97% Owned – Economic Truth documentary – How is Money Created


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 money 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 it’s 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 for wishful thinking that 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 lie corrupt and entrenched interests that lurk in the corridors of power, for whom there are no reasons to relinquish privileges that they feel are justly deserved. Has he got a reform plan for the NHS? [SHOUT: No!]
Has he got a police reform plan? [No!] Has he got a plan to cut the deficit? [No!] Order! Misorder! Order! Do you trust the government? 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 the banking fraternities feeding station. There’s no coincidence that boom and bust became a real cyclical issue around about the 1700’s, when William Paterson founded the Bank of England. This is intolerable behaviour as far as the
public is concerned. No, it’s not funny! Only in your mind is it funny. It’s not
funny at all, it’s disgraceful. One Solution, Revolution! 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 has 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 Robert Peston documentary went to the Bank of England and said,
“Can you give me 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. 97% Owned How is money created? Notes and coins 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 3% of money is created through the central bank and that money essentially, if you created
a £10 note you could sell that to a bank to put into their ATM and the bank would have
to repay that £10 or buy it for £10. There would be no interest charged on that money, but that money is then essentially transferred to the Treasury and it’s a form of fundraising for the government.
It’s called seigniorage. Seigniorage: Profit made by a government by issuing currency. The difference between the face value of notes and coins, and their production costs. When the Bank Of England creates a £10 note, it costs it about 3 or 4 pence to actually print that note and it sells it to a high street banks
at face value, so for £10 and the profit, the difference between printing the note and actually
selling it for £10 goes directly to the treasury. So, in effect all the profit that we get on creating
physical money, bank notes, goes to the Treasury and it reduces how much taxes we have to pay.
Over the last 10 years, that’s raised about £18 billion. In 1948 notes and coins constituted 17% of
the total money supply. This was one contributing factor in the government’s
ability to finance post-war reconstruction. This included the establishment of the NHS. In only 60 years notes and coins have shrunk
to less than 3%. Prior to 1844 bank notes were created by private banks and the government did not profit from their creation. Pre-industrialisation there was multiple forms of money co-existing, and so the rise 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 kind of a
representative of what you had in the bank account. Instead of you taking your heavy metal coins out of
the bank and then going and paying somebody with them you could get your paper which said how much money
you had in the bank and you could give that to somebody and they could use that to go and get
the heavy metal coins from the banks. Now over time these paper
notes became as good as money. People would use paper notes instead of going
and getting real money from the bank and obviously as soon as the banks realised that what theywere creating had become the dominant type of money in the economy, they realised that by creating more
of it they could generate profits. They can just print up some new notes
lend it and get the interest on top of them. And they did that up until the 1840s. In the1840s they pushed it just a little bit too far and that caused inflation, destabilising
the economy. So in 1844, the Conservative Government of Robert Peel
actually passed a law that took the power to create money away from
the commercial banks and brought it back to the state. So since then the Bank of England has been the only organisation authorised to create paper notes. Since then everything has gone digital and what we now use as money is the digital numbers that commercial banks can create out of nothing. The problem was that they did not include
in that legislation the deposits, the demand deposits, held in banks by individuals
or electronic forms of money which essentially is what those demand deposits are. Today most of the money in circulation is electronic money, it’s bank demand deposits that sit in our accounts. So in a way the legislation’s got to catch up with the developments 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. Commercial bank money 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. It’s your Visa debit card. It’s your electronic ATM card. It’s this – plastic. It’s numbers in a computer system, you move money from one computer system to another. It’s all a big database and this digital money is what we are 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 money in circulation
and issues new money into circulation, but that’s not the case. It’s private banks that create the vast majority of new money in circulation and also decide how 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’re a lot of misconceptions about
the way banks work. There was a poll done by the Cobden Centre where they asked people how they thought banks actually operated. Around 30% of the public think that when you put
your money into the bank it just stays there and it’s safe, and you can understand why because 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 idea of banking it’s somewhere safe to keep your money
so that it’s there for whenever you need it. Another, the other 60% of people assume that when you put your money in, that money is then being moved across to somebody who wants to borrow it. So you have a pensioner who keeps saving money her
entire life and then her life savings have been lent to some young people who want to buy a house. But actually banks don’t work like that. “It’s basically an accounting trick. Banks create money. They don’t lend it. When a bank gives out what is called a loan, it basically pretends that you have deposited the money. It has to invent the liability. this is how the money supply is created.” (Professor Richard Werner) 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 created
is created as bank “debt money” you could call it, when banks issue money into circulation as loans essentially. This is a very poorly understood fact. It’s not a conspiracy theory, it’s not a crackpot
theory, it’s the way the Bank of England describes the process. When banks make loans they create new money. “by far the largest role in creating money is played
by the banking sector. When banks make loans they create additional
deposits for those that have borrowed the money.” (Paul Tucker – Deputy Governor of the Bank of England) A few economists will realise
the way the money system works but if you don’t realise the way
that money works and you think that 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. Most economists don’t have this full picture.
They don’t understand all the elements of the system. They rely on assumptions, on received knowledge
without actually going into the details and money is the centre of the economy.
If you don’t understand where it comes from, 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 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 cost at all. So while we’ve got £18 billion over the
course of the decade in profit from creating cash, the banks have actually created £1.2 trillion. Between 1998 and 2007 the UK money supply tripled. £1.2 trillion was created by banks,
whilst £18 billion 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 are all a bunch of nutters. But on the 9th of March in 2009, the governor of
the Federal Reserve, Ben Bernanke, gave the first ever broadcast interview the Governor
of the Central Bank of the United States of America had ever given. The day before that he had bailed out AIG, to the tune of about US$160 billion. So the journalist says to him: “Now Mr. Bernanke
where did you get $160 billion to bail out AIG?” Is that tax money that the Fed is spending? It’s not tax money. The banks have 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 they have with the Fed. So it’s much more akin, although not exactly the same, 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. 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 door step from
August 2009 around to the general election, knocking on the doors, is that when we tried
to explain how the money system works, there’s an almost in-built refusal of people to accept
that such a bizarre situation could actually exist. “Ah no, it can’t possibly. What do you mean? …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 are used to their own way of handling money and they try and implement their own idea of how their
small household economy works into the national economy. And of course it just doesn’t work out at all. By 2008 the outstanding loan portfolio of
bank created credit, also known as commercial bank money,
stood at over 2 trillion. As recently as 1982 the ratio of notes and
coins to bank deposits was 1:12. By 2010 the ratio had risen to 1:37. That is for every pound of Treasury created money
there were 37 pounds of bank created money. In the 10 years prior to the 2007 crisis, the UK commercial bank money supply expanded
by between 7% to 10% every year. A growth rate of 7% is the equivalent of doubling
the money supply every 10 years. The amount of money they’re creating out of
nothing is just incredible, 1.2 trillion in the last 10 years. That money is being distributed according to
the priorities of the banking sector, not the priorities of society. The banking sector itself grew from 1980 $2.5
trillion to $40 trillion 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 remained relatively stable at 50-60% up to the end
of the 1960s. After that they shot up dramatically. And the real money in the world to be made
today is not by producing anything at all. It’s simply by forms of speculating – basically
making money from money. That’s the most profitable and by far and away the biggest form 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 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 debt. The second big issue with allowing the banks to create
money is that they have the incentive to always create more. They create more money if they issue a loan. They get the bonuses, the commissions and the
incentives to lend as much as possible. You have to develop a sales culture.
What did they do? They recruited an amazing guy, a 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
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. It’s not possible in the current system. The reason why everyone is in debt now is not
because they have been recklessly borrowing. We haven’t borrowed all this money from an army of
pensioners who’ve been saving up their whole lives. Money in the current system is debt.
It’s created when the banks make loans. So the only way, in the current system,
that we can have any money in the economy, the only way we can have money for business to trade, is if we’ve borrowed it all from the banks. And it’s the very opposite of what the
Tory Party is arguing 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 old fashioned view that you need savings before you can invest, that we have the mess that we’re in today. One of the reasons 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 and 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 conceptual misunderstanding and it isn’t something that the public just is
guilty of. Economists don’t understand this stuff. Money doesn’t come out of economic activity. A lot of people I’ve come across kind of
assume that if you have got businesses and you’ve got people doing things, that somehow
money emerges out of the process of people doing things, making things and growing things,
selling things and producing things, that somehow money just emerges. It’s not.
It’s like oiling a 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 is 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
– people defaulting on their debt – which essentially is just money disappearing. But if people weren’t taking on the debt
then it’s just such a joke. It’s such an 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. They are all just regurgitating what they have learnt off each other and it just really gets on my nerves
when I hear people talking about ‘Yeah, we need more regulations, we need to regulate
the way banks are and the bonuses’ 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 money system – the
way money is created. If we don’t want any debt then we don’t want any money and we want a moneyless economy with the exception of the 3% that’s created debt free. You know, it’s a paradox under the current system. If 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 this cycle continues. It gets easier
and easier to get into debt until some people get over-indebted and then they default. They can’t re-pay their mortgage. That’s what happened first in sub-prime America. And then it brings through a wave of defaults, which will ripple across the entire economy.
The banks go insolvent. Then we’re into a financial crisis and then
the banks stop lending. They were excessively lending in the boom and then
they stop lending and that makes the recession even worse. People lose their jobs and then they become even
more dependent on debt just to survive. 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. That
guarantees a massive profit for the banks. This is the boom-bust cycle. And I’ve said before, Mr Deputy Speaker, no
return to boom and bust. Net bank lending must forever increase. We are paying interest on every single pound.
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 subsidise them.
We have to allow them to continue because the disaster of a bank collapse
affects us all in a huge way. Anyone who says that we shouldn’t have bailed out the banks doesn’t quite understand 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 are always going to have
this cycle until we separate how money is created and the activities of banking.
Then the banks could do as they wish. They’d be a normal business like everyone else. There’s a major democratic issue here as well. You have these private profit-seeking banks creating up to £200 billion a year and
pumping that into the economy wherever they want, basically, wherever it suits them, whether
they’re pumping it into these toxic derivatives, or putting money into housing bubbles, just
making housing more expensive. £200 billion 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 are going to allow anybody
to create new money out of nothing, then we should at least have some democratic
control over how that money’s used. I mean, would we rather have had that money used for health care, or to deal with some of the environmental issues or to reduce poverty, or would we rather have it to make houses more expensive so none of us can afford 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. Central bank reserve currency There’s also another form of money, which
is effectively an electronic version of cash and it’s a type of money that the commercial banks use themselves to make payments between each other. The high street banks don’t want to be
carrying around huge quantities of money because it’s dangerous, inconvenient and 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 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 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 are 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 posts 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. Significance of central bank reserves When bank customers transfer funds from their
account to another person’s account, a process called Intra-Day 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. Only central bank reserve currency is moved,
commercial bank money is simply deducted and added. If you sell something on eBay, you know that that deal
is not complete until you get some money put into your account. 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 are buying a house
from somebody who banks with a different bank then what’ll happen after you’ve spent
a quarter of a million on a house is you’ll tell your bank to transfer some money to the
house seller’s bank and what the bank will do is 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
move across between the accounts at the Bank of England. When that money has moved across, then the banks will consider that that payment has been settled. They don’t really deal in the kind of money
that we have in our accounts, they deal in this special money that can only
be used at the central bank. There are millions of people across the country, all transferring money to each other using only a few major banks. These banks can keep a tally on their computer systems and usually many of the movements cancel each other out at the end of the day. The five major banks – RBS, Lloyds, HSBC, Barclays
and Santander – hold over 85% of all deposits. As there are a limited number of banks in the system, the central reserve money can only be moved around them in a closed loop. The money is just circulating through this 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 in the accounts at the central bank. September 2007. Thousands of Northern Rock
customers queue up to withdraw their cash. The company had been forced to seek emergency funding.
It’s the first run on a British bank in 140 years. Northern Rock had committed to asset (mortgage) purchases, but was unable to sell securitised assets to meet these obligations. The Bank of England was required to step in as the lender of last resort, to supply Northern Rock with central bank reserve currency. 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%
of reserves, cash or Treasury Bonds to deposits. In 2006, the Corridor System was introduced, in which banks
could set their own reserve targets. 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. A short history of money If you look over the history of the last 150 years or so, you start off with a development of a gold standard
that really comes to the fore in the 1880s/1890s where essentially countries peg themselves
to a particular defined value of gold and then they have an agreement to fix
that value, to hold that value, and to trade gold amongst themselves to
make sure the balances are all there and also to try and restrict or expand or contract activity
in their own economies to make sure that the balance, that particular fixed price, is maintained.
That disintegrates after the First World War. This is where the whole thing breaks apart, a 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 pegged to the gold. So you are kind of one removed from the gold backing or saying that there is a definite solid commodity money behind the paper money and the credit money that we are all using over here.
You are kind of one removed from it. After Hiroshima, Tokyo wondered when the next
atom bomb would fall. They did not wonder long. In 1944, at Bretton Woods, the US and the UK began
to negotiate how to govern the world economy, the world monetary system and came
up with the World Bank and the IMF 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, credit crunches are known as balance of trade 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? 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 were 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 that ostensibly was meant to be tied, tied to gold and to 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 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 honour the exchange rate of the French Franc, so they sent a gunboat to New York harbour 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 at which we enter
the modern era of the financial system. Fiat money: A medium of exchange, which the issuer does not promise to redeem in a commodity,
and is based on confidence. 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 was going to shout. Great little Latin fact, the word for credit
comes from? belief. Correct. Credere=to believe 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 US$100 trillion. A trillion is 12 noughts so 100 trillion,
if you want to imagine is a 1 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 this 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. Growth and inflation If you want a growing economy under the current
set-up we have to have growing debt. This is something very, very few people really understand – especially not the politicians who are managing
the economy – which is a scary thought. GDP Gross Domestic Product:
The market value of all final goods and services produced in a country in a given period. 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. An increase in the money supply=
A likely relative increase in economic activity. The effects of rapid credit expansion Inflation is a rise in the general level of the prices
of goods and services in an economy over a period of time. When the general price level rises each unit
of currency buys fewer goods and services. As the money supply grows and there is more currency available, more money is available for investment
which can lead to growth, but more money is also available for purchases
of goods and speculation which leads to inflation. Essentially, inflation is what happens when
too much money is chasing too few goods and services, so there is too much money for the
actual output of the economy. However in practice inflation
is much more skewed and complicated. Measuring inflation is not a science
and the way it is recorded poses a dilemma. The Consumer Price Index or CPI is measured
from a sample of goods and services. Each category of goods and services is given a weighing data which determines the overall impact of
the price data for a specific category. However this measure is deemed to provide
a consistently low figure for inflation. Interestingly house prices, mortgage repayments and council tax are excluded yet apps and dating agency fees are included. The Retail Price Index or RPI inflation index
is another way of measuring inflation and scores consistently higher values
than the Consumer Price Index. Recently many pension schemes have adjusted
their annual payout increases from RPI to CPI. This is another cost saving measure which
will leave pensioners worse off in future. The CPI index of inflation is not geared towards
providing an accurate picture of inflation and the deterioration in the purchasing power of money. In the seven years between the years 2000
and 2007 the money supply doubled and the central bank, the Bank of England was under the impression
at this time that they had it under control because they were saying that
prices weren’t going up that much. Of course they were only looking at prices
in your local corner shop. They weren’t looking at the price of housing and housing is the biggest expenditure that most people will make. Many western countries heavily subsidise
agricultural production, which has the effect of keeping prices and inflation low. Increasing house prices, it may make you feel
like you’re becoming wealthier, but as your wealth increases the effect is that your
children’s wealth is actually decreasing. So in fact there is 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 is no net increase.
They are going to have to earn even more. They are going to have to go into even more debt. So rising house prices do not create
additional net GDP value to the economy. Actually what they do is they re-distribute wealth
towards those people who already have houses i.e. wealthier people and remove it from poorer
people who can’t afford to get on the housing ladder. So it’s another example of a very regressive policy
to allow house prices to simply inflate. It makes everybody feel like things are going well
and people spend money on other stuff, they take equity out of their houses but it’s not creating new jobs. It’s not enhancing the quality of the economy.
It’s not helping our balance of trade. It’s not helping the public deficit.
It’s a zero sum game. As of August 2011, 85.5% of consumer bank
lending was secured as mortgages on dwellings. If you have somebody creating money that
can only be spent on one thing, which is housing then the price
of that thing is going to go up. Between 2000 and 2010 they created
over a trillion pounds of new money – £500 billion just in the three years before the
crisis. That’s why house prices went up they way they were. There’s nothing special about houses. It was just all this funny money
being pumped into that market. If money is spent into the economy a lot of
money goes into houses for example into mortgages – that’s an increase in the amount of money in the economy – without a corresponding increase in activity in output, in GDP. It’s non-GDP based spending.
That’s what causes inflation. In the UK we’ve had it in spades.
We’ve had this massive housing boom. The main cause for the housing boom, in my opinion, is the huge amount of speculative credit created
by the banks to go into houses. If houses were cheaper, they would be easier
to build. More of them would be built. There would be less huge houses,
with hardly any people in them. London would not be the centre of
a kind of very rich speculative orgy, where all the richest people in the world want to get
a property in London, because it’s seen as a great asset. Houses would be seen as places to live primarily,
rather than seen as places to invest. The important thing to think about is, if you are a bank
and you’ve got to make a loan, you have choices. 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 that business
goes bust you as a bank get nothing back essentially. 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 simple incentive for banks to prefer
putting money into housing than into a small business. Now that’s a real problem if you
widen that out across a whole economy, because it means there’s an incentive to put money
into speculative rather than productive investment. So again, we have to think about how we create
our monetary system that is more balanced between those two kinds of
speculative and productive investment. The government is showing enormous
reluctance to regulate the housing market and to again regulate the amount of money
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 short history of bubbles 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 first recorded bubble was the tulip bubble of 1637. The idea of the tulips and their relevance is
that you 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 realise was that many of
the very, very rare patterns on tulips bulbs were caused by a virus and weren’t genetic at all. But they traded them to the extent that tulip got to the point where they were worth ten times the average
annual salary of a person working in the Netherlands. There was a futures market in tulip bulbs because obviously you plant them now but you don’t know
what’s going to come out of 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 a 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. 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, as Alan Greenspan as head of the Federal Reserve when confronted by
a stock market crash at the end of the 1990s quite deliberately slashed interest rates to
almost zero. Everyone can borrow very, very cheaply, in particular its very easy to borrow
against a house because this is an asset and is potentially something that the bank can say Well,
OK we’re not just lending you money unsecured, They won’t tell you this when you take the
mortgage but they can do this and that bubble is then what fuels
expansion such as it is, inside the US and inside the UK where something
similar takes place for the next decade or so. I think it’s also a reflection of an
underlying weakness in these governments that 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 haven’t and we have a mandate
to do this and we’re going to make this happen. Just remember it’s all part of the plan.
What are you yapping about – you voted for it! In Holland what we had over a period
of trying to get independence initially from Spain and trying to raise money to get an army
to free themselves was financial innovation. They innovated public lotteries to get money
together. They had public subscription. This was the idea that led to the idea of public shares
– a piece of the action that anybody could invest in – that meant that something like two thirds of the
population was investing in tulip bulbs by the 1630s. After independence these instruments
were applied for financing expansion. Why was such a small country able to hold
its own against so much bigger countries for example Spain and Portugal that had the benefits of their empires for over a century in respect of the Netherlands? Why could they compete?
On what resource basis? Well they had a more efficient, a more evolved
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 then anybody else, more quickly. Incredible But True. How to avoid inflation 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 to start up which creates jobs, which creates additional purchasing power which means there’s no inflation. During their history almost all central banks
have employed forms of direct credit regulation. The central bank will 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 the 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 method of intervention in credit allocation was at the core of the East Asian economic miracle. There’re all sorts of things that governments have done
in the past, very successfully in a number of cases and often not unsuccessfully in this country but
the examples that spring to mind South Korea, Japan, often in East Asia where governments have been quite targeted about how they’re going to rebalance the economy, 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 houses. It’s quite simple really and the current
system is simply set up not to do that. The creation of money by private banks for
non-productive usage causes real inflation and as such it is a tax on the purchasing
power of the medium of exchange. Decrease in the standard of living The figures for the UK are quite stark actually. The average median real incomes for most people declined over the last 8 years. They are now in quite sharp
decline as we go into recession – the sharpest really since about the 1930s –
so real income is 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 If you go back to the 1960s and we were expected
to, we were looking forward to an age of leisure, television programmes saying What are
people going to do with their spare time? And now we have got more people working harder
than ever, spending more than ever, which looks great, everyone is spending more, but if you’re not
actually benefiting from what you’re spending, if you’re having to spend the money on childcare
costs on commuting costs and so forth, costs that people didn’t in the past used to
have to pay because you could walk to work and one member of the family was able to stay at home and be a permanent homemaker, then you’re not actually any better off. Everyone is under such enormous pressures nowadays. I am conscious that my four nephews and
nieces are facing difficult times. They’re just going to find themselves having to work very hard just to keep a roof over their heads, to get a roof over their heads. People are getting poorer in real terms.
It’s because prices are 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 our wealth and the return that we get from actually
working is getting less and less all the time. 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 effectively pissing in the wind. If you look at issues like increasing inequality one
obvious way to tackle inequality is to have a redistributive tax system. You tax the rich you give some money to the poor. You move a bit of money down the scale. That’s all very well but if you 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. That debt is typically going to end up
with the poor, the 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. What this system does overall is it distributes
money from the poor to the rich essentially, distributes money from the poorer regions
of the UK back to the City of London and it also distributes money from all the small
businesses, 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 our nations money occurs under the very same roof as the same organisation that is 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 receive numerous
guarantees and benefits beyond the right to create money. Bill, by the way, I know the Bank of
America is a very big bank, it happens that I have $32 there myself. Just between us what assurance do
I have that this money is safe? Well, all deposits up to $10,000 are insured
by the Federal Government in Washington. That’s my guarantee? Yes sir. Have you heard that the Federal Government
is about $280 billion in the hole? Banks receive large safety nets from the government. The taxpayer guarantees 85,000 pounds as deposit insurance. And the Bank of England provides liquidity insurance
in case a bank runs out of reserve currency. Someone wrote that a big investment bank is like a Giant Vampire Squid wrapped around the face of humanity. Hypnotising 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 6 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. Take back our banks Ever increasing debt 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 bail outs 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 privatisation
of public services, assets and industry follow the same model. The problem we’re facing is that there is this
transference from the public debt to private debt which is essentially a way of transferring risk,
away from 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 regressive 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 the poorest people in society or homeowners for example who will fall into negative
equity if interest rates go up even 1 or 2 percent there will be really big problems. So I don’t think
it’s a sensible way forward for us at the moment at all. It’s regressive and it’s certainly not fair in
the terms that the Government is talking about and it’s certainly not a case
of We are in this together. As more of the 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 Buy Out, 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 the way that we are now. However if we do, then when we come out of this recession and when growth starts again look at what happens to debt. It will rise and it will keep rising
and the faster the economy is growing, the faster the debt will rise and then give it
another 3 to 5 years we’ll be back where we were. The debt will become too much –
people will start defaulting again. It’s kind of the system that we’re locked into, we
can’t grow the economy without growing the debt and the debt is the very thing that
will bring down the economy. The only option going forward is to reform it
to stop banks from creating money as debt. By fixing the monetary system we can prevent
the banks from ever causing another financial crisis and we can also make the current public service cuts and the
tax rises and the increase in national debt unnecessary. The current monetary system allows the banking
sector to extract wealth from the economy, whilst providing nothing productive in return. Why is it that we’ve got all this technology, all this new efficiency and yet it now requires two people to finance a household whereas in the 50’s it only needed one person working? The reason for that is not because these washing
machines and everything are more expensive. It’s because of all the debt and because the banking
sector is effectively creaming it off from everybody else. So a growing banking sector is not a good thing. If the banking sector is growing it’s either that it’s becoming
less efficient or it’s becoming a parasite on the rest of the economy. We can talk about the banking
sector becoming 4%, 5%, 6% of GDP, what’s happening to the rest of the economy?
It’s becoming 96, 95, 94% of GDP. We’ve got to get switched on to this now. 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 often reckless and speculative booms, like the housing boom in Ireland that preceded that crisis. 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 got poorer. One of the ways that the economy was
kept going was by providing cheap credit, providing debt to those very people who couldn’t
really afford things anymore, so they kept buying and when it collapses it’s those same people that have to pay once again even though in many ways they were the victims the first time. 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 on overdrafts and credit cards. Debts between the very wealthy 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. The idea of renegotiating
them becomes unthinkable. Can you pin down exactly what
would keep investors happy, make them feel more confident? That’s a tough one. Personally it doesn’t
matter. See I’m a trader – I don’t really care about that kind of stuff. Pay your taxes! Were you born in England? If I see an opportunity to make money, I go with that. For most traders, we don’t really care that much
how they’re going to fix the economy, how they’re going to fix the whole situation.
Our job is to make money from it and personally I’ve been dreaming about this moment for three years. If you know what to do, you can make a lot of money from this. I have a confession which is, I go to bed
every night I dream of another recession, I dream of another moment like this. I dream of another recession, I dream of another
moment like this. You can make a lot of money from this. Bruno, Virginia hurt somebody real bad, you
oughta help her. Incoming! The way in which you can look across Europe now
and see that the new Prime Minister of Greece, not elected, essentially imposed, Papademos
– former employee of Goldman Sachs. The new Prime Minister and Finance Minister of Italy
– Mario Monti – former employee of Goldman Sachs. The new President of the European Central Bank
– former employee of Goldman Sachs. You 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 is the question
of democracy that’s been opened up very starkly in Europe, that you have a government of
bankers essentially imposed upon you. It’s bankers who more or less got us into this mess to put
it rather crudely, but that’s a good first approximation and then you say OK, Bankers are the people
who therefore are going to get us out of it and incidentally there going to run your country now. There’s a serious question of democracy that has opened up here. By the way, the banking crisis drove more
than a 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 destabilise
the position any further, it’ll make matters worse. And guess who took the decisions? All the
people who were there in the first place. “I think you ought to know, that the business of
one of these businessmen is murder.” “Their weapons are modern, their thinking:
two thousand years out of date.” Resistance to banking fiat monopoly The way that money works and how we use it
to do certain types of transactions can be really very important in terms of how over
time it steers society in certain directions. How I use money, what I use money for, who’s
controlling money and where it ends up over time can completely transform society. The kinds of businesses
that get preferred by certain types of money systems, so at the moment we have a money
system that prefers large businesses that can take a lot of their wealth offshore
because that’s more efficient for them to do that but that means that money ends up leaving communities. Sometimes I think it’s quite amazing that there is very little way of any individual
directing money towards their locality. There’s no way for me to actually say I have a
little bit of savings. I want to invest this in Norwich. I want to invest in businesses
that want to set up here. There’s no mechanism for people to
invest within their locality. You put your money into a mainstream
bank and money goes off to wherever. Who knows what this is? Shout! A Brixton Pound! Who knows what it is? It’s worth one pound this one so it’s exchangeable for one sterling pound. Is this money? Yes! On what basis? People accept it. There’re
over 200 shops, independent traders. So we represented something like we’ve agreed,
we can choose to represent it to be something and that depends on our mutual consent. Complementary currencies The Bristol Pound Project has been fascinating
because I first started reading about money and realised I didn’t understand it very well
when I started trying to set up a Bristol Pound, so it’s been a bit of a journey for me and
I think everybody else who’s been doing it. We can actually build our own currency systems which work to improve the relationships between people within communities, where people work and share a lot of the economic
benefits from the wealth they are creating and they are constantly using that wealth they’re creating to build positive relationships with other people within that area. And they can see the impact of the
money so when you spend something, if I spend 20% of my wealth on a certain thing
I’ll see what that 20% of my wealth is doing. I’ll see that it is really having a positive effect because those people are using that money to go and do something else which is really good or I can see that
it’s actually trashing the local woodlands because I was paying that carpenter to go
and cut down all the woods and I really like going to the woods with
my dog so actually maybe I don’t want to do that so you can include all of what would
normally get brushed aside as externalities – well externalities are actually our life!
It’s what we in communities all those externalities are what actually
make us live a good life I think. We wanted to help achieve certain things.
We wanted to help build community. We wanted to support independent businesses. We want to help preference them over big trans-national corporations because if they’ve got hold of their
money and they can use it with each other then it doesn’t disappear up out of large management structures and go offshore and end up in an account in the Cayman Islands. When we talk to businesses
they get it pretty intuitively. Governments often shut down these experiments The Bank of England may of course decide that
this is a threat to the stability of sterling. At the moment they are reserving
their right to take an opinion on it. They’ve sent us all their rules and regulations and what we’ve done is that we’ve got a team
of lawyers to give loads of work pro bono to say Right we’ll work on this and
we’ll make it as watertight as we possibly can. In the end what the Bank of England
decide to do we don’t know. You see a widespread proliferation of alternatives
is normally during periods of capitalist crisis. So the Great Depression – you had the
rise of a lot of script currencies particularly in North America and
experiments in Europe as well. And most of those got extinguished by being made
illegal by the authority of the central banks and political forces deciding that they
didn’t want those experiments to carry on. This monopoly state bank currency that we
have is very good at some things. It’s very easy to trade internationally with it. It helps
big businesses, it cuts down their transaction costs but it’s not so good for independent
businesses and it’s not so good for localities. So if we have a money system where the rules value community and connection between people within communities over time you build up a better and more wealthy basis for a diverse local economy. The bank run A bank run can take three forms.
Customers can withdraw their money in cash. However this will not reduce the digital money
supply it will merely transfer ownership. Or they can shift their money from the large
institutions to smaller more ethical banks such as credit unions, mutual banks
or independent building societies. Our next guest has a New Year’s resolution
that she says will create a better financial system and it’s this move your money out of the nation’s
big banks and into your local community bank. Shifting commercial bank money to these institutions will reduce the monopolistic grip of the big 5 banks. Taiwanese animated news: Christian has
declared November 5th as ‘Bank Transfer Day’ On that day, bank customers vow to close their
accounts and deposit the funds with credit unions The third kind of bank run
is the international bank run. According to at least one US Senator this
is what caused the September 2008 meltdown. 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 are 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 draw down of money market accounts in the United States to the tune of
$550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help,
they pumped $105 billion into the system and quickly realised 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, that’s what actually happened. If they had not done that their
estimation was by 2 o’clock that afternoon $5.5 trillion would have been drawn out of
the money market system of the United States. It would have collapsed the entire economy of the United States and within 24 hours the world economy would have collapsed. International Aspects 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 £1,000 is transferred
into euros a UK bank will agree an exchange rate with a Euro area bank, perhaps
1.15 euros to the pound. The UK bank will then transfer £1,000 of the central reserve
currency to the UK partner bank of the European bank whilst the European bank will transfer
1,150 euros of reserve currency to the European partner bank of the UK bank. What happens when currencies and the exchange
rate system is no longer managed, what are some of the first consequences? Devaluations. Speculation. Imbalances. Where some countries would accrue more and more of what? What will 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 basically the difference between what you’re selling abroad and what you’re buying from abroad. Now, the feature of the UK is
that for a very long period of time it’s had a deficit of something
called a visible balance of trade which is trading things that you can see. So that is goods that you’d recognise, stuff you can put in
containers, it’s cars, computers, things that you’d see in a shop. That’s been a substantial deficit. I think it opened up in the early 1980s and essentially it hasn’t gone away since – if anything it’s 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. For instance John Maynard Keynes
at the end of the Second World War – his original proposal for what became Bretton Woods and the set of institutions set up there like the IMF and World Bank was that there would be a kind of
international clearing union. This particularly related to the trade side
rather than the financial side directly but the principle was that once trade balances had opened
up everybody would bank through an international clearing bank and that would kind of force everyone to eventually reconcile
the imbalances that appeared in the real economy. But no such mechanism exists. The accumulated net trade imbalance of the UK is around 800 billion pounds. Currency wars 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, 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’ve seen this in some of the 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 have 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 to be more attractive for British consumers to buy
from British producers rather than overseas producers. That is what we have done to put in place a framework to
rebalance our economy and I’m sure that’s the right way to do 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 recovered a little bit but because the rest of the world is looking really
quite ropey they’ve started to fall back down again. So what we’re looking at is something that is almost like
a kind of anarchy and in a way an increasing anarchy. This is what’s happened over the last few years where the Brazilian Finance Minister has been the most vocal about this, 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
can 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 and we’ll all be better off. The issue here is if you depreciate its like
everyone else appreciates against you. Their stuff becomes more expensive
so they’re not happy about that. They also want to depreciate and this is where you can see a competitive round of devaluations 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. i.e. a central bank buys foreign reserve currency. The amount a central bank can create is not limited because there is no defined commodity behind
the reserve currency. 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 organised, there is no exchange rate because there
is no gold standard system to sustain it, 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 exchange rate
can change and if we need that to happen it will happen magically by the efficiency of market and
profit seeking. 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. The last study I read in 2007 each day on
currency markets $3.2 trillion are traded, each day. Who knows what the global GDP is? $50 trillion? Again Brucey, 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. 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 or euros or yen whatever it might be. That happens fairly regularly and that’s a
conventional part of the trading process. Large corporations have to do this on a regular basis. Where it becomes something that people question and where you get people saying Well hang on, this is speculation! is when you get people realising 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. That’s the more questionable end of the market, that’s the bit of the market that things like a
financial transactions tax will try and chop away at because the assumption there and it’s not incorrect,
is that it just produces instability for everyone else. 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 $4 trillion
of currency being exchanged every day. Volatility creates a need. What does it do to countries, especially perhaps small ones like developing countries, if there are suddenly huge and instantly fluctuating
financial flows? What do they have to do to cope? Increase the production of the products
they’re selling 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 thing in that a lot of it depends on simply sentiment
and beliefs about what an economy is like rather more than it depends on anything the
economy might or might not actually be doing and that can shift very rapidly because if it’s just
someone’s belief about a currency is supportable then you know they can carry on
believing this until whenever – If that belief changes it can change
very rapidly in a financial market. The process of financial contagion can take
place in just minutes or seconds even. You can just move from being an apparently quite a stable robust economy to being one that suddenly sentiment has turned against you and you find that the markets are picking on you. It can often be not much more than you’re simply the next
door neighbour of a country that’s currently in trouble. Many of the world’s financial crises in
the past thirty years have been caused by rapid withdrawals of a nation’s currency
or the currencies of an entire region. This type of activity is often
referred to as financial warfare. It’s benefited major institutions really quite
substantially, like 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 there’s
someone behind the scenes pulling the strings – this is how things work – quite deliberately, overtly,
in front of you. That’s the world as it is. It is making some people very rich.
They’re quite happy with it. I think it is a form of economic warfare. Much of the change in the way that the global economy works over the last thirty years result from this debt, this third world debt because it’s given rich countries and banks and the financial sector enormous amounts of power and control over the poorer bits of the world where a lot
of the resources are that we like using and that’s being used in a way that many people
have compared to a form of colonialism. It’s a very real direct form of power that’s being 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 huge, made huge amounts of profit and absolutely
enormous and all pervasive, but the financial sector has become even bigger than that and the real money to be made in the world today is not by producing anything at all its purely by
forms of speculating. Making money from money – that’s the most profitable and by far and away the biggest
form 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 Netherlands Empire and Netherlands trade was: ‘We cannot make trade without war, nor war without trade.’ Money and power. Financial Imperialism So reserves have become the way in which you
can insure yourself against what? Speculation. Speculative attack.
Falling markets. Bubbles. When a country succumbs to a speculative attack
it is asked to deregulate its markets and conform its financial system
to that of the dominant party. The big problem that’s faced by most developing
countries who’ve got into a debt crises was that they were told by the powers that
be in the world, the International Monetary Fund, which in many ways governs the global financial system, that the way to get out of debt is first of all to restructure your economy. especially to increase your exports so you’re earning
more dollars and then you can pay off your debt which is normally in dollars or
some other foreign currency. Unfortunately time and time again that
was proved to not be the case at all. Actually countries cut back their public spending to the bone so they stopped growing; they stopped having any potential for growth and what they did produce was aimed at the export
market, was aimed at creating dollars. They were paying off their debts but they weren’t developing their own economy at all. They were paying 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. The country becomes a vassal state allowing large corporations to exploit its natural resources and workforce. Financial Imperialism: Expanding and maintaining
imperial power through monetary dominance. It’s not even shadowy. There’s no great mystery about
what’s happening here and how the world operates. It’s quite blunt. For the last thirty years you’ve got something
pretty much everywhere that generally gets labelled Neo-Liberalism – this idea that you should have floating exchange rates,
weak regulation particularly of financial markets, minimal government interference or involvement in what the
market does and that’s more or less how the world operates. And then there are institutions – the outstanding one at this point is the IMF – that will actively try and enforce this state of affairs. So it’s not greatly shadowy, that there are people behind the scenes somewhere trying to manipulate stuff, this is actually quite overt. This is happening and this is how it
has been for my entire adult life. This is how the world is operated and it’s made some people
very wealthy, it’s produced enormous concentrations of wealth. So when the International Monetary Fund comes in, in order to try and alleviate a countries debt problems, it imposes a set of conditions. In the 1980s and 90’s they called that set of
conditions a Structural Adjustment Programme and it tends to take very similar
forms wherever it happens. Indeed we can see structural adjustment programmes in essence happening today in countries like Greece and Portugal and Ireland where countries are instructed to decrease
the amount they spend on the public sector, they are instructed to liberalise their trade market
and liberalise their capital market so money can much more easily come
in and out of their economy. 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. 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 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 multinationals to come in. Of course what it also means is the profits that are made
by those multinational corporations leave those countries just as quickly – the country itself doesn’t benefit. Today many developing countries have got almost no tax base. They’ve not developed a tax base at all and so they’re even more dependent on international capital markets, on the money markets, on creating debt and that’s why you have so many countries in the world that have really been robbed of their sovereignty, and it’s very difficult to see how democratic societies can evolve or function when a government is more dependent on the diktats of the International Monetary
Fund and the money markets than it is on their own people. Financial instruments What we’ve seen since the 1970s is a dramatic increase in
a series of phenomena that have had a stimulative effect on the changes in the financial system that have brought us
to the gleaming and shiny metal and steel business that’s over there. In case you don’t know that’s the
City of London I’m pointing at. To compensate for the lack of a defined commodity
based value underlying currencies, financial institutions developed
securitisation as a means to manage risk. You develop securitisation as a means to
try and stabilise the whole system this is a set of financial processes and financial innovations that really accelerate from the seventies, eighties 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 it, precisely. Up until very recently, until the 1960s the Securities
and Exchange Commission would be quite clear that derivatives that weren’t based on real products like
agricultural products – so pork belly futures or whatever – would in fact be essentially a kind of gambling
and therefore you weren’t allowed to trade them. That changes in the sixties.
Everyone can trade currency futures, things that are not based on real products being traded at some point in the future, but are based on the movement of currency prices. Once you have the system of fixed exchange rates
breaking down obviously this accelerates enormously so as you get the rollback of government regulation here, you get the market taking over with its own products here and the theory is that the market is
better at regulating itself, its more stable than if you have a
government interfering all the time. The efficient markets hypothesis – the idea that
you have set up a financial market, they’re fast, everybody in them is well informed, they all keep a
very careful eye on what everyone else is doing – it’ll therefore be very stable and
reflect real changes in the economy. It’s not going to be driven by panics, manias, speculative
bubbles. None of this is really going to happen. If there is movement up and down it’s because something real is happening and traders and investors in financial markets are responding to it. So that’s the efficient markets hypothesis. The practice – I think what you see in 2008 is the end of that process – the appearance of a crisis so major that belief that it’ll simply be self-stabilising and self-regulating really can’t carry on. The practice carries on anyway but you can’t
really argue in the same way that you used to It’s good or It’s necessary
or This is OK for the world. In the last decade we had a new innovation
– something called a credit default swap. A way of buying insurance against
a company you invested in going bust and in 2002 they were worth less than $1 trillion.
In 2007 they were worth $60 trillion. That’s five years. Everybody is suddenly sitting there saying Oh! These CDO’s we’ve made 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 securitise risk and securitise debt in the way that we have done this than we thought.
And we now think these things are now 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, helped produce the opposite effect to what its apologists said – which is, it 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 its promises by
the fact that it can tax the public. So what they’re implying is that
cash is backed up by government debt, when government debt is backed up by the
ability of the government to get cash from the public. Time and time again over the past thirty years we’ve seen private debts being transformed into public debts, and ultimately the price of that debt is being
paid by the public 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 tax payers. The system lowers the standard of living of the majority and distributes this wealth amongst the privileged. So what we are left with is a financial system since
the early seventies 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 they flee in terror from an incredible bogey 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. Order in the court, order in the court I want Americans and all the world to know Come on fire I want Americans and all the world to know, America has no regard for conventions of war or rules of morality. Fire Objection overruled. International currency reform What I would like to see is a new kind of currency
that is backed by something that is scarce and that we need and we value. Something like energy or renewable energy, for example, a kilowatt hour backed currency
would be very interesting to me. We need to start valuing things that are most scarce and that we need to survive as a human race in the long run. Backing an international currency with something like
that will generate enormous investment in, for example, renewable energy, if that’s the primary
international unit of account that is being used. Another option is a basket of currencies so
you mix up the value of different currencies to create a very solid currency
that people have confidence in. Perhaps even better would be a basket of commodities
with which to back up international currencies. Now if it was possible, internationally, some way or another, to get all these 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, some currencies to be pegged against different baskets of goods more appropriate to their national economies. If you could arrange for 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
who on Earth is going to do this? Who is the force that is
going to make this thing happen? Creating a monetary system which is both fair
and stable is possible and can be achieved. What are international organisations
for if not for such a purpose? National currency reform Banks are the most heavily subsidised businesses
in the world, specially protected by governments. While the money runs out for the rest of us,
the largest private banks still thrive. This is because they get the biggest subsidy
of them all: the licence to print money. Hard to believe? Martin Wolf, the Chief Economics
Editor of the Financial Times, said it recently: “The essence of the contemporary monetary system is the creation of money out of nothing by private banks’ often foolish lending” You heard that right. Private banks create money out of
nothing. Then, they loan it to us and ask for interest on top. If you’ve ever wondered why the bank buildings around the world soar higher than any palace or spire ever did, you now have the answer. But the banks don’t simply print money using secret
printing presses in their basements. They don’t have to. Like so many other things these days,
printing money has now gone digital. With the popular use of debit cards, electronic
fund transfers and internet banking, only 3% of the money in the UK is now made of paper
and metal coin. The other 97% is entirely in computers. Electronic money is convenient for everyone,
but it’s especially convenient for the private banks, since they own, run and control
the entire digital money system. And what do they do with this special privilege? Do they channel new money, the blood supply of the nation, towards the things we need like hospitals,
schools, universities and public transport? Not if it doesn’t make a profit for them. Instead, they use their licence to print money to gamble on the
financial markets and push house prices out of reach of ordinary people by pumping hundreds of billions of
pounds into risky mortgages. This is exactly how the banks caused the financial crisis and now the rest of us are being asked to pay for it. If we can’t afford to run hospitals and build schools, can we really afford to subsidise the financial industry? Should we have to live with
less so the bankers can have more? This is ludicrous and it’s time to put a stop to it. The private banks can’t be trusted to hold the reigns to our entire economy. We need to take away the banks’
power to create money out of nothing. This will stop them from causing
yet another financial meltdown and allow us to afford the crucial
services that we as a society need. Democratise the money supply What does a progressive financial system look
like? And I want to hear what some of you think. Who thinks, for example, that we should
ban banks from creating money? Control over how money is created and what
it’s used for is a democratic issue. You currently have the profit seeking banking sector
– not accountable to anybody other than themselves – who are creating up to £200 billion a year of new
spending power and deciding where in the economy that goes. Monetary reformers believe that that entire money
supply should be for the benefit of the public and should never be created by a
private organisation as debt. Democratising the money supply – what that means is putting the power to issue and allocate money back into hands of people and taking it away from private organisations,
institutions that don’t actually represent the people, that aren’t democratically accountable to the people. The banks aren’t democratically accountable to the people, they’re accountable to their shareholders
and their shareholders only. Now they’re underwritten by us by the taxpayer but they’re
not accountable to us. That doesn’t make any sense at all. So, if you democratise the monetary system, you are
subjecting it to the same kinds of discipline as the education system, as the health service
and other key publicly needed services. There is no reason that money should be viewed as any different. It is a fundamentally important service that everybody needs. I can’t survive without enough money, nobody can. So it cannot be controlled purely by this small elite of
big banks as it is in the UK. We do need a different system. We believe that the activity of supplying a nation with money should be completely separate from the activity of banking. What we need to do now is update that law
from 1844 to make the digital money real money. It could be electronic money, but it needs
to be classified as money. We just want banks to be like every other private company
in the economy – to be subject to market discipline. The problem is that now we’re in this hybrid model where we have no control over how they spend the money which creates our money, but also we’re
reliant on them to create our money. We’re all constantly in debt. We’ll be in
debt pretty much for the rest of our lives and the younger generations have it
even worse than the older generations. I’ve just been reading a report from the United Nations
Environment Programme and they say we need $2 trillion a year. Two trillion – can you imagine what two trillion is? It’s a lot
of money – $2 trillion a year to finance the greening of the economy, to move away from poisonous carbon which is
poisoning the atmosphere to alternatives to carbon. When the banks collapsed in 2007-9, we found
according to the Bank of England, not me, the Bank of England tells me that we raised
$14 trillion in a year to bail out the banks so against that $2 trillion a year to bail
out the ecosystem is no big deal. This kind of model doesn’t make any sense either
from an orthodox free market perspective because these banks are monopolists – effectively they monopolise credit creation so they don’t obey the rules of any free market discipline. Yet at the same time, they are not producing socially or environmentally beneficial outcomes along any real scale. All that money does is
enable us to do what we can do and once we get our heads around that we
can make money work for what we need. The power to create money is so powerful. You’ve got to be very concerned about who has that power. If it’s somebody who’s going
to benefit from creating the money then they’re going to have the incentive to
create more than the economy actually needs. The same would probably happen if
you give that power to politicians. You know you can’t trust the politicians to be trying to please
voters and to have power over creating money at the same time. It’s a real conflict of interest. The
only thing you really can do is to give it to somebody who has no conflict of interest – an independent, transparent, accountable body. Money could be allocated according to the
needs and desires of the population. Systems could be put in place to allow for direct
democratic allocation of funds either wholly or partially. A framework and rules could be established
to incorporate up to date economic theory into how much money should be created
and for what types of purposes. The Government would no longer be able to get access
to large sums of money to pursue armed conflict if this was not sanctioned by the populace. We would be able to see exactly what they’re
doing with the power to create money. We would be able to see how much they’re
creating and where that money is going. And that is pretty much the only way we can get control over the power to create money and stop it being abused. The Money Reform Party was established in
2005 just after the 2005 general election. The idea of the Money Reform Party was that we would
have this basic core issue that people would agree with. They might disagree on other issues, that’s
fair enough, there are different ways of going about it but that was the idea – to go for what you might call the
lowest common denominator to attract people with disparate views. Getting elected to Parliament is not the issue – it’s getting the issue of money reform into the public domain so people will begin to talk about it. Safe banking Banks should not be able to gamble with
your money without your permission so what they would need to do is to offer two types of account. One is a safe account, a transactions account’. Put your money in there – the bank doesn’t lend it.
They don’t put it at any risk whatsoever. The other is an investment account where you put
your money in for a certain period of time and then the bank takes that away and they invest it. What happens when you use these two types of account is that in the event that a bank fails, the money
in the safe accounts is still there – it’s not at risk. So you just move all the safe accounts
to a bank that is still healthy. Those people who put their money in the investment
account – they don’t lose everything but they have to wait for the standard liquidation procedure to find out how much of the assets of the banks will be returned to them. It means that the government then never needs to
bail out a bank. Banks can be allowed to fail. The system would actually be how people think it is – that when you put your money in the bank it’s really safe – or at least they used to think perhaps before the 2008 crisis. There’s a spectrum of opportunities there
that we’re just not exploring at the moment and that’s what’s upsetting me – that we’re not even experimenting when we know that the system we have now is fundamentally flawed. We’ve just had the biggest crisis since the
Second World War, since the 1930’s really. We know we have a system where the creators
of money are underwritten by us anyway. It’s kind of the worst of both worlds the situation we have at the moment which is why we need to start thinking of genuine alternatives. So when we’re talking about what life is going
to be like in the post reformed system – it doesn’t mean that you can’t borrow, it doesn’t mean that you have to save up for 50 years before you can buy a house. It does mean that you might not be able to
buy a house that’s 10 or 12 times your income but on the flip side, it means that the house that you want to buy probably shouldn’t cost you 10 or 12 times your income. Houses should be affordable as should everything
else. You’ll still be able to get a mortgage. You’ll still be able to get finance for a car.
Businesses will still get investment. It just means that debt won’t be so high. It won’t
be such a huge feature of people’s lives. Person to person banking Person to person banking has been around for
a while. It’s essentially the eBay of banking, so it allows borrowers and lenders to be put
together in a marketplace. Default rates at the largest
peer to peer lender, Zopa, are 0.7%. Risk is minimised by pooling funds so that each investor’s contribution to a specific loan remains minimal. There’s a site which is about currency exchange, so again, bypassing the kind of mainstream banking or currency exchange system and just doing it person to person. I think a lot of the interesting stuff that’s going to happen around currencies and around money more generally is to do with the impact of the internet. My gut feeling is that
we will see more and more of those types of systems. We will also see more and more applications and things
using our phones than we would ever have imagined and I think we’re only just
at the beginning of that. Barriers to reform The issue of monetary reform has historically been a very sensitive issue because of the incredible power, wealth and privileges it bestows. In an age where analytic thought and a
scientific approach are held in such high esteem there is no justifiable argument for keeping the mechanics and
implications of the monetary process such a taboo subject. As democratic citizens we have the right to demand a monetary system which is both stable and beneficial to society. The banking lobby is very powerful. I suspect
that they won’t be in favour of these kinds of models although ultimately one could argue that
it’s a much more stable footing for banks. The coalition government has set up an
Independent Commission on Banking, the ICB and their remit is to essentially make recommendations to the
government on how the banking sector can be fixed. Their remit includes figuring out how
they can prevent future bailouts. When they held their public meetings around the country, at each of those meetings of the five panellists at that meeting, at least about three of them were representatives
of the big banks. It’s a bizarre relationship. If you were going to try and
improve building regulations, you wouldn’t hire a cowboy builder,
who’d built a building that collapsed. So why are we asking the banks for advice
on what we should do about banking? The Independent Commission on
Banking recommended two major reforms. The first was the implementation of
greater capital and loss absorbing capacity. This in effect is complementary to Basel three and will not differentiate the UK banking system from the rest of Europe. The second recommendation was the
ring-fencing of retail banks. Although portrayed as harsh to the banks,
it can also be interpreted as a benefit, as retail banks will now have a lower capital
requirement ratio than investment banks. There’s this cosy relationship
between the government and the banks. In the middle of the crisis, I spoke to somebody who was
working in the Treasury in the middle of the crisis and he said pretty much every second person that
he spoke to was working for one of the big banks. So when it comes to a decision about whether you let
one of these toxic banks fail or whether you rescue it, what kind of recommendation are you going
to get from somebody who works in that bank? I’ve got a whole string of letters and
cards from various politicians over the years. Really you get letters which in most cases
say nothing at all apart from Thank you very much. Thank you for your letter or thank
you for your DVD. I’ll have a look at it. Or in the case, of course, letters to the
last Prime Minister a couple of years ago, Thank you for your letter to the Prime Minister, it’s been passed on to the Treasury who will no doubt respond to you directly in due course. And of course, I’m still waiting about two years
later for any sort of response from the Treasury. David Cameron is the son of a stockbroker at Panmure Gordon. Nick Clegg’s father was chairman of United Trust Bank. Nick Clegg has had previous employment in the banking sector. 18 of 23 cabinet members are millionaires. 1% of UK citizens are millionaires,
but 78% of the cabinet are millionaires. “This is the banking fraternities feeding station.” Banks balance sheets are now 4 times GDP at 6 trillion
pounds. They are holding the public hostage. Their wealth has become so great through gaming the
financial system that we are at a tipping point whereby a single bank could
now take down the entire economy. “Eat her, eat her now, eat her! She’s a public sector
worker! Eat her! Suck her blood, Drink her dry!” We can’t let the banks go back to business as usual
because if they do then all we’re going to see is more debt, more poverty, more inequality and another crisis
in 5 or 10 years which we’re going to have to pay for again. It is a political issue, ultimately, because the reforms
that are required can only be achieved by Parliament. We don’t need a very big Act of Parliament. All it has
to do is basically prevent the clearing banks from creating currency based on the debt of
their borrowers – that’s it. You stop that. 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 – then George may even be forced to walk to past the next
Saville 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. No-one knows how long it’ll be until the good times return. But with your help George can turn his life around. A simple monthly donation from you can bring a bit of sunshine back to George’s life. Just £395 will help him celebrate minor
achievements with a magnum of Cristal champagne. As little as £900 will help George buy
a new set of tyres for his Aston Martin. £2000 can help George recover his self-esteem with a suit from a prestigious Saville Row tailor. But even a small amount will help. Just £200 will buy a meal for George and his girlfriend
Experience. Just £200 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 Saville 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?

100 comments on “97% Owned – Economic Truth documentary – How is Money Created”

  1. Independent POV says:

    Support more documentaries like 97% Owned,
    One off donations through Liberapay: https://liberapay.com/IndependentPOV
    Monthly donations through Patreon: https://www.patreon.com/independentdocumentary
    It takes 2 years to create a documentary of this quality!

  2. nipi tiri says:

    1:56:59 I wouldnt trust any body with such a task. It would be a bloody magnet for bribes and corruption. Id rather have a fixed rate of money creation, the created money going to the government as a sort of a tax.

  3. -ドミノ・ウカエDOMiNO UKAE says:

    MORE black people need to watch this at least 100 times.

  4. Rick Noel says:

    Out sourcing jobs and manufacturing,and greedy investors destroy our
    economy for their personal gains. THAT'S WHAT HAPPEN TO THE MIDDLE CLASS
    AND THE POOR.

  5. Rick Noel says:

    THE ONLY PLAN THE GOVERNMENT HAS IS TO CONTROL THE PEOPLE AND LET THEM DIE.

  6. Rick Noel says:

    WE CAN ALL SEE HOW PEOPLE WANT TO WORK AND SURVIVE, BUT THE GREEDY BANKS AND INVERTERS JUST WANT TO HOARD ALL THE WEALTH.

  7. Rick Noel says:

    THEY ALWAYS PLAY DOWN THE CRISIS, THAT PEOPLE ARE SUFFERING, BUT THEY ARE NOT SUFFERING. THE PEOPLE LIVE IN DESPAIR. THEY KNOW.

  8. Rick Noel says:

    THE RICH GOVERNMENTS PRINTS WEALTH AT WILL. EVERYBODY ELSE NEEDS TO SLAVE THEM SELVES FOR MONEY. THAT'S THE PONCY SCHEME.

  9. Rick Noel says:

    THEY DON'T ALLOW NO ONE TO GET RICHER THAN THEY ARE. CONTROL IS OPPRESSION.

  10. Rick Noel says:

    NO USE EXPLAINING EVERYTHING. THE TRUTH IS OUT. THE COLLAPSE IS INEVITABLE. BUT, WHO WILL LOSE AND WHO WILL BENEFIT.? THAT REMAINS TO BE SEEN.

  11. Rick Noel says:

    THE COST OF LIVING REQUIRES YOU TO HAVE MONEY.BUT WHO'S HOARDING IT, AND KEEPING IT FROM THE PEOPLE THAT NEEDED.

  12. Rick Noel says:

    JUST PAY PEOPLE FOR SOMETHING WORK. AND EVERYONE WILL HAVE WHAT THEY NEED. DON'T HOARDED ALL AND BLAME PEOPLE FOR NOT HAVING MONEY.SIMPLE ISN'T IT.

  13. Rick Noel says:

    PEOPLE GETTING PAY BY THE SYSTEM ARE DEFENDING THE INSANITY.

  14. Rahel Alemayehu says:

    It seems like brain washing business you guys are engaged in.

  15. Ria Swift says:

    No matter what I watch on youtube, your video pops up every time. I've watched the whole thing…do u know how I can stop this?

  16. pratik khadtale says:

    https://chat.whatsapp.com/GW1uUlsNQsDDgLxb16mm6w

  17. Professional Big Nibba says:

    The banking system is the biggest cartel in all of human history and is damn near impossible look what happened to Abe Lincoln and jfk they both died trying to save the people

  18. Professional Big Nibba says:

    And the central banks are privately owned absolutely sickening

  19. M. Manel says:

    Was also very Important , explain to the people that Central Banks are private , Bank of England are Private this mean ; " with a face of a public bank " Bank of England profits are just for paying to a couple of very few owners of Bank of England !… Thank you very much for this AMAZING VIDEO

  20. Kreistor says:

    Sigh… another piece of Anarchist trash designed to undermine trust and destroy the strongest economic model that has ever existed.

  21. Maricel Ibatuan says:

    True our world economic like a cancer

  22. hank fontaine says:

    Don't know the master of music & magic the father of lies the author of confusion & illusion the master of spy vs spy

  23. hank fontaine says:

    bail or bribery

  24. dusty dex says:

    @23:13 LOL, people saving money and to the banks it's money disappearing. (so much of our national wealth has disappeared, no thanks to these jerks)

    It all makes sense, the recent debate (2019) about physical cash. The banks wouldn't have to rely on the BOE for notes, and no profit on new notes into the national economy.

    It's all about who has control of our physical cash. Deny me my cash and make money on a short-term loan. get stuffed.

  25. Threelly AI says:

    Can someone else?? https://chrome.google.com/webstore/detail/threelly-ai-for-youtube/dfohlnjmjiipcppekkbhbabjbnikkibo

  26. Welsh73&77 says:

    I suggest everyone looks into The Bradbury Pound

  27. Jeremy White says:

    break up big Tech , break up the Big Banks!

  28. GaslitWorld f. Melissa B says:

    When Jews were the only ones allowed to loan money in Europe, they were despised as much as tax collectors. Now bankers revel in excess and anonymity in the UK, the US and now China. How about we all print our own money? Right then, that's illegal and punishable by imprisonment.

  29. fritzki1 says:

    interesting topic but the conspiratorial tone and music makes it unwatchable. combined with the enlightened comments under this video

  30. Jaspreet Singh says:

    If the find a way they will put tax on soul after death .

  31. Darth Sidious says:

    Watch a great Documentary called The Money Masters with Bill Still it's a 4hr documentary that explains everything.

    https://youtu.be/mB-pdPaQNKA

  32. Alex Sanchez says:

    Im in that weird part of youtube again.

  33. Devang Panchasara says:

    Sharia banking is a robust solution to the current economic "Joke" … Because ….
    1). No Usury ….
    2) MOney not given in hands of lenders but given in form of things they need to do business(like Raw materials…etc)…
    3). Banks make profit only their lenders make profit …

    But it has its own challenges of implementation too….with more advancement of technology in future probably it will be cost efficiently implmenented….

    P.S. : Im not muslim and dont plan to be one. But if you study the sharia banking principals, its pure and justful against current toxic & satanic monetory system.

  34. SpaghettiKillah says:

    1:55:25 "move away from poisonous carbon… "
    Fails to realize that SHE'S MADE OUT OF CARBON 🤣🤣🤣
    This is the level of "experts" they have in this documentaries…idiotic cunts and not much more.
    carbon is poisonous, sure. Too bad everything around us INCLUDING PLANTS is made out of carbon 🤦🏻‍♂️

  35. Saturn Effect Mandela says:

    If you trade commodities and those commodities are slaves, meaning you, they can't tell the slaves their the money!😃😃😃

  36. Saturn Effect Mandela says:

    Just liked my own comment is that so wrong!!!😃😃😃

  37. Hector Cortez says:

    My especifi data

  38. Audy Simon says:

    https://youtu.be/05_ruP3anXA this is who is running this scam since day one !

  39. Darth Sidious says:

    I only accept "Bitcoin" fiat currency is just paper or numbers on a screen

  40. Apollo says:

    Well I’ll be fucked , no wonder we are called sheepple .

  41. Rob K says:

    PayPal is acting as an escrow company..And they flat out deny it.

  42. rancid sausage says:

    Iceland we need their model. They got out of the crisis 2008 by telling the federal reserve system to piSs off.

  43. Joe Hausen says:

    You had a nice documentary going until you had to manipulate video to lie.

    At 1:46:52 Bush's State of the Union Address is is edited to make it seem as though Bush said, "I want Americans and all the world to know, America has no regard for conventions of war or rules of morality."

    What he actually said:

    "In this conflict, America faces an enemy who has no regard for conventions of war or rules of morality. Saddam Hussein has placed Iraqi troops and equipment in civilian areas, attempting to use innocent men, women and children as shields for his own military — a final atrocity against his people.

    I want Americans and all the world to know that coalition forces will make every effort to spare innocent civilians from harm."

    You may think that is the reality, and can present a good case for that being the actual truth rather than what is said, but to edit this film in an attempt to manipulate people is part of the reason the world is so screwed up. Nobody wants to tell the truth anymore; as if we can lie and deceive our way to a better understanding of the world and thus make it a better place. Sounds just like the deceitful game the banksters want us to play.

  44. James D3 says:

    There's a society living in a luxury we couldn't even dream of, and they want you to call them the illuminati, freemasons, jesuits, deep state or elites just to confuse and divide you, so you're all easier to control. So in fact they are "The Controllers" regardless of their name, country, race or religion and being a controller is more addictive than any drug, that's why the losing or giving up that control is not acceptable. All addicts have 2 symptoms which eventually expose them
    ~ The recurring need for more as they push for that ultimate buzz that can never be satisfied regardless of what damage is caused to anyone else when they find a means to feeding it
    ~ The addiction becomes their master and the fear of losing that master (via its exposure) becomes their main weakness, eventually causing their demise – So Expose Them !
    These Controllers are easy to find, when you know not only where, but how to look ?
    1st – Where to look ?
    Look behind the Political Party figures they and the msm put in your face to distract you
    2nd – How to look
    Ignore all appearance of nationality, race, colour or creed – look past those deceptions
    3rd – Direction of path to follow
    Question the funding sources behind today's Political leaders, and "follow the money" to the real "Controllers" who have always existed but now we (as we have before) we've had f*kin enough…
    Remember Marianne Twinette and the Russian royal family – Revolution !
    https://www.youtube.com/watch?v=3FwIlfE7Euw

  45. LiquidMocoFilms LLC says:

    This video is a total waste of production and just discouraging. It's easy to critique anything! You need to solve it.

    Give a man a painting and he will tell everything right and wrong about it, but give that same man a paintbrush and he will make a mess.

  46. LiquidMocoFilms LLC says:

    You know what I don't understand. I have watched so many videos on this subject. But not one of the videos proves who is directly responsible for all of this. They just keep saying banks and governments. Come on! Who is the person or persons that need to be held accountable?

    I have a theory those responsible are not really human. They are a lot smarter than humans. Because if it were humans doing this, then someone would be able to tell us just exactly who is doing it!!!

  47. stein joosten says:

    For real the goverment pays banks to print bils and the goverment axualy needs to pay intrest for them if you dont know that youre stupid also only central banks can print money in this econemy sow there money is debt and also if the treasurie gets filed up jn the way they say here how can it be that the goverment stil needs loans from banks well there aint a answer for that to put it simpel evry bank note bil or coin is owned by somoene to somoene there even cant be money without debt this is what you cal modern slavwry

  48. stein joosten says:

    Please for evry one how has seen this docu youre need to watch zeitgeist adedum there they explain evry aspect of money creation debt and al of tge problems it crestes for pouple

  49. Nkosi Rooms says:

    You think,its bad in,the UK.what do you think down playing African currency has done to our continent. REAP WHAT YOU PUT OUT.

  50. Dream Diction says:

    Allowing democratic control of the economy is like letting the chickens run the farm.

  51. juanio says:

    So long as we as a nation allow private institutions the issuance of our currency thru a centralized monetary system, we as a nation and people will always be enslaved by the owners of those institutions.

  52. Guy Touquet says:

    The antimusic in the background is not just distracting but downright intolerable. Fifteen minutes in, I'm about ready to quit. If it's meant to create a mood, it's working. The mood is rage.

  53. Phil Curtis says:

    Not going to mention the joooos? 🤔✡️

  54. ghostfifth says:

    Kw hours as money? How tf?

  55. Kevin - M: Ehrenworth says:

    It's created when your parents go to a hospital your born the hospital gets like three grand the registration for birth certificate and a TDA ACCOUNT with around a million dollars per person depending on country and the world bank demand deposits is set up your name in all CAPITOL LETTERS meet your STRAWMAN all your official documents have your upper lower case name on out side of envelope and on your bank account all caps name when you register your car you think your getting the title nope true title is photoscanned and shredded it's called mco manufacturer certificate of origin it's brown these car dealers have a in house dmv the DMV is a private CORPERATION true title is alliodial. A bank can take your dollar bill and make like twenty dollars it's a debit credit system this script or greeenbacks are not backed by GOLD or SILVER just broken promises wake the fuck up people your a bond Slave from day one. Script is demonic think FREEMASONRY SCIENTOLOGY PRINCIPALITIES

  56. Pacific Trading Post says:

    Yep I learned about the banking system from my rich uncle, look my book up and you will see that the rabbit hole goes much deeper …. just look for Why Are You Still A Slave, you can find it on amazon

  57. Louis C. Gasper says:

    I only had to listen to a few minutes of this to realize that it wasn't going to illuminate anything. "Most economists" know that this video is shallow, partial, and misleading.

  58. Nikpapan says:

    If a government bails out a bank, is the private debt, the Money that People owed the bank, also considered as paid off?

  59. serge v says:

    I have a feeling for a long time already that something very heavy is coming. We all understand that it's a dead end. I honestly think that THEY gonna start a war that will wipe out 90% of humanity. What else THEY can do to reset all the shit?! Buy guns, buy ammo, teach your kids how to shoot!!

    We need a global revolution like Russians had in 1917 or THEY will make us fight each other. PEACE, LOVE, ANARCHY!

  60. Cary Annas says:

    Watch “the money masters” and “the secret of oz” both Bill Still films !

  61. Cary Annas says:

    Watch “America freedom to fascism” and Arron Russo film !
    Also “Trading Places” and “an interview with Arron Russo”!

  62. Cary Annas says:

    Watch “The Fall of the Republic “ film on the Fed banking crisis of 2008 , its sister film “The Obama Deception” .

  63. Gary Clarke says:

    So funny, France went to New York in a boat for its Gold… it’s still waiting, now wonder us Brits we’re paying so much into the EU each week

  64. Winston Wolfe says:

    The sad reality is, we are fcuked as a species. Our brains are a sophisticated operating system, trying to run on primitive hardware. That explains why we create these brilliant concepts… then use them to harm one-another.

  65. Stella Ash says:

    By the 'people' you mean the taxpayers.

  66. liuton2005 says:

    Even Genghis Khan understood the power of gold and forbid its use. If you used gold in his empire instead of his coins you would put to death.

  67. Stella Ash says:

    It's 2019 now, an update to this is sorely needed.

  68. hank fontaine says:

    The real cons are not in jail they build them send men to war for lies for there land grabs

  69. Get Rid Of Money says:

    This is why we need to get rid of money all together! Money is the reason for so many unnecessary problems in our world today.

  70. Token Gentile says:

    One country escaped escaped bank made money. The 3rd reich

  71. CECI CEO says:

    Brilliant, depressing, very confusing for the newbie – but has increased my anger levels towards the corrupt elite.I need to view again about 10 times. Very well made. Thank you.

  72. Nidhin Jose says:

    One of the best documentaries on banking and money creation ever….well done 👍🏻👍🏻

  73. thenumber8 says:

    kill em! problem solved!

  74. tet offensive says:

    who cares let them get richer, they're all gonna die too eventually.

  75. Ryan Shaeffer says:

    BITCOIN IS A GOD SEND!

  76. asking Americans says:

    ''throw the jew down the well..to save your country''…….Henry Ford

  77. Giovanni Bentoxiny says:

    This is the system we deserve, because it does'nt upset us enouth. If it would, people would get interested, fight corruption, and demand reforms.
    Welcome to the species of idiots.
    We have evolved on a tecnological manner, but on a level of consciousness, mankind is as good as any other primate, with rare exceptions…

    There has to be a jump in awareness.

  78. Michael Hord says:

    Bit coin is one step of a tax shelter

  79. C Williams says:

    we shouldn't have bailed out the banks. let it all burn down

  80. sneaking_ weasel says:

    @1:47:27 – He's describing Bitcoin there.

  81. Grackle2012 says:

    Facts: In the US inflation has been flat for a very long time. Boom and bust cycles are predictable and manageable but before the Fed was established this was not always the case; the Great Depression was WORSE than the Great Recession. Fiat currency's value is based on a nation's GDP and credit worthiness. There have been NO cases of hyperinflation in a developed western nation since the central banks were established. The USD is NOT a fiat currency in the hands of the general public, it is legal tender and it is a vastly less volatile store of value than gold. Part of gold's intrinsic value is that it is portable which means a psychopath like Adolph Hitler or Saddam Hussein can storm the vaults of neighboring sovereign nations and carry away the basis of their entire economy in trucks if they are well armed enough, strong arming their way in financial hegemony and holding the citizens of those countries hostage economically. The Treasury still mints bullion grade gold and silver coins and they are made widely available to the public. There is a recession every ten years none of them are entirely unique or special or unprecedentedly extreme, it's an economic cycle. Panic is always an irrational response to any crisis and using it as a starting point for developing an understanding macroeconomics is doomed to fail every time. Fearing something that you don't understand means you are stupid. Facts.

  82. kulturfreund66 says:

    6:25 – Bill Still´s documentary "The Money Masters" says that banknotes were already invented by the goldsmiths by the middleages ( www.youtube.com/watch?v=WVxWPkMXOmw&t=277s , 13:53 )

  83. kulturfreund66 says:

    9:43 – I don´t get why it´s being differentiated between the Bank of England and private banks. The Bank of England is privately owned.

  84. r rajah says:

    Bitcoin will save the world

  85. madrededeus says:

    https://www.michaeljournal.org/articles/social-credit/item/the-money-myth-exploded

  86. Xoze Luiz says:

    This video wants to reform the banks but forgets that the System is currupt by all government which is organized criminals or FASCIST who are in bed with big corporations industry which will continue to destroy the ecosystem all around the world untill they realize that the globe is really flat, they will end up on the edge . They will contaminate the last corner on earth.

  87. Critical Thinker says:

    "Give me control of a nation's money and I care not who makes its laws." Mayer Rothschild

    Money is now an irrelevant, outdated system that is counterproductive to the survival of not only humans but all species. It's time we moved onto a money-free system, and I encourage all to learn more about a *resource based economy*. https://youtu.be/KphWsnhZ4Ag?t=15m31s

  88. peter ford says:

    Freedom requires that the coercion of some by others in
    society be reduced as much as possible. One function of
    government is to prevent individuals from coercing other
    individuals, but then government itself must be prevented
    from using coercion improperly. In a free society, the
    exercise of government’s coercive power is constrained and
    made predictable by general rules that apply equally to all
    individuals, including to those who make and enforce the laws.
    A free society is one that empowers individuals to develop and
    follow their own life plans. Attempts to manipulate the
    environment of individuals, e.g. by withholding vital
    information, are insidious forms of coercion.

  89. - Solo - says:

    russian version?

  90. noum450 says:

    At 41:34, they say that an increase of the money supply = a likely increase in economic activity. This is totally false. By what miracle printing money would increase how well off people are? If we live on a desert island there all the goods are 10 bananas, if money supply goes from 1000$ to 10000$, are people on the island richer?

  91. Gottlieb Freudenreich says:

    Buy Bitcoin

  92. noum450 says:

    1:16:00 they did not know about Bitcoin at that time 🙂 Liberty dollar got shut down but Bitcoin is decentralized and censorship resistant, hence unstoppable! That's one Very good solution to escape the system

  93. insert name here says:

    if you can afford to do so, always hold some (real tangible) gold in your assets.

  94. LordEreinionXXV says:

    Bitcoin exists

  95. dadinjo5 says:

    buy BITCOIN,thats all 1 needs 2 do…scarce af,backed by energy

  96. Johannes C says:

    Werstminster scum need removed from power.

  97. Jason says:

    I say the govenment is evil. And the US is enforcing their dang money system all over and spreading evil each day by keeping a monoply and enforcing it globally with war and intimidation.

  98. Anonymous Geordie says:

    Jacob rothschild is the man who controls all currencies 💷 💷 💷

  99. Ralph Stgermain says:

    Money is the religion of the planet. We will be recorded in history as many things, mostly the enslavement period. Maybe the Sheep ages, or the age of fools, the tricked age, whatever it is it will have these connotations. Sadly, we are living the age of control and loss of privacy & Liberty, and ironically, we are the nation waving a worthless constitution citing liberty and freedom and we have neither. Commodity backed money is the only true money, we work and produce goods and commodities, the currency to be true money must return to tangible backed money and electronic money must end/be banned.

  100. james deroc says:

    violence backs your money

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