97% Owned: The Cruel Truth Behind Money Credit and Financial Crisis | ENDEVR Documentary

how is money created where does it come from who benefits and what purpose does it serve what is a money system what is the money behind the money system for centuries the mechanics of the monetary system have remained hidden from the prying eyes of the populace yet its impact both on a national and international level is perhaps unsurpassed for it is the monetary system that provides the foundations for international dominance and national control today as these very foundations are being shaken by crises the need for open and honest dialogue on the future of the monetary system has never been greater this economic crisis is like a cancer if you just wait and wait thinking this is going to go away just like a cancer is going to grow and it's going to be too late what i would say to everybody is get prepared this is not a time right now to wishful thinking the government is going to sort things out the governments don't rule the world goldman sachs rules the world we're on the verge of a perfect storm in opposition like corrupt and entrenched interests that lurk in the corridors of power for whom there are no reasons to relinquish privileges they feel are justly deserved has he got has he got a reform plan for the nhs no has he got a police report plan [Applause] do you trust the government order try to calm down and behave like an adult and if you can't if it's beyond you leave the chamber get out we'll manage without you this is about there's no coincidence that boom and bar started to become a real cyclical issue around about the 1700s when william patterson founded the bank of england [Applause] no it's not funny only in your mind is it funny it's not funny at all it's disgraceful [Applause] the system is inherently unstable as a result of the international power it provides to the dominant parties for at the heart of it lies the idea of how can i get something for nothing statistical analysis have found that every time an empire begins to near its own demise you'll find that its currency will be debased there is no guide to how this whole system operates to give you an example a researcher at the bbc working on a rover pest and documentary went to the bank of england and said can you give me a you know a guide to how money is created and they just said no this documentary will investigate and explain this ever-changing system and the impact it has both on a national and international level [Music] in 2010 the total uk money supply stood at 2.15 trillion pounds 2.6 of this total was physical cash 53.5 billion the rest 2.1 trillion or 97.4 of the total money supply was commercial bank money the three percent of money um is created uh through the central bank and that money essentially if you created a ten pound note you could sell that to a bank to put into their atm and the bank would have to repay that 10 pound or buy it for 10 pounds there'd be no interest made charged on that money but that money is then essentially transferred to the treasury and it's a it's a it's a form of fundraising for the government is called sinaroj [Music] when the bank of england creates a 10-pound note it costed about three or four pence to actually print that note and it sells it to the high street banks at face value so 10 pounds and the profit the difference between printing the note and actually selling it for 10 pounds goes directly to the treasury so in effect all the profit that we get on creating physical money bank notes goes to the treasury and it reduces how much taxes we have to pay um over the last 10 years that's raised about 18 billion pounds in 1948 notes and coins constituted 17 of the total money supply this was one contributing factor in the government's ability to finance post-war reconstruction this included the establishment of the nhs in only 60 years notes and coins have shrunk to less than three percent prior to 1844 banknotes were created by private banks and the government did not profit from their creation pre-industrialization there was multiple forms of money coexisting and so the kind of rise of kind of of government sponsored fiat money is a relatively recent phenomenon in the 1840s there was no law to stop banks from creating their own bank notes so they used to issue paper notes as as kind of a representative of what you had in the bank account instead of you taking your heavy metal coins out of the bank and then going and paying somebody with them you could get your paper which said how much money you had in the bank you could give that to somebody and they could use that to go and get the heavy metal coins from the bank now over time these paper notes became as good as money people would use the paper notes instead of going and getting the real money from the bank and obviously as soon as the banks realized that what they were creating had become you know the dominant type of money in the economy they realized that by by creating more of it they could generate profits you know they can just print up some new notes lend it and get the interest on top of that and they did that you know up until the 1840s in the 1840s they pushed it just a little bit too far and that caused inflation it destabilized the economy so in 1844 the conservative government of rob appeal actually passed a law that took the power to create money away from the commercial banks and brought it back to the state so since then the bank of england has been the only organization authorized to to create paper notes since then everything's gone digital and what we now use as money is the digital numbers that commercial banks can create out of nothing [Music] the problem was that they did not include in that in that legislation the deposits the demand deposits held in banks by individuals or electronic forms of money which essentially what those demand deposits are today most of the money in circulation is is electronic money and it's bank it's bank demand deposits that just that sit in our in our account so in a way the legislation has got needs to catch up with developments in in electronic money and the way that banks actually operate money held in bank accounts are called demand deposits this is an accounting term the banks use when they create credit banks follow the same process when they create loans all money held in bank accounts is an accounting entry [Music] the reality is now that most money is not paper and it's not metal coins it's digital it's just numbers in a computer system you know it's your visa debit card it's your electronic you know atm card um it's this is plastic you know it's numbers in the computer system you move money from one computer system to another it's all a big database and this digital money is what we're now using to make payments with it's what we actually use to run the economy i think a lot of people in the uk probably think that the government or the central bank is in control of most most money in circulation and issues new money into circulation but that's not the case it's private banks that creates the vast majority of new money in circulation and also decide how it's allocated the official terminology for this accounting entry is commercial bank money when banks issue loans to the public they create new commercial bank money when a customer repays a loan commercial bank money is destroyed the banks keep the interest as profit there's a lot of misconceptions about the way banks work there was a a poll done by the coptin center where they asked people you know how how they thought banks actually operated around 30 percent of the public think that when you put your money into the bank it just stays there and it's safe and you can understand why because you know every every child has a piggy bank where you keep putting money in and then when it's a rainy day you smash it and you take that money out and you spend it so a lot of people keep this this idea of banking you know it's somewhere safe to keep your money so that it's there for whenever you need it um another the other sixty percent of people assume that when you put your money in that money is then being moved across to somebody who wants to borrow it so you have pensioner who keeps saving money her entire life and then her life savings have been lent to some you know young people who want to buy a house but actually banks don't work like that at the moment in the uk money creation and control is largely in the hands of private banks about 97 to 98 of money that's that's created is is created as bank bank debt money you could call it when banks issue money into circulation as as loans essentially this is very poorly understood fact it's not a conspiracy theory it's not a it's not a crackpot theory it's the way the bank of england describes the process when banks make loans they create new money a few economists will realize the way the money system works but if you don't if you don't realize the way that money works and you think that you know everybody saving is going to work well for the economy what really happens once you understand the way the money system works is that if everybody starts saving the amount of money in the economy shrinks and we have a recession so most economists don't have this this full picture they don't understand all elements of the system they rely on assumptions on you know receive knowledge without actually going into the details and you know money is money is the center of the economy if you don't understand where it comes from who it creates who creates it and when it gets created then how can you understand the entire economy when the vast majority of money that we use now is not cash but it's electronic money then whoever's creating the electronic money is getting the proceeds of creating that money and obviously creating electronic money is much more profitable than creating cash because you don't have any production costs at all so while we've got 18 billion over the course of a decade in profit from creating cash the banks have actually created 1.2 trillion pounds between 1998 and 2007 the uk money supply tripled 1.2 trillion pounds was created by banks whilst 18 billion pounds was created by the treasury a lot of people think when i say this or when you say this or when positive money say this that we're all just a bunch of nutters but on the 9th of march in 2009 the governor of the federal reserve ben bernanke gave the first ever broadcast interview the governor of the central bank the united states of america had ever given and the day before that he'd bailed out aig um which is a insurance company not even a bank actually to the tune of about 160 billion dollars so the journalist system now mr bernanke where did you get 160 billion dollars to bail out aig does that tax money that the fed is spending it's not tax money the banks have um accounts with the fed much the same way that you have an account in a commercial bank so to lend to a bank we simply use the computer to mark up the size of the account that they have with the fed so it's much more akin although not exactly the same but it's much more akin to printing money than it is to borrowing banks create new money whenever they extend credit buy existing assets or make payments on their own account which mostly involves expanding their assets when a bank buys securities such as a corporate or government bond it adds the bond to its assets and increases the company's bank deposits by the corresponding amount [Music] new commercial bank money enters circulation when people spend the credit that has been granted to them by banks i found that talking on the doorstep from august last year round to august 2009 round two the general election or eight none eight nine months i suppose knocking on doors is that when you try to explain how the money system works there's uh an almost inbuilt refusal of people to accept that such a bizarre situation could actually exist no it can't possibly you know you can't banks can't banks don't create money out of thin air that's ridiculous they can't do that they lend out their depositors money most people have an idea of how money is they're used to their own way of handling money and they try and implement their own idea of how how their small household economy works into the national economy and of course it just doesn't work out it just doesn't work out at all by 2008 the outstanding loan portfolio of bank created credit also known as commercial bank money stood at over 2 trillion pounds as recently as 1982 the ratio of notes and coins to bank deposits was 1 to 12. by 2010 the ratio had risen to 1 to 37. that is for every pound of treasury created money there was 37 pounds of bank created money in the 10 years prior to the 2007 crisis the uk commercial bank money supply expanded by between seven to ten percent every year a growth rate of seven percent is the equivalent of doubling the money supply every ten years the amount of money they're creating out of nothing is just incredible 1.2 trillion in the last 10 years and there's that money is being distributed according to the priorities of the banking sector you know not the priorities of society bank sector itself grew from 1980 2.5 trillion dollars to 40 trillion dollars by assets in 1980 global bank assets were worth 20 times the then global economy by 2006 they were worth 75 times according to the un as the following chart shows total bank assets of uk banks as a percentage of gdp remain relatively stable at 50 to 60 up to the end of the 1960s after that they shot up dramatically and the real money in in the world uh to be made today is not by producing anything at all it's simply by forms of speculating basically making money from money that's the most profitable and and by far and away um the the biggest form of of activity of economic activity that exists in the world today today banks are no longer restricted by how much they can lend and as such how much new credit they can create out of nothing they are restricted solely by their own willingness to lend the issue with allowing banks to create money there's two main issues firstly the fact that they create this money when they make loans so it guarantees that you know we have to borrow all our money for the economy from the banks as such to have a healthy growing economy the government needs to put in place strategies to allow for ever increasing debt the only way the government can create additional purchasing power is by getting itself and us into more depth the second big issue with allowing banks to create money is that they have the incentive to always create more you know they create more money if they issue a loan they get the bonuses and the commissions and the incentives to create you know to lend as much as possible you have to develop a sales culture what did they do they recruited an amazing guy lovely guy andy hornby who came from asda to turn the bank into a supermarket retailing operation if you trust bankers to control the money supply the money supply will just grow and grow and grow as will the level of debt until the point where it crashes when some people can't repay the debt and then they'll stop lending you hear politicians and journalists saying you know we've we've been living beyond our means we've become dependent on debt we need to reign in our spending and live within our means um it's not possible in the current system you know the reason why everybody's in debt now is not because they've been recklessly borrowing um we haven't borrowed all this money from you know an army of pensioners who've been saving up their whole lives money in the current system is debt you know it's created when banks make loans so the only way in the current system that we can have any money in the economy you know the only way we can have money for business trade is if we borrowed it all from the banks and it's the very opposite of what the tory parties are doing today which is that you have to create savings before you can help the national health service and it's because economists have completely confused those things both in monetary policy terms but also in economic thinking and because most people still harbour the the old-fashioned view that you need savings before you can invest that we have the mess that we're in today now one of the reasons why we find it difficult to understand the banking system and credit creation is that we leave school without any money and we go and get a job working as an apprentice to a plumber we work really hard all month at the end of the month somebody puts money in our bank and so for us the logic is you work and then you get money you get savings in reality you would never have got that job if credit hadn't been created in the first instance it's a really important um conceptual misunderstanding and it isn't something that the public just are guilty of economists don't understand this stuff money doesn't come out of economic activity a lot of people i've come across as kind of assume that if you've got people if you've got businesses and you've got people doing things that somehow money somehow emerges out of the process of people doing things doing economic making things and growing things and selling things and producing things that somehow money just emerges it's not it's like oil in the car you have to put it in when i see david cameron talking about how we need an economy not based on debt but we need an economy based on savings he just doesn't know what he's saying it's ridiculous it's absolutely absurd and it shows his complete lack of understanding of how our money system actually works what he's essentially saying is that we need an economy with no money if everyone was saving we'd have mass disappearing of money which is essentially what a bank write-off is essentially is people defaulting on their debt which which essentially is just money disappearing but if people weren't taking on the debt then it's just it's just such a joke it's such a a amateur understanding of how our economy works and how the monetary system works and how money is actually created so i really do get a laugh out of watching what people are actually saying and they're all just regurgitating what they've learned off each other and you just hear the same things and it just makes me it it really gets on my nerves when i hear people talking about yeah we need more regulations we need to regulate the way banks are actually and the bonus it's all just one big smoke screen and working on all the symptoms of a greater disease which is really you need to look at the the money system the way money is created and if we don't want any debt then we're essentially saying we don't want any money and we want a moneyless economy with the exception of the three percent that's created debt-free you know it's a paradox under the current system if you if we as the public go into further debt then that's going to put more money into the economy and we're going to have a boom when you have a boom it's easier to borrow so people get into even more debt and eventually you know this this cycle continues it gets easier and easier to get into debt until some people get over in debt and then you know they default they can't repay their mortgage that's what happened then you know it happened first in sub-prime america um and then you know that just brings to a wave of defaults which will ripple across the entire economy the banks go insolvent then we're into a financial crisis um and then the banks stopped landing and you know they were excessively landing in the boom and then they stopped landing and then that court makes the recession even worse people lose their jobs and then they become even more dependent on debt just to survive basically you know we have a system where we have to borrow in order to have an economy we have to be in debt to the banks and that that guarantees you know massive profit for the banks this is the boom bust cycle and i have said before mr deputy speaker no return to boom and bus [Music] net bank lending must forever increase we're paying interest on every single pound even if even if you think the money belongs to you somebody somewhere is paying interest on that money the banking system has such a huge impact on the world but only because it supplies our nation's money supply we have to protect them we have to subsidize them we have to allow them to continue because the the disaster of of a bank collapse affects us all in a huge way and anyone that says that we shouldn't have bailed out the banks doesn't quite understand the the nature of our monetary system that's like eliminating a huge chunk of our money but also bailing out the banks is perpetuating a system which is never going to work anyway so whatever we do we're always going to have this cycle until we separate how money is created and the activities of banking then the banks can do as they wish they're a normal business like everyone else there's a major democratic issue here as well i mean you have these private profit-seeking banks creating up to 200 billion pounds a year and pumping that into the economy wherever they want basically wherever it suits them whether they're pumping it into you know these toxic derivatives or putting money into housing bubbles just making housing more expensive 200 billion pounds in 2007 of new money coming into the economy created out of nothing and where that gets spent determines the shape of our economy effectively so if we're going to allow anybody to create new money out of nothing then we should at least have some democratic control over how that money is used i mean would we rather have had that money used for healthcare you know to deal with some of the environmental issues to reduce poverty or do you rather have it to make houses more expensive so that none of us can afford to to live in a house you can see it as a subsidy a special super subsidy to the banks for the right to create money which should be for the benefit of the public and spent through a democratic process there's also another form of money which is effectively an electronic version of cash and it's a type of money that the commercial banks use themselves to make payments between each other the higher street banks don't want to be carrying around huge quantities of money because it's dangerous and it's inconvenient and it's you know expensive you have to hire security guards for that type of money so what they do is they pay each other in what is an electronic version of cash which in the industry is known as central bank reserves they keep this electronic cash in accounts at the bank of england but as a member of the public you can't access this electronic cash you can't get an account with the bank of england what they do is they they effectively sell this central bank money to the banks and they do this by creating it out of nothing and using this money to pay for bonds to buy bonds from the high street banks so the high street bank will come along with a bond which is you know effectively government debt and it will give it to the bank of england and in return the bank of england will type some new numbers into the bank's account at the bank of england so effectively they're creating central bank reserves out of nothing the bank of england creates central bank reserves by increasing the available credit in the settlement bank's account with the bank of england the settlement bank in return post bonds or sells assets as collateral for the reserves a total of 46 banks hold central reserve accounts at the bank of england smaller or foreign banks hold accounts with one of these 46 banks to allow them to accept or make payments in pounds sterling prior to march 2009 the bank of england would ask each of the major settlement banks how much reserve currency they needed the settlement banks would then swap a bond for the reserve currency and agree to repurchase the bond for a specific amount at a specified future date the settlement banks would then receive interest at base or policy rate for the central bank reserves they held since the crisis settlement banks central reserves have shot up dramatically when bank customers transfer funds from their account to another person's account a process called intraday clearing occurs the amount of central reserve currency bank a has at the bank of england is reduced by the corresponding amount that bank b receives this is the importance of central reserve currency to banks before the credit crisis if a bank was short of central reserves at the bank of england to meet its obligations then the bank would have to loan reserves from other banks with interest if you sell something on ebay you know that that deal's not complete until you get some money put into your account you know most people actually want to see the money in their account before they're happy to close on a deal now the banks are pretty much the same but they want to see the money in their account at the bank of england before they consider a deal complete so for example if you if you're buying a house from somebody who banks with a different bank then what what will happen after you spend quarter of a million on a house is you'll tell your bank to transfer some money to the house sellers bank and what the bank will do is actually instruct the bank of england to move 250 000 from their account at the bank of england to the bank of the house seller and that money will actually move across between the accounts at the bank of england um when that money's moved across and the banks will consider that that payment has been made you know it's been settled they don't really deal in the kind of money that we have in our accounts they deal in this special money that's can only be used at the central bank there are millions of people across the country all transferring money to each other using only a few major banks these banks can keep a tally on their computer systems and usually many of the movements cancel each other out at the end of the day the five major banks rbs lloyd's hsbc barclays and santander hold over 85 of all deposits as there are a limited number of banks in the system the central reserve money can only be moved around them in a closed loop the money is just circulating through the system over and over again and if you think about it a one pound coin could be used to make a billion pounds of payments if it was circulated a billion times and that's effectively the system that you have now is you have a small pool of real money that's just going round and round the system and it's being used to make a huge quantity of payments on our behalf just before the crisis there was only 20 billion pounds in the accounts at the central bank if they don't have enough of this central bank money then effectively they can't make payments and if that happens then pretty quickly the entire system seizes up so the bank of england has the responsibility of making sure there's enough of this money in the system the requirements for banks to hold a specific amount of reserves has changed many times since 1947. at that time banks needed to hold a minimum ratio of 32 percent of reserves cash or treasury bonds to deposits in 2006 the corridor system was introduced in which banks could set their own reserve targets each month [Music] the rules changed again in march 2009 when the bank of england introduced quantitative easing quantitative easing in effect gives settlement banks the central reserve currency for free the central reserve currency is what is referred to as the real money in the fractional reserve model but the fact is banks can have as much of this as they want and central reserve currency itself is a form of fiat money which is backed by nothing as a consequence there is no longer a meaningful fractional reserve [Music] if you look over the history of the last 150 years or so you start off with the development of a gold standard that really comes to 4 in the 1880s 1890s where essentially countries peg themselves to a particularly defined value of gold and then they have an agreement to fix that value to hold that value and to trade gold amongst themselves to make sure the balances are all there and also to try and uh restrict or expand or contract um activity in their own economies uh to make sure that the balance that particular fixed prices is maintained that disintegrates uh in well after the first world war i mean this is where the whole thing breaks apart very major dislocation in the international monetary system at that point not really resolved until you get bretton woods agreements at the end of the second world war in which everything is pegged to the dollar and the dollar is paid to the gold so you kind of want to remove from gold backing or saying that there is a definite you know sort of solid commodity money behind the paper money in the credit money that we're all using over here you're kind of one removed from it after hiroshima tokyo wondered when the next atom bomb would fall they did not wander along [Music] in 1944 at bretton woods the u.s and the uk began to negotiate how to govern the world economy the world monetary system and came up with the world bank and the imf and a series of other institutions designed to manage the global currency and there was still a gold standard but this gold standard was going to be tied to the dollar all of the world's gold had moved from london to fort knox and all of the world's currencies were tied to the dollar this system was designed to manage the sorts of imbalances to avoid credit crunches or for countries the credit crunches are known as balance of trades deficits i.e when they can't pay their bills and their currency collapses the currencies were managed and the system was stable as long as the americans played the role of oversight now who knows the great story about how that all came to an end so the quantity of money that was needed to pay for the vietnam war that's exactly what i was trying to get at oil shocks was another one that meant that the americans were no longer respecting their role or playing their role governing the monetary system they were inflating the value of their own currency but ostensibly was meant to be tied tied to gold into every other currency so what did the french do the french were a little bit worried that president nixon wasn't entirely honest and they were worried that they were that precisely what we described that nixon was printing money when he shouldn't have been was going on and they were worried there wasn't enough gold to honor the exchange rate of the french franc so they sent a gun boat to new york harbor to ever so politely ask for our gold back please did they get their gold back go on guess they didn't and the bretton woods system came to an end and this is the point in which we enter the modern era of the financial system historically money creation was pegged to a commodity often gold but today it is pegged to nothing which means there is nothing backing our money this piece of paper is just a piece of paper where does this leave us if money is based on nothing why do we think it has any value sorry because we can still go and exchange it what somebody else is going to shout great little latin fact the word for credit comes from belief correct since the collapse of the dollar gold standard in 1971 and the deregulation of the financial system money creation has grown exponentially the world economic forum meeting in davos at the present time have called on a need for the credit within the economy the global economy to be expanded by 100 trillion dollars 100 trillion us dollars a trillion is 12 naught so 100 trillion if you want to imagine is a one followed by 14 noughts they believe this credit expansion will create a boom because there is now more money in the economy with which to make investments it's fascinating that this the emergence of digital currencies how it's transformed everything really because it just completely unleashed private banks to dominate and create the money system that works for them and works for the people who run private banks if you want a growing economy under the current setup we have to have growing debt you can't you know this is something that very very few people really understand especially not the politicians who are managing the economy which is a scary thought [Music] as the money supply grows more money is available which can be invested in productive avenues however it can also be used to gamble and drive up asset prices [Music] inflation is a rise in the general level of prices of goods and services in an economy over a period of time when the general price level rises each unit of currency buys fewer goods and services as the money supply grows and there is more currency available more money is available for investment which can lead to growth but more money is also available for purchases of goods and speculation which leads to inflation essentially inflation is what happens when too much money is chasing too few goods and services so that there's too much money for the the actual output of the economy in the seven years between 2000 and 2007 the money supply doubled and the banks you know the central bank the bank of england in this time was under the impression that they had it under control because they were saying you know prices aren't going up that much of course they were only looking at prices in you know in your local corner shop they weren't looking at the price of housing and housing is you know the biggest expenditure that most people will make increasing house prices it may make you feel like you're you're becoming wealthier but as your wealth increases the effect is that your children's wealth is actually decreasing so in fact there's no net gain in wealth because your children are going to have to pay even more when they want to buy a house so in effect there's no there's no kind of net increase they're going to have to earn even more they're going to have to go into even more debt so the rising house prices do not create additional uh net gdp value to the economy it they actually what they do is they redistribute wealth uh towards those people who already have houses are wealthier people and remove it from poor people who can't afford to get on the housing ladder so it's another example of a very regressive policy actually to allow house prices to simply inflate it makes everybody feel kind of like things are going well and people spend more money on other stuff they take equity out of their houses but it it's not creating new jobs it's not enhancing the quality of the economy it's not helping our balance of trade it's not helping a public deficit it's a zero-sum game as of august 2011 85.5 percent of consumer bank lending was secured as mortgages on dwellings if you have somebody creating money that can only be spent on one thing which is housing then the price of that thing is going to go up between 2000 and 2010 they created over a trillion pounds of new money 500 billion pounds just in the three years before the crisis that's why house prices went up the way they were there's nothing you know special about houses it was just all this funny money being pumped into that market if money is spent into the economy into a lot of money goes into houses for example into mortgages um that's an increase in the amount of money in the economy without a corresponding increase in activity in output in gdp it's non-gdp based spending that's what causes inflation in in in the uk we've we've had it in spades we've had you know this massive uh housing boom and that the main cause for the housing boom in my opinion is the huge amount of speculative credit created by the banks to go into houses if houses were cheaper um they would be easier to build more more of them would be built there would be less huge houses with hardly any people in them london would not be the center of a kind of very rich um speculative orgy where where all the richest people in the world wants want to get a property in london because it's seen as a great asset you know houses would be seen as places to live primarily rather than places to invest important thing to think about is if you're a bank and you've got to make a loan you have choices you can you can give that loan to a small business and you'll know that the risk to you of that loan failing defaulting is actually quite high because that small business the owners of that business have limited liability which means if the business goes bust you as a bank getting nothing back essentially you know that's it so that's kind of high risk compared to loaning your money to somebody with some collateral with a house behind them like a mortgage so there's a there's a kind of simple incentive for banks to prefer putting money into housing than into a small business now that's a real problem or if you if you if you widen that out across a whole economy because it means there's an incentive you know to put money into speculative rather than productive investment so again we have to think about how we create a monetary system that is more balanced between those two kinds of speculative and productive investment the government showing very little enormous reluctance to regulate the housing market and to again regulate the amount of money that that banks put into houses we don't decide who creates credit for what no we leave that to a couple of chaps in a bank to decide basically a bubble occurs when there is very high inflation in the price of a specific good or service over a short period of time the idea of the tulips and their relevance is that we saw the first ever financial bubble and crash the craze for tulips black tulips being a mythical ideal of what somebody could genetically engineer through cultivation after many generations became a mania in the netherlands in the 1630s what they didn't realize was that many of the very very rare patterns on tulips were caused by a virus and weren't genetic at all but they traded them to the extent that tulip bulbs got to the point where they were worth 10 times the average annual salary of a person working in the netherlands there was a futures market in tulip bulbs because obviously you plant them now but you don't know what's going to come out the ground so we see already 400 years ago that a money system or a financial system is not something that exists in the abstract somewhere out there in the ether but something that was to do with states power trade and how they interact with each other unlike tulips which are a disposable luxury houses are both a necessity and a luxury and as such they are ideal as a vehicle for money and bubble creation a dwelling is perhaps the most prized possession of value most people aspire to inflating house prices in this way allows the nation to expand its money supply without affecting inflation data the additional purchasing power created increases the perceived wealth in relation to other nations and thus it creates relative power it is a way of increasing monetary power without investing in the productive growth of industry but certainly if you look at britain and america as outstanding examples of this these are countries with very high rates of private home ownership so you've got a good base to try and perform this sort of policy off the back of i think it was quite deliberate in the case of the us almost explicit was alan greenspan as head of the federal reserve when confronted by a stock market crash at the end of the 1990s quite deliberately slashed interest rates to almost zero everyone can borrow very very cheaply in particular it's very easy to borrow against a house because this is an asset and it's potentially something the bank can say well okay we're not just lending your money unsecured you actually do have a house and that's great because we can repossess it they won't tell you this when you take the mortgage but they can do this and that bubble is in what fuels expansion such as it is inside the u.s and inside the uk where something similar takes place for the next decade or so i think it's also a reflection of an underlying weakness of these governments that they they simply lack the will and possibly the ability but i think it more comes down to a will to challenge financial markets to challenge big capital and say we're going to do something different now and you're going to have to go along with it because we've been democratically elected and you lot frankly haven't and we have a mandate to do this and we're going to make this happen just remember it's all part of the plan what are you yapping about you hold it for it in holland or in the netherlands what we had over a period of trying to get independents initially from spain and trying to raise money to get an army to free themselves was financial innovation they innovated public lotteries to get money together they had public subscription this was the idea that led to the idea of public shares a piece of the action that anybody could invest in that meant that something like two-thirds of the population was investing in tulip bulbs by the 1630s after independence these these instruments were applied to financing expansion why was such a small country able to hold its own against so much bigger countries for example spain and portugal that had the benefits of their empires for over a century in respect of the netherlands why could they compete on what resource bases well they had a more efficient a more involved and a broader based financial system with these instruments that they'd innovated that allowed them to bring more money to bear at one point than anybody else more quickly now inflation can be avoided if the amount of money that goes into the economy is regulated in a way that it doesn't exceed the actual activity that's happening in the economy now the best way to do that in my opinion is to make sure that money is issued into the economy only for productive investment for productive goods and services so money goes in to help a small business start up which creates jobs which creates additional purchasing power um which means there's there's no inflation during their history almost all central banks have employed forms of direct credit regulation the central bank would determine desired nominal gdp growth then calculate the necessary amount of credit creation to achieve this and then allocate this credit creation both across the various banks and type of banks and across industrial sectors unproductive credit was suppressed thus it was difficult or impossible to obtain bank credit for large-scale purely speculative transactions such as today's large-scale bank funding to hedge funds the world bank recognised in a 1993 study that this mechanism of intervention in credit allocation was at the core of the east asian economic miracle there's all sorts of things that governments have done in the past very successfully in a number of cases and not often not unsuccessfully in this country but you know the examples that spring to mind like south korea and japan often any stage where government's been quite targeted about how they're going to rebalance the economy and picking sectors and deciding where the investment should take place i think that has to start happening in the uk because we're in a demand side recession rather than looking at crisis of supply you have to have a system where credit is put into productive avenues where credit is put into building high-speed rail links where credit is put into building houses rather than giving people money to inflate the price of of houses so it's it's quite simple really in that way and uh the current system is simply set up not to do that basically the creation of money by private banks for non-productive usage causes real inflation and as such it is attacks on the purchasing power of the medium of exchange the figures for the uk are quite stark actually that average median real incomes for so that's you know what the bit in the middle uh for most people declined over the last eight years also they're now in quite sharp decline as we go into the recession i mean the sharpest really since it looks like since about the 1930s probably that way so real incomes are declining bank-created fiat currency allows the private banks to suck wealth from the economy and over time results in a gradual decrease in the standard of living as people become poorer they become even more dependent on debt and this at a time when efficiency and machination have improved dramatically you know you go back to the 1960s and we were expected to to we were looking forward to an age of leisure what were people what they were talking television programs saying what's people can do with all their spare time you know and now we've got more people working harder than ever spending more than ever which looks great you know when spending more everyone says oh yeah you know but if you're not actually benefiting from what you're spending if you're having to spend the money on child care costs on commuting costs you know and so forth uh just you know costs that people didn't in the past used to have to pay because you know you could walk to work and you know one member of the family remain was able to stay at home and be a permanent homemaker then you're actually much you're not actually any better off you know everyone's under and everyone's up to such enormous pressures nowadays you know i am conscious that say my four nephews and nieces are facing difficult times she's going to find themselves having to work you know um very hard just to keep just to keep a roof over them just to get a roof over there just keep a rope over their head people are getting poorer in real terms it's because price is always going up because all this new funny money is being pumped into the system by the banks and they're creating it all as debt so at the same time as prices are going up and things are getting more expensive we're getting further and further into debt and you know our wealth and the return that we get from actually working is getting less and less all the time when you can't deal with poverty when you have a financial system and a money system that distributes money from the poor to the very rich any distribution that you try and do in the opposite direction is um you know it's effectively pressing in the wind if you look at issues like you know increasing inequality one obvious way to tackle inequality is to have say for example a redistributed tax system you know you tax the rich you give some money to the poor you move money down down the scale that's all very well but if you completely overlook the fact that there's another redistributive system which is taking money from the poor and giving it to the rich then you're not really going to tackle this inequality and the way a debt-based money system works it guarantees that for every pound of money there's going to be a pound of debt and that debt is typically going to end up with you know the poor uh the sort of lower middle classes those people end up with the debt and they end up paying interest on that money which then goes back to the banking sector and gets distributed to the people working in the city or in wall street um and what this what this system does overall is it distributes money from from the poor to the rich essentially distributes money from you know the poorer regions of the uk back to the city of london and it also distributes money from all the small businesses you know all the little factories around the uk and distributes that money back into the financial sector we have a system whereby the activity of actually supplying occurs under the very same roof as the same organization that's responsible for profiting from putting together borrowers and lenders i.e a bank so a bank creates our nation's money supply as well as making loans for profit the government cannot allow the banking system to fail because if it did over 97 of all money would disappear this is why in the event of a crisis the risk is transferred to the taxpayer but even during normal times banks received numerous guarantees and benefits beyond the right to create money bill by the way i know the bank of america is a very big bank it happens i've got 32 there myself just between us what assurance do i have that this money is safe well uh all deposits up to ten thousand dollars are assured or insured by the federal government in washington that's my guarantee yes have you heard that the federal government is about 280 billion dollars in the hole [Applause] banks receive large safety nets from the government the taxpayer guarantees eighty five thousand pounds as deposit insurance and the bank of england provides liquidity insurance in case a bank runs out of reserve currency someone wrote that a big investment bank is like a giant vampire squid wrapped around the face of humanity hypnotizing politicians who throw money at the banks no strings attached no matter what damage is done trashing the planet forcing cuts to things that make life better goodbye schools goodbye playgrounds goodbye jobs the bankers that we bailed out then gave themselves bonuses that were bigger than the first wave of public spending cuts britain alone gave the banks more money than it cost to put a man on the moon six times over where did our money go who let the banks get away with it why can vampire squids ever be useful no government yet is brave enough to tame them perhaps they need a plan the spending cuts agenda is an attempt by the government to shift debt from its account to that of the public this is the government's response to the bank bailouts and is necessary in a debt-based monetary system where increased purchasing power is the result of growing debt and where a diversification of debt provides overall stability and market confidence policies such as student fee increases and the privatization of public services assets and industry follow the same model the problem we're facing i think is that there's been there's this transference from the public debt to the private debt which is which is essentially a way of transferring risk actually away from sort of uk plc and the government on to the heads of individuals and it's going to be the most vulnerable individuals who are going to have the most debt thus it's a very unprogressive regressive uh policy framework that the government's embarking on where the risk is moved on to those who are most vulnerable and if there is another financial shock if there's an oil shock for example the people who will pay the penalty are those are the poorest people in society or homeowners for example who will fall into negative equity if interest rates go up even one or two percent uh they'll be real really big problems so i don't think it's a sensible way forward at the moment at all and it's uh it's regressive and it's certainly not fair in the terms that the government's talking about and it's certainly not a case of we're in this together as more of a country's resources and industries are privatised the private sector takes on more debt as a result more money is created and there is a boom some private equity companies have taken this theory to the extreme engaging in a practice known as a leveraged buyout where a company is purchased at an often inflated price and the purchase price is transferred to the business as a debt the company becomes responsible for the funding of its own purchase these debts are often so great that the company needs to reduce staff salaries and research activities when you have to factor interest as a business if you have to factor interest repayment into your goods and services then you have to charge a perpetually higher price as you take on more and more debt an increase in the diversification of debt results in an increase in the money supply when the money supply increases more money is available for productive activities and consumption which is the condition for a boom it's questionable whether we're going to get out of this recession or whether we'll just keep ticking along the way that we are now however if we do then when we come out of this recession when growth starts again look at what happens to debt it will rise and it will keep rising and the faster the economy is growing the faster the debt will rise and then give it another three to five years we'll be back where we were you know the debt will become too much people start defaulting again um it's kind of the system that we're locked into now is we can't we can't grow the economy without growing the debt and the debt is a very thing that will bring down the economy the only option going forwards is to reform it to stop banks from creating money is that by fixing the monetary system we can prevent the banks from ever causing another financial crisis and we can also make the the current you know public service cuts and the tax rises and the increase in national debt are necessary the current monetary system allows the banking sector to extract wealth from the economy whilst providing nothing productive in return i mean why is it that we've got all this technology um you know all this new efficiency and yeah it now requires two people to finance a household whereas in the 50s it only needed one person working and the reason for that is not because you know these washing machines and everything are more expensive it's because of all the debt and it's because you know effectively the banking sector is creaming it off from everybody else so a growing banking sector isn't a sign you know it's not a good thing if the banking sector is growing it's either that it's becoming less efficient or is becoming a parasite on the rest of the economy and that's you know we can talk about the banking sector becoming four percent five percent six percent of gdp what's happening to the rest of the economy is becoming 96 95 94 of gdp we've got to get switched on to this now you know if we want to if we want to have a chance of tackling any of the other big social issues you've got to figure out the money issue the poorest in the world pay for crises even when they've not benefited from the um the the often reckless and speculative booms like the housing boom in ireland that preceded that crisis you know over the last 30 years we've seen income differentials increase so that the rich have got much much richer and ordinary people haven't they've stayed the same or they've they've got poorer uh and one of the ways that the economy was kept going was by providing cheap credit was provided providing debt to those very people who couldn't really afford things anymore and so they kept buying and when it collapses it's those same people that have to pay once again even though in in many ways they were the victims the first time around as a result of the crisis the bank of england has bought corporate debt and repackaged it at lower rates of interest yet the average person is being asked to pay more than ever to borrow an overdrafts and credit cards depths between the very wealthy um or between governments can always be renegotiated and always have been throughout world history they're not anything set in stone it's generally speaking when you have debts owed by the poor to the rich that suddenly debts become a sacred obligation more important than anything else um the idea of renegotiating them becomes unthinkable can you pin down exactly what would keep investors happy make them feel more confident uh that's a tough one um personally uh it doesn't matter that that's i'm a trader uh i don't really care about that credit [Music] where you voted if i see an opportunity to make money i go with that so for most traders we don't really care that much how they're going to fix the how they're going to fix the economy how they're going to fix the uh the whole situation our job is to make money from it and personally i've been dreaming of this moment for three years if you know what to do you can make a lot of money from this i i had a confession which is i go to bed every night i dream of another recession i dream of another moment like this i dream of another recession a dream of another moment like this you can make a lot of money from this bruno virginia hurt somebody real bad you ought to help [Music] way in which you can look across europe now and see that the new prime minister east not elected essentially imposed papademos former employee of goldman sachs the new prime minister and finance minister of italy maria monty former employee of goldman sachs the new president of the european central bank former employee of goldman sachs it's quite you know you kind of see these people popping up absolutely everywhere that's the way to change what we have take all power and all freedoms away from the people and collect everything into the hands of one small group with absolute power from the people without the people against the people what's been interesting out of all this i suppose is the question of democracy that's been opened up very starkly in europe that you have a government bank has essentially imposed on you it's bankers who more or less got into this mess to put it rather crudely but that's a good first approximation to it and then you say okay bankers are the people who therefore going to get us out of it and incidentally they're going to run your your country now there's a serious question democracy that's opened up here by the way the banking crisis drove more than 100 million people back into poverty the mortality statistics of people who go into poverty rise hugely for a whole range of reasons so the banking crisis isn't just about becoming poorer it was about killing people as well and guess what we haven't really got to the bottom of it we never held anybody to account and we haven't done the radical reforming job that we really needed to do because we mistakenly thought if we destabilize the position any further it'll make matters worse and guess you took the decisions all the people who were there in the first place i think you ought to know that the business of one of these businessmen is murder their weapons are modern they are thinking 2 000 years out of date look i was there when the secretary and the chairman of the federal reserve came those days and talked with members of congress about what was going on it was about september 15th here's the facts and we don't even talk about these things on thursday at about 11 o'clock in the morning the federal reserve noticed a tremendous drawdown of uh money market accounts in the united states to the tune of 550 billion dollars was being drawn out in a matter of an hour or two the treasury opened up its uh a window to help they pumped 105 billion dollars in the system and quickly realized that they could not stem the tide we were having an electronic run on the banks they decided to close the operation close down the money accounts and announce a guarantee of 250 000 per account so there wouldn't be further panic out there and that's what actually happened if they had not done that that their estimation was that by two o'clock that afternoon five and a half trillion dollars would have been drawn out of the money market system of the united states would have collapsed the entire economy of the united states and within 24 hours the world economy would have collapsed [Music] when money is withdrawn internationally from one currency to another the reserve currency shifts from the national bank of one country to the reserve account of the foreign bank foreign banks have relationships with local banks that allow them to hold foreign reserve currencies whilst not being a part of the central bank scheme at the local central bank for example when one thousand pounds is transferred into euros a uk bank will agree an exchange rate with the euro area bank perhaps 1.15 euros to the pound the uk bank will then transfer a thousand pounds of the central reserve currency to the uk partner bank of the european bank whilst the european bank will transfer 1 150 euros of reserve currency to the european partner bank of the uk bank happens when currencies and the exchange rate system is no longer managed what are some of the first consequences devaluations speculation imbalances where some countries would accrue more and more and more what what would they accrue other currencies other currencies the reserve currency needs to be spent in the country of origin or exchanged into other currencies most foreign banks do not have deposit-taking accounts outside of their national borders and as such the foreign reserves they hold do not come back to them in the form of deposits when a country accumulates trade imbalances it either accumulates foreign reserve currencies in the case of surplus or spends its own reserves in the case of negative trade balances balance of trade is is basically uh the difference between what you're selling abroad and what you're buying from abroad now the feature on the the uk is that for a very long period of time it's had a deficit on something called visible balance of trade which is trading things about things that you can see so that is goods that you'd recognize stuff you can put in containers it's cars computers things that you'd see in a shop that's been a substantial deficit for i think it opened up in the uh it did open up in the early 1980s and essentially it hasn't it hasn't gone away since if anything has got wider and wider foreign exchange reserves cannot be directly used for domestic spending the money can only be spent abroad or on imports a country with a large balance of trade deficit relies on its creditors to spend the imbalances accrued in its own market there have been proposals in the past to try and create a mechanism for those imbalances to match up so keynes for instance john maynard keynes uh at the end of the second world war his original proposal for what became bretton woods and the set of institutions settled there like the imf and the world bank was that there will be a kind of international clearing union this is particularly relating to the trade side rather than the sort of the financial side directly but the principle was that you know once trade balances it opened up everybody would bank through an international clearing bank uh and that would kind of force everyone to to eventually reconcile the imbalances that appeared in the real economy but no such mechanism exists the accumulated net trade imbalance for the uk is around 800 billion pounds in essence what has happened is that over many years some countries have had big trade surpluses and others big trade deficits the countries with trade deficits have been spending more than they've been earning so they've had to borrow from abroad and they've been doing this year after year countries like that of the united states ourselves and some other countries in europe that cannot go on and there are two ways in which this can come to an end either and we're seeing this in some other countries in europe if they can't find new ways to become competitive then their ability to repay the debts is called into question another way of doing it which we followed is that we got a credible plan to repay our debts and the value of sterling has fallen by 25 to make our exports more competitive and attractive to overseas buyers and it to be more attractive for british consumers to buy from british producers rather than overseas producers that is what we have done to put in place framework to rebalance our economy and i'm sure that's the right way to do it currency war also known as competitive devaluation is a condition where countries compete against each other to achieve a relatively low exchange rate for their currency as the price to buy a particular currency falls so too does the real price of exports from that country domestic industry receives a boost in demand both at home and abroad it's made british exports appear rather cheaper so they've kind of recovered a little bit but because the rest of the world is now looking really quite ropey they've started to fall back down again so what we're looking at is something that almost a kind of anarchy and in a way the increasing anarchy this is what's happened over the last few years where the brazilian finance minister has been most vocal about this uh talking about currency wars talking about the desire of national governments when confronted by a major recession they think if we could export more we could dig ourselves out of this recession if we want to export more we depreciate our currency that makes our goods cheaper everyone else buys them we'll all be better off now the issue here is if you depreciate it's like everybody else appreciates against you their stuff becomes more expensive so they're not too happy about that they also want to depreciate and this is where you can see a competitive rounded evaluations breaking out to decrease the value of its national currency a national central bank sells reserve currency into the market it creates this currency out of nothing by typing numbers into a computer during the long phase of commodity money the exchange rate would depend on the amount of gold silver or copper contained in the coins of each country similarly after the advent of paper money and the gold standard the exchange rate depended on the amount of gold the government promised to pay the holder of the bank notes these amounts did not vary greatly in the short term and as such exchange rates between currencies were relatively stable after the second world war currencies were pegged to the dollar and the dollar was backed by gold this system came to an end in 1971 so we have a modern financial system where money is now chaotically organized there is no exchange rate because there's no gold standard system to sustain so we don't need it in fact we believe the market will resolve all the problems of exchange whether your currency should be worth more than mine is a reflection of your economy relative to mine and if that changes the currency and the exchange rate can change and if we need that to happen it will happen magically by the efficiency of market and profit seeking and you guys know the rest i think a currency's value in relation to another currency is determined by the market if more people want to buy a currency than sell it its value increases if more people want to sell its value decreases the value is set by individual banks as they buy and sell currencies they will adjust the exchange rate in the last last study i read in 2007 each day on currency markets 3.2 trillion dollars are traded each day who knows what the global gdp is 50. again brucy higher 60 that's closer the point is think about that exchange happening every single day there's about 260 business days a year it takes a few weeks to match the global value of every economic transaction that happens everywhere every day in a year and it takes a few weeks obviously all of us trade currency fairly regularly if you go abroad you exchange into another currency that's a form of currency trading you're swapping your pounds into whatever euros or yen or whatever it might be that happens fairly regularly and that's a conventional part of the trading process you know large corporations have to do this on a regular basis where it becomes something that people question um where you get people saying well hang on this is speculation is when you get people realizing that currencies move around next to each other and if they move around in value next to each other there's always an opportunity to try and make money out of those changes in value and therefore you can speculate on it and that's that's the more sort of questionable end of the market that's the bit of the market that things like a financial transactions tax would try and chop away at because the assumption there and it's it's kind of not incorrect is that this just produces instability for everyone else that these people want volatility in the market because that's how they make their money they want to encourage it and they do encourage it by trading and speculating in the way that they do by 2010 the foreign exchange market had grown to be the largest and most liquid market in the world with an average of four trillion dollars of currency being exchanged every day volatility creates a need what does it do to countries especially perhaps small ones like developing countries if there are suddenly huge and instantly fluctuating financial flows do they have to do to cope increase their production and sell more lowering the price and becoming possibly even poorer once you start talking about the international system it becomes really quite a peculiar uh quite peculiar thing in that a lot of it depends on simply sentiment and beliefs about what an economy is like rather more depends on anything the economy might or might not actually be doing and that can shift very very rapidly because you know if it's just somebody's belief about currency is supportable uh then you know they can carry on believing this until well to whatever if that belief changes it can change very rapidly in a financial market the process of financial contagion can can take place you know in just minute seconds even though you can just move from being apparently quite a stable robust economy to being one that suddenly sentiment has turned against you and you find that markets are picking on you and it can often be not much more than you're simply the next door neighbor of uh you know a country that's currently in trouble many of the world's financial crises in the past 30 years have been caused by rapid withdrawals of the nation's currency or the currencies of an entire region this type of activity is often referred to as financial warfare it's benefited uh major institutions really quite substantially the goldman sachs for example or any large bank has done somewhat better out of this set of arrangements than it would have done in a far more regulated environment it's made people very very wealthy it's allowed financial markets to expand absolutely enormously anybody involved in that is keen on seeing a deregulated world in the case of the uk you have a government which has been quite overtly and deliberately and aggressively arguing against any forms of regulation being imposed on those financial markets but it's not the case that someone's behind the scenes pulling the strings it's it's this is this is how the thing works quite deliberately quite you know overtly in front of you that's the world as it is it's making some people very rich they're quite happy with it i think it is a form of economic warfare um much of the the change in the in the way that the global economy works over the last 30 years result from this this debt this third world debt because it's given rich countries and banks and the financial sector enormous amounts of power and control over the poorer bits of the world where a lot of the resources are that we like using and that's being used in a way that many people have compared to a form of colonialism it's a very real direct form of of power that's been used over those countries to force those countries to do what are really in the interests of the richest segments of the world that they do and as a result of that not only have corporations become absolutely uh in very you know made huge amounts of profits and become absolutely enormous and and um and all pervasive um but the financial sector has become even bigger than that and the and the real money in in the world uh to be made today is not by producing anything at all it's simply by forms of speculating basically making money from money that's the most profitable and and by far and away um the the biggest form of of activity of economic activity that exists in the world today to protect themselves vulnerable countries need to accrue currency from rich countries who create these currencies out of nothing the netherlands first governor general of indonesia the man who built the trade routes fortified them what i mean by that is built forts along them and fought spanish fleets and british fleets said about the development of the spa of the of the netherlands empire netherlands trade was we cannot make trade without war nor war without trade money and power so reserves have become the way in which you can insure yourself against what speculation you said speculation speculative attack fallen markets bubbles when a country succumbs to a speculative attack it is asked to deregulate its markets and conform its financial system to that of the dominant party the big problem that's faced by most developing countries who got into a debt crisis was that they were told by the powers that be in the world the international monetary fund which is in many ways governs the the global financial system that the way to get out of debt actually is first of all to restructure your economy especially to increase your exports so you're earning more more dollars and then you can pay off your your debt which is normally in dollars or some other foreign currency um unfortunately time and time again that was proved to to not be the case at all actually countries cut back their public spending to the bone so they stopped growing they stopped having any potential for growth um and what they did produce was was um was aimed at the export market was aimed at creating dollars and so on so they were paying off their debts but they weren't uh developing their own economy at all they were paying far far far more in debt repayments than they were spending on health or education or anything else and their debts just kept getting bigger and bigger and bigger the country becomes a vassal state allowing large corporations to exploit its natural resources and workforce it's not it's not even shadowy there's no great mystery about about what's happening here and about the way the world operates it's like it's it's quite blunt i mean for the last 30 years you've got something pretty much everywhere it certainly spreads pretty much everywhere that generally gets labeled neoliberalism this idea that you should have floating exchange rates you know weak regulation particularly financial markets minimal government interference or involvement with what market does and that's that's more or less how the world operates and then there are institutions and the outstanding one at this point is the imf that will actively try and enforce this state of affairs so it's not greatly shadowing if you see what i mean that there are people behind the scene somewhere trying to manipulate stuff it's actually this is quite this is quite avert this this is happening and this is how uh for entire my entire adult life actually is what it starts to look like this is how the world the world is operated and it's made some people very very wealthy it's produced enormous concentrations of wealth so when the international monetary fund comes in in order to try and uh alleviate a country's debt problems it imposes a set of conditions and in the 1980s and 90s they called that set of conditions structural adjustment structural adjustment program and it tends to take very similar forms wherever it happens and indeed we can see structural adjustment programs in essence happening today in countries like greece and portugal and ireland where countries are instructed to decrease the amount that they spend on the public sector um they are instructed to liberalize their their trade market and liberalise their capital markets so money can much more easily come in and out of their economy and the idea is that this will encourage investment to come in from richer parts of the world and that all of their problems will be solved from this investment and in actual fact this is proved time and time again to be completely without foundation in actual fact what happens is it destroys fledgling industries and capacities in these developing countries and developing countries become completely dependent on goods and services from developed countries and also from capital from developed countries one of the things the international monetary fund is very is very keen on is telling countries to lower the taxes that should be paid by multinational corporations when they come and operate in a country because then you'll encourage more multinational corporations to come in of course what it also means is the profits that are made by those multinational corporations leave the country just as quickly and the country itself doesn't benefit and today you have many developing countries which have got almost no tax base um they've not developed a tax base at all and so they're even more dependent on international capital markets on the money markets on creating debt and that's why you have so many countries in the world that have really been robbed of their sovereignty it's very difficult to see how democratic societies can evolve or function when actually a government is more dependent on the dictats of the international monetary fund and the money markets than it is on their own people what we've seen since the 1970s is a dramatic increase in a series of phenomena that have had a seri a stimulative effect on the changes in the financial system that have brought us to the gleaming shining metal and steel business that's over there in case you don't know that's the city of london i'm pointing at to compensate for the lack of a defined commodity-based value underlying currencies financial institutions developed securitization as a means to manage risk you develop securitization as a means to try and stabilize the whole system this is a set of financial processes and financial innovations that really accelerate from the 70s 80s onwards you had a chaotic system that needed to manage risk and you had to innovate you needed derivatives options futures you have new markets in volatility management tools who knows what the term hedging is spreading your risk managing your risk insuring against your risk precisely up until very recently you know up until the 1960s the securities and exchange commission would be quite clear that you know derivatives that weren't based on real products like agricultural products so pork belly futures or whatever would in fact be essentially kind of gambling and therefore you weren't allowed to trade them that changes in the 60s and everybody can trade you know uh currency futures things that are not based on real products being traded at some point in the future but based on movements of currency prices once you have the system of fixed exchange rates breaks down obviously this thing accelerates enormously so as you get the roll back of government regulation here you get the market taken over with its own products here and the theory is that the market is better at regulating itself it's more stable than if you have a government interfering all the time the efficient markets hypothesis the idea that you know you've set up a financial market they're fast everybody in them is well informed they all keep a very careful eye on what everyone else is doing it'll therefore uh be very stable and it'll reflect real changes in the economy it's not gonna be driven by you know panics and manias and speculative bubbles nothing that's really going to happen if there is movement up and down it's because something real is happening and traders and investors influential market responding to it that's the efficient markets hypothesis the practice i think what you see in 2008 is the kind of end of that process the appearance of this crisis so major the belief that it will simply be self-stabilizing self-regulating really can't carry on i mean the practice carries on anyway but you can't really argue in the same way you used to that it's good or it's necessary or this is okay for the world in the last decade we had a new innovation something called the credit default swap a way of buying insurance against the company you've invested in going bust and in 2002 they were less worth in total less than a trillion dollars in 2007 they were worth 60 trillion dollars that's five years everybody's suddenly sitting there and thinking oh these cdo's we've made uh don't in fact provide the kind of stability that we thought the maths that's inside of them is complete nonsense it turns out there's far more risk attached to trying to securitize risk and securitize debt in the way that we have done this than we thought and we think these things are worthless the attempt to get more and more complex ways of regulating and shaping a financial market and trying to make a quick buck out of it as well actually helped produce the uh the opposite effect of what its kind of apologist said which is it led to led to a spectacular crash what we saw as a result of this very different situation was one phenomenon above all one sector above all grew and that was the financial sector while the financial sector benefits enormously from the current monetary system the system is neither stable nor fair the assumption in what the bank of england does right now is that the cash that we hold is backed up by government debt the government can back up as promises by the fact that it can tax the public so what they're implying is that cash is backed up by government debt when get government debt is backed up by the ability of government to get cash from the public time and time again over the last 30 years we've seen private debts being transformed into into public debts and the ultimately the price of that debt is paid by by the public in the in the debtor country this is why spending cuts are necessary the system is designed to make certain people very rich at the expense of a nation's citizens and taxpayers the system lowers the standard of living of the majority and distributes this wealth among the privileged so what we're left with is a financial system since the early 70s that has no fixed exchange rates that suddenly has increasingly open financial borders that has central banks having to manage without having any control because there's nothing here where the gold used to be chaotically they have to ease quantitatively they have to lend as a lender of last resort throughout history monetary systems were designed to give the dominant international power an advantage and this power is fiercely defended and expanded on and i flee in terror from an incredible foggy man an american flag is burned at the height of the demonstration both president johnson and francisco franco were vilified a new low in public protest added strain on spanish-american relations of morality [Music] objection overruled what i would like to see is a new kind of currency that is backed by uh something that that is scarce and that we really need and we really value something like energy or renewable energy for example so a sort of kilowatt-hour backed currency would be would be very interesting to me we need to start valuing the things that are most scarce um and that we need to survive as a human race in the long run and backing an international currency with something like that will generate enormous investment in for example renewable energy if that's the you know the primary international unit of account that's that's that's being used another option is is a basket of of currency so you you know you mix up the value of of of different currencies um to create a very solid currency that people have confidence in perhaps even better would be a basket of commodities with which to back up international currencies now if it was possible internationally some way or another to get all these competing and increasingly competing national economies together and say we're all going to sit down and write out an agreement somewhat like the bretton woods agreement which will allow for unlike bretton woods allow for you know some currencies to be paid against different buses and goods that more appropriate to their national economies and you can sort of arrange this if you could arrange that to happen then that would be nice and you can see how that would start to create a kind of order in the international macro economy which is otherwise lacking the real difficulty there is just political is that who on earth is going to do this who is the force that's going to kind of make this thing happen creating a monetary system which is both fair and stable is possible and can be achieved what are international organizations for if not for such a purpose [Music] this is george george worked in a big bank in the city of london but one day without warning george's bank went bust luckily the government rescued the bank and george kept his job but the greedy government wanted something in return for their help they demanded a higher tax on george's salary and bonus for someone with a high cost lifestyle like george a shock like this can be devastating now george struggles to afford the rent on his riverside apartment in central london the tyres on his aston martin are wearing thin and are barely road legal unless george's situation improves or unless someone like you helps him and george may even be forced to walk past the next several row tailors and buy his suit from topshop or next even if george had anything to celebrate he can no longer afford the champagne to celebrate with george is not alone countless others are suffering like him and no one knows how long it will be until the good times return but with your help george can turn his life around [Music] a simple monthly donation from you can bring a bit of sunshine back to george's life just 395 pounds will help him celebrate minor achievements with a magnum of cristal champagne as little as 900 pounds will help george buy a new set of tyres for his aston martin two thousand pounds can help george recover his self-esteem with a suit from a prestigious savile row table but even a small amount will help just 200 pounds will buy a meal for george and his girlfriend experience just 200 pounds extra will buy the drinks by adopting a banker you won't just be supporting someone like george in a time of need you'll also be supporting the trendy wine bars of the city of london the luxury car makers of italy and the tailors of savile row you'll be doing your patriotic duty to support britain's greatest industry in its time of need and when the good times return and george gets his bonus back the taxes he pays will help fund the public services that the rest of you scroungers depend on so please until the good times return for george and those like him will you give today [Music] you

Channel: ENDEVR

Views: 698,602

Rating: 4.8598843 out of 5

Keywords: Free documentary, documentaries, full documentary, hd documentary, documentary - topic, documentary (tv genre), Business Documentary, finance documentary, financial crisis, economics, economy, economy documentary, debt, finances, money, money documentary, financial documentary, financial crisis explained, 97% owned, credit, credit documentary, what is financial crisis, economic collapse

Id: j7-FmAfxMmQ

Length: 104min 0sec (6240 seconds)

Published: Fri Nov 27 2020

Reddit Comments

[u/inishmannin]

Thanks. Watched it all. Edifying

[u/AnzenR3l3as3]

Psychopathic quote:

I dream of another recession. I dream of another moment like this. You can make a lot of money from this.

Someone would say:

Everything Burns

[u/Mr_Koreander]

Thinking about 1971, and the abandoning of the gold standard - that it was just the year after when The Club of Rome's reported came out, and that this was around the last time humanity was living within the earth's regenerative capacity...after this time the money supply was able to increase exponentially (as remarked in the video), and surely this must be closely coupled to the state of planetary depletion and destruction we've now arrived at.

[u/Mr_Koreander]

Thinking of your comment in the meeting that the British are inbred, I was struck by the fellow Ben Dyson - founder Positive Money in the video, who appears to be a fresh new Michael Palin. Accounts of the history of bicycles almost always mention their vital role in the early mixing up of genes there.