three percent

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 so the

kind of rise of kind of

of government sponsored fiat money is a

relatively recent

um

phenomenon in the 1840s there was no

law to stop banks from creating their

own bank notes so they used to issue

paper notes

as 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 you could

give that to 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 until

the 1840s in the 1840s they pushed it

just a little bit too far

and that caused inflation it

destabilized the economy

so in 1844

the

conservative government of robert peale

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 as money is the digital

numbers that commercial banks can create

out of nothing

[Music]

the problem was

that they did not include in that in

that legislation

the deposits the demand deposits

held in banks by individuals

or um

electronic forms of money which

essentially what those demand deposits

are today most of the money

in circulation is is electronic money

um and it's bank it's bank um demand

deposits um that just that sit in our in

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

[Music]

the reality is now that most money is

not paper and it's not metal coins it's

digital it's just numbers in a computer

system you know it's your visa debit

card it's your electronic you know atm

card

um it's this it's 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 it's 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

creates the vast majority of new money

in circulation and also decide

how it's 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 a loan

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 poll done

by the coptin center where they

asked people

you know how how they thought banks

actually operated around 30 percent 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 and 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 your 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 is then being moved across to

somebody who wants to borrow it so you

have a pensioner who keeps saving money

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 of money

that's that's created is is created

as bank

bank debt money you could 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

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

if you 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 full

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 it 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

creating electronic money is much more

profitable than creating cash because

you don't have any production costs at

all

so

while we've got 18 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 when positive money

say this that we're all just a bunch of

nutters but on the 9th of march in 2009

the government of the federal reserve

ben bernanke gave the first ever

broadcast interview the governor of the

central bank the united states of

america had ever given

and the day before that he'd bailed out

aig

which is a insurance company not even a

bank actually to the tune of about 160

billion dollars so the journalist system

now mr bernanke

where did you get 160 billion dollars to

bail out aig

the fed is spending it's not tax money

the banks have um accounts with the fed

much the same way that you have an

account in a commercial bank so to lend

to a bank we simply use the computer to

mark up the size of the account that

they have with the fed

so it's much more akin

although not exactly the same but it's

much more akin to printing money than it

is to borrowing

[Music]

banks create new money

whenever they extend credit

buy existing assets or make payments on

their own account which mostly involves

expanding their 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

[Music]

new commercial bank money enters

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 august 2009 round to

the general election eight nine eight

nine months i suppose knocking on doors

is that when you try to explain how the

money system works

there's uh an almost inbuilt refusal

of people to accept that such a bizarre

situation could actually exist

no it can't possibly you know

what do you mean you can't banks can't

banks

don't create money out of 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 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 1 to 12.

by 2010 the ratio had risen to 1 to 37.

that is for every pound of treasury

created money

there was 37 pounds of bank created

money

in the 10 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 they're creating out

of nothing is just incredible 1.2

trillion in the last 10 years

and there's

that money is being distributed

according to the priorities of the

banking sector you know not the

priorities of society

bank sector

itself

grew from 1980 2.5 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 50 to 60 percent

up to the end of the 1960s

after that they shot up dramatically and

the real money in 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 and away

um the the biggest form of

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 for 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 commissions 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 will 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

um

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've

been saving up their whole lives

money in the current system is debt 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 business trade is if we

borrowed it all from the banks

and it's the 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 harbour the 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 the 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

um

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 have come across us 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 out of the process of people

doing things doing economic making

things and growing things and selling

things and producing things that somehow

money just emerges

it's not it's like oil in the car you

have to put it in

when i see david cameron talking about

how um 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 joke it's such a 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 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 smoke

screen and working on all the symptoms

of a greater disease which is really you

need to look at the the money system the

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 three percent 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 going to 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 this cycle

continues it gets easier and easier to

get into debt until some people get over

in debt 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

um and then you know that just

brings to a wave of defaults which will

ripple across the entire economy

the banks go insolvent then we're into a

financial crisis

um and then the banks stopped landing

and you know they were excessively

landing in the boom

and then they stopped landing 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 that guarantees you know

massive profit for the banks

this is the boom bust cycle

and i have said before mr deputy speaker

no return to boom and

[Music]

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 of

a bank collapse

affects us all in a huge way and anyone

that says that we shouldn't have 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

until 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 major democratic issue here as

well when you have these

private profit seeking banks creating up

to 200 billion pounds a year and pumping

that into the economy

wherever they want basically wherever it

suits them

whether they're pumping it into you know

these toxic

derivatives or putting money into

housing bubbles just making housing more

expensive

200 billion pounds in 2007 of new money

coming into the economy created out of

nothing

and where that gets spent determines the

shape of our economy effectively so if

we're going to allow anybody to create

new money out of nothing then we should

at least have some democratic control

over how that money's used i mean it

would we rather have had that money used

for healthcare you know 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 to live in a

house

you can see it as a subsidy a 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 higher

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 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 of nothing the

bank of england creates central bank

reserves

by increasing the available credit in

the settlement bank's 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

and agree 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's 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 spend quarter

of a million on a house is you'll tell

your bank to transfer some money to the

house sellers bank

and what the bank will do is actually

instruct the bank of england to move

250 000 from their account at the bank

of england to the bank

of the house salary

and that money will actually move across

between the accounts at the bank of

england

um 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 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

lloyds

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 being 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

then 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

the 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

[Music]

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 of the last

150 years or so you'd start off

um with the development of a gold

standard that really comes to four in

the 1880s 1890s where essentially

countries peg themselves to a

particularly defined value of gold and

then they have an agreement to

fix that value to hold that value and 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 uh to

make sure that the balance that

particular fixed prices is maintained

that disintegrates uh in the well after

the 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 want to remove from

gold backing or saying that there is a

definite you know

sort of solid commodity money behind the

paper money in the credit money that

we're all using over here you're kind of

one removed from it

after hiroshima tokyo wondered when the

next atom bomb would fall

they did not wander along

[Music]

in 1944

at bretton woods

the u.s 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 and 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 the credit

crunches are known as balance of trades

deficits i.e 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 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 what's going on and

they were worried there wasn't enough

gold to honor the exchange rate of the

french franc so they

sent a gun boat to new york harbor to

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

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 is going to

shout

great little latin 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

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 naught so 100 trillion

if you want to imagine is a one 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 that this the emergence

of digital currencies how it's

transformed everything really

um 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 set up 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

[Music]

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 that 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

uh 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 they

actually what they do is they

redistribute wealth

uh towards those people who already have

houses are 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 are going 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 it's a zero-sum game

as of august 2011

85.5 percent 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 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

uh that's what causes

inflation in

in the uk we've we've had it in spades

we've had you know this massive uh

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

um

they would be easier to build more

more of them would be built there would

be less huge houses with hardly any

people in them london would not be the

center of a kind of

very rich

um speculative orgy

where all the richest people in the

world want 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 are 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 that out

across a whole economy because it means

there's an incentive you know to put

money into speculative rather than

productive

investment 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's showing very

little uh

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 the 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 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 10 times the average

annual salary

of

a person working in the netherlands

there was a futures market in two lip

bulbs because obviously you plant them

now but you don't know what's going to

come out the ground so we see already

400 years ago that a money system or a

financial system is not something that

exists in the abstract somewhere out

there in the ether 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 at 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 it was

quite deliberate in the case of the us

almost explicit was 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 is an asset and it's

potentially something that a bank can

say well okay we're not just lending

your money unsecured you actually do

have a house and that's great because we

can repossess it they won't tell you

this when you take the mortgage but they

can do this and that bubble is in what

fuels expansion such as it is inside the

u.s

and inside the uk where something

similar takes place for the next decade

or so i think it's also a reflection of

an underlying weakness of these

governments the they they simply

lack the will

and possibly the ability but i think it

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 a

mandate to do this and we're going to

make this happen just remember it's 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

independents 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 in 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 bases well

they had a more efficient a more

involved and a broader based financial

system with these instruments that

they'd innovated that allowed them to

bring more money to bear at one point

than anybody else more quickly

incredible

but true

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 start up which

creates jobs which creates

additional

purchasing power

which means 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 type

of 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 governments have done in the

past uh very successfully in a number of

cases and not often not unsuccessfully

in this country but you know the

examples that spring to mind like south

korea and japan often any stage away

government's been quite targeted about

how they're going to rebalance the

economy and picking sectors and deciding

where the investment should take place i

think that has to start happening in the

uk because we're in a demand side

recession rather than looking at crisis

of supply

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 is put into

building houses rather than giving

people money to inflate the price of 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 figures for uk are quite stark

actually that's

average median real incomes for so

that's you know what the bit in the

middle uh for most people declined over

the last eight years also they're now in

quite sharp decline as we go into the

recession i mean the sharpest really

since

it looks like since about the 1930s put

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

you know you go back to the 1960s and we

were expected to

to we were looking forward to

an age of leisure what would be what

they were talking television programs

saying what's people going to 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 everyone says oh yeah you know

but if you're not actually benefiting

from what you're spending if you're

having to spend the money on child care

costs on commuting costs you know and so

forth uh just you know costs 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 of the family

remain was able to to stay at home and

be a permanent homemaker then you're

actually much you're not actually any

better off

you know everyone's under and everyone's

after such enormous pressures

nowadays

you know

i am conscious that

say my four nephews and nieces

are facing

difficult times

she's gonna find themselves having to

work you know um

very hard just to keep just to keep a

roof over them just to get a roof over

there just keep a rope over their 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 as 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 and you know 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

um 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

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 going to be a pound of debt and

that debt is typically going to end up

with you know the poor

the 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 the

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 i.e a bank

so a bank

creates our nation's money supply as

well as

um making loans

for profit the government cannot allow

the banking system to fail

because if it did

over 97 of all money would disappear

this is why in the event of a crisis the

risk is transferred to the taxpayer

but even during normal times banks

receive numerous guarantees and benefits

beyond the right to create money bill by

the way i know the bank of america is a

very big bank it happens i've got 32

there myself

just between us what assurance do i have

that this money is safe

well uh all deposits up to ten thousand

dollars are assured or insured by the

federal government in washington that's

my guarantee yes

have you heard that the federal

government is about 280 billion dollars

in the hole

[Music]

[Applause]

banks receive large safety nets from the

government

the taxpayer guarantees 85 000 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 banks more money

than it cost 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 vampire 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 where 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

uh

there's been there's this transference

from the public debt to the private debt

which is which is essentially a way of

transferring risk actually away from

sort of uk plc and 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 unprogressive

regressive uh policy framework that the

government's embarking on where the risk

is moved on to those who are most

vulnerable and if there is another

financial shock if 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 who

will fall into negative equity if

interest rates go up even one or two

percent uh there'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 uh

it's regressive and it's certainly not

fair

in the terms that

the government's 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

debt 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 ticking 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

three to five years

we'd be back where we were you know the

debt will become too much people will

start defaulting again

um 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 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

i mean why is it that we've got all this

technology um

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 know effectively

the banking sector is 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

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 four percent

five percent six percent of gdp

what's happening to the rest of the

economy is becoming 96 95 94 of gdp

we've got to get switched on to this now

you know if we want to

if we 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

um the the often

reckless and speculative booms like the

housing boom in ireland that preceded um

that crisis you know over the last 30

years we've seen um 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 by 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 in many ways they were

the victims the first time around

as a result of the crisis the bank of

england has bought corporate debt

and repackaged it at lower rates of

interest

yet the average person is being asked to

pay more than ever to borrow an

overdrafts and credit cards

debts between the very wealthy um or

between governments can always be

renegotiated and always have been

throughout world history they're not

anything set in stone it's generally

speaking when you have debts owed by the

poor to the rich that suddenly debts

become a sacred obligation more

important than anything else um the idea

of renegotiating them 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 it i'm a

trader uh i don't really care about that

criticism

[Music]

if i see an opportunity to make money i

go with that um so

for most traders we don't really care

that much how they're gonna fix the how

they're to fix the economy how they're

going to fix the uh 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 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 a dream of

another moment like this

you can make a lot of money from

[Applause]

hurts somebody real bad

you are a host

a way in which you can look across

europe now and see that the new prime

minister of greece not elected

essentially imposed papademos former

employee of goldman sachs the new prime

minister and finance minister of italy

mario monty former employee of goldman

sachs the new president of the european

central bank former employee of goldman

sachs it's quite you know you kind of

see these people popping up absolutely

everywhere that's the way to change what

we have take all power and all freedoms

away from the people and collect

everything into the hands of one small

group with absolute power

from the people

without the people

against the people

what's been interesting out of all this

i suppose is the question of democracy

that's been opened up very starkly in

europe that you have a government has

essentially imposed on you it's 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 okay bankers are the people who

therefore going to get us out of it and

incidentally they're going to run your

your country now

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 poorer it was about killing

people as well

and guess what

we haven't really got to 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 you 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

their weapons are modern

they are thinking

2 000 years

out of date

look i was there when the secretary and

the

chairman of 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 talk about these things on

thursday at about 11 o'clock in the

morning

the federal reserve noticed a tremendous

drawdown of uh

money market accounts in the united

states to the tune of

550 billion dollars was being drawn out

in a matter of an hour or two the

treasury opened up its uh

a window to help they pumped 105 billion

dollars in the system and quickly

realized that they could not stem the

tide we were having an electronic run on

the banks

they decided to close the operation

close down the money accounts and

announce a guarantee of 250 000 dollars

per account 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 would have collapsed

[Music]

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

other 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

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

balance of trade is is basically

the difference between what you're

selling abroad and what you're buying

from abroad now the feature on the the

uk

is that for a very long period of time

it's had a deficit or something called

visible balance of trade which is

trading things about things that you can

see so that is goods that you'd

recognize stuff you can put in

containers it's cars computers things

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

substantial deficit for i think it

opened up in the

did open up in the early 1980s and

essentially it hasn't it hasn't gone

away since 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 i mean there have been proposals

in the past to try and create a

mechanism

for those imbalances to to match up

so keynes for instance john maynard

keynes uh at the end of the second world

war his original proposal for what

became bretton woods and the set of

institutions set up there like the imf

and the world bank was that there will

be a kind of international clearing

union uh this is particularly relating

to the trade side rather than the sort

of the financial side directly but the

principle was that you know once trade

balances it opened up everybody would

bank through an international clearing

bank uh and that would kind of force

everyone to to eventually reconcile the

imbalances that appeared 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 to the united states

ourselves

and some other countries in europe that

cannot go on

and there are two ways in which this can

come to an end either and we're seeing

this in 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

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 framework to rebalance our economy

and i'm sure that's the right way to do

it

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've started to fall back down again

so what we're looking at is something

that

almost a kind of anarchy and in a way

the increasing anarchy this is what's

happened over the last few years where

the brazilian finance minister has been

most vocal about this uh talking about

currency wars talking about the desire

of national governments when confronted

by a 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

that makes helga's cheaper everyone else

buys them we'll all be better off now

the issue here is if you depreciate it's

like everybody else appreciates against

you their stuff becomes more expensive

so they're not too happy about that they

also want to depreciate 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

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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 organized 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 economy relative to mine and if

that changes the currency and the

exchange rate can change and if we need

that to happen it'll happen magically by

the efficiency of market and profit

seeking and you guys know the rest i

think

a currency's 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 rate

in the last study i read in 2007

each day on currency markets

3.2 trillion dollars are traded each day

who knows what the global gdp is

50

again brucy higher

60 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 us trade currency

fairly regularly if you go abroad you

exchange into another currency that's a

form of currency trading you're swapping

your pounds into whatever euros or

yen or whatever it might be that happens

fairly regularly and that's a

conventional part of the trading process

and large corporations have to do this

on a regular basis where it becomes

something that people question and where

you get people saying well hang on this

is speculation is when you get people

realizing that currencies move around

next 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 can speculate on it

and that's that's the more sort of

questionable end of the market that's

the bit of the market that things like a

financial transactions tax would try and

chop away at because the assumption

there and it's it's kind of not

incorrect is that this just produces

instability for everyone else that 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 flows

what do they have to do to cope

increase their production and sell more

lowering the price

and becoming possibly even poorer once

you start talking about the

international system it becomes really

quite a peculiar uh quite peculiar thing

in that a lot of it depends on simply

sentiment and beliefs about what an

economy is like rather more depends on

anything the economy might or might not

actually be doing and that can shift

very very rapidly because you know if

it's just somebody's belief about

currency is supportable uh then you know

they can carry on believing this until

well to whatever if that belief changes

it can change very rapidly in a

financial market the process of

financial contagion can can take place

you know in just

minute seconds even though you can just

move from being apparently quite a

stable robust

economy to being one that suddenly

sentiment is turned against you and you

find that markets are picking on you and

it can often be not much more than

you're 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 withdrawals 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 the goldman sachs for

example or any large bank has done

somewhat better out of this set of

arrangements than it would have done in

a far more regulated environment it's

made people very very wealthy it's

allowed financial markets to expand

absolutely enormously

anybody involved in that is 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 that this is this

is how the thing works quite

deliberately quite you know overtly 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 way that

the global economy works over the last

30 years result 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 been used in a way that many

people have compared to a form of

colonialism it's a very real direct form

of of power that's been used over those

countries to force those countries to do

what are 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 um but the financial

sector has become even bigger than that

and the and the real money in in the

world uh 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 and away

the the biggest form of

of activity of economic activity that

exists in the world today

to protect themselves vulnerable

countries need to accrue currency from

rich countries

who 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 spa 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 you said speculation

speculative attack

fallen 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 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 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 uh foreign

currency um unfortunately time and time

again that was proved to 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 um was

aimed at the export market it 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

what's happening here and about the way

the world operates it's like it's it's

quite blunt i mean for the last 30 years

you've got something

pretty much everywhere it 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 markets minimal

government

interference or 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 will actively try and enforce this

state of affairs so it's it's not

greatly shadowing if you see what i mean

that there are people behind the scenes

somewhere trying to manipulate stuff

because actually this is quite this is

quite avert this this is happening and

this is how uh for

entire my entire adult life actually is

what it starts to look like this is how

the world 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 debt problems it

imposes a set of conditions and in the

1980s and 90s they called 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 liberalise their

their

trade market and liberalise their

capital market so money can much more

easily come in and out of their economy

and the idea is 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 is

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 dictats of the international

monetary fund and the money markets than

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

seri a stimulative effect on the changes

in the financial system that have

brought us to the gleaming shining metal

and steel

business that's over there

in case you don't know that's the city

of london i'm pointing at

to compensate for the lack of a defined

commodity-based value underlying

currencies

financial institutions developed

securitisation

as a means to manage risk

you know you develop securitisation as a

means to try and stabilize 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 what the term

hedging is

spreading your risk managing your risk

insuring against your risk precisely

up until very recently you know there's

up until the 1960s the securities and

exchange commission would be quite clear

that you know derivatives that weren't

based on real products like agricultural

products so pork belly futures or

whatever would in fact be essentially

kind of gambling and therefore you

weren't allowed to trade 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 based on movements of

currency prices

once you have the system of fixed

exchange rates breaks down obviously

this thing accelerates enormously so as

you get the roll back of government

regulation here you get the market taken

over with its own products here and the

theory is that the market's better at

regulating itself it's more stable than

if you have a government interfering all

the time the efficient markets

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 what

everyone else is doing it'll therefore

be very stable and it reflects real

changes in the economy it's not going to

be driven by

you know panics and manias and

speculative bubbles nothing that's

really going to happen if there is

movement up and down it's because

something real is happening and traders

and investors in the financial market

responding to it that's the efficient

market's hypothesis the practice i think

what you see in 2008 is the kind of end

of that process the appearance of this

crisis so major the belief that it will

simply be self-stabilizing and

self-regulating really can't carry on i

mean the practice carries on anyway but

you can't really argue in the same way

you 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's suddenly sitting there

thinking oh these cdos we've made uh

don't in fact provide the kind of

stability that we thought the maths

that's inside of them is complete

nonsense it turns out

there's 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 worthless

the attempt to get more and more complex

ways of

regulating and shaping a financial

market and try to make a quick buck out

of it as well actually help produce the

the opposite effect of what its kind of

apologist 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

uh private debts being transformed into

into public debts and um the

ultimately the price of that debt is

paid by uh 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

land 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

[Music]

an american flag is burned at the height

of the demonstration both president

johnson and francisco franco were

vilified a new low in public projects

added strain on spanish-american

relations

[Music]

i want americans and all the world to

know come on

of morality

[Music]

objection overall

what i would like to see

is um

a 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 a 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

that we need to survive as a 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

um unit of account that's that's that's

being used uh another option is a basket

of of currencies so you you know you you

mix up the value of 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 paid against

different buses and goods that are more

appropriate to their national economies

and you can 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 on earth is going to do this

who is the force that's going to kind of

make this thing happen

creating a monetary system which is both

fair and stable

is possible and can be achieved

what are international organizations for

if not for such a purpose

[Music]

this

is george

george worked in a big bank in the city

of london

but

one day

without warning george's bank went bust

luckily the government rescued the bank

and george kept his job but

the greedy government wanted something

in return for their help

they demanded a higher tax on george's

salary and bonus

for someone with a high cost lifestyle

like george a shock like this can be

devastating

now george struggles to afford the rent

on his riverside apartment in central

london the tyres on his aston martin are

wearing thin and are barely road legal

unless george's situation improves or

unless someone like you helps him and

george may even be forced to walk past

the next several row tailors and buy his

suit from topshop or next

even if george had anything to celebrate

he can no longer afford the champagne to

celebrate with

george is not alone

countless others are suffering like him

and no one knows how long it will be

until the good times return

[Music]

with your help

george can turn his life around

a simple monthly donation from you can

bring a bit of sunshine back to george's

life

just 395 pounds will help him celebrate

minor achievements with a magnum of

cristal champagne

as little as 900 pounds will help george

buy a new set of tyres for his aston

martin

two thousand pounds can help george

recover his self-esteem with a suit from

a prestigious savile row table

but even a smaller map will help

just 200 pounds will buy a meal for

george and his girlfriend experience

just 200 pounds extra will buy the

drinks

by adopting a banker

you won't just be supporting someone

like george in a time of knee

you'll also be supporting the trendy

wine bars of the city of london the

luxury car makers of italy and the

tailors of savile row

you'll be doing your patriotic duty to

support britain's greatest industry in

its time of need

and when the good times return and

george gets his bonus back the taxes he

pays will help fund the public services

that the rest of you scroungers depend

on

so please

until the good times return for george

and those like him

will you give today

[Music]