97% OWNED Finance Explained Documentary Where does money come from
Transcript
00:00:00How is money created? Where does it come from? Who benefits? And what purpose does it serve?
00:00:12What is a money system? What is the money behind the money system?
00:00:16For centuries, the mechanics of the monetary system have remained hidden in the prying
00:00:22eyes of the populace. Yet its impact, both on a national and international level, is
00:00:29perhaps unsurpassed. For it is the monetary system that provides the foundations for international
00:00:36dominance and national control.
00:00:39We beat Wall Street! We beat Wall Street!
00:00:43Today, as these very foundations are being shaken by crises, the need for open and honest
00:00:50dialogue on the future of the monetary system has never been greater.
00:00:55This economic crisis is like a cancer. If you just wait and wait, thinking this is going
00:01:00to go away, just like a cancer, it's going to grow and it's going to be too late. What
00:01:04I would say to everybody is, get prepared. There's not a time right now to wishful thinking
00:01:11the government is going to sort things out. The governments don't rule the world. Goldman
00:01:15Sachs rules the world.
00:01:18We're on the verge of a perfect storm.
00:01:20In opposition lie corrupt and entrenched interests that lurk in the corridors of power, for whom
00:01:27there are no reasons to relinquish privileges they feel are justly deserved.
00:01:32Has he got a reform plan for the NHS? No. Has he got a police reform plan? No. Has he
00:01:40got a plan to cut the deficit? No.
00:01:43Order! Mis-order! Order!
00:01:50Do you trust the government?
00:01:54Order! Try to calm down and behave like an adult, and if you can't, if it's beyond you,
00:02:02leave the chamber, get out, you're a manage without you.
00:02:05This is about to be put under discrediting station.
00:02:10There's no coincidence that boom and bust started to become a real cyclical issue around
00:02:14about the 1700s, when William Paterson founded the Bank of England.
00:02:24This is intolerable behaviour as far as the public, no it's not funny.
00:02:32Only in your mind is it funny. It's not funny at all, it's disgraceful.
00:02:39Revolution! Revolution! Revolution!
00:02:44The system is inherently unstable as a result of the international power it provides to
00:02:49the dominant parties, for at the heart of it lies the idea of, how can I get something
00:02:55for nothing? Statistical analysis has found that every time
00:03:00an empire begins to near its own demise, you'll find that its currency will be debased.
00:03:06There is no guide to how this whole system operates.
00:03:09To give you an example, a researcher at the BBC working on an older person documentary
00:03:13went to the Bank of England and said, can you give me a guide to how money is created?
00:03:19And they just said, no.
00:03:21This documentary will investigate and explain this ever-changing system,
00:03:26and the impact it has, both on a national and international level.
00:04:07In 2010, the total UK money supply stood at £2.15 trillion.
00:04:122.6% of this total was physical cash, £53.5 billion.
00:04:18The rest, £2.1 trillion, or 97.4% of the total money supply, was commercial bank money.
00:04:27The 3% of money is created through the central bank, and that money essentially,
00:04:35if you created a £10 note, you could sell that to a bank to put into their ATM,
00:04:40and the bank would have to repay that £10 or buy it for £10.
00:04:44There'd be no interest charged on that money, but that money is then essentially transferred
00:04:50to the Treasury, and it's a form of fundraising for the government.
00:04:56It's called Sinaraj.
00:05:06When the Bank of England creates a £10 note, it costs it about three or four pence
00:05:12to actually print that note, and it sells it to the high street banks at face value, so at £10.
00:05:18And the profit, the difference between printing the note and actually selling it for £10,
00:05:26goes directly to the Treasury.
00:05:28So, in effect, all the profit that we get on creating physical money, bank notes,
00:05:35goes to the Treasury, and it reduces how much taxes we have to pay.
00:05:39Over the last 10 years, that's raised about £18 billion.
00:05:44In 1948, notes and coins constituted 17% of the total money supply.
00:05:51This was one contributing factor in the government's ability to finance post-war reconstruction.
00:05:57This included the establishment of the NHS.
00:06:01In only 60 years, notes and coins have shrunk to less than 3%.
00:06:12Prior to 1844, bank notes were created by private banks,
00:06:16and the government did not profit from their creation.
00:06:20Pre-industrialisation, there was multiple forms of money co-existing,
00:06:25and so the kind of rise of government-sponsored fiat money is a relatively recent phenomenon.
00:06:33In the 1840s, there was no law to stop banks from creating their own bank notes,
00:06:38so they used to issue paper notes as kind of a representative of what you had in the bank account.
00:06:46Instead of you taking your heavy metal coins out of the bank,
00:06:49and then going and paying somebody with them,
00:06:51you could get your paper, which said how much money you had in the bank,
00:06:55and you could give that to somebody, and they could use that to go and get the heavy metal coins from the bank.
00:06:59Now, over time, these paper notes became as good as money.
00:07:04People would use the paper notes instead of going and getting the real money from the bank.
00:07:08And, obviously, as soon as the banks realised that what they were creating
00:07:13had become the dominant type of money in the economy,
00:07:17they realised that by creating more of it, they could generate profits.
00:07:20They can just print up some new notes, lend it, and get the interest on top of that.
00:07:25And they did that up until the 1840s.
00:07:28In the 1840s, they pushed it just a little bit too far,
00:07:31and that caused inflation, it destabilised the economy.
00:07:34So in 1844, the conservative government of Robert Peel actually passed a law
00:07:41that took the power to create money away from the commercial banks and brought it back to the state.
00:07:47So since then, the Bank of England has been the only organisation authorised to create paper notes.
00:07:58Since then, everything's gone digital,
00:08:00and what we now use as money is the digital numbers that commercial banks can create out of nothing.
00:08:07The problem was that they did not include in that legislation the deposits,
00:08:14the demand deposits held in banks by individuals or electronic forms of money,
00:08:22which essentially what those demand deposits are today.
00:08:25Most of the money in circulation is electronic money,
00:08:31and it's bank demand deposits that sit in our accounts.
00:08:38So in a way, the legislation needs to catch up with developments in electronic money
00:08:45and the way that banks actually operate.
00:08:48Money held in bank accounts are called demand deposits.
00:08:52This is an accounting term the banks use when they create credit.
00:08:57Banks follow the same process when they create loans.
00:09:01All money held in bank accounts is an accounting entry.
00:09:12The reality is now that most money is not paper and it's not metal coins, it's digital.
00:09:18It's just numbers in a computer system.
00:09:20It's your Visa debit card, it's your electronic ATM card.
00:09:26It's this, it's plastic.
00:09:28It's numbers in a computer system.
00:09:30You move money from one computer system to another.
00:09:33It's all a big database.
00:09:35And this digital money is what we're now using to make payments with.
00:09:40It's what we actually use to run the economy.
00:09:42I think a lot of people in the UK probably think that the government or the central bank
00:09:48is in control of most money in circulation and issues new money into circulation.
00:09:55But that's not the case.
00:09:57It's private banks that create the vast majority of new money in circulation
00:10:02and also decide how it's allocated.
00:10:09The official terminology for this accounting entry is commercial bank money.
00:10:14When banks issue loans to the public, they create new commercial bank money.
00:10:19When a customer repays a loan, commercial bank money is destroyed.
00:10:24The banks keep the interest as profit.
00:10:29There's a lot of misconceptions about the way banks work.
00:10:32There was a poll done by the Cobden Centre where they asked people
00:10:37how they thought banks actually operated.
00:10:40Around 30% of the public think that when you put your money into the bank,
00:10:44it just stays there and it's safe.
00:10:46And you can understand why because every child has a piggy bank
00:10:51where you keep putting money in and then when it's a rainy day,
00:10:54you smash it and you take that money out and you spend it.
00:10:56So a lot of people keep this idea of banking.
00:11:00It's somewhere safe to keep your money so that it's there for whenever you need it.
00:11:05The other 60% of people assume that when you put your money in,
00:11:11that money is then being moved across to somebody who wants to borrow it.
00:11:14So you have a pensioner who keeps saving money her entire life
00:11:18and then her life savings have been lent to some young people who want to buy a house.
00:11:23But actually banks don't work like that.
00:11:34What is the role of banks in the UK?
00:11:44At the moment in the UK, money creation and control is largely in the hands of private banks.
00:11:52About 97% to 98% of money that's created is created as bank debt money, you could call it.
00:12:01When banks issue money into circulation as loans, essentially.
00:12:06This is a very poorly understood fact.
00:12:10It's not a conspiracy theory, it's not a crackpot theory.
00:12:15It's the way the Bank of England describes the process.
00:12:18When banks make loans, they create new money.
00:12:32A few economists will realise the way the money system works.
00:12:37But if you don't, if you don't realise the way that money works,
00:12:40then you think that everybody saving is going to work well for the economy.
00:12:44What really happens, once you understand the way the money system works,
00:12:48is that if everybody starts saving, the amount of money in the economy shrinks and we have a recession.
00:12:54So most economists don't have this full picture.
00:12:57They don't understand all elements of the system.
00:12:59They rely on assumptions, on received knowledge, without actually going into the details.
00:13:07And money is the centre of the economy.
00:13:11If you don't understand where it comes from, who creates it and when it gets created,
00:13:16then how can you understand the entire economy?
00:13:19When the vast majority of money that we use now is not cash, but it's electronic money,
00:13:25then whoever is creating the electronic money is getting the proceeds of creating that money.
00:13:30And obviously creating electronic money is much more profitable than creating cash,
00:13:34because you don't have any production costs at all.
00:13:37So while we've got 18 billion over the course of a decade in profit from creating cash,
00:13:44the banks have actually created 1.2 trillion pounds.
00:13:47Between 1998 and 2007, the UK money supply tripled.
00:13:521.2 trillion pounds was created by banks,
00:13:56whilst 18 billion pounds was created by the Treasury.
00:14:02A lot of people think when I say this, or when you say this, or when Positive Money say this,
00:14:06that we're all just a bunch of nutters.
00:14:08A lot of people think when I say this, or when you say this, or when Positive Money say this,
00:14:12that we're all just a bunch of nutters.
00:14:14But on the 9th of March in 2009,
00:14:17the Governor of the Federal Reserve, Ben Bernanke, gave the first ever broadcast interview
00:14:23the Governor of the Central Bank of the United States of America had ever given.
00:14:27And the day before that, he bailed out AIG,
00:14:31which is an insurance company, not even a bank actually,
00:14:36to the tune of about $160 billion.
00:14:38So the journalist says to him,
00:14:40Now Mr. Bernanke, where did you get $160 billion to bail out AIG?
00:14:46Is that tax money that the Fed is spending?
00:14:48It's not tax money.
00:14:50The banks have accounts with the Fed,
00:14:53much the same way that you have an account in a commercial bank.
00:14:56So to lend to a bank,
00:14:58we simply use the computer to mark up the size of the account that they have with the Fed.
00:15:03So it's much more akin, although not exactly the same,
00:15:06it's much more akin to printing money than it is to borrowing.
00:15:11Banks create new money whenever they extend credit,
00:15:15buy existing assets,
00:15:17or make payments on their own account,
00:15:19which mostly involves expanding their assets.
00:15:24When a bank buys securities,
00:15:26such as a corporate or government bond,
00:15:28it adds the bond to its assets
00:15:31and increases the company's bank deposits by the corresponding amount.
00:15:37New commercial bank money enters circulation
00:15:40when people spend the credit that has been granted to them by banks.
00:15:45I found that talking on the doorstep
00:15:48from August last year round to August 2009 round
00:15:52to the general election,
00:15:55eight, nine months I suppose, knocking on doors,
00:15:58is that when you try to explain how the money system works,
00:16:03there's an almost in-built refusal of people
00:16:07to accept that such a bizarre situation could actually exist.
00:16:12No, it can't possibly.
00:16:14You know, what do you mean?
00:16:16Banks can't...
00:16:18Banks don't create money out of thin air.
00:16:20That's ridiculous. They can't do that.
00:16:22They lend out their depositors' money.
00:16:24Most people have an idea of how money is.
00:16:26They're used to their own way of handling money.
00:16:29And they try and implement their own idea
00:16:32of how their small household economy works
00:16:36into the national economy.
00:16:38And, of course, it just doesn't work out.
00:16:40It just doesn't work out at all.
00:16:42By 2008, the outstanding loan portfolio of bank-created credit,
00:16:46also known as commercial bank money,
00:16:49stood at over £2 trillion.
00:16:52As recently as 1982,
00:16:55the ratio of notes and coins to bank deposits was 1 to 12.
00:17:00By 2010, the ratio had risen to 1 to 37.
00:17:05That is, for every pound of Treasury-created money,
00:17:09there was £37 of bank-created money.
00:17:14In the ten years prior to the 2007 crisis,
00:17:17the UK commercial bank money supply
00:17:20expanded by between 7% to 10% every year.
00:17:24A growth rate of 7% is the equivalent
00:17:27of doubling the money supply every ten years.
00:17:32The amount of money they're creating out of nothing is just incredible.
00:17:35£1.2 trillion in the last ten years.
00:17:38And that money is being distributed
00:17:40according to the priorities of the banking sector,
00:17:44not the priorities of society.
00:17:48The bank sector itself grew from 1980
00:17:52$2.5 trillion to $40 trillion by assets.
00:17:57In 1980, global bank assets
00:18:00were worth 20 times the then global economy.
00:18:03By 2006, they were worth 75 times, according to the UN.
00:18:09As the following chart shows,
00:18:11total bank assets of UK banks as a percentage of GDP
00:18:15remain relatively stable at 50% to 60%
00:18:19up to the end of the 1960s.
00:18:22After that, they shot up dramatically.
00:18:25And the real money in the world to be made today
00:18:28is not by producing anything at all.
00:18:30It's simply by forms of speculating,
00:18:33basically making money from money.
00:18:35That's the most profitable and by far, in a way,
00:18:38the biggest form of activity,
00:18:42of economic activity that exists in the world today.
00:18:46Today, banks are no longer restricted
00:18:49by how much they can lend,
00:18:51and as such, how much new credit they can create out of nothing.
00:18:56They are restricted solely by their own willingness to lend.
00:19:03The issue with allowing banks to create money,
00:19:05there's two main issues.
00:19:07Firstly, the fact that they create this money when they make loans.
00:19:10So it guarantees that we have to borrow all our money
00:19:14for the economy from the banks.
00:19:17As such, to have a healthy growing economy,
00:19:20the government needs to put in place strategies
00:19:23to allow for ever-increasing debt.
00:19:26The only way the government can create additional purchasing power
00:19:30is by getting itself and us into more debt.
00:19:35The second big issue with allowing banks to create money
00:19:38is that they have the incentive to always create more.
00:19:42They create more money if they issue a loan.
00:19:44They get the bonuses and the commissions and the incentives
00:19:47to lend as much as possible.
00:19:49You have to develop a sales culture.
00:19:51What did they do?
00:19:53They recruited an amazing guy, lovely guy, Andy Hornby,
00:19:56who came from ASDA,
00:19:58to turn the bank into a supermarket retailing operation.
00:20:03If you trust bankers to control the money supply,
00:20:06the money supply will just grow and grow and grow,
00:20:09as will the level of debt,
00:20:11to the point where it crashes,
00:20:13when some people can't repay the debt,
00:20:15and then they'll stop lending.
00:20:18You hear politicians and journalists saying,
00:20:20we've been living beyond our means,
00:20:22we've become dependent on debt,
00:20:24we need to rein in our spending and live within our means.
00:20:28It's not possible in the current system.
00:20:32The reason why everybody's in debt now
00:20:34is not because they've been recklessly borrowing.
00:20:37We haven't borrowed all this money from an army of pensioners
00:20:40who've been saving up their whole lives.
00:20:42Money in the current system is debt.
00:20:44It's created when banks make loans.
00:20:47So the only way in the current system
00:20:49that we can have any money in the economy,
00:20:51the only way we can have money for business to trade,
00:20:54is if we've borrowed it all from the banks.
00:20:59And it's the very opposite
00:21:01of what the Tory parties are doing today,
00:21:04which is that you have to create savings
00:21:06before you can help the National Health Service.
00:21:09And it's because economists have completely confused those things,
00:21:12both in monetary policy terms, but also in economic thinking,
00:21:16and because most people still harbour the old-fashioned view
00:21:20that you need savings before you can invest,
00:21:23that we have the mess that we're in today.
00:21:26Now, one of the reasons why we find it difficult
00:21:29to understand the banking system and credit creation
00:21:33is that we leave school without any money,
00:21:36and we go and get a job working as an apprentice to a plumber.
00:21:39We work really hard all month,
00:21:41and at the end of the month, somebody puts money in our bank.
00:21:44And so for us, the logic is you work,
00:21:47and then you get money, you get savings.
00:21:50In reality, you would never have got that job
00:21:53if credit hadn't been created in the first instance.
00:21:56It's a really important conceptual misunderstanding,
00:22:03and it isn't something that the public just are guilty of.
00:22:06Economists don't understand this stuff.
00:22:08Money doesn't come out of economic activity.
00:22:11A lot of people I've come across kind of assume
00:22:14that if you've got people, if you've got businesses,
00:22:17and you've got people doing things,
00:22:19that somehow money somehow emerges out of the process
00:22:22of people doing things, making things and growing things
00:22:25and selling things and producing things,
00:22:28that somehow money just emerges.
00:22:30It's like oil in a car. You have to put it in.
00:22:33When I see David Cameron talking about
00:22:35how we need an economy not based on debt,
00:22:38but we need an economy based on savings,
00:22:41he just doesn't know what he's saying.
00:22:43It's ridiculous. It's absolutely absurd,
00:22:45and it shows his complete lack of understanding
00:22:48of how our money system actually works.
00:22:50What he's essentially saying
00:22:52is that we need an economy with no money.
00:22:55If everyone was saving,
00:22:57we'd have mass disappearing of money,
00:22:59which is essentially what a bank write-off is.
00:23:02It's people defaulting on their debt,
00:23:04which essentially is just money disappearing.
00:23:07But if people weren't taking on the debt,
00:23:10then it's just such a joke.
00:23:12It's such an amateur understanding
00:23:15of how our economy works and how the monetary system works
00:23:18and how money is actually created.
00:23:20So I really do get a laugh out of watching
00:23:23what people are actually saying.
00:23:25They're all just regurgitating what they've learnt off each other,
00:23:28and you just hear the same things.
00:23:30It really gets on my nerves
00:23:33when I hear people talking about,
00:23:35yeah, we need more regulations,
00:23:37we need to regulate the way banks are actually...
00:23:40It's all just one big smoke screen,
00:23:43and working on all the symptoms of a greater disease,
00:23:46which is really you need to look at the money system,
00:23:49the way money is created.
00:23:51And if we don't want any debt,
00:23:53then we're essentially saying we don't want any money,
00:23:56and we want a moneyless economy
00:23:58with the exception of the 3% that's created debt-free.
00:24:01It's a paradox under the current system.
00:24:03If we as the public go into further debt,
00:24:06then that's going to put more money into the economy,
00:24:09and we're going to have a boom.
00:24:11When you have a boom, it's easier to borrow,
00:24:13so people get into even more debt.
00:24:15And eventually, this cycle continues,
00:24:17it gets easier and easier to get into debt
00:24:19until some people get over indebted,
00:24:21and then they default.
00:24:23They can't repay their mortgage.
00:24:25That's what happened in...
00:24:27It happened first in subprime America,
00:24:29and then that just brings through a wave of defaults
00:24:32which will ripple across the entire economy.
00:24:35The banks go insolvent,
00:24:37then we're into a financial crisis,
00:24:39and then the banks stop lending.
00:24:41And they were excessively lending in the boom,
00:24:45and then they stopped lending,
00:24:47and then that makes the recession even worse.
00:24:49People lose their jobs,
00:24:51and then they become even more dependent on debt
00:24:53just to survive, basically.
00:24:55We have a system where we have to borrow
00:24:58in order to have an economy.
00:25:00We have to be in debt to the banks.
00:25:02And that guarantees massive profit for the banks.
00:25:07This is the boom-bust cycle.
00:25:12And I have said before, Mr Deputy Speaker,
00:25:14no return to boom and bust.
00:25:20Net bank lending must forever increase.
00:25:25We're paying interest on every single pound.
00:25:27Even if you think the money belongs to you,
00:25:30somebody somewhere is paying interest on that money.
00:25:33The banking system has such a huge impact on the world,
00:25:37but only because it supplies our nation's money supply.
00:25:41We have to protect them, we have to subsidise them,
00:25:44we have to allow them to continue to grow.
00:25:47We have to allow them to continue
00:25:49because the disaster of a bank collapse
00:25:52affects us all in a huge way.
00:25:54And anyone that says that we shouldn't have bailed out the banks
00:25:57doesn't quite understand the nature of our monetary system.
00:26:01That's like eliminating a huge chunk of our money.
00:26:04But also, bailing out the banks
00:26:07is perpetuating a system which is never going to work anyway.
00:26:10So whatever we do,
00:26:12we're always going to have this cycle
00:26:14until we separate how money is created
00:26:17and the activities of banking.
00:26:18Then the banks can do as they wish.
00:26:20They're a normal business like everyone else.
00:26:22There's a major democratic issue here as well.
00:26:25You have these private, profit-seeking banks
00:26:29creating up to £200bn a year
00:26:31and pumping that into the economy
00:26:33wherever they want, basically, wherever it suits them.
00:26:36Whether they're pumping it into these toxic derivatives
00:26:40or putting money into housing bubbles,
00:26:43just making housing more expensive.
00:26:45£200bn in 2007 of new money
00:26:48coming into the economy, created out of nothing,
00:26:51and where that gets spent
00:26:53determines the shape of our economy, effectively.
00:26:56So if we're going to allow anybody
00:26:58to create new money out of nothing,
00:27:00then we should at least have some democratic control
00:27:02over how that money is used.
00:27:04Would we rather have had that money used for healthcare,
00:27:08to deal with some of the environmental issues,
00:27:10to reduce poverty,
00:27:11or would we rather have it to make houses more expensive
00:27:14so that none of us can afford to live in a house?
00:27:20You can see it as a subsidy,
00:27:23a special super-subsidy to the banks
00:27:27for the right to create money,
00:27:30which should be for the benefit of the public
00:27:33and spent through a democratic process.
00:27:42There's also another form of money,
00:27:45which is effectively an electronic version of cash.
00:27:48And it's a type of money that the commercial banks use themselves
00:27:52to make payments between each other.
00:27:54The high street banks don't want to be carrying around
00:27:57huge quantities of money,
00:27:59because it's dangerous and it's inconvenient and it's expensive.
00:28:02You have to hire security guards for that type of money.
00:28:05So what they do is they pay each other
00:28:07in what is an electronic version of cash.
00:28:11Which in the industry is known as central bank reserves.
00:28:16They keep this electronic cash in accounts at the Bank of England.
00:28:20But as a member of the public,
00:28:22you can't access this electronic cash.
00:28:25You can't get an account with the Bank of England.
00:28:27What they do is they effectively sell this central bank money
00:28:31to the banks.
00:28:33And they do this by creating it out of nothing
00:28:36and using this money to pay for bonds,
00:28:39to buy bonds from the high street banks.
00:28:42So the high street bank will come along with a bond,
00:28:45which is effectively government debt.
00:28:47And it will give it to the Bank of England
00:28:49and in return the Bank of England will type some new numbers
00:28:52into the bank's account at the Bank of England.
00:28:55So effectively they're creating central bank reserves out of nothing.
00:28:58The Bank of England creates central bank reserves
00:29:01by increasing the available credit in the settlement bank's account
00:29:05with the Bank of England.
00:29:07The settlement bank in return posts bonds
00:29:10or sells assets as collateral for the reserves.
00:29:16A total of 46 banks hold central reserve accounts
00:29:19at the Bank of England.
00:29:21Smaller, or foreign banks,
00:29:23hold accounts with one of these 46 banks
00:29:26to allow them to accept or make payments in pounds sterling.
00:29:31Prior to March 2009,
00:29:34the Bank of England would ask each of the major settlement banks
00:29:37how much reserve currency they needed.
00:29:40The settlement banks would then swap a bond for the reserve currency
00:29:44and agree to repurchase the bond for a specific amount
00:29:48at a specified future date.
00:29:52The settlement banks would then receive interest
00:29:55at base or policy rate for the central bank reserves they held.
00:30:00Since the crisis, settlement banks' central reserves
00:30:03have shot up dramatically.
00:30:19When bank customers transfer funds from their account
00:30:22to another person's account,
00:30:24a process called intraday clearing occurs.
00:30:28The amount of central reserve currency Bank A has at the Bank of England
00:30:32is reduced by the corresponding amount that Bank B receives.
00:30:37This is the importance of central reserve currency to banks.
00:30:42Before the credit crisis,
00:30:44if a bank was short of central reserves at the Bank of England
00:30:47to meet its obligations,
00:30:49then the bank would have to loan reserves from other banks
00:30:53with interest.
00:30:57The Bank of England
00:31:05If you sell something on eBay,
00:31:07you know that that deal is not complete
00:31:09until you get some money put into your account.
00:31:11Most people actually want to see the money in their account
00:31:14before they're happy to close on a deal.
00:31:16The banks are pretty much the same,
00:31:18but they want to see the money in their account at the Bank of England
00:31:21before they consider a deal complete.
00:31:23So, for example, if you're buying a house
00:31:26from somebody who banks with a different bank,
00:31:28then what will happen,
00:31:30after you've spent a quarter of a million on a house,
00:31:32is you'll tell your bank to transfer some money
00:31:34to the house seller's bank.
00:31:37And what the bank will do
00:31:39is actually instruct the Bank of England
00:31:41to move 250,000 from their account at the Bank of England
00:31:45to the bank of the house seller,
00:31:49and that money will actually move across
00:31:51between the accounts at the Bank of England.
00:31:53When that money's moved across,
00:31:55the banks will consider that that payment has been made,
00:31:58you know, it's been settled.
00:32:00They don't really deal in the kind of money
00:32:03that we have in our accounts.
00:32:05They deal in this special money
00:32:07that can only be used at the central bank.
00:32:11There are millions of people across the country,
00:32:14all transferring money to each other
00:32:16using only a few major banks.
00:32:19These banks can keep a tally on their computer systems,
00:32:22and usually many of the movements cancel each other out
00:32:25at the end of the day.
00:32:27The five major banks,
00:32:29RBS, Lloyds,
00:32:31HSBC,
00:32:33Barclays,
00:32:34and Santander,
00:32:36hold over 85% of all deposits.
00:32:42As there are a limited number of banks in the system,
00:32:45the central reserve money can only be moved around them
00:32:48in a closed loop.
00:32:50The money is just circulating through the system
00:32:52over and over again.
00:32:54And if you think about it,
00:32:56a £1 coin could be used to make a billion pounds of payments
00:32:59if it was circulated a billion times.
00:33:02And that's effectively the system that you have now,
00:33:04is you have a small pool of real money
00:33:06that's just going round and round the system,
00:33:08and it's being used to make a huge quantity of payments on our behalf.
00:33:12Just before the crisis, there was only £20 billion
00:33:15in the accounts at the central bank.
00:33:20If they don't have enough of this central bank money,
00:33:23then effectively they can't make payments.
00:33:26And if that happens, then pretty quickly the entire system seizes up.
00:33:30So the Bank of England has the responsibility
00:33:32of making sure there's enough of this money in the system.
00:33:37The requirements for banks to hold a specific amount of reserves
00:33:41has changed many times since 1947.
00:33:44At that time, banks needed to hold a minimum ratio
00:33:47of 32% of reserves, cash or treasury bonds to deposits.
00:33:53In 2006, the corridor system was introduced,
00:33:57in which banks could set their own reserve targets each month.
00:34:04The rules changed again in March 2009,
00:34:07when the Bank of England introduced quantitative easing.
00:34:11Quantitative easing, in effect,
00:34:13gives settlement banks the central reserve currency for free.
00:34:20The central reserve currency is what is referred to as the real money
00:34:24in the fractional reserve model.
00:34:27But the fact is, banks can have as much of this as they want,
00:34:31and central reserve currency itself is a form of fiat money,
00:34:34which is backed by nothing.
00:34:37As a consequence, there is no longer a meaningful fractional reserve.
00:34:44The Bank of England
00:34:53If you look over the history, the last 150 years or so,
00:34:56you start off with the development of a gold standard
00:35:00that really comes to fore in the 1880s, 1890s,
00:35:03where essentially countries peg themselves to a particular defined value of gold,
00:35:07and then they have an agreement to fix that value,
00:35:11to hold that value and to trade gold amongst themselves
00:35:14to make sure the balances are all there,
00:35:17and also to try and restrict or expand or contract activity in their own economies
00:35:22to make sure that the balance, that particular fixed price is maintained.
00:35:26That disintegrates after the First World War.
00:35:29This is where the whole thing breaks apart.
00:35:32A very major dislocation in the international monetary system at that point,
00:35:36not really resolved until you get Bretton Woods agreements
00:35:39at the end of the Second World War,
00:35:41in which everything is pegged to the dollar and the dollar is pegged to the gold,
00:35:44so you're kind of one removed from gold backing
00:35:47or saying that there is a definite, you know, sort of solid commodity money
00:35:51behind the paper money and the credit money that we're all using over here.
00:35:54You're kind of one removed from it.
00:35:56After Hiroshima, Tokyo wondered when the next atom bomb would fall.
00:36:01They did not wonder long.
00:36:10In 1944, at Bretton Woods, the U.S. and the U.K. began to negotiate
00:36:16how to govern the world economy, the world monetary system,
00:36:21and came up with the World Bank and the IMF and a series of other institutions
00:36:25designed to manage the global currency.
00:36:28And there was still a gold standard,
00:36:30but this gold standard was going to be tied to the dollar.
00:36:33All of the world's gold had moved from London to Fort Knox,
00:36:38and all of the world's currencies were tied to the dollar.
00:36:42This system was designed to manage the sorts of imbalances,
00:36:47to avoid credit crunches, or for countries,
00:36:50credit crunches are known as balance of trades deficits,
00:36:53i.e. when they can't pay their bills and their currency collapses.
00:36:57The currencies were managed and the system was stable
00:37:02as long as the Americans played the role of oversight.
00:37:07Now, who knows the great story about how that all came to an end?
00:37:12So the quantity of money that was needed to pay for the Vietnam War,
00:37:16that's exactly what I was trying to get at.
00:37:18Oil shocks was another one.
00:37:20That meant that the Americans were no longer respecting their role
00:37:23or playing their role governing the monetary system.
00:37:25They were inflating the value of their own currency,
00:37:27but ostensibly it was meant to be tied, tied to gold and to every other currency.
00:37:32So what did the French do?
00:37:34The French were a little bit worried that President Nixon wasn't entirely honest.
00:37:41And they were worried that precisely what we described,
00:37:45that Nixon was printing money when he shouldn't have been, was going on.
00:37:50And they were worried there wasn't enough gold
00:37:53to honor the exchange rate of the French franc.
00:37:55So they sent a gunboat to New York Harbor
00:37:59to ever so politely ask for our gold back, please.
00:38:03Did they get their gold back?
00:38:06Go on, guess.
00:38:08They didn't.
00:38:09And the Bretton Woods system came to an end.
00:38:13And this is the point in which we enter the modern era of the financial system.
00:38:26Historically, money creation was pegged to a commodity, often gold.
00:38:31But today, it is pegged to nothing.
00:38:35Which means there is nothing backing our money.
00:38:39This piece of paper is just a piece of paper.
00:38:45Where does this leave us?
00:38:48If money is based on nothing, why do we think it has any value?
00:38:54Sorry?
00:38:57Because we can still go and exchange it.
00:38:58What? Somebody else is going to shout.
00:39:01Great little Latin fact.
00:39:02The word for credit comes from...
00:39:05Belief.
00:39:06Belief.
00:39:07Correct.
00:39:15Since the collapse of the dollar gold standard in 1971
00:39:19and the deregulation of the financial system,
00:39:22money creation has grown exponentially.
00:39:26The World Economic Forum meeting in Davos
00:39:30at the present time have called on a need for
00:39:35the credit within the economy,
00:39:39the global economy,
00:39:41to be expanded by 100 trillion dollars,
00:39:46100 trillion US dollars.
00:39:50A trillion is 12 noughts, so 100 trillion,
00:39:53if you want to imagine, is 1 followed by 14 noughts.
00:39:58They believe this credit expansion will create a boom
00:40:01because there is now more money in the economy
00:40:03with which to make investments.
00:40:06It's fascinating, the emergence of digital currencies,
00:40:09how it's transformed everything, really.
00:40:12Because it just completely unleashed private banks
00:40:16to dominate and create the money system that works for them
00:40:20and works for the people who run private banks.
00:40:27If we want to grow an economy, under the current setup,
00:40:29we have to have growing debt.
00:40:31You can't...
00:40:33This is something that very, very few people really understand,
00:40:36especially not the politicians who are managing the economy,
00:40:39which is a scary thought.
00:40:48As the money supply grows, more money is available,
00:40:52which can be invested in productive avenues.
00:40:55However, it can also be used to gamble and drive up asset prices.
00:41:15Inflation is a rise in the general level of prices of goods and services
00:41:19in an economy over a period of time.
00:41:23When the general price level rises,
00:41:25each unit of currency buys fewer goods and services.
00:41:30As the money supply grows and there is more currency available,
00:41:33more money is available for investment, which can lead to growth.
00:41:37But more money is also available for purchases of goods and speculation,
00:41:42which leads to inflation.
00:41:46Essentially, inflation is what happens
00:41:49when too much money is chasing too few goods and services.
00:41:55So there's too much money for the actual output of the economy.
00:42:04In the seven years between 2000 and 2007,
00:42:07the money supply doubled,
00:42:09and the central bank, the Bank of England in this time,
00:42:13was under the impression that they had it under control
00:42:16because they were saying prices aren't going up that much.
00:42:19Of course, they were only looking at prices in your local corner shop.
00:42:24They weren't looking at the price of housing,
00:42:26and housing is the biggest expenditure that most people will make.
00:42:38Increasing house prices may make you feel like you're becoming wealthier,
00:42:46but as your wealth increases,
00:42:48the effect is that your children's wealth is actually decreasing.
00:42:52In fact, there's no net gain in wealth
00:42:55because your children are going to have to pay even more
00:42:59when they want to buy a house.
00:43:02In effect, there's no net increase.
00:43:05They're going to have to earn even more.
00:43:07They're going to have to go into even more debt.
00:43:10Rising house prices do not create additional net GDP value to the economy.
00:43:18Actually, what they do is they redistribute wealth
00:43:22towards those people who already have houses, i.e., wealthier people,
00:43:26and remove it from poorer people who can't afford to get on the housing ladder.
00:43:31It's another example of a very regressive policy, actually,
00:43:35to allow house prices to simply inflate.
00:43:38It makes everybody feel kind of like things are going well
00:43:42and people spend more money on other stuff.
00:43:44They take equity out of their houses, but it's not creating new jobs.
00:43:48It's not enhancing the quality of the economy.
00:43:52It's not helping our balance of trade.
00:43:54It's not helping the public deficit.
00:43:56It's a zero-sum game.
00:44:00As of August 2011,
00:44:035.5% of consumer bank lending was secured as mortgages on dwellings.
00:44:09If you have somebody creating money that can only be spent on one thing,
00:44:13which is housing, then the price of that thing is going to go up.
00:44:16Between 2000 and 2010, they created over a trillion pounds of new money,
00:44:21£500 billion just in the three years before the crisis.
00:44:25That's why house prices went up the way they were.
00:44:28There's nothing special about houses.
00:44:30It was just all this funny money being pumped into that market.
00:44:33If money is spent into the economy,
00:44:36a lot of money goes into houses, for example, into mortgages,
00:44:41that's an increase in the amount of money in the economy
00:44:45without a corresponding increase in activity, in output, in GDP.
00:44:50It's non-GDP-based spending.
00:44:55That's what causes inflation.
00:44:58In the UK, we've had it in spades.
00:45:01We've had this massive housing boom.
00:45:04The main cause for the housing boom, in my opinion,
00:45:08is the huge amount of speculative credit created by the banks to go into houses.
00:45:14If houses were cheaper, they would be easier to build.
00:45:20More of them would be built.
00:45:22There would be less huge houses with hardly any people in them.
00:45:27London would not be the centre of a very rich, speculative orgy
00:45:33where all the richest people in the world want to get a property in London
00:45:37because it's seen as a great asset.
00:45:39Houses would be seen as places to live primarily rather than places to invest.
00:45:44The important thing to think about is,
00:45:46if you're a bank and you've got to make a loan, you have choices.
00:45:51You can give that loan to a small business
00:45:55and you'll know that the risk to you of that loan failing, defaulting,
00:46:00is actually quite high because that small business,
00:46:04the owners of that business, have limited liability.
00:46:07Which means if the business goes bust,
00:46:09you as a bank are getting nothing back, essentially.
00:46:12That's it.
00:46:13That's high risk compared to loaning your money to somebody with some collateral,
00:46:19with a house behind them, like a mortgage.
00:46:22There's a simple incentive for banks to prefer putting money into housing
00:46:27than into a small business.
00:46:29That's a real problem if you widen that out across a whole economy
00:46:35because it means there's an incentive to put money into speculative
00:46:39rather than productive investments.
00:46:42Again, we have to think about how we create a monetary system
00:46:46that is more balanced between those two kinds of speculative and productive investment.
00:46:51The government's showing very little, enormous reluctance to regulate the housing market
00:46:56and to, again, regulate the amount of money that banks put into houses.
00:47:01We don't decide who creates credit for what.
00:47:04No, we leave that to a couple of chaps in a bank to decide, basically.
00:47:15A bubble occurs when there is very high inflation in the price of a specific good or service
00:47:20over a short period of time.
00:47:25The idea of the tulips and their relevance
00:47:28is that we saw the first ever financial bubble and crash.
00:47:32The craze for tulips, black tulips being a mythical ideal
00:47:38of what somebody could genetically engineer through cultivation after many generations,
00:47:44became a mania in the Netherlands in the 1630s.
00:47:49What they didn't realize was that many of the very, very rare patterns on tulips
00:47:53were caused by a virus and weren't genetic at all.
00:47:56But they traded them to the extent that tulip bulbs got to the point
00:48:00where they were worth ten times the average annual salary
00:48:04of a person working in the Netherlands.
00:48:07There was a futures market in tulip bulbs
00:48:09because obviously you plant them now but you don't know what's going to come out of the ground.
00:48:12So we see already 400 years ago
00:48:15that a money system or a financial system is not something that exists in the abstract,
00:48:19somewhere out there in the ether,
00:48:22but something that was to do with states, power, trade
00:48:27and how they interact with each other.
00:48:31Unlike tulips, which are a disposable luxury,
00:48:35houses are both a necessity and a luxury
00:48:38and as such they are ideal as a vehicle for money and bubble creation.
00:48:45A dwelling is perhaps the most prized possession of value most people aspire to.
00:48:54Inflating house prices in this way allows a nation to expand its money supply
00:48:59without affecting inflation data.
00:49:02The additional purchasing power created
00:49:05increases the perceived wealth in relation to other nations
00:49:09and thus it creates relative power.
00:49:12It is a way of increasing monetary power
00:49:15without investing in the productive growth of industry.
00:49:20But certainly if you look at Britain and America as outstanding examples of this,
00:49:24these are countries with very high rates of private home ownership
00:49:27so you've got a good base to try and perform this sort of policy off the back of,
00:49:31I think it was quite deliberate in the case of the US, almost explicit.
00:49:35It was Alan Greenspan, the head of the Federal Reserve,
00:49:38when confronted by a stock market crash at the end of the 1990s,
00:49:43quite deliberately slashed interest rates to almost zero.
00:49:47Everyone can borrow very, very cheaply.
00:49:50In particular, it's very easy to borrow against a house
00:49:53because this is an asset and it's potentially something that a bank can say,
00:49:56well okay, we're not just lending you money.
00:49:58Unsecured, you actually do have a house and that's great because we can repossess it.
00:50:02They won't tell you this when you take the mortgage but they can do this
00:50:05and that bubble is then what fuels expansion such as it is inside the US
00:50:10and inside the UK where something similar takes place for the next decade or so.
00:50:14I think it's also a reflection of an underlying weakness of these governments
00:50:18that they simply lack the will and possibly the ability,
00:50:23but I think it more comes down to a will to challenge financial markets,
00:50:27to challenge big capital and say we're going to do something different now
00:50:31and you're going to have to go along with it because we've been democratically elected
00:50:35and you lot frankly haven't and we have a mandate to do this and we're going to make this happen.
00:50:39Just remember it's all part of the plan.
00:50:42What are you yapping about? You voted for it.
00:50:48In Holland or in the Netherlands,
00:50:50what we had over a period of trying to get independence initially from Spain
00:50:55and trying to raise money to get an army to free themselves was financial innovation.
00:51:00They innovated public lotteries to get money together.
00:51:03They had public subscription.
00:51:05This was the idea that led to the idea of public shares,
00:51:08a piece of the action that anybody could invest in.
00:51:10That meant that something like two-thirds of the population was investing in tulip bulbs by the 1630s.
00:51:16After independence these instruments were applied to financing expansion.
00:51:22Why was such a small country able to hold its own against so much bigger countries,
00:51:27for example Spain and Portugal that had the benefits of their empires for over a century
00:51:32in respect of the Netherlands?
00:51:35Why could they compete? On what resource basis?
00:51:38Well they had a more efficient, a more involved and a broader based financial system
00:51:44with these instruments that they'd innovated that allowed them to bring more money to bear
00:51:49at one point than anybody else more quickly.
00:51:54Incredible.
00:51:57But true.
00:52:05Now inflation can be avoided if the amount of money that goes into the economy
00:52:11is regulated in a way that it doesn't exceed the actual activity that's happening in the economy.
00:52:20Now the best way to do that in my opinion is to make sure that money is issued into the economy
00:52:26only for productive investment, for productive goods and services.
00:52:33So money goes in to help a small business start up, which creates jobs,
00:52:39which creates additional purchasing power, which means there's no inflation.
00:52:46During their history almost all central banks have employed forms of direct credit regulation.
00:52:52The central bank would determine desired nominal GDP growth,
00:52:56then calculate the necessary amount of credit creation to achieve this,
00:53:00and then allocate this credit creation both across the various banks
00:53:04and type of banks and across industrial sectors.
00:53:08Unproductive credit was suppressed.
00:53:12Thus it was difficult or impossible to obtain bank credit for large scale,
00:53:17purely speculative transactions, such as today's large scale bank funding to hedge funds.
00:53:24The World Bank recognised in a 1993 study that this mechanism of intervention in credit allocation
00:53:30was at the core of the East Asian economic miracle.
00:53:34There's all sorts of things that governments have done in the past,
00:53:37very successfully in a number of cases, and often not unsuccessfully in this country,
00:53:42but the examples that spring to mind like South Korea, Japan,
00:53:45often in East Asia where governments have been quite targeted about how they're going to rebalance the economy
00:53:50and picking sectors and deciding where the investment should take place.
00:53:53I think that has to start happening in the UK because we're in a demand side recession
00:53:58rather than looking at a crisis of supply.
00:54:00You have to have a system where credit is put into productive avenues,
00:54:07where credit is put into building high speed rail links,
00:54:10where credit is put into building houses rather than giving people money to inflate the price of houses.
00:54:17So it's quite simple, really, in that way.
00:54:21And the current system is simply set up not to do that, basically.
00:54:27The creation of money by private banks for non-productive usage causes real inflation
00:54:33and as such it is a tax on the purchasing power of the medium of exchange.
00:54:38The figures for the UK are quite stark, actually.
00:54:48The average, median, real incomes, so that's the bit in the middle,
00:54:55for most people declined over the last eight years or so.
00:54:58They're now in quite sharp decline as we go into the recession,
00:55:01the sharpest really since, it looks like since about the 1930s, put it that way.
00:55:05So real incomes are declining.
00:55:08Bank-created fiat currency allows the private banks to suck wealth from the economy
00:55:13and over time results in a gradual decrease in the standard of living.
00:55:18As people become poorer they become even more dependent on debt
00:55:23and this at a time when efficiency and machination have improved dramatically.
00:55:29If you go back to the 1960s and we were looking forward to an age of leisure,
00:55:36what they were talking, television programs saying,
00:55:39what's people going to do with all their spare time?
00:55:42And now we've got more people working harder than ever,
00:55:46spending more than ever, which looks great, everyone's spending more,
00:55:51everyone says, oh yeah, but if you're not actually benefiting from what you're spending,
00:55:57if you're having to spend the money on childcare costs, on commuting costs and so forth,
00:56:04costs that people didn't in the past used to have to pay,
00:56:08because you could walk to work and one member of the family was able to stay at home
00:56:13and be a permanent homemaker, then you're not actually any better off.
00:56:18Everyone's under such enormous pressures nowadays.
00:56:24I am conscious that my four nephews and nieces are facing difficult times.
00:56:31They're just going to find themselves having to work very hard
00:56:38just to get a roof over their heads.
00:56:43People are getting poorer in real terms.
00:56:45It's because prices are always going up,
00:56:47because all this new funny money is being pumped into the system by the banks
00:56:52and they're creating it all as debt.
00:56:55So at the same time as prices are going up and things are getting more expensive,
00:56:58we're getting further and further into debt
00:57:00and our wealth and the return that we get from actually working is getting less and less all the time.
00:57:06You can't deal with poverty when you have a financial system
00:57:10and a money system that distributes money from the poor to the very rich.
00:57:14Any distribution that you try and do in the opposite direction is effectively pissing in the wind.
00:57:21If you look at issues like increasing inequality,
00:57:25one obvious way to tackle inequality is to have, say for example, a redistributive tax system.
00:57:31You tax the rich, you give some money to the poor, you move a bit of money down the scale.
00:57:36That's all very well, but if you completely overlook the fact that there's another redistributive system
00:57:43which is taking money from the poor and giving it to the rich,
00:57:46then you're not really going to tackle this inequality.
00:57:50The way a debt-based money system works, it guarantees that for every pound of money,
00:57:56there's going to be a pound of debt.
00:57:58That debt is typically going to end up with the poor, the lower middle classes.
00:58:03Those people end up with the debt and they end up paying interest on that money,
00:58:07which then goes back to the banking sector and gets distributed to the people working in the city or in Wall Street.
00:58:15What this system does overall is it distributes money from the poor to the rich, essentially.
00:58:21It distributes money from the poorer regions of the UK back to the City of London.
00:58:28It also distributes money from all the small businesses, all the little factories around the UK
00:58:35and distributes that money back into the financial sector.
00:58:38We have a system whereby the activity of actually supplying occurs under the very same roof
00:58:45as the same organisation that's responsible for profiting from putting together borrowers and lenders, i.e. a bank.
00:58:52So a bank creates our nation's money supply as well as making loans for profit.
00:59:01The government cannot allow the banking system to fail
00:59:04because if it did, over 97% of all money would disappear.
00:59:09This is why in the event of a crisis, the risk is transferred to the taxpayer.
00:59:14But even during normal times, banks receive numerous guarantees and benefits beyond the right to create money.
00:59:21Bill, by the way, I know the Bank of America is a very big bank. It happens I've got $32 there myself.
00:59:27Just between us, what assurance do I have that this money is safe?
00:59:32Well, all deposits up to $10,000 are insured by the federal government in Washington.
00:59:38That's my guarantee?
00:59:39Yes.
00:59:40Have you heard that the federal government is about $280 billion in the hole?
00:59:49Banks receive large safety nets from the government.
00:59:52The taxpayer guarantees £85,000 as deposit insurance
00:59:58and the Bank of England provides liquidity insurance in case a bank runs out of reserve currency.
01:00:09Someone wrote that a big investment bank is like a giant vampire squid
01:00:15wrapped around the face of humanity, hypnotising politicians who throw money at the banks,
01:00:22no strings attached, no matter what damage is done.
01:00:27Trashing the planet.
01:00:29Forcing cuts to things that make life better.
01:00:33Goodbye schools.
01:00:35Goodbye playgrounds.
01:00:37Goodbye jobs.
01:00:40The bankers that we bailed out then gave themselves bonuses that were bigger than the first wave of public spending cuts.
01:00:50Britain alone gave the banks more money than it cost to put a man on the moon six times over.
01:00:59Where did our money go?
01:01:01Who let the banks get away with it?
01:01:04Why?
01:01:06Can vampire squids ever be useful?
01:01:10No government yet is brave enough to tame them.
01:01:14Perhaps they need a plan.
01:01:20The Spending Cuts Agenda
01:01:36The Spending Cuts Agenda is an attempt by the government to shift debt from its account to that of the public.
01:01:43This is the government's response to the bank bailouts and is necessary in a debt-based monetary system
01:01:50where increased purchasing power is the result of growing debt
01:01:54and where a diversification of debt provides overall stability and market confidence.
01:02:00Policies such as student fee increases and the privatisation of public services, assets and industry follow the same model.
01:02:08The problem we're facing I think is that there's this transference from the public debt to the private debt
01:02:16which is essentially a way of transferring risk away from UK, PLC and the government onto the heads of individuals
01:02:26and it's going to be the most vulnerable individuals who are going to have the most debt.
01:02:30Thus it's a very unprogressive, regressive policy framework that the government's embarking on
01:02:36where the risk is moved onto those who are most vulnerable
01:02:41and if there is another financial shock, if there's an oil shock for example
01:02:45the people who will pay the penalty are those who are the poorest people in society
01:02:49or homeowners for example who will fall into negative equity if interest rates go up even 1 or 2%
01:02:56there'll be real, really big problems.
01:02:59So I don't think it's a sensible way forward at the moment at all
01:03:02and it's regressive and it's certainly not fair in the terms that the government's talking about
01:03:09and it's certainly not a case of we're in this together.
01:03:12As more of a country's resources and industries are privatised, the private sector takes on more debt.
01:03:19As a result, more money is created and there is a boon.
01:03:24Some private equity companies have taken this theory to the extreme
01:03:29engaging in a practice known as a leveraged buyout
01:03:33where a company is purchased at an often inflated price
01:03:37and the purchase price is transferred to the business as a debt.
01:03:42The company becomes responsible for the funding of its own purchase.
01:03:47These debts are often so great that the company needs to reduce staff, salaries and research activities.
01:03:55When you have to factor interest as a business, if you have to factor interest repayment into your goods and services
01:04:02then you have to charge a perpetually higher price as you take on more and more debt.
01:04:07An increase in the diversification of debt results in an increase in the money supply.
01:04:13When the money supply increases, more money is available for productive activities and consumption
01:04:19which is the condition for a boon.
01:04:24It's questionable whether we're going to get out of this recession
01:04:27or whether we'll just keep ticking along the way that we are now.
01:04:30However, if we do, then when we come out of this recession, when growth starts again
01:04:36look at what happens to debt. It will rise and it will keep rising
01:04:40and the faster the economy is growing, the faster the debt will rise
01:04:43and then give it another three to five years, we'll be back where we were.
01:04:48The debt will become too much, people will start defaulting again.
01:04:51It's kind of the system that we're locked into now.
01:04:54We can't grow the economy without growing the debt
01:04:57and the debt is the very thing that will bring down the economy.
01:05:00The only option going forward is to reform it, to stop banks from creating money as debt.
01:05:05By fixing the monetary system, we can prevent the banks from ever causing another financial crisis
01:05:11and we can also make the current public service cuts and the tax rises
01:05:16and the increase in national debt unnecessary.
01:05:21The current monetary system allows the banking sector to extract wealth from the economy
01:05:26whilst providing nothing productive in return.
01:05:30Why is it that we've got all this technology, all this new efficiency
01:05:36and yet it now requires two people to finance a household
01:05:40whereas in the fifties it only needed one person working.
01:05:44And the reason for that is not because these washing machines and everything are more expensive
01:05:48it's because of all the debt
01:05:51and it's because effectively the banking sector is creaming it off from everybody else.
01:05:55So a growing banking sector isn't a sign, it's not a good thing.
01:05:59If the banking sector is growing, it's either that it's becoming less efficient
01:06:03or it's becoming a parasite on the rest of the economy.
01:06:06We can talk about the banking sector becoming 4%, 5%, 6% of GDP.
01:06:11What's happening to the rest of the economy?
01:06:14It's becoming 96%, 95%, 94% of GDP.
01:06:16We've got to get switched on to this now.
01:06:19If we want to have a chance of tackling any of the other big social issues
01:06:24you've got to figure out the money issue.
01:06:26The poorest in the world pay for crises
01:06:29even when they've not benefited from the often reckless and speculative booms
01:06:35like the housing boom in Ireland that preceded that crisis.
01:06:39Over the last 30 years we've seen income differentials increase
01:06:43so that the rich have got much, much richer
01:06:46and ordinary people haven't.
01:06:48They've stayed the same or they've got poorer.
01:06:50And one of the ways that the economy was kept going was by providing cheap credit,
01:06:55was by providing debt to those very people who couldn't really afford things anymore.
01:06:59So they kept buying.
01:07:01And when it collapses, it's those same people that have to pay once again
01:07:06even though in many ways they were the victims the first time round.
01:07:09As a result of the crises, the Bank of England has bought corporate debt
01:07:14and repackaged it at lower rates of interest.
01:07:17Yet the average person is being asked to pay more than ever
01:07:21to borrow on overdrafts and credit cards.
01:07:24Debts between the very wealthy or between governments
01:07:29can always be renegotiated and always have been throughout world history.
01:07:33They're not anything set in stone.
01:07:34It's generally speaking when you have debts owed by the poor to the rich
01:07:38that suddenly debts become a sacred obligation more important than anything else.
01:07:42The idea of renegotiating them becomes unthinkable.
01:07:46Can you pin down exactly what would keep investors happy,
01:07:51make them feel more confident?
01:07:53That's a tough one.
01:07:56Personally, it doesn't matter.
01:07:59I'm a trader. I don't really care about that kind of stuff.
01:08:02If I see an opportunity to make money, I go with that.
01:08:05So for most traders, we don't really care that much
01:08:09how they're going to fix the economy, how they're going to fix the whole situation.
01:08:14Our job is to make money from it.
01:08:16And personally, I've been dreaming of this moment for three years.
01:08:20If you know what to do, you can make a lot of money from this.
01:08:24I had a confession, which is I go to bed every night.
01:08:28I dream of another recession.
01:08:29I go to bed every night. I dream of another recession.
01:08:31I dream of another moment like this.
01:08:33I dream of another recession.
01:08:35I dream of another moment like this.
01:08:37You can make a lot of money from this.
01:08:50The way in which you can look across Europe now
01:08:54and see that the new prime minister of Greece, not elected,
01:08:56essentially imposed, Papademos, former employee of Goldman Sachs,
01:09:01the new prime minister and finance minister of Italy, Mario Monti,
01:09:04former employee of Goldman Sachs,
01:09:06the new president of the European Central Bank,
01:09:08former employee of Goldman Sachs.
01:09:10You see these people popping up absolutely everywhere.
01:09:13That's the way to change what we have.
01:09:15Take all power and all freedoms away from the people
01:09:18and collect everything into the hands of one small group with absolute power.
01:09:22From the people, without the people, against the people.
01:09:29What's been interesting out of all this, I suppose,
01:09:32is the question of democracy that's been opened up very starkly in Europe,
01:09:36that you have a government of bankers essentially imposed on you.
01:09:39It's bankers who more or less got us into this mess, to put it rather crudely,
01:09:43but that's a good first approximation to it.
01:09:45And then you say, OK, bankers are the people who are therefore going to get us out of it.
01:09:48And, incidentally, they're going to run your country now.
01:09:49There's a serious question of democracy that's opened up here.
01:09:53By the way, the banking crisis drove more than 100 million people back into poverty.
01:10:01The mortality statistics of people who go into poverty rise hugely for a whole range of reasons.
01:10:10So the banking crisis isn't just about becoming poorer, it was about killing people as well.
01:10:16And guess what?
01:10:18We haven't really got to the bottom of it.
01:10:21We never held anybody to account,
01:10:23and we haven't done the radical reforming job that we really needed to do.
01:10:27Because we mistakenly thought, if we destabilise the position any further,
01:10:33it'll make matters worse.
01:10:35And guess who took the decisions?
01:10:37All the people who were there in the first place.
01:10:41I think you ought to know that the business of one of these businessmen is murder.
01:10:48Their weapons are modern.
01:10:51They are thinking 2,000 years out of date.
01:11:00Look, I was there when the Secretary and the Chairman of the Federal Reserve came those days
01:11:06and talked with members of Congress about what was going on.
01:11:09It was about September 15th.
01:11:11Here's the facts, and we don't even talk about these things.
01:11:14On Thursday, at about 11 o'clock in the morning,
01:11:18the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States
01:11:27to the tune of $550 billion.
01:11:32It was being drawn out in a matter of an hour or two.
01:11:36The Treasury opened up its window to help.
01:11:40They pumped $105 billion in the system and quickly realised that they could not stem the tide.
01:11:47We were having an electronic run on the banks.
01:11:50They decided to close the operation, close down the money accounts
01:11:55and announce a guarantee of $250,000 per account
01:12:00so there wouldn't be further panic out there.
01:12:02That's what actually happened.
01:12:04If they had not done that, their estimation was that
01:12:07by 2 o'clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States,
01:12:17would have collapsed the entire economy of the United States
01:12:21and within 24 hours the world economy would have collapsed.
01:12:29When money is withdrawn internationally from one currency to another,
01:12:33the reserve currency shifts from the national bank of one country
01:12:37to the reserve account of the foreign bank.
01:12:40Foreign banks have relationships with local banks
01:12:44that allow them to hold foreign reserve currencies
01:12:47whilst not being a part of the central bank scheme at the local central bank.
01:12:55For example, when £1,000 is transferred into Euros,
01:12:59a UK bank will agree an exchange rate with a Euro area bank,
01:13:04perhaps 1.15 Euros to the pound.
01:13:08The UK bank will then transfer £1,000 of the central reserve currency
01:13:14to the UK partner bank of the European bank
01:13:17whilst the European bank will transfer 1,150 Euros of reserve currency
01:13:24to the European partner bank of the UK bank.
01:13:26What happens when currencies and the exchange rate system is no longer managed?
01:13:31What are some of the first consequences?
01:13:33Devaluations.
01:13:35Speculation.
01:13:37Imbalances.
01:13:39It's where some countries would accrue more and more and more.
01:13:42What? What would they accrue?
01:13:44Other currencies.
01:13:46Other currencies.
01:13:50The reserve currency needs to be spent in the country of origin
01:13:53or exchanged into other currencies.
01:13:56Most foreign banks do not have deposit-taking accounts outside of their national borders
01:14:02and as such, the foreign reserves they hold do not come back to them in the form of deposits.
01:14:10When a country accumulates trade imbalances,
01:14:13it either accumulates foreign reserve currencies in the case of surplus
01:14:18or spends its own reserves in the case of negative trade balances.
01:14:23Balance of trade is basically the difference between what you're selling abroad
01:14:30and what you're buying from abroad.
01:14:32Now, the feature on the UK is that for a very long period of time
01:14:38it's had a deficit on something called a visible balance of trade
01:14:42which is trading things, well, things that you can sell,
01:14:44so that is goods that you'd recognise, stuff you can put in containers,
01:14:48it's cars, computers, things that you'd see in a shop.
01:14:52That's been a substantial deficit for, I think it opened up in the,
01:14:56it did open up in the early 1980s and essentially it hasn't,
01:15:00it hasn't gone away since and if anything it's got wider and wider.
01:15:03Foreign exchange reserves cannot be directly used for domestic spending.
01:15:08The money can only be spent abroad,
01:15:10or on imports.
01:15:14A country with a large balance of trade deficit relies on its creditors
01:15:19to spend the imbalances accrued in its own market.
01:15:24There have been proposals in the past to try and create a mechanism
01:15:28for those imbalances to match up.
01:15:31So Keynes, for instance, John Maynard Keynes,
01:15:34at the end of the Second World War,
01:15:36his original proposal for what became Bretton Woods
01:15:40and the set of institutions set up there, like the IMF and the World Bank,
01:15:44was that there would be a kind of international clearing union.
01:15:47This is particularly relating to the trade side rather than the,
01:15:50sort of the financial side directly.
01:15:52But the principle was that, you know, once trade balances had opened up,
01:15:55everybody would bank through an international clearing bank
01:15:58and that would kind of force everyone to eventually reconcile
01:16:02the imbalances that appeared at the time.
01:16:04Reconcile the imbalances that appeared in the real economy.
01:16:07But no such mechanism exists.
01:16:10The accumulated net trade imbalance for the UK is around 800 billion pounds.
01:16:25In essence, what has happened is that over many years,
01:16:28some countries have had big trade surpluses
01:16:31and others big trade deficits.
01:16:32The countries with trade deficits have been spending more than they've been earning,
01:16:36so they've had to borrow from abroad.
01:16:38And they've been doing this year after year.
01:16:41Countries like that are the United States, ourselves,
01:16:45and some other countries in Europe.
01:16:47That cannot go on.
01:16:49And there are two ways in which this can come to an end.
01:16:52Either, and we're seeing this in some other countries in Europe,
01:16:55if they can't find new ways to become competitive,
01:16:58then their ability to repay the debts is called into question.
01:17:00Another way of doing it, which we've followed,
01:17:03is that we've got a credible plan to repay our debts.
01:17:06And the value of sterling has fallen by 25%
01:17:09to make our exports more competitive and attractive to overseas buyers,
01:17:13and to be more attractive for British consumers to buy
01:17:17from British producers rather than overseas producers.
01:17:20That is what we have done to put in place a framework
01:17:23to rebalance our economy.
01:17:25And I'm sure that's the right way to do it.
01:17:27Currency war.
01:17:29Currency war, also known as competitive devaluation,
01:17:33is a condition where countries compete against each other
01:17:37to achieve a relatively low exchange rate for their currency.
01:17:40As the price to buy a particular currency falls,
01:17:43so too does the real price of exports from that country.
01:17:47Domestic industry receives a boost in demand,
01:17:51both at home and abroad.
01:17:54It's made British exports appear rather cheaper,
01:17:56so they've kind of recovered a little bit,
01:17:59but because the rest of the world is now looking really quite ropey,
01:18:02they've started to fall back down again.
01:18:04So what we're looking at is something that is almost a kind of anarchy,
01:18:07and in a way, increasing anarchy.
01:18:09This is what's happened over the last few years,
01:18:11where the Brazilian finance minister has been most vocal about this,
01:18:14talking about currency wars,
01:18:16talking about the desire of national governments
01:18:20when confronted by a major recession.
01:18:22They think, if we could export more,
01:18:23we could dig ourselves out of this recession.
01:18:26If we want to export more, we depreciate our currency.
01:18:29That makes our goods cheaper, everyone else buys them,
01:18:31we'll all be better off.
01:18:33Now, the issue here is that if you depreciate,
01:18:35it's like everybody else appreciates against you.
01:18:37Their stuff becomes more expensive,
01:18:39so they're not too happy about that.
01:18:41They also want to depreciate.
01:18:43This is where you can see a competitive round of devaluations breaking out.
01:18:46To decrease the value of its national currency,
01:18:48a national central bank sells reserve currency into the market.
01:18:51It creates this currency out of nothing,
01:18:54by typing numbers into a computer.
01:19:11During the long phase of commodity money,
01:19:14the exchange rate would depend on the amount of money
01:19:16the exchange rate would depend on the amount of gold,
01:19:19silver or copper contained in the coins of each country.
01:19:23Similarly, after the advent of paper money and the gold standard,
01:19:28the exchange rate depended on the amount of gold
01:19:31the government promised to pay the holder of the banknotes.
01:19:34These amounts did not vary greatly in the short term,
01:19:37and as such, exchange rates between currencies were relatively stable.
01:19:41After the Second World War,
01:19:44currencies were pegged to the dollar,
01:19:47and the dollar was backed by gold.
01:19:50This system came to an end in 1971.
01:19:53So, we have a modern financial system,
01:19:56where money is now chaotically organised.
01:20:00There is no exchange rate,
01:20:02because there's no gold standard system to sustain,
01:20:05so we don't need it.
01:20:07In fact, we believe the market will resolve all of the problems of exchange,
01:20:10whether your currency should be worth more than mine
01:20:13is a reflection of your economy relative to mine.
01:20:16And if that changes, the currency and the exchange rate can change.
01:20:19And if we need that to happen,
01:20:21it will happen magically by the efficiency of market and profit-seeking
01:20:24and you guys know the rest, I think.
01:20:27A currency's value in relation to another currency
01:20:31is determined by the market.
01:20:33If more people want to buy a currency than sell it,
01:20:36its value increases.
01:20:37If more people want to sell,
01:20:40its value decreases.
01:20:42The value is set by individual banks.
01:20:45As they buy and sell currencies,
01:20:48they will adjust the exchange rate.
01:20:50In the last study I read in 2007,
01:20:54each day on currency markets,
01:20:573.2 trillion dollars are traded.
01:21:02Each day.
01:21:04Who knows what the global GDP is?
01:21:0750.
01:21:09Again, Brucey, higher.
01:21:1160, that's closer.
01:21:13The point is, think about that exchange
01:21:16happening every single day.
01:21:18There's about 260 business days a year.
01:21:21It takes a few weeks
01:21:23to match the global value of every economic transaction
01:21:27that happens everywhere, every day, in a year.
01:21:32And it takes a few weeks.
01:21:33Obviously, all of us trade currency fairly regularly.
01:21:37If you go abroad, you exchange into another currency.
01:21:39That's a form of currency trading.
01:21:41You're swapping your pounds into whatever, euros or yen,
01:21:44or whatever it might be.
01:21:46That happens fairly regularly,
01:21:48and that's a conventional part of the trading process.
01:21:50Large corporations have to do this on a regular basis.
01:21:53Where it becomes something that people question,
01:21:56where you get people saying,
01:21:58well, hang on, this is speculation,
01:22:00is when you get people realising that currencies
01:22:01move around next to each other,
01:22:03and if they move around in value next to each other,
01:22:05there's always an opportunity to try and make money
01:22:07out of those changes in value,
01:22:09and therefore you can speculate on it.
01:22:11And that's the more questionable end of the market.
01:22:13That's the bit of the market
01:22:15that things like a financial transactions tax
01:22:17would try and chop away at.
01:22:19Because the assumption there,
01:22:21and it's not incorrect,
01:22:23is that this just produces instability for everyone else.
01:22:25That these people want volatility in the market,
01:22:27because that's how they make their money.
01:22:29They want to encourage it,
01:22:31but they don't want to encourage it
01:22:33by manipulating it the way that they do.
01:22:35By 2010,
01:22:37the foreign exchange market
01:22:39had grown to be the largest
01:22:41and most liquid market in the world,
01:22:43with an average of $4 trillion of currency
01:22:45being exchanged every day.
01:22:50Volatility creates a need.
01:22:52What does it do to countries,
01:22:54especially perhaps small ones,
01:22:56like developing countries,
01:22:58if there are suddenly
01:22:59huge and instantly fluctuating financial flows?
01:23:04What do they have to do to cope?
01:23:09Increase their production and sell more.
01:23:12Lowering the price.
01:23:15And becoming possibly even poorer.
01:23:17Once you start talking about the international system,
01:23:19it becomes really quite a peculiar thing,
01:23:23in that a lot of it depends on
01:23:26simply sentiment and beliefs
01:23:27about what an economy is like,
01:23:29rather more than it depends on anything
01:23:31the economy might or might not actually be doing.
01:23:33And that can shift very, very rapidly,
01:23:35because if it's just somebody's belief
01:23:37about currency is supportable,
01:23:39then they can carry on believing this
01:23:41until, well, until whenever.
01:23:43If that belief changes,
01:23:45it can change very rapidly in a financial market.
01:23:47The process of financial contagion
01:23:49can take place in just minutes,
01:23:51seconds even,
01:23:53that you can just move from
01:23:55being apparently quite a stable,
01:23:57stable economy
01:23:59to being one that suddenly
01:24:01sentiment has turned against you
01:24:03and you find that markets are picking on you.
01:24:05And it can often be not much more than
01:24:07you're simply a next-door neighbour of
01:24:09a country that's currently in trouble.
01:24:13Many of the world's financial crises
01:24:15in the past 30 years
01:24:17have been caused by rapid withdrawals
01:24:19of the nation's currency
01:24:21or the currencies of an entire region.
01:24:24This type of activity is often referred to
01:24:25as financial warfare.
01:24:29It's benefited major institutions
01:24:33really quite substantially.
01:24:35Goldman Sachs, for example,
01:24:37or any large bank,
01:24:39has done somewhat better
01:24:41out of this set of arrangements
01:24:43than it would have done
01:24:45in a far more regulated environment.
01:24:47It's made people very, very wealthy.
01:24:49It's allowed financial markets
01:24:51to expand absolutely enormously.
01:24:53Anybody involved in that
01:24:55which has been quite
01:24:57overtly and deliberately
01:24:59and aggressively arguing against
01:25:01any forms of regulation
01:25:03being imposed on those financial markets,
01:25:05well, it's not the case that
01:25:07someone's behind the scenes
01:25:09pulling the strings.
01:25:11This is how the thing works
01:25:13quite deliberately, quite overtly
01:25:15in front of you.
01:25:17That's the world as it is.
01:25:19It's making some people very rich.
01:25:21They're quite happy with it.
01:25:23I think it is a form of economic warfare.
01:25:25The way that the global economy works
01:25:27over the last 30 years
01:25:29results from this debt,
01:25:31this third world debt,
01:25:33because it's given rich countries
01:25:35and banks and the financial sector
01:25:37enormous amounts of power and control
01:25:39over the poorer bits of the world
01:25:41where a lot of the resources are
01:25:43that we like using.
01:25:45That's been used in a way
01:25:47that many people have compared
01:25:49to a form of colonialism.
01:25:51It's a very real, direct form of power
01:25:53that's been used over those countries
01:25:55to do what are really in the interests
01:25:58of the richest segments of the world
01:26:00that they do.
01:26:02As a result of that,
01:26:04not only have corporations
01:26:06made huge amounts of profits
01:26:08and become absolutely enormous
01:26:10and all-pervasive,
01:26:12but the financial sector
01:26:14has become even bigger than that.
01:26:16The real money in the world
01:26:18to be made today
01:26:20is not by producing anything at all.
01:26:22It's simply by forms of speculating,
01:26:23basically making money from money.
01:26:25That's the most profitable
01:26:27and by far, in a way,
01:26:29the biggest form of activity,
01:26:32of economic activity
01:26:34that exists in the world today.
01:26:36To protect themselves,
01:26:38vulnerable countries need to accrue
01:26:40currency from rich countries
01:26:42who create these currencies
01:26:44out of nothing.
01:26:46The Netherlands,
01:26:48first Governor General of Indonesia,
01:26:50the man who built the trade routes,
01:26:51who unified them,
01:26:53what I mean by that
01:26:55is built forts along them
01:26:57and fought Spanish fleets
01:26:59and British fleets,
01:27:01said about the development
01:27:03of the Netherlands empire
01:27:05and Netherlands trade was
01:27:07we cannot make trade without war
01:27:09nor war without trade.
01:27:11Money and power.
01:27:13So reserves have become
01:27:15the way in which
01:27:17you can insure yourself
01:27:19against what?
01:27:21Speculation.
01:27:23You said speculation.
01:27:25Speculative attack.
01:27:27Falling markets.
01:27:29Bubbles.
01:27:31When a country succumbs
01:27:33to a speculative attack,
01:27:35it is asked to deregulate
01:27:37its markets
01:27:39and conform its financial system.
01:27:40To that of the dominant party.
01:27:44The big problem
01:27:46that's faced by most developing countries
01:27:48who got into a debt crisis
01:27:50was that they were told
01:27:52by the powers that be in the world,
01:27:54the International Monetary Fund,
01:27:56which in many ways
01:27:58governs the global financial system,
01:28:00that the way to get out of debt
01:28:02actually is first of all
01:28:04to restructure your economy,
01:28:06especially to increase your exports
01:28:08so you're earning more dollars
01:28:10than you're earning in dollars
01:28:12or some other foreign currency.
01:28:14Unfortunately, time and time again
01:28:16that was proved to not be the case at all.
01:28:18Actually, countries cut back
01:28:20their public spending to the bone
01:28:22so they stopped growing,
01:28:24they stopped having any potential for growth
01:28:26and what they did produce
01:28:28was aimed at the export market,
01:28:30was aimed at creating dollars and so on.
01:28:32So they were paying off their debts
01:28:34but they weren't developing
01:28:36their own economy at all.
01:28:38They were paying far, far, far more
01:28:40and their debts just kept getting
01:28:42bigger and bigger and bigger.
01:28:44The country becomes a vassal state
01:28:46allowing large corporations
01:28:48to exploit its natural resources
01:28:50and workforce.
01:28:56It's not even shadowy.
01:28:58There's no great mystery
01:29:00about what's happening here
01:29:02and about the way the world operates.
01:29:04It's quite blunt.
01:29:06For the last 30 years
01:29:08you've got something
01:29:10called neoliberalism,
01:29:12this idea that you should have
01:29:14floating exchange rates,
01:29:16weak regulation, particularly
01:29:18in financial markets,
01:29:20minimal government interference
01:29:22or involvement with what market does
01:29:24and that's more or less
01:29:26how the world operates.
01:29:28And then there are institutions
01:29:30and the outstanding one at this point
01:29:32is the IMF that will actively
01:29:34try and enforce this state of affairs.
01:29:36So it's not greatly shadowy
01:29:38if you see what I mean
01:29:40it's more than my entire adult life
01:29:42is what it starts to look like.
01:29:44This is how the world is operated
01:29:46and it's made some people
01:29:48very, very wealthy.
01:29:50It's produced enormous
01:29:52concentrations of wealth.
01:29:54So when the International Monetary Fund
01:29:56comes in in order to try
01:29:58and alleviate a country's debt problems
01:30:00it imposes a set of conditions
01:30:02and in the 1980s and 90s
01:30:04they called that set of conditions
01:30:06Structural Adjustment,
01:30:08Structural Adjustment Programme
01:30:10which exists today
01:30:12in countries like Greece
01:30:14and Portugal and Ireland
01:30:16where countries are instructed
01:30:18to decrease the amount
01:30:20that they spend
01:30:22on the public sector.
01:30:24They are instructed
01:30:26to liberalise their trade market
01:30:28and liberalise their capital market
01:30:30so money can much more easily
01:30:32come in and out of their economy.
01:30:34And the idea is
01:30:36that this will encourage investment
01:30:38to come in from richer parts
01:30:40of the world.
01:30:42And in actual fact
01:30:44this has proved time and time again
01:30:46to be completely without foundation.
01:30:48In actual fact what happens
01:30:50is it destroys fledgling industries
01:30:52and capacities in these developing countries
01:30:54and developing countries
01:30:56become completely dependent
01:30:58on goods and services
01:31:00from developed countries
01:31:02and also from capital
01:31:04from developed countries.
01:31:06One of the things
01:31:08the International Monetary Fund
01:31:10wants to do
01:31:12is encourage more multinational corporations
01:31:14to come in.
01:31:16Of course what it also means
01:31:18is the profits that are made
01:31:20by those multinational corporations
01:31:22leave the country just as quickly
01:31:24and the country itself doesn't benefit.
01:31:26And today you have many developing countries
01:31:28which have got almost no tax base.
01:31:30They've not developed a tax base at all
01:31:32and so they're even more dependent
01:31:34on international capital markets
01:31:36on the money markets
01:31:38on creating debt
01:31:40and it's very difficult
01:31:42to see how democratic societies
01:31:44can evolve or function
01:31:46when actually a government
01:31:48is more dependent on
01:31:50the diktats of the International Monetary Fund
01:31:52and the money markets
01:31:54than it is on their own people.
01:31:58What we've seen since the 1970s
01:32:00is a dramatic increase
01:32:02in a series of phenomena
01:32:04that have had
01:32:06a stimulative effect
01:32:08on the changes in the financial system
01:32:10and that's the gleaming,
01:32:12shining metal and steel
01:32:14business that's over there.
01:32:16In case you don't know
01:32:18that's the City of London I'm pointing at.
01:32:20To compensate for the lack of a defined
01:32:22commodity-based value
01:32:24underlying currencies
01:32:26financial institutions
01:32:28developed securitisation
01:32:30as a means to manage risk.
01:32:32You develop securitisation
01:32:34as a means to try and stabilise
01:32:36the whole system.
01:32:38This is a set of financial processes
01:32:40from the 1970s, 80s onwards.
01:32:42You had a chaotic system
01:32:44that needed to manage risk
01:32:46and you had to innovate.
01:32:48You needed derivatives,
01:32:50options, futures.
01:32:52You have new markets
01:32:54in volatility management tools.
01:32:56Who knows what the term hedging is?
01:32:58Spreading your risk,
01:33:00managing your risk,
01:33:02insuring against your risk, precisely.
01:33:04Up until very recently,
01:33:06up until the 1960s
01:33:08the Securities and Exchange Commission
01:33:10would say that real products
01:33:12like agricultural products
01:33:14so pork belly futures or whatever
01:33:16would in fact be essentially
01:33:18kind of gambling
01:33:20and therefore you weren't allowed to trade them.
01:33:22That changes in the 60s
01:33:24and everybody can trade
01:33:26currency futures
01:33:28things that are not based on real products
01:33:30being traded at some point in the future
01:33:32but are based on movements of currency prices.
01:33:34Once you have the system
01:33:36of fixed exchange rates breaks down
01:33:38obviously this thing accelerates enormously.
01:33:40It creates its own products here
01:33:42and the theory is
01:33:44that the market is better at regulating itself.
01:33:46It's more stable
01:33:48than if you have the government interfering all the time.
01:33:50The efficient markets hypothesis,
01:33:52the idea that you set up a financial market
01:33:54they're fast, everybody in them is well informed
01:33:56they all keep a very careful eye
01:33:58on what everyone else is doing
01:34:00will therefore be very stable
01:34:02and it reflects real changes in the economy.
01:34:04It's not going to be driven by panics
01:34:06and manias and speculative bubbles.
01:34:08None of this is really going to happen.
01:34:10It's because something real is happening
01:34:12and traders and investors in the financial market
01:34:14are responding to it.
01:34:16So that's the efficient markets hypothesis.
01:34:18The practice, I think what you see in 2008
01:34:20is the end of that process.
01:34:22The appearance of this crisis so major
01:34:24the belief that it will simply be
01:34:26self-stabilizing, self-regulating
01:34:28really can't carry on.
01:34:30The practice carries on anyway
01:34:32but you can't really argue in the same way you used to
01:34:34that it's good or it's necessary
01:34:36or this is okay for the world.
01:34:40In the last decade we had a new innovation
01:34:42something called the credit default swap
01:34:44a way of buying insurance against the company
01:34:46you've invested in going bust.
01:34:48And in 2002 they were worth in total
01:34:52less than a trillion dollars.
01:34:54In 2007 they were worth 60 trillion dollars.
01:34:58That's five years.
01:35:00Everybody's suddenly sitting there and thinking
01:35:02oh, these CDOs we've made
01:35:05don't in fact provide the kind of stability
01:35:08that we thought.
01:35:10The risk inside of the risk
01:35:12is complete nonsense it turns out.
01:35:14There's far more risk attached
01:35:16to trying to securitize risk
01:35:18and securitize debt
01:35:20in the way that we have done this
01:35:22than we thought
01:35:24and we think these things are now worthless.
01:35:26The attempt to get more and more complex ways
01:35:29of regulating and shaping a financial market
01:35:32and trying to make a quick buck out of it as well
01:35:34actually helped produce the opposite effect
01:35:37to what its kind of apologists said
01:35:38which is that it led to a spectacular crash.
01:35:45What we saw as a result
01:35:48of this very different situation
01:35:50was one phenomenon above all
01:35:53one sector above all grew
01:35:55and that was the financial sector.
01:35:58While the financial sector benefits enormously
01:36:01from the current monetary system
01:36:03the system is neither stable nor fair.
01:36:05The assumption
01:36:07in what the Bank of England does right now
01:36:10is that the cash that we hold
01:36:12is backed up by government debt.
01:36:14The government can back up its promises
01:36:17by the fact that it can tax the public.
01:36:19So what they're implying is that
01:36:21cash is backed up by government debt
01:36:23when government debt is backed up
01:36:25by the ability of government
01:36:27to get cash from the public.
01:36:29Time and time again over the last 30 years
01:36:31we've seen private debts being transformed
01:36:33into public debts
01:36:35and ultimately the price of that debt
01:36:38is paid by the public
01:36:41in the debtor country.
01:36:43This is why spending cuts are necessary.
01:36:46The system is designed
01:36:48to make certain people very rich
01:36:50at the expense of a nation's citizens
01:36:52and taxpayers.
01:36:54The system lowers the standard of living
01:36:57of the majority
01:36:59and distributes this wealth
01:37:01among the privileged.
01:37:03So what we're left with
01:37:05is a financial system
01:37:07since the early 70s
01:37:09that has no fixed exchange rates
01:37:11that suddenly has increasingly
01:37:13open financial borders
01:37:15that has central banks
01:37:17having to manage
01:37:19without having any control
01:37:21because there's nothing here
01:37:23where the gold used to be
01:37:25chaotically.
01:37:27They have to ease quantitatively.
01:37:29They have to lend
01:37:30as a lender of last resort.
01:37:32Throughout history
01:37:34monetary systems were designed
01:37:36to give the dominant international power
01:37:38an advantage
01:37:40and this power is fiercely defended
01:37:42and expanded on.
01:37:57An American flag is burned
01:37:58at the height of the demonstration.
01:38:00Both President Johnson
01:38:02and Francisco Franco were vilified.
01:38:04A new law in public protest
01:38:06added strain on Spanish-American relations.
01:38:15I want Americans
01:38:17and all the world to know.
01:38:19I want Americans
01:38:21and all the world to know
01:38:23America has no regard
01:38:25for conventions of war
01:38:26or rules of morality.
01:38:51What I would like to see
01:38:53is
01:38:55a new kind of currency
01:38:57that is backed by
01:38:59something that is scarce
01:39:01and that we really need
01:39:03and we really value
01:39:05something like energy
01:39:07or renewable energy for example
01:39:09so a sort of kilowatt-hour-backed
01:39:11currency would be
01:39:13very interesting to me.
01:39:15We need to start valuing
01:39:17the things that are most scarce
01:39:19and that we need to survive
01:39:21as a human race in the long run
01:39:22and having an international currency
01:39:24with something like that
01:39:26will generate enormous investment
01:39:28in for example renewable energy
01:39:30if that's the
01:39:32primary international
01:39:34unit of account
01:39:36that's being used.
01:39:38Another option is
01:39:40a basket of currencies
01:39:42so you mix up the value
01:39:44of different currencies
01:39:46to create a very solid currency
01:39:48that people have confidence in.
01:39:52Perhaps even better
01:39:54would be a basket of commodities
01:39:56with which to back up
01:39:58international currencies.
01:40:00Now if it was possible
01:40:02internationally some way or another
01:40:04to get all these competing
01:40:06and increasingly competing
01:40:08national economies together
01:40:10and say we're all going to sit down
01:40:12and write out an agreement
01:40:14somewhat like the Bretton Woods agreement
01:40:16which will allow for
01:40:18unlike the Bretton Woods
01:40:20allow for some currencies
01:40:22and you can sort of arrange this
01:40:24if you could arrange that to happen
01:40:26then that would be nice
01:40:28and you can see how that would start
01:40:30to create a kind of order
01:40:32in the international macroeconomy
01:40:34which is otherwise lacking.
01:40:36The real difficulty there
01:40:38is just political.
01:40:40Who on earth is going to do this?
01:40:42Who is the force that's going to
01:40:44kind of make this thing happen?
01:40:46Creating a monetary system
01:40:48which is both fair and stable
01:40:50is possible and can be achieved.
01:40:52It is possible
01:40:54if not for such a purpose.
01:41:07This is George.
01:41:13George worked in a big bank
01:41:15in the city of London
01:41:17but one day
01:41:19without warning
01:41:20George's bank went bust.
01:41:22Luckily the government rescued the bank
01:41:25and George kept his job
01:41:27but the greedy government
01:41:29wanted something in return for their help.
01:41:31They demanded a higher tax
01:41:33on George's salary and bonus.
01:41:35For someone with a high cost lifestyle
01:41:37like George
01:41:39a shock like this can be devastating.
01:41:41Now George struggles to afford the rent
01:41:43on his riverside apartment
01:41:45in central London.
01:41:47The tyres on his Aston Martin
01:41:48are barely road legal.
01:41:50Unless George's situation improves
01:41:52or unless someone like you helps him
01:41:55then George may even be forced
01:41:57to walk past the next Savile Row tailors
01:41:59and buy his suit from Topshop or Next.
01:42:03Even if George had anything to celebrate
01:42:06he can no longer afford
01:42:08the champagne to celebrate with.
01:42:10George is not alone.
01:42:13Countless others are suffering like him
01:42:16and no one knows how long it will be
01:42:18before good times return.
01:42:22But
01:42:24with your help
01:42:26George can turn his life around.
01:42:29A simple monthly donation from you
01:42:31can bring a bit of sunshine
01:42:33back to George's life.
01:42:35Just £395 will help him
01:42:37celebrate minor achievements
01:42:39with a magnum of Cristal champagne.
01:42:41As little as £900
01:42:43will help George buy a new set of tyres
01:42:45for his Aston Martin.
01:42:47£2000 can help George
01:42:49recover his self-esteem
01:42:51with a suit from a prestigious Savile Row tailor.
01:42:54But even a small amount will help.
01:42:57Just £200 will buy a meal
01:43:00for George and his girlfriend experience.
01:43:02Just £200 extra
01:43:04will buy the dreams.
01:43:06By adopting a banker
01:43:08you won't just be supporting
01:43:10someone like George in a time of need.
01:43:12You'll also be supporting
01:43:14the trendy wine bars of the City of London
01:43:16the luxury car makers of Italy
01:43:18and the tailors of Savile Row.
01:43:20You'll be doing your patriotic duty
01:43:23to support Britain's greatest industry
01:43:25in its time of need.
01:43:27And when the good times return
01:43:29and George gets his bonus back
01:43:31the taxes he pays
01:43:33will help fund the public services
01:43:35that the rest of you scroungers depend on.
01:43:37So please
01:43:39until the good times return for George
01:43:41and those like him
01:43:43will you give today?
01:43:46Thanks for watching.