How the rich get richer – money in the world economy | DW Documentary

never before has there been as much money as there is today and rarely has money been so cheap and yet the central banks continue to pump money into the world we are being flooded by trillions of dollars and euros it can't go on forever it's a ticking time it's never been easier for investors to get their hands on cheap money running up debts is practically free of charge organizations are just borrowing large amounts of money from each other and then using that to make money by lending it to others who are using that to lend it to others a snowball system that lets the rich become even richer savers on the upper hand are losing billions every year thanks to low interest rates if you just open a savings account it's almost like burning money this deluge of money has created deals worth billions companies are bought and sold for vast sums because loans are cheap the employees become the pawns of the speculators the question is where's all this money going [Music] [Music] we're in bud Borden Dauphine western germany this couple faces the same dilemma as many others what to do with their savings in this world of low interest rates karl-heinz eyes a recently retired court bailiff knows all about money and debts his life insurance policy is due to pay out soon how should he invest the money in a house they've already got one there's a lot at stake for the cycling enthusiast he and his wife wants security in old age as well as a good time I was hoping that after the payout I'd be able to invest the money again and earn interest which could be added to a pension but that plan isn't going to work out karl-heinz has always led a modest life he always stayed away from investments that paid high returns but were risky he never thought it would come to this he doesn't know what to do with interest rates this low and nor do his friends some have told me they won't keep their money in a bank account anymore instead they'll deposit it as physical cash in a safe [Music] it's fairly worth going to the bank interest on savings is almost zero at just 0.01 percent that means that he gets one cent for every hundred euros per year what's happening with his money [Music] people are worried says the director at the local branch of Volks Bank Elmar Schmitz although there hasn't been a run on the safe deposit boxes yet there have been more requests to keep money in cash or gold since we've seen a continuing fall in interest rates over the past eight years I need a crystal ball to tell you whether it'll stay like this for long I think we'll have this situation for another two or three years after that things will change again but we won't have the interest rates we had ten or twenty years ago it seems in the India puts in Spanish and a magazine hub the manager knows who he blames for these low interest rates the European Central Bank the remit of the ECB is clear price stability it uses the base rate as its tool to deliver that and it's been lowering the base rate steadily ever since the financial crisis down to zero savers are left by the wayside but countries with high levels of debt such as Greece are able to get their hands on cheap money so too can a lien banks in southern Europe the cheap money is supposed to fuel growth by buying government bonds the ECB has pumped additional trillions of euros into the markets otherwise the system would face potential collapse the price of all this is a deluge of money the money has to go somewhere into shares in real estate which continued to rise in price the result is a massive concentration of wealth right at the top Bill Gates the world's richest man has a fortune of 65 billion euros that's the market value of his shares to compare the total value of all of the world's cash is less than 100 times that amount five trillion euros the value of all goods and services created every year around the world is 75 trillion euros that's the real economy the world's debts are far higher than that state's businesses and private individuals all have debts a world living on credit 705 trillion that's the value of only derivatives the speculative financial bets on the future they've got almost nothing to do with real goods any more to recap this is the fortune of Bill Gates [Music] what happens when there's too much money in the world economist max otter says this deluge of cheap money isn't just flooding the big banks he sees low interest rates as the symptom of a massive sickness in the global financial system what's more cheap money endangers the entire economy and promotes increasing levels of debt he says those who believe that with the financial crisis of 2008 receding things are now better again are much mistaken this influx of money is extremely dangerous it's slow but at some point the dam will burst and then we'll be in a huge crisis the biggest danger is that this flood of cheap money will split our society it moves money from the bottom upwards he says a gigantic redistribution machine [Music] low interest rates are demanded by many economists they mean that states can borrow on the cheap states can take on more debt it also means the rich can do the same and often without any liability if they default if I as one of the super-rich buy a business they're not only liable to the extent of my holding not with the rest of my wealth that's a blatant injustice compared to middle class families and regular people with home construction this flood of money doesn't just save States and banks it also favors the rich who use this cheap money to buy shares companies and real estate with rapidly rising values while the financial investments of ordinary people lose value the middle the middle classes have savings and insurance policies and these investments are the losers in a low interest rate world armen poorest citizens suffer because real estate prices are going up and therefore rents to either stagnant and one RT Midlands like Londyn the world's largest financial center illustrates very clearly the effect of this monetary deluge trillions are traded here 300,000 employees in the financial sector are trying to turn money into even more money London's own real estate prices are skyrocketing all the major banks have offices here this is where the money of the world's rich is invested Roman borisovitch knows the scene well there are neighborhoods where millionaires are being pushed out by billionaires borisovitch is fighting against a sell-off of the City of London to speculators together with colleagues he has researched the anonymous owners of several properties as a former banker he's familiar with price developments well these are views houses and again depending on the size it's difficult to say how deep they are but anywhere between three to five maybe five to seven million on this on this pitch in this particular area five to seven million pounds now if you think about Mews houses this is a family place think about what kind of family can afford to buy a house for three to five four even for five to serve seven million pounds the expensive houses are all speculative objects and empty London belongs to investors who don't live in the city roman borisovitch discovered that this townhouse was sold to a ukrainian billionaire for 66 million pounds [Music] on paper the mansion is owned by a shell company right now there is an excess of 40,000 properties in London that are owned by anonymous offshore corporations meaning that we don't know who the owners it could be decent people they could be mafia there are four we suspect that a lot of this money that came through London that it exploded prices here is actually of dirty origin there's construction underway everywhere speculating with real estate is the big game in town trillions of euros from Russians Germans Chinese and Indians have poured into London from socio-economical perspective it is not sustainable you cannot have a city where a residents and workers cannot cannot live you know this this is a this is what the problem with bubbles is that nobody knows when they're gonna burst but London doesn't have a monopoly on real estate bubbles they now exist in cities around the world if a real-estate bubble were to burst sure it would hit the wealthy you are invested there but they have a diverse investment portfolio they seize opportunities around the world if the real-estate bubble in Munich were to burst they'll be in Rio or Tokyo they can act globally but the middle class can't as seen in the financial crisis of 2008 the middle class is hit while the rich get richer in times of boom and bust not much has changed the minor regulations introduced into the financial sector aren't very tangible here in London the speculators are looking for new ways to make more money in the world's number one financial center many transactions are now taking place in the shadow banking system the bonuses the lucrative deals are as plentiful as ever and brexit will see the regulations relaxed even further the show must go on Alf Townsend has lived through it all he's been driving a taxi for 54 years chauffeuring bankers and brokers around the city dealing in the world's trillions has become the trump card of the British economy he says optimistically beneficial to London I think it's a there's people who invest whether whatever part of the world I come from if they want to invest their money in the city that's good for being British you comment our economy yeah he too has profited but in exchange Alf has to live far outside the city centre a million pounds for a single room apartment no ordinary local can afford that there's not many Londoners that part from us old people we're still live in London most of a book of some of their houses as I was saying earlier bought their houses off the council made a fat profit sold it moved out to a suburban hideaway yeah some leave the city entirely and forever gerund Anderson was one of London's financial stars he now lives in Wales he paid the same for his farm as he would have to pay for a tiny single room apartment in downtown London but that's not the only reason why he came here he's had enough of the financial excesses the city is full of greedy ruthless clever people and if they put bit more regulation a little bit more compliance some restrictions these guys work out how to game the system to make sure that it benefits them today he writes novels and screenplays about the financial world he used to earn a few hundred thousand pounds a year he didn't care who the trades heard that's a few years ago now but nothing has changed says Anderson the system rewards those who make fat deals at the expense of others I make lots of strange Gamble's incredible reckless decisions but they come good then I make huge amounts of money if they go bad maybe I lose my job but that's the only downside so this is what it's called an asymmetrical risk it encourages short-term gambling Anderson is certain that the financial system will keep growing and sprawling the prospects of big profits the low interest rates the deluge of money the former financial Insider believes these elements make for an explosive mix the Ponzi system that exists is such that organizations are just borrowing large amounts of money from each other and then using that to make money by lending it to others who are using that to lend it to others which means that you have a system where ultimately no one's really got the money that backs up all the money that's being lent out subsequently when that system comes crashing down then it's good night attacks on speculative financial transactions could slow this merry-go-round however this financial transactions tax would need to be introduced globally but even the small-scale version with just 10 new states failed after years of negotiations even though German Finance Minister Wolfgang Scheidler personally pushed for this tax but Britain was against it and will be even more against it in the future London as a financial center would suffer that's most regrettable because this tax would be the necessary surgery for the sick financial system the ECB and other central banks flooding the world with cheap money isn't a cure it's just pain relief and in the long run it has serious side effects the entire setup is a system that keeps saving itself temporarily but at some point it will inevitably fall apart until then it accessor baits the enormous injustice that already exists those who have benefit a handful of super rich individuals own as much as the poor a half of the world's population combined this flood of money is increasing the gap between rich and poor even further people like these are struggling at the hands of low interest rates karl-heinz Aish and his friends are worried in the past the world was a veritable paradise for savers the economy was booming and interest rates were high even if inflation was - nevertheless successive generations lived by the motto those who save get more out of life in the past you could rely on a certain interest rate for your savings account you could live with that in the 70s we got a fixed rate of 7% for a short while we got 11% karl-heinz i has an appointment with his financial advisor at the bank what should he do with his money we have this account and next year a life insurance policy will mature for huge what can we do with this money the adviser wants to know about her clients readiness to take risks he's actually more risk-averse and wants to invest his insurance money as broadly as possible every day it sits in the savings account it loses purchasing power and he knows that davia goofy calluses since you're getting almost no interest we have to see where we can generate a return and that means stocks and chairs investing more in property bonds and chairs that's what his bank advises what else can he do in times like these I don't feel uneasy or really comfortable with the idea although I've generally had positive experiences to date shares property bonds higher risk whether he likes it or not karl-heinz edge has to participate in the game of the big financial world it's an industry in party mood big companies are buying up competitors thanks to low interest rates thereby increasing their share value only shareholders benefit from their strategy and they tend to be affluent German chemical giant buyer bought American seed supplier Monsanto for example for 65 billion euros [Music] the world's largest brewery anheuser-busch InBev swallowed the number two sabmiller for the equivalent of over a hundred billion euros and software giant Microsoft bought professional networking site LinkedIn for twenty six billion companies as the playthings of international financial interests a less prominent case wmf has been based in guys Lingam in southwest Germany since the mid 19th century it's a brand with a world-class reputation wmf manufactures cutlery and coffee makers it used to be in the hands of German owners and shareholders its operations meant security for thousands of families then the financial gamblers set their sights on wmf the company has changed owners three times in the past 11 years every time it sold the price goes up enormously at the same time wages and working conditions have worsened there were massive protests when the company was taken over by French group Seb Martin Porsche Co hoped things would finally get better again he's on his way to a wmf Works meeting on behalf of the IG Metall labor union he thinks it's symptomatic of today's age how easily a deal worth billions is made the investors that the big banks can get their hands on cheap money no problem the new owner paid 1.6 billion euros it's so easy for investors to buy and sell businesses and achieve huge profits you've never achieved that through a company's day-to-day operations the question for me is to what extent is it harmful when jobs become a pawn in this game in Vevey I started to us some speed buy out the albeit split salami a works meeting during unsettling times at wmf what are the prospects with the new owner the staff have had bad experiences in the past we've been not like a cold blood dry when there's nothing left to get out we're sold off thank you for busting here it's been that way for years everyone lines their pockets we can only hope the company survives and that commerce restored at least the employees are told today that the new buyers do not intend to cannibalize wmf further before selling it on but union representative Martin pushka knows the only way such deals can be paid for is through extremely low interest rates on loans the dealer wmf went as follows new york-based equity firm KKR bought wmf for around 660 million euros via a subsidiary located in a tax haven KKR used 100 million of their own capital and borrowed five hundred and sixty million from banks four years later KKR sold wmf to French household equipment maker sed for 1.6 billion a deal supported by very low interest rates KKR made a profit of nine hundred and forty million euros after repaying the loan and investing just a hundred million of its own capital that's a return of more than eight hundred percent a lucrative deal but only for KKR shareholders that's possible because at the moment there's enough money on the global market other investors are able to pay such prices if the money weren't there they wouldn't be able to shift such volumes loans for almost nothing that's the flipside of the money deluge financial investors do deals with huge sums that would have been unthinkable in the past in a regulated financial system today many wish for a return to those times the deregulation of the financial world has a long history [Music] until 1971 the world was financially stable currencies were covered by gold the real economy was imbalance with the amount of money available then u.s. President Nixon needed money for the Vietnam War he switched on the money printing machine not least because OPEC had increased oil prices this money then flooded the world banks came up with new investment models they now wanted to make money not with goods but with money alone this was the start of the financial industry of today credit cards and current accounts accelerated financial transactions former public responsibilities were privatized pensions are a case in point the private sector is better at everything than the state so they said new billions came into play in the 1980s Margaret Thatcher deregulated the banks in London Bill Clinton did the same later on Wall Street Chancellor Gerhard schröder in Germany then also bought into the deregulation philosophy money was to earn money and thereby create growth the global casino was open for business path of liberalisation was a mistake it's the wrong word - if you deregulate markets that need to be regulated then you create chaos you unleash an avalanche of money onto the world you can call that liberalisation but it was a policy that benefited only a few people namely the rich it has caused a lot of problems for the world in the liberalisation or deregulation allowed the deals of the banks to explode they now acted internationally major banks have become investment establishments that fund huge deals more and more money goes into speculation that's where the big money is made this has less and less to do with the real economy of the central bank's alone responsible for this influx of money or where does it all come from economic students in Zenon Germany are investigating just that what do people know about the origin of money that's what they want to find out we're from the University of Zagan were doing a research project about money what does money mean to you you can't do anything without money where does the money come from not from me that's for sure how was money made through work of course I'm not sure in banks by the state I couldn't tell you the responses were sobering is that zero it was really varied a lot of people had no response at all some said the bank or that it's just printed and some mentioned manipulation most had no idea for years financial expert he'll get poked at has been annoyed that money plays almost no role in economics many consider it just in neutral means of exchange it's in the course of macro discuss an issue and a strange that it's not just the public who are in the dark the students Street survey demonstrated that well enough but the money creation process also seems to be something of a mystery among academics and even in the banking boardrooms the banks are silent for a reason they would have to explain to their customers that these days it's them creating the money and them benefiting hugely as a result as Poquette explains money isn't neutral after all it's not the central banks but private banks that generate most of this new money a process also known as deposit money creation get continued very money is created when someone goes to a bank to take out a loan the bank opens an account and issues the funds its then in a contract with the individual who's taken out the loan the bank hopes that person will pay it back someday that means what the original impulse to create money comes from private banks that's new to most people many think alone works like this savers take money to the bank and the bank loans this money to a customer such as someone buying a house or running a business but that's not the case if someone has savings their money is parked in a savings account the advantage for the bank is that person can't just take it out when the bank issues alone it's created from nothing these two processes really don't have anything to do with each other even though it looks that way and even though that's what the textbooks are say this is how it works a customer wants to take out a loan for ten thousand euros the bank has to deposit between one and three percent so at least a hundred euros with the central bank that's it in return the bank is allowed to transfer ten thousand euros to the customers account at the push of a button the bank generates ten thousand euros of electronic money from a hundred euros and in return it collects the interest this creation of deposit money is a license to make money the bank is an additional the banks are happy of course that they can do this because that gives them a free rein they get to keep the profits the senior age that's a few billion every year who'd want to miss out on that that's definitely not them private banks basically create new money as they wish that used to be the privilege of the mint of princes and governments it's a privilege to create money and therefore profits out of nothing this privilege has been in the hands of the financial industry for a long time and in recent years it's been unchecked is that really such a good idea for this the big banks in particular have massively increased the money deluge in this way as a way of imposing more controls on the financial system again private banks could be deprived of the privilege of creating money developments are already underfoot in Switzerland Zurich is a popular location with banks there's an initiative here that advocates reining in the Swiss banks in future it says only the National Bank should be allowed to create money not private banks anymore the initiative is fighting for fully backed money and an end to the privilege of big banks to generate electronic money at the push of a button reinholt halyna used to be city treasurer in st. Gallen it was then he understood that we can't carry on with limitless loans and debts 90% of all our money is just numbers on a computer in a bank somewhere the bank's make this money that's what we find worrying and that's what we want to change great things have small beginnings with members of the initiative are striking a chord with many passers-by they distrust the financial system the major banks are creating a spiral of loans and debt with their money creation I'm a former banker now retired I can't say that with pride anymore their casinos know I'm coding it's the up money pulley up finale the manipulation happens everywhere we in the future generation and being robbed at the moment it's primarily the big banks who are pocketing the profits of this money-making enterprise the Swiss initiative wants these billions to benefit the country's citizens by only allowing the National Bank to create money we want to take away the right of banks to create money but we're not taking away a line of business they'll still be allowed to lend money and manage assets and the oversea financial transactions the banks get to keep all of that they want their National Bank to play a key role in the future [Music] private banks would only be allowed to issue loans if they have the money in their vaults 100% secure private banks would not be allowed to create deposit money anymore and the profits from this privilege would also benefit the National Bank the general public are the winners the National Bank is obligated to look after their well-being the group want the creation of money to be state controlled and not in the hands of private banks billions in interest payments would then flow into the public purse I support these various initiatives banks wouldn't be able to create new money they'd have to work with the money they have and deposits that's a good first step it's not enough but it's an important step on the path towards a fair financial systems often beats I don't feel good system it appears absurd on the one hand the world is flooded with cheap money but at the same time some places have none the places that don't offer big profits right away but that in the long term would benefit the future of our society we're at the impact hub in Munich an office space for startups a space for companies that have innovative ideas for the future new technologies sustainable solutions for our problems but there's no money here Louden Han and his team are working on a car for the future for example their baby goes by the name Z on a small electric car that generates some of its own electricity the city runaround is designed to access electricity from the well protected solar cells on the car body it will also source electricity from a battery it's an inexpensive and highly eco-friendly electric car developing the Z on costs money and no bank wants to stump up this money says lobbying on startups like his don't stand a chance of getting a loan from a bank even though there's more than enough money available banks are out of the question we're too risky banks prefer to invest in infrastructure something that's long-term and safe where the loan is secured our company goes bankrupt they have virtually nothing they could recoup levine Han had to collect money from private donors online venture capital no loans for their projects that's the central issue for young entrepreneurs they can't get their hands on any of this cheap money at the end of the day it's not about money but about creating opportunities so that people who want to do something can do something if you don't invest in that or the startups can't access money easily and can't develop easily then they'll move country there are lots of entrepreneurs here who want to push forward sustainable products and services products where the consequences for people and the environment are taken into account from the word go products designed to create value for society I think it's a scandal that companies like this struggle so much to access funding from banks or major investors karl-heinz Eisenberg Bowden Dorf invests in the traditional fashion he's received the money from his insurance policy and he's made a decision he's looking at his house with a painter and decorator he wants to invest some of the money in renovations [Music] a fixed asset investment a strategy to circumvent the low interest rates karl-heinz ash has realized in recent months how important it is to pay attention to money matters the times when we could hand over our responsibilities at the cashier's desk are over maybe he'll be fortunate but one thing is certain the sikh financial system is going to cost us a lot of money I don't think anyone will come out of this situation unscathed we've been living on loans there will be wealth destruction your current financial system is very likely to lead to the next disaster we need a different system but it would be enough if we just returned to what we had highly regulated financial markets and a banking sector under control and whose purpose was to serve Deenanath garbajosa we have to rein in the world's financial system but exactly the opposite is happening in the United States under Donald Trump to make the system safer for people a system like that envisage by the Swiss initiative could be one building block in particular states have to reduce their massive debts it's the only way we can curb this deluge of money and break through the spiral of loans that's also why we need international debt conferences where states mutually waive their debts it's ask the people they foot the bill big banks must cover their loans with more of their own capital than they do today there needs to be a global tax on financial transactions and money needs to go to places where it benefits society for our futures sake [Music] the interests of the financial industry have determined developments in politics and society for far too long Trump and brexit mustn't be allowed to fuel that even further money is far too important to be left to the banks alone [Music]

Channel: DW Documentary

Views: 2,536,164

Rating: 4.7645798 out of 5

Keywords: financial system, financial crisis, money, European Central Bank, zero interest, DW, documentary, Deutsche Welle

Id: t6m49vNjEGs

Length: 42min 25sec (2545 seconds)

Published: Wed Jul 05 2017

Reddit Comments

[u/mechapple]

Thomas Piketty mentioned in his book that inequality grows when the rate of growth on capital is higher than that on income. This encourages rent-seeking behavior which helps the already wealthy. The only way to reduce inequality, is to have a stable growth rate on income. Either that or war.

[u/BBflew]

Monopoly explains how the game is rigged.

[u/doctorcrimson]

I need to clear up a misconception this video utilizes right from the start: most currency is not printed. In the United States, for example, about 80% of all wealth is not physical money at all.

One of the problems is interest rates allowing banks to create large sums of money, often with low accountability. Interest rates are, in fact, one way to create money.

Anyone who took the most basic of economics courses would know this.

I do not think that the rich getting richer is the result of poorly applied economic theories, at least not in the United States, but rather a political issue caused by flawed democracy and partisanship divide.

[u/GreatOwl1]

The rich get richer due to compound interest. It's not rocket science.

[u/bigboycomeatmebro]

The video misses a HUGE underlying issue. Companies and individuals parking profits in countries that are tax havens. If governments would tighten those loop-holes, money would be funneled back into society at a much greater rate.

[u/SevenSwords7777777]

This probably isn’t the place for it, but something that’s always confused me is: What’s the point of becoming more richer if you’re already wealthy enough to be in the top percentage of people in the world?

Like at that point, what are you even going to do with all that money? You can support yourself and anyone you want for basically your lifetime. Any sign of status you could buy to show off is meaningless because everyone that you probably associate with has one as well. Sure, you could devote the funds to a cause you believe in, but to rich, you got to hoard it. But if your “hoard” is already one of the biggest around, what’s the point of making it bigger?

[u/botaine]

If you have the money, you have the power. If you have the power, you make the rules. If you make the rules, you win.

[u/Amacar123]

Truth is, the game was rigged from the start.

[u/FRONT_PAGE_QUALITY]

When I was broke the banks used to take my money on a monthly basis. Now that I've been able to save some up they're so willing to forgo taking my monthly fees and they're so happy to lend me money.

The more money you have the better you're treated. Don't forget this.