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How is money created?
Where does it come from? Who benefits?
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And what purpose does it serve?
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What is a money system?
What is the money behind the money system?
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For centuries the mechanics of the money system have
remained hidden from the prying eyes of the populace.
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Yet its impact, both on a national and
international level, is perhaps unsurpassed,
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for it is the monetary system that provides the foundations
for international dominance and national control.
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Today, as these very foundations
are being shaken by crises,
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the need for open and honest dialogue on the future
of the monetary system has never been greater.
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This economic crisis look like a cancer.
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If you just wait and wait, thinking this is going
to go away, just like a cancer it's going to grow,
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and it's going to be too late.
What I would say to everybody is, get prepared.
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This is not a time right now for wishful thinking
that the government is going to sort things out.
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The governments don't rule the world:
Goldman Sachs rules the world.
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"We're on the verge of a perfect storm".
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In opposition lie corrupt and entrenched
interests that lurk in the corridors of power,
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for whom there are no reasons to relinquish
privileges that they feel are justly deserved.
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Has he got a reform plan for the NHS?
[No!] Has he got a police reform plan? [No!]
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Has he got a plan to cut the deficit? [No!]
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Order! Mis order! Order!
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Do you trust the government?
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Try to calm down and behave like an
adult, and if you can't, if it's beyond you,
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leave the chamber. Get out.
We'll manage without you!
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"This is the banking
fraternities feeding station.
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There's no coincidence that boom and bust became
a real cyclical issue around about the 1700's,
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when William Paterson
founded the Bank of England.
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This is intolerable behaviour as
far as the public... No, it's not funny!
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Only in your mind is it funny.
It's not funny at all, it's disgraceful.
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One Solution, Revolution!
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The system is inherently unstable as a result of the
international power it provides to the dominant parties,
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for at the heart of it lies the idea of;
how can I get something for nothing.
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Statistical analysis has found that every
time an empire begins to near its own demise,
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you'll find that its currency will be debased.
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There is no guide to how
this whole system operates.
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To give you an example, a researcher at the
BBC working on a Robert Peston documentary
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went to the Bank of England and said,
"Can you give me a guide to how money is created?"
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And they just said, "No".
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This documentary will investigate
and explain this ever changing system,
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and the impact it has both on a
national and international level.
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In 2010 the total UK money
supply stood at 2.15 trillion pounds.
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2.6% of this total was physical cash,
53.5 billion.
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The rest, 2.1 trillion, or 97.4% of the total
money supply was commercial bank money.
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The 3% of money is created
through the central bank
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and that money essentially, if you created
a �10 note you could sell that to a bank
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to put into their ATM and the bank would
have to repay that �10 or buy it for �10.
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There would be no interest charged on that money,
but that money is then essentially transferred to the Treasury
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and it's a form of fundraising for the government.
It's called seigniorage.
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When the Bank Of England creates a �10 note, it costs
it about 3 or 4 pence to actually print that note
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and it sells it to a high street banks
at face value, so for �10, and the profit,
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the difference between printing the note and actually
selling it for �10 goes directly to the treasury.
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So, in effect all the profit that we get on creating
physical money, bank notes, goes to the Treasury
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and it reduces how much taxes we have to pay.
Over the last 10 years, that's raised about �18 billion.
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In 1948 notes and coins constituted
17% of the total money supply.
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This was one contributing factor in the government's
ability to finance post-war reconstruction.
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This included the establishment of the NHS.
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In only 60 years notes and
coins have shrunk to less than 3%.
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Prior to 1844 bank notes were created by private banks
and the government did not profit from their creation.
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Pre-industrialisation there was
multiple forms of money co-existing,
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and so the rise of government-sponsored
fiat money is a relatively recent phenomenon.
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In the 1840s there was no law to stop
banks from creating their own bank notes.
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So they used to issue paper notes as kind of a
representative of what you had in the bank account.
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Instead of you taking your heavy metal coins out of
the bank and then going and paying somebody with them
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you could get your paper which said how much money you
had in the bank and you could give that to somebody
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and they could use that to go and get
the heavy metal coins from the banks.
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Now over time these paper
notes became as good as money.
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People would use paper notes instead of
going and getting real money from the bank
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and obviously as soon as the banks realised that what they were
creating had become in the dominant type of money in the economy,
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they realised that by creating
more of it they could generate profits.
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They can just print up some new notes
lend it and get the interest on top of them.
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And they did that up until the 1840s. In
the 1840s they pushed it just a little bit too far
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and that caused inflation,
destabilising the economy. So in 1844,
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the Conservative Government of
Robert Peel actually passed a law
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that took the power to create money away from the
commercial banks and brought it back to the state.
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So since then the Bank of England has been the
only organisation authorised to create paper notes.
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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.
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The problem was that they did not
include in that legislation the deposits,
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the demand deposits, held in banks by
individuals or electronic forms of money
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which essentially is what those demand deposits are. Today
most of the money in circulation is electronic money,
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it's bank demand deposits
that sit in our accounts.
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So in a way the legislation's got to catch up with the developments
in electronic money and the way that banks actually operate.
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Money held in bank accounts
are called demand deposits.
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This is an accounting term the
banks use when they create credit.
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Banks follow the same process when they create loans.
All money held in bank accounts is an accounting entry.
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The reality is now that most money is
not paper and it's not metal coins it's digital.
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It's just numbers in a computer system. It's your
Visa debit card. It's your electronic ATM card.
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It's this - plastic. It's numbers in a computer system,
you move money from one computer system to another.
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It's all a big database and this digital money is
what we are now using to make payments with.
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It's what we actually use to run the economy.
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I think a lot of people in the UK probably
think that the government or the central bank
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is in control of most money in circulation
and issues new money into circulation,
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but that's not the case.
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It's private banks that create the vast majority of new
money in circulation and also decide how it's allocated.
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The official terminology for this
accounting entry is commercial bank money.
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When banks issue loans to the public,
they create new commercial bank money.
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When a customer repays a loan,
commercial bank money is destroyed.
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The banks keep the interest as profit.
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There're a lot of misconceptions
about the way banks work.
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There was a poll done by the Cobden Centre where they
asked people how they thought banks actually operated.
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Around 30% of the public think that when you put your
money into the bank it just stays there and its safe,
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and you can understand why because every child
has a piggy bank where you keep putting money in
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and then when it's a rainy day you smash it
and you take that money out and you spend it.
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So a lot of people keep this idea of banking
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it's somewhere safe to keep your money
so that it's there for whenever you need it.
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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.
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So you have a pensioner who keeps saving money her
entire life and then her life savings have been lent
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to some young people who want to buy a
house. But actually banks don't work like that.
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At the moment in the UK money creation and
control is largely in the hands of private banks.
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About 97 to 98% of money that's created is
created as bank "debt money" you could call it,
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when banks issue money into
circulation as loans essentially.
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This is a very poorly understood fact.
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It's not a conspiracy theory, it's not a crackpot theory,
it's the way the Bank of England describes the process.
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When banks make loans they create new money.
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A few economists will realise
the way the money system works
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but if you don't realise the way
that money works and you think that
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everybody saving is going
to work well for the economy,
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what really happens once you understand
the way the money system works,
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is that if everybody starts saving the amount of
money in the economy shrinks and we have a recession.
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So most economists don't have this full picture.
They don't understand all the elements of the system.
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They rely on assumptions, on received
knowledge without actually going into the details
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and money is the centre of the economy.
If you don't understand where it comes from,
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who creates it and when it gets created then
how can you understand the entire economy?
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When the vast majority of money that we
use now is not cash but electronic money
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then whoever's creating the electronic money
is getting the proceeds of creating that money
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and obviously creating electronic money
is much more profitable than creating cash
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because you don't have
any production cost at all.
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So while we've got �18 billion over the
course of the decade in profit from creating cash,
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the banks have actually created �1.2 trillion.
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Between 1998 and 2007
the UK money supply tripled.
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�1.2 trillion was created by banks,
whilst �18 billion was created by the Treasury.
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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.
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But on the 9th of March in 2009,
the governor of the Federal Reserve,
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Ben Bernanke gave the first ever broadcast interview the Governor
of the Central Bank of the United States of America had ever given.
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The day before that he had bailed out AIG,
which is an insurance company not even a bank actually,
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to the tune of about US$160 billion.
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So the journalist says to him: "Now Mr. Bernanke
where did you get $160 billion to bail out AIG?"
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Is that tax money that the Fed is spending?
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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.
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So to lend to a bank we simply use the computer to
mark up the size of the account they have with the Fed.
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So it's much more akin, although not exactly the
same, to printing money than it is to borrowing.
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Banks create new money whenever
they extend credit, buy existing assets,
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or make payments on their own account,
which mostly involves expanding their assets.
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When a bank buys securities,
such as a Corporate or Government Bond
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it adds the bond to its assets and increases the
company's bank deposits by the corresponding amount.
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New commercial bank money enters circulation when people
spend the credit that has been granted to them by banks.
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I found that talking on the door step from
August 2009 around to... general election,
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8-9 months I suppose, knocking on the doors, is that
when we tried to explain how the money system works,
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there's an almost in-built refusal of people to accept
that such a bizarre situation could actually exist.
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"Ah no, it can't possibly. What do you mean? It can't...
banks can't...banks don't create money out of thin air.
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That's ridiculous. They can't do that.
They lend out their depositors' money."
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Most people have an idea of how money is.
They are used to their own way of handling money
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and they try and implement their own idea of how their
small household economy works into the national economy.
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And of course it just doesn't work out at all.
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By 2008 the outstanding loan
portfolio of bank created credit,
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also known as commercial bank money,
stood at over 2 trillion pounds.
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As recently as 1982 the ratio of notes
and coins to bank deposits was 1:12.
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By 2010 the ratio had risen to 1:37.
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That is for every pound of Treasury created
money there were 37 pounds of bank created money.
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In the 10 years prior to the 2007 crisis,
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the UK commercial bank money supply
expanded by between 7% to 10% every year.
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A growth rate of 7% is the equivalent of
doubling the money supply every 10 years.
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The amount of money they're
creating out of nothing is just incredible,
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1.2 trillion in the last 10 years.
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That money is being distributed according
to the priorities of the banking sector,
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not the priorities of society.
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The banking sector itself grew from
1980 $2.5 trillion to $40 trillion by assets.
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In 1980, global bank assets were
worth 20 times the then global economy.
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00:18:05,000 --> 00:18:08,456
By 2006 they were worth
75 times, according to the UN.
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As the following chart shows, total bank
assets of UK banks as a percentage of GDP
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remained relatively stable at 50-60% up to the end
of the 1960s. After that they shot up dramatically.
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And the real money in the world to be
made today is not by producing anything at all.
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It's simply by forms of speculating -
basically making money from money.
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That's the most profitable and by far and away the biggest
form of economic activity that exists in the world today.
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Today, banks are no longer
restricted by how much they can lend,
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and as such, how much new credit they can create out of nothing.
They are restricted solely by their own willingness to lend.
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The issue with allowing banks to
create money - there's two main issues.
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Firstly - the fact that they create
this money when they make loans,
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so it guarantees that we have to borrow all
our money for the economy from the banks.
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As such, to have a healthy growing economy,
the Government needs to put in place strategies
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to allow for ever-increasing debt.
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The only way the Government can create additional
purchasing power is by getting itself and us into more debt.
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The second big issue with allowing the banks to create
money is that they have the incentive to always create more.
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They create more money if they issue a loan.
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They get the bonuses, the commissions
and the incentives to lend as much as possible.
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You have to develop a sales culture.
What did they do?
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They recruited an amazing guy, a lovely guy,
Andy Hornby, who came from Asda
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to turn the bank into a
supermarket retailing operation.
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If you trust bankers to control the money supply,
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the money supply will just grow and
grow and grow, as will the level of debt,
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until the point where it crashes, when some people
can't repay the debt and then they'll stop lending.
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You hear politicians and journalists
saying We've been living beyond our means.
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00:20:23,000 --> 00:20:28,824
We've become dependent on debt. We need to
reign in our spending and live within our means.
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It's not possible in the current system.
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The reason why everyone is in debt now is not
because they have been recklessly borrowing.
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We haven't borrowed all this money from an army of
pensioners who've been saving up their whole lives.
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Money in the current system is debt.
It's created when the banks make loans.
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So the only way, in the current system,
that we can have any money in the economy,
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the only way we can have money for business to trade,
is if we've borrowed it all from the banks.
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00:20:59,000 --> 00:21:03,988
And it's the very opposite of what
the Tory Party is arguing today,
198
00:21:04,000 --> 00:21:08,976
which is that you have to create savings
before you can help the National Health Service.
199
00:21:09,000 --> 00:21:12,976
And it's because economists have
completely confused those things,
200
00:21:13,000 --> 00:21:16,904
both in monetary policy terms,
but also in economic thinking,
201
00:21:17,000 --> 00:21:23,720
and because most people still harbour the old fashioned
view that you need savings before you can invest,
202
00:21:24,000 --> 00:21:26,800
that we have the mess that we're in today.
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00:21:27,000 --> 00:21:33,528
Now, one of the reasons why we find it difficult to
understand the banking system and credit creation,
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00:21:33,600 --> 00:21:39,976
is that we leave school without any money and we go
and get a job working as an apprentice to a plumber.
205
00:21:40,000 --> 00:21:44,976
We work really hard all month and at the end
of the month somebody puts money in our bank,
206
00:21:45,000 --> 00:21:50,928
and so for us the logic is: you work
and then you get money, you get savings.
207
00:21:51,000 --> 00:21:56,976
In reality you would never have got that job if
credit hadn't been created in the first instance.
208
00:21:57,000 --> 00:22:02,964
It's a really important
conceptual misunderstanding
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00:22:03,000 --> 00:22:07,976
and it isn't something that the public just is guilty of.
Economists don't understand this stuff.
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00:22:08,000 --> 00:22:10,900
Money doesn't come out of economic activity.
211
00:22:11,000 --> 00:22:16,056
A lot of people I've come across kind of
assume that if you have got businesses
212
00:22:16,100 --> 00:22:22,820
and you've got people doing things, that somehow money
emerges out of the process of people doing things,
213
00:22:23,100 --> 00:22:27,076
making things and growing things,
selling things and producing things,
214
00:22:28,000 --> 00:22:33,696
that somehow money just emerges. It's not.
It's like oiling a car. You have to put it in.
215
00:22:34,000 --> 00:22:38,976
When I see David Cameron talking about
how we need an economy not based on debt,
216
00:22:39,000 --> 00:22:43,976
but we need an economy based on savings,
he just doesn't know what he's saying. It's ridiculous.
217
00:22:44,000 --> 00:22:50,976
It's absolutely absurd and it shows his complete lack
of understanding of how our money system actually works.
218
00:22:51,000 --> 00:22:55,544
What he is essentially saying is that
We need an economy with no money.
219
00:22:56,000 --> 00:23:00,940
If everyone was saving we'd
have mass disappearing of money,
220
00:23:01,000 --> 00:23:04,976
which is essentially what a bank write-off is -
people defaulting on their debt -
221
00:23:05,000 --> 00:23:07,900
which essentially is just money disappearing.
222
00:23:09,000 --> 00:23:12,976
But if people weren't taking on
the debt then it's just such a joke.
223
00:23:13,000 --> 00:23:20,976
It's such an amateur understanding of how our economy works and
how the monetary system works and how money is actually created.
224
00:23:21,000 --> 00:23:24,976
So I really do get a laugh out of
watching what people are actually saying.
225
00:23:25,000 --> 00:23:29,976
They are all just regurgitating what they have learnt
off each other and you just hear the same things
226
00:23:30,000 --> 00:23:35,916
and it just really gets on my nerves
when I hear people talking about
227
00:23:36,000 --> 00:23:41,976
'Yeah, we need more regulations, we need to
regulate the way banks are actually and the bonuses'
228
00:23:42,000 --> 00:23:47,976
It's all just one big smoke screen and working on
all the symptoms of a greater disease which is really
229
00:23:48,000 --> 00:23:51,976
you need to look at the money system -
the way money is created.
230
00:23:52,000 --> 00:23:57,976
And if we don't want any debt then we're essentially saying
we don't want any money and we want a moneyless economy
231
00:23:58,000 --> 00:24:01,456
with the exception of the
3% that's created debt free.
232
00:24:02,000 --> 00:24:03,976
You know, it's a paradox under the current system.
233
00:24:04,000 --> 00:24:09,952
If we as the public go into further debt then
that's going to put more money into the economy
234
00:24:10,000 --> 00:24:14,976
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.
235
00:24:15,000 --> 00:24:21,976
And eventually this cycle continues. It gets easier and
easier to get into debt until some people get over-indebted
236
00:24:22,000 --> 00:24:25,584
and then they default.
They can't re-pay their mortgage.
237
00:24:25,600 --> 00:24:33,944
That's what happened first in sub-prime America.
And then ... that just brings through a wave of defaults,
238
00:24:34,000 --> 00:24:36,976
which will ripple across the entire economy.
The banks go insolvent.
239
00:24:37,000 --> 00:24:41,988
Then we're into a financial crisis
and then the banks stop lending.
240
00:24:42,000 --> 00:24:49,976
They were excessively lending in the boom and then they
stop lending and that makes the recession even worse.
241
00:24:50,000 --> 00:24:55,976
People lose their jobs and then they become even
more dependent on debt just to survive, basically.
242
00:24:56,000 --> 00:25:00,976
You know we have a system where we
have to borrow in order to have an economy.
243
00:25:01,000 --> 00:25:06,312
We have to be in debt to the banks.
That guarantees a massive profit for the banks.
244
00:25:08,000 --> 00:25:09,867
This is the boom-bust cycle.
245
00:25:13,000 --> 00:25:18,452
And I've said before, Mr Deputy Speaker,
no return to boom and bust.
246
00:25:23,900 --> 00:25:27,300
Net bank lending must forever increase.
247
00:25:28,000 --> 00:25:33,696
We are paying interest on every single pound.
Even if you think the money belongs to you,
248
00:25:34,000 --> 00:25:36,976
somebody somewhere is
paying interest on that money.
249
00:25:37,000 --> 00:25:40,520
The banking system has such
a huge impact on the world,
250
00:25:41,000 --> 00:25:44,520
but only because it supplies
our nation's money supply.
251
00:25:45,000 --> 00:25:49,976
We have to protect them. We have to
subsidise them. We have to allow them to continue
252
00:25:50,000 --> 00:25:54,916
because the disaster of a bank
collapse affects us all in a huge way.
253
00:25:55,000 --> 00:26:01,976
Anyone who says that we shouldn't have bailed out the banks
doesn't quite understand the nature of our monetary system.
254
00:26:02,000 --> 00:26:05,200
That's like eliminating a huge chunk of our money.
255
00:26:05,700 --> 00:26:10,976
But also bailing out the banks is perpetuating
a system which is never going to work anyway.
256
00:26:11,000 --> 00:26:16,976
So whatever we do we are always going to have
this cycle until we separate how money is created
257
00:26:17,000 --> 00:26:19,976
and the activities of banking.
Then the banks could do as they wish.
258
00:26:20,000 --> 00:26:21,976
They'd be a normal
business like everyone else.
259
00:26:22,000 --> 00:26:29,460
There's a major democratic issue here as well.
You have these private profit-seeking banks
260
00:26:30,000 --> 00:26:34,976
creating up to �200 billion a year and pumping
that into the economy wherever they want,
261
00:26:35,000 --> 00:26:40,824
basically, wherever it suits them, whether
they're pumping it into these toxic derivatives,
262
00:26:41,000 --> 00:26:44,976
or putting money into housing bubbles,
just making housing more expensive.
263
00:26:45,000 --> 00:26:51,984
�200 billion in 2007 of new money coming
into the economy, created out of nothing
264
00:26:52,000 --> 00:26:56,736
and where that gets spent determines
the shape of our economy effectively.
265
00:26:56,800 --> 00:27:00,776
So if we are going to allow anybody
to create new money out of nothing,
266
00:27:01,000 --> 00:27:03,976
then we should at least have some
democratic control over how that money's used.
267
00:27:04,000 --> 00:27:11,976
I mean, would we rather have that money used for health care,
or to deal with some of the environmental issues or to reduce poverty,
268
00:27:12,000 --> 00:27:18,464
or would we rather have it to make houses more
expensive so none of us can afford to live in a house.
269
00:27:21,000 --> 00:27:30,908
You can see it as a subsidy, a special super
subsidy to the banks, for the right to create money,
270
00:27:31,000 --> 00:27:36,440
which should be for the benefit of the
public and spent through a democratic process.
271
00:27:43,000 --> 00:27:48,504
There's also another form of money,
which is effectively an electronic version of cash
272
00:27:49,000 --> 00:27:54,976
and it's a type of money that the commercial banks
use themselves to make payments between each other.
273
00:27:55,000 --> 00:27:59,976
The high street banks don't want to be
carrying around huge quantities of money
274
00:28:00,000 --> 00:28:05,976
because it's dangerous, inconvenient and expensive.
You have to hire security guards for that type of money.
275
00:28:06,000 --> 00:28:10,976
So what they do is they pay each other
in what is an electronic version of cash
276
00:28:11,000 --> 00:28:20,972
which in the industry is known as Central Bank Reserves.
They keep this electronic cash in accounts at the Bank of England.
277
00:28:21,000 --> 00:28:25,352
But as a member of the public
you can't access this electronic cash,
278
00:28:25,400 --> 00:28:27,376
you can't get an account with the Bank of England.
279
00:28:28,000 --> 00:28:36,944
What they do is they effectively sell this central bank money
to the banks and they do this by creating it out of nothing
280
00:28:37,000 --> 00:28:42,956
and using this money to pay for bonds,
to buy bonds from the high street banks.
281
00:28:43,000 --> 00:28:47,976
So, the high street bank will come along
with a bond which is effectively government debt
282
00:28:48,000 --> 00:28:51,976
and it will give it to the Bank of England
and in return the Bank of England
283
00:28:52,000 --> 00:28:55,976
will type some new numbers into the
bank's account at the Bank of England.
284
00:28:56,000 --> 00:28:58,976
So effectively they are creating
central bank reserves out of nothing.
285
00:28:59,000 --> 00:29:02,136
The Bank of England
creates Central Bank Reserves
286
00:29:03,000 --> 00:29:07,976
by increasing the available credit in the
settlement bank's account with the Bank of England.
287
00:29:08,000 --> 00:29:13,760
The settlement bank in return posts bonds,
or sells assets as collateral for the reserves.
288
00:29:17,000 --> 00:29:21,672
A total of 46 banks hold Central
Reserve Accounts at the Bank of England.
289
00:29:22,000 --> 00:29:31,400
Smaller or foreign banks hold accounts with one of these 46 banks
to allow them to accept or make payments in pounds sterling.
290
00:29:32,000 --> 00:29:39,936
Prior to March 2009, the Bank of England would ask each of the
major settlement banks how much reserve currency they needed.
291
00:29:41,000 --> 00:29:48,872
The settlement banks would then swap a bond for the reserve
currency and agree to repurchase the bond for a specific amount
292
00:29:49,000 --> 00:29:55,964
at a specified future date.
The settlement banks would then receive interest
293
00:29:56,000 --> 00:30:00,032
at base or policy rate for the
central bank reserves they held.
294
00:30:01,200 --> 00:30:06,192
Since the crisis, settlement banks
central reserves have shot up dramatically.
295
00:30:20,000 --> 00:30:24,976
When bank customers transfer funds from
their account to another person's account,
296
00:30:25,000 --> 00:30:27,867
a process called Intra-Day Clearing occurs.
297
00:30:29,000 --> 00:30:32,976
The amount of central reserve currency
Bank A has at the Bank of England
298
00:30:33,000 --> 00:30:37,940
is reduced by the corresponding
amount that Bank B receives.
299
00:30:38,000 --> 00:30:41,840
This is the importance of
central reserve currency to banks.
300
00:30:43,000 --> 00:30:50,232
Before the credit crisis, if a bank was short of central
reserves at the Bank of England to meet its obligations,
301
00:30:51,000 --> 00:30:55,672
then the bank would have to loan
reserves from other banks with interest.
302
00:31:05,600 --> 00:31:10,976
If you sell something on eBay, you know that that deal is
not complete until you get some money put into your account.
303
00:31:11,000 --> 00:31:15,976
Most people actually want to see the money in their
account before they're happy to close on a deal.
304
00:31:16,000 --> 00:31:21,976
Now the banks are pretty much the same, but they want
to see the money in their account at the Bank of England
305
00:31:22,000 --> 00:31:23,976
before they consider a deal complete.
306
00:31:24,000 --> 00:31:28,976
So for example, if you are buying a house
from somebody who banks with a different bank
307
00:31:29,000 --> 00:31:32,976
then what'll happen after you've
spent a quarter of a million on a house
308
00:31:33,000 --> 00:31:40,000
is you'll tell your bank to transfer some money to
the house seller's bank and what the bank will do
309
00:31:40,000 --> 00:31:45,976
is actually instruct the Bank of England to move
�250,000 from their account at the Bank of England
310
00:31:46,000 --> 00:31:52,976
to the bank of the house seller. And that money will actually
move across between the accounts at the Bank of England.
311
00:31:53,000 --> 00:31:59,272
When that money has moved across, then the banks
will consider that that payment has been settled.
312
00:32:00,000 --> 00:32:05,972
They don't really deal in the kind of
money that we have in our accounts,
313
00:32:06,000 --> 00:32:10,736
they deal in this special money that
can only be used at the central bank.
314
00:32:12,000 --> 00:32:18,976
There are millions of people across the country,
all transferring money to each other using only a few major banks.
315
00:32:19,000 --> 00:32:27,000
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.
316
00:32:28,000 --> 00:32:39,808
The five major banks - RBS, Lloyds, HSBC, Barclays
and Santander - hold over 85% of all deposits.
317
00:32:42,000 --> 00:32:49,976
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.
318
00:32:50,000 --> 00:32:55,976
The money is just circulating through this system
over and over again and if you think about it,
319
00:32:56,000 --> 00:33:01,976
a one pound coin could be used to make a billion pounds
of payments if it was circulated a billion times.
320
00:33:02,000 --> 00:33:05,976
And that's effectively the system that you
have now, is you have a small pool of real money
321
00:33:06,000 --> 00:33:12,976
that's just going round and round the system and it's being
used to make a huge quantity of payments on our behalf.
322
00:33:13,000 --> 00:33:18,440
Just before the crisis there was only 20
billion in the accounts at the central bank.
323
00:33:20,000 --> 00:33:25,440
September 2007. Thousands of Northern
Rock customers queue up to withdraw their cash.
324
00:33:26,000 --> 00:33:32,720
The company had been forced to seek emergency funding.
It's the first run on a British bank in 140 years.
325
00:33:49,000 --> 00:33:54,976
If they don't have enough of this central bank money,
then effectively they can't make payments
326
00:33:55,000 --> 00:33:58,976
and if that happens then pretty
quickly the entire system seizes up.
327
00:33:59,000 --> 00:34:05,656
So the Bank of England has the responsibility of
making sure there's enough of this money in the system.
328
00:34:07,000 --> 00:34:12,976
The requirements for banks to hold a specific amount
of reserves has changed many times since 1947.
329
00:34:13,000 --> 00:34:22,984
At that time, banks needed to hold a minimum ratio of
32% of reserves, cash or Treasury Bonds to deposits.
330
00:34:23,000 --> 00:34:31,148
In 2006, the Corridor System was introduced, in which
banks could set their own reserve targets each month.
331
00:34:34,000 --> 00:34:40,016
The rules changed again in March 2009 when the
Bank of England introduced quantitative easing.
332
00:34:41,000 --> 00:34:46,888
Quantitative Easing in effect, gives settlement
banks the central reserve currency for free.
333
00:34:50,000 --> 00:34:55,976
The Central Reserve Currency is what is referred to
as the real money in the fractional reserve model
334
00:34:56,000 --> 00:34:59,840
but the fact is banks can have
as much of this as they want.
335
00:35:00,000 --> 00:35:05,568
And Central Reserve Currency itself is a
form of fiat money which is backed by nothing.
336
00:35:06,000 --> 00:35:10,352
As a consequence there is no
longer a meaningful fractional reserve.
337
00:35:22,000 --> 00:35:25,648
If you look over the history
of the last 150 years or so,
338
00:35:26,000 --> 00:35:31,976
you start off with a development of a gold standard
that really comes to the fore in the 1880s/1890s
339
00:35:32,000 --> 00:35:36,976
where essentially countries peg
themselves to a particular defined value of gold
340
00:35:37,000 --> 00:35:41,480
and then they have an agreement
to fix that value, to hold that value,
341
00:35:42,000 --> 00:35:44,976
and to trade gold amongst themselves
to make sure the balances are all there
342
00:35:45,000 --> 00:35:52,932
and also to try and restrict or expand or contract activity
in their own economies to make sure that the balance,
343
00:35:53,000 --> 00:35:58,696
that particular fixed price, is maintained.
That disintegrates after the First World War.
344
00:35:59,000 --> 00:36:04,976
This is where the whole thing breaks apart, a very major
dislocation in the international monetary system at that point,
345
00:36:05,000 --> 00:36:09,976
not really resolved until you get Bretton Woods
agreements at the end of the Second World War
346
00:36:10,000 --> 00:36:13,976
in which everything is pegged to the
dollar and the dollar is pegged to the gold.
347
00:36:14,000 --> 00:36:16,976
So you are kind of one
removed from the gold backing
348
00:36:17,000 --> 00:36:22,976
or saying that there is a definite you know sort of solid
commodity money behind the paper money and the credit money
349
00:36:23,000 --> 00:36:25,976
that we are all using over here.
You are kind of one removed from it.
350
00:36:26,000 --> 00:36:31,952
After Hiroshima, Tokyo wondered when the next
atom bomb would fall. They did not wonder long.
351
00:36:39,000 --> 00:36:47,944
In 1944, at Bretton Woods, the US and the UK began
to negotiate how to govern the world economy,
352
00:36:48,000 --> 00:36:52,416
the world monetary system and came
up with the World Bank and the IMF
353
00:36:53,000 --> 00:36:57,672
and a series of other institutions
designed to manage the global currency
354
00:36:58,000 --> 00:37:01,976
and there was still a gold standard, but this
gold standard was going to be tied to the dollar.
355
00:37:02,000 --> 00:37:05,776
All of the world's gold had
moved from London to Fort Knox,
356
00:37:07,000 --> 00:37:10,712
and all of the world's
currencies were tied to the dollar.
357
00:37:12,000 --> 00:37:17,440
This system was designed to manage the
sorts of imbalances, to avoid credit crunches,
358
00:37:18,000 --> 00:37:25,976
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.
359
00:37:26,000 --> 00:37:35,976
The currencies were managed and the system was stable,
as long as the Americans played the role of oversight.
360
00:37:36,000 --> 00:37:40,160
Now, who knows the great story
about how that all came to an end?
361
00:37:41,000 --> 00:37:47,976
So, the quantity of money that was needed to pay for the
Vietnam War, that's exactly what I was trying to get at.
362
00:37:48,000 --> 00:37:49,867
Oil shocks were another one.
363
00:37:50,000 --> 00:37:54,976
That meant that the Americans were no longer respecting their
role or playing their role governing the monetary system.
364
00:37:55,000 --> 00:37:58,976
They were inflating the value of their own
currency that ostensibly was meant to be tied,
365
00:37:59,000 --> 00:38:03,352
tied to gold and to every other currency.
So what did the French do?
366
00:38:04,000 --> 00:38:09,184
The French were a little bit worried that
President Nixon wasn't entirely honest.
367
00:38:10,000 --> 00:38:20,000
And they were worried that precisely what we described, that Nixon
was printing money when he shouldn't have been, was going on.
368
00:38:20,000 --> 00:38:24,976
And they were worried there wasn't enough gold
to honour the exchange rate of the French Franc,
369
00:38:25,000 --> 00:38:32,988
so they sent a gunboat to New York harbour
to ever so politely ask for our gold back please.
370
00:38:33,000 --> 00:38:41,364
Did they get their gold back? Go on, guess! They didn't.
And the Bretton Woods system came to an end.
371
00:38:42,000 --> 00:38:46,976
And this is the point at which we enter
the modern era of the financial system.
372
00:38:56,000 --> 00:39:02,528
Historically, money creation was pegged to a commodity,
often gold, but today it is pegged to nothing.
373
00:39:04,000 --> 00:39:12,752
Which means there is nothing backing our money.
This piece of paper is just a piece of paper.
374
00:39:15,000 --> 00:39:21,996
Where does this leave us? If money is based
on nothing, why do we think it has any value?
375
00:39:24,000 --> 00:39:29,568
Sorry? Because we can still go and exchange it.
What? Somebody else was going to shout.
376
00:39:30,000 --> 00:39:38,272
Great little Latin fact, the word for
credit comes from? Belief. Correct.
377
00:39:45,000 --> 00:39:51,400
Since the collapse of the dollar gold standard in
1971 and the deregulation of the financial system,
378
00:39:52,000 --> 00:39:54,600
money creation has grown exponentially.
379
00:39:56,000 --> 00:40:08,852
The World Economic Forum meeting in Davos at the present
time have called on a need for the credit within the economy,
380
00:40:09,000 --> 00:40:18,056
the global economy,
to be expanded by US$100 trillion.
381
00:40:19,000 --> 00:40:25,080
A trillion is 12 noughts so 100 trillion, if you
want to imagine is a 1 followed by 14 noughts.
382
00:40:27,000 --> 00:40:30,392
They believe this credit
expansion will create a boom
383
00:40:31,000 --> 00:40:34,976
because there is now more money in the
economy with which to make investments.
384
00:40:35,000 --> 00:40:40,976
It's fascinating this emergence of digital currencies,
how it's transformed everything really.
385
00:40:41,000 --> 00:40:49,640
Because it just completely unleashed private banks to
dominate and create the money system that works for them
386
00:40:50,000 --> 00:40:52,976
and works for the people who run private banks.
387
00:40:56,000 --> 00:41:00,976
If you want a growing economy under the
current set-up we have to have growing debt.
388
00:41:01,000 --> 00:41:05,948
This is something very, very
few people really understand
389
00:41:06,000 --> 00:41:10,976
- especially not the politicians who are
managing the economy - which is a scary thought.
390
00:41:18,000 --> 00:41:24,016
As the money supply grows more money is available
which can be invested in productive avenues.
391
00:41:25,000 --> 00:41:29,096
However it can also be used to
gamble and drive up asset prices.
392
00:41:44,000 --> 00:41:51,232
Inflation is a rise in the general level of the prices of
goods and services in an economy over a period of time.
393
00:41:52,000 --> 00:41:57,568
When the general price level rises each
unit of currency buys fewer goods and services.
394
00:41:59,000 --> 00:42:01,976
As the money supply grows and
there is more currency available,
395
00:42:02,000 --> 00:42:06,096
more money is available for
investment which can lead to growth,
396
00:42:07,000 --> 00:42:13,208
but more money is also available for purchases
of goods and speculation which leads to inflation.
397
00:42:15,000 --> 00:42:23,908
Essentially, inflation is what happens when too
much money is chasing too few goods and services,
398
00:42:24,000 --> 00:42:31,596
so there is too much money for
the actual output of the economy.
399
00:42:32,000 --> 00:42:36,224
However in practice inflation is
much more skewed and complicated.
400
00:42:37,000 --> 00:42:41,976
Measuring inflation is not a science and
the way it is recorded poses a dilemma.
401
00:42:42,000 --> 00:42:48,920
The Consumer Price Index or CPI is
measured from a sample of goods and services.
402
00:42:49,000 --> 00:42:52,840
Each category of goods and
services is given a weighing data
403
00:42:53,000 --> 00:42:57,976
which determines the overall impact
of the price data for a specific category.
404
00:42:58,000 --> 00:43:03,248
However this measure is deemed to
provide a consistently low figure for inflation.
405
00:43:04,000 --> 00:43:15,508
Interestingly house prices, mortgage repayments and council
tax are excluded yet apps and dating agency fees are included.
406
00:43:18,000 --> 00:43:24,712
The Retail Price Index or RPI inflation
index is another way of measuring inflation
407
00:43:25,000 --> 00:43:29,352
and scores consistently higher
values than the Consumer Price Index.
408
00:43:30,000 --> 00:43:37,960
Recently many pension schemes have adjusted
their annual payout increases from RPI to CPI.
409
00:43:38,000 --> 00:43:43,376
This is another cost saving measure
which will leave pensioners worse off in future.
410
00:43:44,000 --> 00:43:49,824
The CPI index of inflation is not geared
towards providing an accurate picture of inflation
411
00:43:50,000 --> 00:43:53,520
and the deterioration in the
purchasing power of money.
412
00:44:00,000 --> 00:44:08,908
In the seven years between the years 2000 and 2007
the money supply doubled and the central bank,
413
00:44:09,000 --> 00:44:12,976
the Bank of England was under the impression
at this time that they had it under control
414
00:44:13,000 --> 00:44:15,976
because they were saying that
prices weren't going up that much.
415
00:44:16,000 --> 00:44:19,976
Of course they were only looking
at prices in your local corner shop.
416
00:44:20,000 --> 00:44:26,976
They weren't looking at the price of housing and housing
is the biggest expenditure that most people will make.
417
00:44:34,000 --> 00:44:41,928
Increasing house prices, it may make
you feel like you're becoming wealthier,
418
00:44:42,000 --> 00:44:48,916
but as your wealth increases the effect is that
your children's wealth is actually decreasing.
419
00:44:49,000 --> 00:44:58,000
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.
420
00:44:58,000 --> 00:45:02,976
So in effect there is no net increase.
They are going to have to earn even more.
421
00:45:03,000 --> 00:45:05,976
They are going to have
to go into even more debt.
422
00:45:06,000 --> 00:45:13,928
So rising house prices do not create
additional net GDP value to the economy.
423
00:45:14,000 --> 00:45:20,980
Actually what they do is they re-distribute wealth
towards those people who already have houses
424
00:45:21,000 --> 00:45:26,976
i.e. wealthier people and remove it from poorer
people who can't afford to get on the housing ladder.
425
00:45:27,000 --> 00:45:33,988
So it's another example of a very regressive
policy to allow house prices to simply inflate.
426
00:45:34,000 --> 00:45:39,696
It makes everybody feel like things are going
well and people spend money on other stuff,
427
00:45:40,000 --> 00:45:43,976
they take equity out of their
houses but it's not creating new jobs.
428
00:45:44,000 --> 00:45:49,440
It's not enhancing the quality of the economy.
It's not helping our balance of trade.
429
00:45:50,000 --> 00:45:53,712
It's not helping the public deficit.
It's a zero sum game.
430
00:45:56,000 --> 00:46:03,932
As of August 2011, 85.5% of consumer bank
lending was secured as mortgages on dwellings.
431
00:46:05,000 --> 00:46:08,976
If you have somebody creating money
that can only be spent on one thing,
432
00:46:09,000 --> 00:46:11,976
which is housing then the price
of that thing is going to go up.
433
00:46:12,000 --> 00:46:16,480
Between 2000 and 2010 they created
over a trillion pounds of new money
434
00:46:17,000 --> 00:46:23,976
- �500 billion just in the three years before the crisis.
That's why house prices went up they way they were.
435
00:46:24,000 --> 00:46:26,667
There's nothing in special about houses.
436
00:46:27,000 --> 00:46:29,976
It was just all this funny money
being pumped into that market.
437
00:46:30,000 --> 00:46:35,952
If money is spent into the economy a lot of
money goes into houses for example into mortgages
438
00:46:37,000 --> 00:46:46,736
- that's an increase in the amount of money in the economy -
without a corresponding increase in activity in output, in GDP.
439
00:46:47,000 --> 00:46:53,912
It's non-GDP based spending.
That's what causes inflation.
440
00:46:54,000 --> 00:46:59,880
In the UK we've had it in spades.
We've had this massive housing boom.
441
00:47:00,000 --> 00:47:04,764
The main cause for the
housing boom, in my opinion,
442
00:47:05,000 --> 00:47:10,120
is the huge amount of speculative credit
created by the banks to go into houses.
443
00:47:11,000 --> 00:47:17,712
If houses were cheaper, they would be
easier to build. More of them would be built.
444
00:47:18,000 --> 00:47:22,096
There would be less huge houses,
with hardly any people in them.
445
00:47:23,000 --> 00:47:28,644
London would not be the centre of
a kind of very rich speculative orgy,
446
00:47:29,000 --> 00:47:34,976
where all the richest people in the world want to get a
property in London, because it's seen as a great asset.
447
00:47:35,000 --> 00:47:39,976
Houses would be seen as places to live
primarily, rather than seen as places to invest.
448
00:47:40,000 --> 00:47:46,720
The important thing to think about is, if you are a
bank and you've got to make a loan, you have choices.
449
00:47:47,000 --> 00:47:55,832
You can give that loan to a small business and you'll know
that the risk to you of that loan failing, defaulting,
450
00:47:57,000 --> 00:48:00,976
is actually quite high, because that
small business, the owners of that business,
451
00:48:01,000 --> 00:48:07,784
have limited liability, which means if that business
goes bust you as a bank get nothing back essentially.
452
00:48:08,000 --> 00:48:17,800
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.
453
00:48:18,000 --> 00:48:24,656
So there's a simple incentive for banks to prefer
putting money into housing than into a small business.
454
00:48:25,000 --> 00:48:29,544
Now that's a real problem if you
widen that out across a whole economy,
455
00:48:31,000 --> 00:48:36,976
because it means there's an incentive to put money
into speculative rather than productive investment.
456
00:48:37,000 --> 00:48:42,632
So again, we have to think about how we
create our monetary system that is more balanced
457
00:48:44,000 --> 00:48:47,976
between those two kinds of
speculative and productive investment.
458
00:48:48,000 --> 00:48:52,864
The government is showing enormous
reluctance to regulate the housing market
459
00:48:53,000 --> 00:48:57,416
and to again regulate the amount
of money that banks put into houses.
460
00:48:58,000 --> 00:49:05,296
We don't decide who creates credit for what. No. We leave
that to a couple of chaps in a bank to decide basically.
461
00:49:11,000 --> 00:49:17,976
A bubble occurs when there is very high inflation in the price
of a specific good or service over a short period of time.
462
00:49:21,000 --> 00:49:27,464
The idea of the tulips and their relevance is that
you saw the first ever financial bubble and crash.
463
00:49:29,000 --> 00:49:36,828
The craze for tulips - black tulips being a mythical
ideal of what somebody could genetically engineer
464
00:49:37,000 --> 00:49:44,788
through cultivation after many generations -
became a mania in the Netherlands in the 1630s.
465
00:49:45,000 --> 00:49:48,976
What they didn't realise was that many of
the very, very rare patterns on tulips bulbs
466
00:49:49,000 --> 00:49:55,976
were caused by a virus and weren't genetic at all. But
they traded them to the extent that tulip got to the point
467
00:49:56,000 --> 00:50:02,208
where they were worth ten times the average annual
salary of a person working in the Netherlands.
468
00:50:03,000 --> 00:50:04,976
There was a futures market in tulip bulbs
469
00:50:05,000 --> 00:50:07,976
because obviously you plant them now but you
don't know what's going to come out of the ground.
470
00:50:08,000 --> 00:50:12,800
So we see already, 400 years ago,
that a money system or a financial system
471
00:50:13,000 --> 00:50:17,976
is not something that exists in the abstract,
somewhere out there in the ether,
472
00:50:18,000 --> 00:50:23,952
but something that was to do with states, power,
trade and how they interact with each other.
473
00:50:28,000 --> 00:50:33,568
Unlike tulips, which are a disposable luxury,
houses are both a necessity and a luxury.
474
00:50:35,000 --> 00:50:39,544
And as such, they are ideal as a
vehicle for money and bubble creation.
475
00:50:41,000 --> 00:50:46,120
A dwelling is perhaps the most prized
possession of value most people aspire to.
476
00:50:49,000 --> 00:50:56,104
Inflating house prices in this way allows a nation to
expand its money supply without affecting inflation data.
477
00:50:58,000 --> 00:51:04,336
The additional purchasing power created increases
the perceived wealth in relation to other nations
478
00:51:05,000 --> 00:51:07,333
and thus it creates relative power.
479
00:51:08,000 --> 00:51:14,144
It is a way of increasing monetary power without
investing in the productive growth of industry.
480
00:51:16,000 --> 00:51:19,976
Certainly if you look at Britain and
America as outstanding examples of this,
481
00:51:20,000 --> 00:51:22,976
these are countries with very high
rates of private home ownership
482
00:51:23,000 --> 00:51:26,976
so you've got a good base to try and
perform this sort of policy off the back of.
483
00:51:27,000 --> 00:51:31,976
I think it was quite deliberate in the case of
the US, almost explicit, as Alan Greenspan
484
00:51:32,000 --> 00:51:38,016
as head of the Federal Reserve when confronted
by a stock market crash at the end of the 1990s
485
00:51:40,000 --> 00:51:45,976
quite deliberately slashed interest rates to almost zero.
Everyone can borrow very, very cheaply,
486
00:51:46,000 --> 00:51:50,976
in particular its very easy to borrow
against a house because this is an asset
487
00:51:51,000 --> 00:51:54,976
and is potentially something that the bank can say
Well, OK we're not just lending you money unsecured,
488
00:51:55,000 --> 00:51:58,976
you actually do have a house so
that's great because we can repossess it.
489
00:51:59,000 --> 00:52:01,976
They won't tell you this when you
take the mortgage but they can do this
490
00:52:02,000 --> 00:52:05,976
and that bubble is then what fuels
expansion such as it is inside the US,
491
00:52:06,000 --> 00:52:09,976
and inside the UK where something
similar takes place for the next decade or so.
492
00:52:10,000 --> 00:52:14,928
I think it's also a reflection of an
underlying weakness in these governments
493
00:52:15,000 --> 00:52:20,976
that they simply lack the will and possibly the ability,
but I think it more comes down to a will,
494
00:52:21,000 --> 00:52:26,976
to challenge financial markets, to challenge big capital
and say We're going to do something different now.
495
00:52:27,000 --> 00:52:30,976
And you're going to have to go along with it
because we've been democratically elected
496
00:52:31,000 --> 00:52:34,976
and you lot frankly haven't and we have a mandate
to do this and we're going to make this happen.
497
00:52:35,000 --> 00:52:40,568
Just remember it's all part of the plan.
What are you yapping about - you voted for it!
498
00:52:44,000 --> 00:52:50,784
In Holland or the Netherlands what we had over a period
of trying to get independence initially from Spain
499
00:52:51,000 --> 00:52:56,440
and trying to raise money to get an army
to free themselves was financial innovation.
500
00:52:57,000 --> 00:53:00,976
They innovated public lotteries to get money together.
They had public subscription.
501
00:53:01,000 --> 00:53:06,976
This was the idea that led to the idea of public shares
- a piece of the action that anybody could invest in -
502
00:53:07,000 --> 00:53:12,976
that meant that something like two thirds of the
population was investing in tulip bulbs by the 1630s.
503
00:53:13,000 --> 00:53:17,736
After independence these instruments
were applied for financing expansion.
504
00:53:18,000 --> 00:53:23,248
Why was such a small country able to
hold its own against so much bigger countries
505
00:53:24,000 --> 00:53:30,976
for example Spain and Portugal that had the benefits of their
empires for over a century in respect of the Netherlands?
506
00:53:31,000 --> 00:53:33,976
Why could they compete?
On what resource basis?
507
00:53:34,000 --> 00:53:40,812
Well they had a more efficient, a more
evolved and a broader based financial system
508
00:53:41,000 --> 00:53:49,000
with these instruments that they'd innovated that allowed them to
bring more money to bear at one point than anybody else, more quickly.
509
00:53:50,000 --> 00:53:54,000
Incredible But True.
510
00:54:01,000 --> 00:54:08,888
Now, inflation can be avoided if the amount of
money that goes into the economy is regulated
511
00:54:09,000 --> 00:54:14,876
in a way that it doesn't exceed the actual
activity that's happening in the economy.
512
00:54:15,000 --> 00:54:21,872
Now, the best way to do that, in my opinion, is to
make sure that money is issued into the economy
513
00:54:22,000 --> 00:54:28,824
only for productive investment,
for productive goods and services,
514
00:54:29,000 --> 00:54:38,860
so money goes in to help a small business to start up which
creates jobs, which creates additional purchasing power
515
00:54:39,000 --> 00:54:41,200
which means there's no inflation.
516
00:54:42,000 --> 00:54:47,976
During their history almost all central banks
have employed forms of direct credit regulation.
517
00:54:48,000 --> 00:54:55,976
The central bank will determine desired nominal GDP growth then
calculate the necessary amount of credit creation to achieve this.
518
00:54:56,000 --> 00:55:03,744
And then allocate this credit creation both across the various
banks and type of banks and across the industrial sectors.
519
00:55:04,000 --> 00:55:13,840
Unproductive credit was suppressed. Thus it was difficult
or impossible to obtain bank credit for large scale,
520
00:55:14,000 --> 00:55:19,632
purely speculative transactions such as
today's large scale bank funding to hedge funds.
521
00:55:20,000 --> 00:55:26,272
The World Bank recognised in a 1993 study that
this mechanism of intervention in credit allocation
522
00:55:27,000 --> 00:55:29,976
was at the core of the East Asian economic miracle.
523
00:55:30,000 --> 00:55:35,976
There're all sorts of things that governments have done
in the past, very successfully in a number of cases
524
00:55:36,000 --> 00:55:40,976
and often not unsuccessfully in this country but the
examples that spring to mind like South Korea, Japan,
525
00:55:41,000 --> 00:55:45,976
often in East Asia where governments have been quite
targeted about how they're going to rebalance the economy,
526
00:55:46,000 --> 00:55:51,976
picking sectors and deciding where the investment should
take place, I think that has to start happening in the UK
527
00:55:52,000 --> 00:55:55,976
because we're in a demand side recession
rather than looking at crisis of supply.
528
00:55:56,000 --> 00:56:03,780
You have to have a system where
credit is put into productive avenues,
529
00:56:04,000 --> 00:56:06,976
where credit is put into
building high speed rail links,
530
00:56:07,000 --> 00:56:13,656
where credit is put into building houses rather than
giving people money to inflate the price of houses.
531
00:56:14,000 --> 00:56:23,720
So it's quite simple really in that way and the current
system is simply set up not to do that basically.
532
00:56:24,000 --> 00:56:29,440
The creation of money by private banks for
non-productive usage causes real inflation
533
00:56:30,000 --> 00:56:34,736
and as such it is a tax on the purchasing
power of the medium of exchange.
534
00:56:42,000 --> 00:56:44,976
The figures for the UK are quite stark actually.
535
00:56:45,000 --> 00:56:53,848
The average median real incomes (for the bit in the
middle) for most people declined over the last 8 years.
536
00:56:54,000 --> 00:56:56,976
They are now in quite sharp
decline as we go into recession
537
00:56:57,000 --> 00:57:03,836
- the sharpest really since about the 1930s -
so real income is declining.
538
00:57:04,000 --> 00:57:08,976
Bank created fiat currency allows the
private banks to suck wealth from the economy
539
00:57:09,000 --> 00:57:13,480
and over time results in a gradual
decrease in the standard of living.
540
00:57:14,000 --> 00:57:18,832
As people become poorer they
become even more dependent on debt
541
00:57:20,000 --> 00:57:24,976
and this at a time when efficiency and
mechanisation have improved dramatically.
542
00:57:25,000 --> 00:57:30,972
If you go back to the 1960s and we were expected to,
we were looking forward to an age of leisure,
543
00:57:32,000 --> 00:57:37,248
...television programmes saying what are
people going to do with their spare time?
544
00:57:38,000 --> 00:57:45,864
And now we have got more people working harder than ever,
spending more than ever, which looks great,
545
00:57:46,000 --> 00:57:52,824
everyone is spending more, but if you're not
actually benefiting from what you're spending,
546
00:57:53,000 --> 00:57:58,568
if you're having to spend the money on
childcare costs on commuting costs and so forth,
547
00:57:59,000 --> 00:58:05,768
costs that people didn't in the past used to
have to pay because you could walk to work
548
00:58:06,000 --> 00:58:13,936
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.
549
00:58:14,000 --> 00:58:19,164
Everyone is under such
enormous pressures nowadays.
550
00:58:20,000 --> 00:58:26,736
I am conscious that my four nephews
and nieces are facing difficult times.
551
00:58:27,000 --> 00:58:37,800
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.
552
00:58:40,000 --> 00:58:43,976
People are getting poorer in real terms.
It's because prices are always going up
553
00:58:44,000 --> 00:58:48,928
because all this new funny money is
being pumped into the system by the banks
554
00:58:49,000 --> 00:58:54,976
and they're creating it all as debt so at the same time as
prices are going up and things are getting more expensive,
555
00:58:55,000 --> 00:58:56,976
we're getting further and further into debt
556
00:58:57,000 --> 00:59:02,976
and our wealth and the return that we get from
actually working is getting less and less all the time.
557
00:59:03,000 --> 00:59:07,976
You can't deal with poverty when you
have a financial system and a money system
558
00:59:08,000 --> 00:59:10,976
that distributes money
from the poor to the very rich.
559
00:59:11,000 --> 00:59:16,976
Any distribution that you try and do in the opposite
direction is effectively pissing in the wind.
560
00:59:17,000 --> 00:59:25,640
If you look at issues like increasing inequality one
obvious way to tackle inequality is to have, for example,
561
00:59:26,000 --> 00:59:29,976
a redistributive tax system.
You tax the rich you give some money to the poor.
562
00:59:30,000 --> 00:59:32,600
You move a bit of money down the scale.
563
00:59:34,000 --> 00:59:39,976
That's all very well but if you completely overlook
the fact that there's another redistributive system
564
00:59:40,000 --> 00:59:45,976
which is taking money from the poor and giving it to the
rich, then you're not really going to tackle this inequality
565
00:59:46,000 --> 00:59:53,976
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.
566
00:59:54,000 --> 00:59:59,856
That debt is typically going to end up
with the poor, the lower-middle classes,
567
01:00:00,000 --> 01:00:03,976
those people end up with the debt and
they end up paying interest on that money
568
01:00:04,000 --> 01:00:10,976
which then goes back to the banking sector and gets distributed
to the people working in the City or in Wall Street.
569
01:00:11,000 --> 01:00:17,888
What this system does overall is it distributes
money from the poor to the rich essentially,
570
01:00:18,000 --> 01:00:23,892
distributes money from the poorer
regions of the UK back to the City of London
571
01:00:24,000 --> 01:00:30,836
and it also distributes money from all the small
businesses, all the little factories around the UK
572
01:00:31,000 --> 01:00:33,976
and distributes that money
back into the financial sector.
573
01:00:34,000 --> 01:00:41,924
We have a system whereby the activity of
actually supplying occurs under the very same roof
574
01:00:42,000 --> 01:00:47,976
as the same organisation that is responsible for profiting
from putting together borrowers and lenders, i.e. a bank.
575
01:00:48,000 --> 01:00:56,820
So, a bank creates our nation's money
supply as well as making loans for profit.
576
01:00:57,000 --> 01:01:04,104
The government cannot allow the banking system to fail
because if it did over 97% of all money would disappear.
577
01:01:06,000 --> 01:01:10,928
This is why in the event of a crisis
the risk is transferred to the taxpayer.
578
01:01:11,000 --> 01:01:17,976
But even during normal times banks receive numerous
guarantees and benefits beyond the right to create money.
579
01:01:18,000 --> 01:01:20,976
Bill, by the way, I know the
Bank of America is a very big bank,
580
01:01:21,000 --> 01:01:23,667
it happens that I have $32 there myself.
581
01:01:24,000 --> 01:01:28,160
Just between us what assurance
do I have that this money is safe?
582
01:01:29,000 --> 01:01:34,440
Well, all deposits up to $10,000 are insured
by the Federal Government in Washington.
583
01:01:35,000 --> 01:01:35,976
That's my guarantee?
584
01:01:36,000 --> 01:01:36,976
Yes sir.
585
01:01:37,000 --> 01:01:41,928
Have you heard that the Federal
Government is about $280 billion in the hole?
586
01:01:45,000 --> 01:01:53,768
Banks receive large safety nets from the government. The
taxpayer guarantees 85,000 pounds as deposit insurance.
587
01:01:54,000 --> 01:02:00,208
And the Bank of England provides liquidity insurance
in case a bank runs out of reserve currency.
588
01:02:05,000 --> 01:02:13,848
Someone wrote that a big investment bank is like a
Giant Vampire Squid wrapped around the face of humanity.
589
01:02:14,000 --> 01:02:19,900
Hypnotising politicians. Who throw
money at the banks. No strings attached.
590
01:02:20,000 --> 01:02:28,808
No matter what damage is done. Trashing the planet.
Forcing cuts to things that make life better.
591
01:02:29,000 --> 01:02:38,548
Goodbye schools. Goodbye playgrounds.
Goodbye jobs. The bankers that we bailed out
592
01:02:39,000 --> 01:02:44,760
then gave themselves bonuses that were bigger
than the first wave of public spending cuts.
593
01:02:46,000 --> 01:02:51,824
Britain alone gave the banks more money than
it cost to put a man on the moon 6 times over.
594
01:02:55,000 --> 01:03:05,836
Where did our money go? Who let the banks get away
with it? Why? Can Vampire Squids ever be useful?
595
01:03:06,000 --> 01:03:15,008
No Government yet is brave enough
to tame them. Perhaps they need a plan.
596
01:03:32,000 --> 01:03:38,976
The spending cuts agenda is an attempt by the government
to shift debt from its account to that of the public.
597
01:03:39,000 --> 01:03:45,656
This is the Government's response to the bank bail
outs and is necessary in a debt based monetary system
598
01:03:46,000 --> 01:03:49,968
where increased purchasing
power is the result of growing debt
599
01:03:50,000 --> 01:03:55,440
and where a diversification of debt provides
overall stability and market confidence.
600
01:03:56,000 --> 01:04:03,872
Policies such as student fee increases and the privatisation
of public services, assets and industry follow the same model.
601
01:04:05,000 --> 01:04:11,844
The problem we're facing is that there is this
transference from the public debt to private debt
602
01:04:12,000 --> 01:04:19,876
which is essentially a way of transferring risk,
away from UK PLC and the Government
603
01:04:20,000 --> 01:04:25,976
on to the heads of individuals and it's going to be the most
vulnerable individuals who are going to have the most debt.
604
01:04:26,000 --> 01:04:36,900
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
605
01:04:37,000 --> 01:04:40,976
and if there is another financial shock,
if there's an oil shock for example,
606
01:04:41,000 --> 01:04:44,976
the people who will pay the penalty
are the poorest people in society
607
01:04:45,000 --> 01:04:51,656
or homeowners for example who will fall into negative
equity if interest rates go up even 1 or 2 percent
608
01:04:52,000 --> 01:04:58,912
there will be really big problems. So I don't think
it's a sensible way forward for us at the moment at all.
609
01:04:59,000 --> 01:05:04,952
It's regressive and it's certainly not fair in
the terms that the Government is talking about
610
01:05:05,000 --> 01:05:07,976
and it's certainly not a case
of we're in this together.
611
01:05:08,000 --> 01:05:14,592
As more of the country's resources and industries
are privatised the private sector takes on more debt.
612
01:05:15,000 --> 01:05:19,656
As a result more money is
created and there is a boom.
613
01:05:20,000 --> 01:05:27,680
Some private equity companies have taken this theory to the
extreme, engaging in a practice known as a Leveraged Buyout,
614
01:05:29,000 --> 01:05:36,680
where a company is purchased at an often inflated price and
the purchase price is transferred to the business as a debt.
615
01:05:38,000 --> 01:05:42,352
The company becomes responsible
for the funding of its own purchase.
616
01:05:43,000 --> 01:05:49,656
These debts are often so great that the company needs
to reduce staff, salaries and research activities.
617
01:05:52,000 --> 01:05:53,976
When you have to factor
interest as a business,
618
01:05:54,000 --> 01:05:57,976
if you have to factor interest
repayment into your goods and services,
619
01:05:58,000 --> 01:06:02,976
then you have to charge a perpetually
higher price as you take on more and more debt.
620
01:06:03,000 --> 01:06:08,504
An increase in the diversification of debt
results in an increase in the money supply.
621
01:06:09,000 --> 01:06:18,800
When the money supply increases more money is available for productive
activities and consumption which is the condition for a boom.
622
01:06:20,000 --> 01:06:22,976
It's questionable whether we're
going to get out of this recession
623
01:06:23,000 --> 01:06:25,976
or whether we'll just keep ticking
along the way the way that we are now.
624
01:06:26,000 --> 01:06:33,424
However if we do, then when we come out of this recession
and when growth starts again look at what happens to debt.
625
01:06:34,000 --> 01:06:37,976
It will rise and it will keep rising and
the faster the economy is growing,
626
01:06:38,000 --> 01:06:43,976
the faster the debt will rise and then give it
another 3 to 5 years we'll be back where we were.
627
01:06:44,000 --> 01:06:46,976
The debt will become too much -
people will start defaulting again.
628
01:06:47,000 --> 01:06:53,976
It's kind of the system that we're locked into now is
that we can't grow the economy without growing the debt
629
01:06:54,000 --> 01:06:55,976
and the debt is the very thing
that will bring down the economy.
630
01:06:56,000 --> 01:07:01,632
The only option going forward is to reform it
to stop banks from creating money as debt.
631
01:07:02,000 --> 01:07:07,976
By fixing the monetary system we can prevent the
banks from ever causing another financial crisis
632
01:07:08,000 --> 01:07:15,488
and we can also make the current public service cuts and
the tax rises and the increase in national debt unnecessary.
633
01:07:16,000 --> 01:07:20,976
The current monetary system allows the
banking sector to extract wealth from the economy,
634
01:07:21,000 --> 01:07:23,944
whilst providing nothing
productive in return.
635
01:07:25,000 --> 01:07:27,900
Why is it that we've
got all this technology,
636
01:07:29,000 --> 01:07:38,900
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?
637
01:07:39,000 --> 01:07:43,976
The reason for that is not because these washing
machines and everything are more expensive.
638
01:07:44,000 --> 01:07:50,976
It's because of all the debt and is because in effectively
the banking sector is creaming it off from everybody else.
639
01:07:51,000 --> 01:07:54,712
So a growing banking factorism
assign is not a good thing.
640
01:07:55,000 --> 01:08:01,976
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.
641
01:08:02,000 --> 01:08:06,096
We can talk about the banking
sector becoming 4%, 5%, 6% of GDP,
642
01:08:07,000 --> 01:08:11,976
what's happening to the rest of the
economy? It's becoming 96, 95, 94% of GDP.
643
01:08:12,000 --> 01:08:19,488
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,
644
01:08:20,000 --> 01:08:20,976
you've got to figure out the money issue.
645
01:08:21,000 --> 01:08:30,752
The poorest in the world pay for crises even when they've
not benefited from the often reckless and speculative booms,
646
01:08:31,000 --> 01:08:34,776
like the housing boom in
Ireland that preceded that crisis.
647
01:08:35,000 --> 01:08:44,000
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,
648
01:08:44,000 --> 01:08:46,944
they've stayed the same
or they've got poorer.
649
01:08:47,000 --> 01:08:50,976
One of the ways that the economy was
kept going was by providing cheap credit,
650
01:08:51,000 --> 01:08:56,976
providing debt to those very people who couldn't
really afford things anymore, so they kept buying
651
01:08:57,000 --> 01:09:05,000
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.
652
01:09:06,000 --> 01:09:13,488
As a result of the crisis the Bank of England has bought
corporate debt and repackaged it at lower rates of interest.
653
01:09:14,000 --> 01:09:20,464
Yet the average person is being asked to pay more
than ever to borrow on overdrafts and credit cards.
654
01:09:21,000 --> 01:09:26,820
Debts between the very wealthy or between
governments can always be renegotiated
655
01:09:27,000 --> 01:09:28,976
and always have been
throughout world history.
656
01:09:29,000 --> 01:09:34,976
They're not anything set in stone. It's generally
speaking when you have debts owed by the poor to the rich
657
01:09:35,000 --> 01:09:38,976
that suddenly debts become a sacred
obligation more important than anything else.
658
01:09:39,000 --> 01:09:42,264
The idea of renegotiating
them becomes unthinkable.
659
01:09:43,000 --> 01:09:47,948
Can you pin down exactly
what would keep investors happy,
660
01:09:48,000 --> 01:09:50,000
make them feel more confident?
661
01:09:51,000 --> 01:09:56,852
That's a tough one. Personally it doesn't matter.
See I'm a trader -
662
01:09:57,000 --> 01:09:57,976
I don't really care about that kind of stuff.
663
01:09:58,000 --> 01:09:59,200
Pay your taxes!
664
01:10:00,000 --> 01:10:01,680
Were you born in England?
665
01:10:02,000 --> 01:10:04,976
If I see an opportunity to make money,
I go with that.
666
01:10:05,000 --> 01:10:09,876
For most traders, we don't really care that
much how they're going to fix the economy,
667
01:10:10,000 --> 01:10:14,976
how they're going to fix the whole situation.
Our job is to make money from it
668
01:10:15,000 --> 01:10:22,976
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.
669
01:10:23,000 --> 01:10:27,976
I have a confession which is, I go to bed
every night I dream of another recession,
670
01:10:28,000 --> 01:10:28,976
I dream of another moment like this.
671
01:10:29,000 --> 01:10:35,720
I dream of another recession, I dream of another moment
like this. You can make a lot of money from this.
672
01:10:37,000 --> 01:10:42,840
Bruno, Virginia hurt somebody real bad,
you oughta help her.
673
01:10:43,000 --> 01:10:44,000
Incoming!
674
01:10:46,000 --> 01:10:52,016
The way in which you can look across Europe
now and see that the new Prime Minister of Greece,
675
01:10:53,000 --> 01:10:56,976
not elected, essentially imposed, Papademos
- former employee of Goldman Sachs.
676
01:10:57,000 --> 01:11:01,976
The new Prime Minister and Finance Minister of Italy
- Mario Monti - former employee of Goldman Sachs.
677
01:11:02,000 --> 01:11:04,976
The new President of the European Central
Bank - former employee of Goldman Sachs.
678
01:11:05,000 --> 01:11:08,456
You see these people popping
up absolutely everywhere.
679
01:11:09,000 --> 01:11:12,976
That's the way to change what we have, take
all power and all freedoms away from the people
680
01:11:13,000 --> 01:11:17,928
and collect everything into the hands
of one small group with absolute power.
681
01:11:19,000 --> 01:11:25,884
From the people, without the people,
against the people.
682
01:11:26,000 --> 01:11:31,976
What's been interesting out of all this is the question
of democracy that's been opened up very starkly in Europe,
683
01:11:32,000 --> 01:11:34,976
that you have a government of
bankers essentially imposed upon you.
684
01:11:35,000 --> 01:11:40,976
It's bankers who more or less got us into this mess to put
it rather crudely, but that's a good first approximation
685
01:11:41,000 --> 01:11:44,976
and then you say OK, Bankers are the
people who therefore are going to get us out of it
686
01:11:45,000 --> 01:11:48,976
and incidentally they're going to run your country now. There's
a serious question of democracy that has opened up here.
687
01:11:49,000 --> 01:11:57,804
By the way, the banking crisis drove more
than a 100 million people back into poverty.
688
01:11:58,000 --> 01:12:06,744
The mortality statistics of people who go into
poverty rise hugely for a whole range of reasons.
689
01:12:07,000 --> 01:12:11,976
So the banking crisis isn't just about becoming
poorer - it was about killing people as well.
690
01:12:12,000 --> 01:12:16,912
And guess what?
We haven't really got to the bottom of it.
691
01:12:17,000 --> 01:12:22,976
We never held anybody to account and we haven't done
the radical reforming job that we really needed to do
692
01:12:23,000 --> 01:12:30,836
because we mistakenly thought if we destabilise
the position any further, it'll make matters worse.
693
01:12:31,000 --> 01:12:36,312
And guess who took the decisions?
All the people who were there in the first place.
694
01:12:37,000 --> 01:12:42,440
"I think you ought to know, that the business
of one of these businessmen is murder."
695
01:12:47,000 --> 01:12:55,600
"Their weapons are modern, their
thinking: two thousand years out of date."
696
01:13:05,000 --> 01:13:11,892
The way that money works and how we
use it to do certain types of transactions
697
01:13:12,000 --> 01:13:16,976
can be really very important in terms of how
over time it steers society in certain directions.
698
01:13:17,000 --> 01:13:22,312
How I use money, what I use money for,
who's controlling money and where it ends up
699
01:13:23,000 --> 01:13:29,976
over time can completely transform society. The kinds of
businesses that get preferred by certain types of money systems,
700
01:13:30,000 --> 01:13:34,416
so at the moment we have a money
system that prefers large businesses
701
01:13:35,000 --> 01:13:39,976
that can take a lot of their wealth offshore
because that's more efficient for them to do that
702
01:13:40,000 --> 01:13:42,976
but that means that money
ends up leaving communities.
703
01:13:43,000 --> 01:13:45,733
Sometimes I think it's quite amazing that
704
01:13:46,000 --> 01:13:50,976
there is very little way of any individual
directing money towards their locality.
705
01:13:51,000 --> 01:13:56,976
There's no way for me to actually say I have a little
bit of savings. I want to invest this in Norwich.
706
01:13:57,000 --> 01:13:59,976
I want to invest in businesses
that want to set up here.
707
01:14:00,000 --> 01:14:05,896
There's no mechanism for
people to invest within their locality.
708
01:14:06,000 --> 01:14:09,976
You put your money into a mainstream
bank and money goes off to wherever.
709
01:14:10,000 --> 01:14:12,000
Who knows what this is? Shout!
710
01:14:14,000 --> 01:14:20,976
A Brixton Pound! Who knows what it is? It's worth one
pound this one so it's exchangeable for one sterling pound.
711
01:14:21,000 --> 01:14:21,976
Is this money?
712
01:14:22,000 --> 01:14:22,976
Yes!
713
01:14:23,000 --> 01:14:29,892
On what basis? People accept it. There're
over 200 shops, independent traders.
714
01:14:30,000 --> 01:14:35,952
So it can represent something, like we've agreed,
we can choose for it to represent something
715
01:14:36,000 --> 01:14:38,600
and that depends on our mutual consent.
716
01:14:45,000 --> 01:14:51,960
The Bristol Pound Project has been fascinating
because I first started reading about money
717
01:14:52,000 --> 01:14:56,976
and realised I didn't understand it very well
when I started trying to set up a Bristol Pound,
718
01:14:57,000 --> 01:14:59,976
so it's been a bit of a journey for me and I
think everybody else who's been doing it.
719
01:15:00,000 --> 01:15:06,976
We can actually build our own currency systems which work to
improve the relationships between people within communities,
720
01:15:07,000 --> 01:15:12,888
where people work and share a lot of the economic
benefits from the wealth they are creating
721
01:15:13,000 --> 01:15:20,976
and they are constantly using that wealth they're creating to
build positive relationships with other people within that area.
722
01:15:21,000 --> 01:15:24,976
And they can see the impact of the
money so when you spend something,
723
01:15:25,000 --> 01:15:30,888
if I spend 20% of my wealth on a certain thing
I'll see what that 20% of my wealth is doing.
724
01:15:31,000 --> 01:15:37,976
I'll see that it is really having a positive effect because
those people are using that money to go and do something else
725
01:15:38,000 --> 01:15:41,976
which is really good or I can see that
it's actually trashing the local woodlands
726
01:15:42,000 --> 01:15:45,976
because I was paying that carpenter
to go and cut down all the woods
727
01:15:46,000 --> 01:15:49,976
and I really like going to the woods with my
dog so actually maybe I don't want to do that
728
01:15:50,000 --> 01:15:54,976
so you can include all of what would
normally get brushed aside as externalities
729
01:15:55,000 --> 01:15:59,544
- well externalities are actually our life!
It's what we in communities
730
01:16:01,000 --> 01:16:04,976
all those externalities are
what actually make us live a good life I think.
731
01:16:05,000 --> 01:16:09,864
We wanted to help achieve certain things.
We wanted to help build community.
732
01:16:10,000 --> 01:16:17,232
We wanted to support independent businesses. We want to
help preference them over big trans-national corporations
733
01:16:18,000 --> 01:16:20,976
because if they've got hold of their
money and they can use it with each other
734
01:16:21,000 --> 01:16:28,976
then it doesn't disappear up out of large management structures
and go offshore and end up in an account in the Cayman Islands.
735
01:16:29,000 --> 01:16:32,712
When we talk to businesses
they get it pretty intuitively.
736
01:16:38,000 --> 01:16:41,976
The Bank of England may of course decide that
this is a threat to the stability of sterling.
737
01:16:42,000 --> 01:16:45,976
At the moment they are reserving
their right to take an opinion on it.
738
01:16:46,000 --> 01:16:47,976
They've sent us all their
rules and regulations
739
01:16:48,000 --> 01:16:52,976
and what we've done is that we've got a
team of lawyers to give loads of work pro bono
740
01:16:53,000 --> 01:16:56,976
to say, right, we'll work on this and we'll
make it as watertight as we possibly can.
741
01:16:57,000 --> 01:16:59,976
In the end what the Bank of England
decide to do we don't know.
742
01:17:00,000 --> 01:17:08,836
You see a widespread proliferation of alternatives
is normally during periods of capitalist crisis.
743
01:17:09,000 --> 01:17:12,976
So the Great Depression - you had
the rise of a lot of script currencies
744
01:17:13,000 --> 01:17:16,976
particularly in North America
and experiments in Europe as well.
745
01:17:17,000 --> 01:17:31,716
And most of those got extinguished by being
made illegal by the authority of the central banks
746
01:17:32,000 --> 01:17:36,976
and political forces deciding that they
didn't want those experiments to carry on.
747
01:17:37,000 --> 01:17:43,000
This monopoly state bank currency
that we have is very good at some things.
748
01:17:43,000 --> 01:17:52,840
It's very easy to trade internationally with it. It helps
big businesses, it cuts down their transaction costs
749
01:17:53,000 --> 01:17:57,976
but it's not so good for independent
businesses and it's not so good for localities.
750
01:17:58,000 --> 01:18:04,976
So if we have a money system where the rules value
community and connection between people within communities
751
01:18:06,000 --> 01:18:14,612
over time you build up a better and more
wealthy basis for a diverse local economy.
752
01:18:20,000 --> 01:18:26,864
A bank run can take three forms.
Customers can withdraw their money in cash.
753
01:18:27,000 --> 01:18:32,632
However this will not reduce the digital
money supply it will merely transfer ownership.
754
01:18:34,000 --> 01:18:39,568
Or they can shift their money from the
large institutions to smaller more ethical banks
755
01:18:40,000 --> 01:18:46,680
such as credit unions, mutual banks
or independent building societies.
756
01:18:47,000 --> 01:18:52,976
Our next guest has a New Year's resolution that
she says will create a better financial system
757
01:18:53,000 --> 01:18:58,976
and it's this move your money out of the nation's
big banks and into your local community bank.
758
01:18:59,000 --> 01:19:05,784
Shifting commercial bank money to these institutions
will reduce the monopolistic grip of the big 5 banks.
759
01:19:07,000 --> 01:19:12,312
Taiwanese animated news: Christian has
declared November 5th as 'Bank Transfer Day'
760
01:19:21,000 --> 01:19:27,144
On that day, bank customers vow to close their
accounts and deposit the funds with credit unions
761
01:19:28,000 --> 01:19:31,648
The third kind of bank run
is the international bank run.
762
01:19:32,000 --> 01:19:38,840
According to at least one US Senator this is
what caused the September 2008 meltdown.
763
01:19:39,000 --> 01:19:43,976
Look, I was there when the Secretary and the
Chairman of the Federal Reserve came those days
764
01:19:44,000 --> 01:19:48,976
and talked with members of Congress about
what was going on. It was about September 15th
765
01:19:49,000 --> 01:19:52,904
Here are the facts, and we
don't even talk about these things
766
01:19:53,000 --> 01:20:00,808
on Thursday at about 11 o'clock in the morning the
Federal Reserve noticed a tremendous draw down
767
01:20:01,000 --> 01:20:15,000
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.
768
01:20:15,000 --> 01:20:22,812
The Treasury opened up its window to help,
they pumped $105 billion into the system
769
01:20:23,000 --> 01:20:28,976
and quickly realised they could not stem the tide.
We were having an electronic run on the banks.
770
01:20:29,000 --> 01:20:38,860
They decided to close the operation, close down the money
accounts and announce a guarantee of $250,000 per account
771
01:20:39,000 --> 01:20:42,976
so there wouldn't be further panic out there,
that's what actually happened.
772
01:20:43,000 --> 01:20:48,836
If they had not done that their
estimation was by 2 o'clock that afternoon
773
01:20:49,000 --> 01:20:54,632
$5.5 trillion would have been drawn out of
the money market system of the United States.
774
01:20:55,000 --> 01:21:02,872
It would have collapsed the entire economy of the United States
and within 24 hours the world economy would have collapsed.
775
01:21:07,000 --> 01:21:10,976
When money is withdrawn
internationally from one currency to another
776
01:21:11,000 --> 01:21:17,976
the reserve currency shifts from the national bank of
one country to the reserve account of the foreign bank.
777
01:21:19,000 --> 01:21:23,976
Foreign banks have relationships with local banks
that allow them to hold foreign reserve currencies
778
01:21:24,000 --> 01:21:29,828
whilst not being a part of the central
bank scheme at the local central bank.
779
01:21:33,000 --> 01:21:40,852
For example when 1,000 pounds is transferred
into euros, a UK bank will agree an exchange rate
780
01:21:41,000 --> 01:21:46,820
with a Euro area bank,
perhaps 1.15 euros to the pound.
781
01:21:48,000 --> 01:21:55,932
The UK bank will then transfer �1,000 of the central
reserve currency to the UK partner bank of the European bank
782
01:21:56,000 --> 01:22:02,880
whilst the European bank will
transfer 1,150 euros of reserve currency
783
01:22:03,000 --> 01:22:05,900
to the European partner bank of the UK bank.
784
01:22:07,000 --> 01:22:11,976
What happens when currencies and the
exchange rate system is no longer managed,
785
01:22:12,000 --> 01:22:13,976
what are some of the first consequences?
786
01:22:14,000 --> 01:22:15,040
Devaluations.
787
01:22:16,000 --> 01:22:17,000
Speculation.
788
01:22:18,000 --> 01:22:24,400
Imbalances. Where some countries would accrue more
and more and more of what? What will they accrue?
789
01:22:25,000 --> 01:22:27,333
Other currencies,
other currencies.
790
01:22:29,000 --> 01:22:36,736
The reserve currency needs to be spent in the
country of origin or exchanged into other currencies.
791
01:22:37,000 --> 01:22:42,632
Most foreign banks do not have deposit
taking accounts outside of their national borders
792
01:22:43,000 --> 01:22:48,888
and as such the foreign reserves they hold do
not come back to them in the form of deposits.
793
01:22:50,000 --> 01:22:56,988
When a country accumulates trade imbalances
it either accumulates foreign reserve currencies
794
01:22:57,000 --> 01:23:05,796
in the case of surplus or spends its own
reserves in the case of negative trade balances.
795
01:23:06,000 --> 01:23:12,976
Balance of trade is basically the difference between what
you're selling abroad and what you're buying from abroad.
796
01:23:13,000 --> 01:23:18,960
Now, the feature of the UK is
that for a very long period of time
797
01:23:19,000 --> 01:23:21,976
it's had a deficit of something
called a visible balance of trade
798
01:23:22,000 --> 01:23:24,733
which is trading things that you can see.
799
01:23:25,000 --> 01:23:30,976
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.
800
01:23:31,000 --> 01:23:40,824
That's been a substantial deficit. I think it opened up in
the early 1980s and essentially it hasn't gone away since
801
01:23:41,000 --> 01:23:42,976
- if anything it's got wider and wider.
802
01:23:43,000 --> 01:23:47,608
Foreign exchange reserves cannot
be directly used for domestic spending.
803
01:23:48,000 --> 01:23:52,336
The money can only be
spent abroad or on imports.
804
01:23:54,000 --> 01:24:04,808
A country with a large balance of trade deficit relies on its
creditors to spend the imbalances accrued in its own market.
805
01:24:05,000 --> 01:24:10,976
There have been proposals in the past to try and
create a mechanism for those imbalances to match up.
806
01:24:11,000 --> 01:24:15,976
So Keynes, for instance John Maynard
Keynes at the end of the Second World War
807
01:24:16,000 --> 01:24:22,976
- his original proposal for what became Bretton Woods and the
set of institutions settled there like the IMF and World Bank
808
01:24:23,000 --> 01:24:25,976
was that there would be a kind
of international clearing union.
809
01:24:26,000 --> 01:24:30,976
This is particularly related to the trade
side rather than the financial side directly
810
01:24:31,000 --> 01:24:36,976
but the principle was that once trade balances had opened up
everybody would bank through an international clearing bank
811
01:24:37,000 --> 01:24:43,976
and that would kind of force everyone to eventually
reconcile the imbalances that appeared in the real economy.
812
01:24:44,000 --> 01:24:54,472
But no such mechanism exists. The accumulated net
trade imbalance of the UK is around 800 billion.
813
01:25:01,000 --> 01:25:08,976
In essence what has happened is that over many years some countries
have had big trade surpluses and others big trade deficits.
814
01:25:09,000 --> 01:25:13,976
The countries with trade deficits have
been spending more than they've been earning
815
01:25:14,000 --> 01:25:18,976
so they've had to borrow from abroad
and they've been doing this year after year.
816
01:25:19,000 --> 01:25:23,976
Countries like that, the United States,
ourselves and some other countries in Europe
817
01:25:24,000 --> 01:25:28,864
- that cannot go on and there are two
ways in which this can come to an end.
818
01:25:29,000 --> 01:25:34,976
Either and we've seen this in some of the countries in
Europe, if they can't find new ways to become competitive
819
01:25:35,000 --> 01:25:37,976
then their ability to repay the
debts is called into question.
820
01:25:38,000 --> 01:25:42,976
Another way of doing it, which we followed is
that we have a credible plan to repay our debts
821
01:25:43,000 --> 01:25:50,296
and the value of sterling has fallen by 25% to make our
exports more competitive and attractive to overseas buyers
822
01:25:51,000 --> 01:25:57,976
and to be more attractive for British consumers to buy
from British producers rather than overseas producers.
823
01:25:58,000 --> 01:26:03,976
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.
824
01:26:04,000 --> 01:26:12,940
Currency war, also known as competitive devaluation,
is a condition where countries compete against each other
825
01:26:13,000 --> 01:26:15,976
to achieve a relatively low
exchange rate for their currency.
826
01:26:16,000 --> 01:26:22,656
As the price to buy a particular currency falls so
too does the real price of exports from that country.
827
01:26:24,000 --> 01:26:28,416
Domestic industry receives a boost
in demand both at home and abroad.
828
01:26:30,000 --> 01:26:34,976
It's made British exports appear rather
cheaper so they recovered a little bit
829
01:26:35,000 --> 01:26:38,976
but because the rest of the world is looking really
quite ropey they've started to fall back down again.
830
01:26:39,000 --> 01:26:45,976
So what we're looking at is something that is almost like
a kind of anarchy and in a way an increasing anarchy.
831
01:26:46,000 --> 01:26:50,976
This is what's happened over the last few years where the
Brazilian Finance Minister has been the most vocal about this,
832
01:26:51,000 --> 01:26:57,976
talking about currency wars, talking about the desire of
national governments when confronted by a major recession
833
01:26:58,000 --> 01:27:02,976
they think If we could export more we
can dig ourselves out of this recession.
834
01:27:03,000 --> 01:27:05,976
If we want to export more
we depreciate our currency.
835
01:27:06,000 --> 01:27:08,976
That makes our goods cheaper everyone
else buys them and we'll all be better off.
836
01:27:09,000 --> 01:27:13,976
The issue here is if you depreciate its
like everyone else appreciates against you.
837
01:27:14,000 --> 01:27:17,976
Their stuff becomes more expensive
so they're not happy about that.
838
01:27:18,000 --> 01:27:22,976
They also want to depreciate and this is where you can
see a competitive round of devaluations breaking out.
839
01:27:23,000 --> 01:27:30,040
To decrease the value of its national currency a national
central bank sells reserve currency into the market.
840
01:27:31,000 --> 01:27:35,736
It creates this currency out of nothing
by typing numbers into a computer.
841
01:27:49,000 --> 01:27:54,976
During the long phase of commodity money, the
exchange rate would depend on the amount of gold,
842
01:27:55,000 --> 01:27:58,584
silver or copper contained
in the coins of each country.
843
01:28:00,000 --> 01:28:04,096
Similarly after the advent of
paper money and the gold standard,
844
01:28:05,000 --> 01:28:09,976
the exchange rate depended on the amount of gold the
government promised to pay the holder of the bank notes.
845
01:28:10,000 --> 01:28:17,808
These amounts did not vary greatly in the short term and as
such exchange rates between currencies were relatively stable.
846
01:28:20,000 --> 01:28:31,800
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.
847
01:28:32,000 --> 01:28:37,056
So, we have a modern financial system
where money is now chaotically organised,
848
01:28:38,000 --> 01:28:41,976
there is no exchange rate because there
is no gold standard system to sustain it,
849
01:28:42,000 --> 01:28:46,976
so we don't need it. In fact we believe the
market will resolve all the problems of exchange
850
01:28:47,000 --> 01:28:51,976
whether your currency should be worth more than mine
is a reflection of your economy relative to mine
851
01:28:52,000 --> 01:28:56,976
and if that changes the currency and exchange
rate can change and if we need that to happen
852
01:28:57,000 --> 01:29:02,976
it will happen magically by the efficiency of market
and profit seeking. You guys know the rest I think.
853
01:29:03,000 --> 01:29:08,056
A currency's value in relation to another
currency is determined by the market.
854
01:29:09,000 --> 01:29:13,544
If more people want to buy a
currency than sell it its value increases.
855
01:29:14,000 --> 01:29:18,936
If more people want to sell,
its value decreases.
856
01:29:19,000 --> 01:29:26,856
The value is set by individual banks as they buy and
sell currencies they will adjust the exchange rate.
857
01:29:27,000 --> 01:29:39,816
The last study I read in 2007 each day on currency
markets $3.2 trillion are traded, each day.
858
01:29:40,000 --> 01:29:43,100
Who knows what the global GDP is?
859
01:29:44,000 --> 01:29:46,580
50? Again Brucey, higher!
860
01:29:48,000 --> 01:29:54,804
60; that's closer. The point is -
think about that exchange happening every single day
861
01:29:55,000 --> 01:29:57,733
- there's about 260 business days a year.
862
01:29:58,000 --> 01:30:05,864
It takes a few weeks to match the global value of
every economic transaction that happens everywhere,
863
01:30:06,000 --> 01:30:10,567
every day, in a year.
It takes a few weeks.
864
01:30:11,000 --> 01:30:15,976
Obviously all of us trade currency fairly regularly.
If you go abroad you exchange into another currency.
865
01:30:16,000 --> 01:30:21,976
That's a form of currency trading - you're swapping
your pounds or euros or yen whatever it might be.
866
01:30:22,000 --> 01:30:25,976
That happens fairly regularly and that's
a conventional part of the trading process.
867
01:30:26,000 --> 01:30:29,456
Large corporations have
to do this on a regular basis.
868
01:30:30,000 --> 01:30:35,976
Where it becomes something that people question and where
you get people saying Well hang on, this is speculation!
869
01:30:36,000 --> 01:30:40,976
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
870
01:30:41,000 --> 01:30:45,976
there's always an opportunity to try and make money out of
those changes in value and therefore you can speculate on it.
871
01:30:46,000 --> 01:30:48,976
That's the more questionable
end of the market,
872
01:30:49,000 --> 01:30:53,976
that's the bit of the market that things like a
financial transactions tax will try and chop away at
873
01:30:54,000 --> 01:30:59,976
because the assumption there and it's kind of not incorrect
is that it just produces instability for everyone else.
874
01:31:00,000 --> 01:31:03,976
These people want volatility in the market
because that's how they make their money.
875
01:31:04,000 --> 01:31:08,976
They want to encourage it and they do encourage it
by trading and speculating in the way that they do.
876
01:31:09,000 --> 01:31:15,336
By 2010 the foreign exchange market had grown to
be the largest and most liquid market in the world
877
01:31:18,000 --> 01:31:22,416
with an average of $4 trillion of
currency being exchanged every day.
878
01:31:26,000 --> 01:31:33,232
Volatility creates a need. What does it do to countries,
especially perhaps small ones like developing countries,
879
01:31:34,000 --> 01:31:44,128
if there are suddenly huge and instantly fluctuating
financial flows? What do they have to do to cope?
880
01:31:45,000 --> 01:31:48,976
Increase the production of the
products they're selling and sell more
881
01:31:49,000 --> 01:31:50,440
Lowering the price
882
01:31:52,000 --> 01:31:53,976
And becoming
possibly even poorer.
883
01:31:54,000 --> 01:31:59,976
Once you start talking about the international
system it becomes really quite a peculiar thing
884
01:32:00,000 --> 01:32:05,696
in that a lot of it depends on simply sentiment
and beliefs about what an economy is like
885
01:32:06,000 --> 01:32:08,976
rather more than it depends on anything the
economy might or might not actually be doing
886
01:32:09,000 --> 01:32:13,976
and that can shift very rapidly because if it's just
someone's belief about a currency is supportable
887
01:32:14,000 --> 01:32:17,904
then you know they can carry
on believing this until whenever
888
01:32:18,000 --> 01:32:21,976
- If that belief changes it can change
very rapidly in a financial market.
889
01:32:22,000 --> 01:32:26,976
The process of financial contagion can
take place in just minutes or seconds even.
890
01:32:27,000 --> 01:32:38,000
You can just move from being an apparently quite a stable robust
economy to being one that suddenly sentiment has turned against you
891
01:32:38,000 --> 01:32:39,976
and you find that the
markets are picking on you.
892
01:32:40,000 --> 01:32:45,976
It can often be not much more than you're simply the next
door neighbour of a country that's currently in trouble.
893
01:32:48,000 --> 01:32:51,904
Many of the world's financial
crises in the past thirty years
894
01:32:52,000 --> 01:32:58,336
have been caused by rapid withdrawals of a nation's
currency or the currencies of an entire region.
895
01:32:59,000 --> 01:33:03,096
This type of activity is often
referred to as financial warfare.
896
01:33:06,000 --> 01:33:11,952
It's benefited major institutions really quite
substantially, like Goldman Sachs for example,
897
01:33:13,000 --> 01:33:19,976
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.
898
01:33:20,000 --> 01:33:24,976
It's made people very, very wealthy. It's allowed
financial markets to expand absolutely enormously.
899
01:33:25,000 --> 01:33:30,976
Anybody involved in that is keen on seeing a deregulated
world. In the case of the UK you have a government
900
01:33:31,000 --> 01:33:35,480
which has been quite overtly and
deliberately and aggressively arguing
901
01:33:36,000 --> 01:33:39,976
against any forms of regulation being
imposed on those financial markets.
902
01:33:40,000 --> 01:33:43,976
But it's not the case that there's someone
behind the scenes pulling the strings
903
01:33:44,000 --> 01:33:48,976
- this is how things work - quite deliberately,
overtly, in front of you. That's the world as it is.
904
01:33:49,000 --> 01:33:53,096
It is making some people very rich.
They're quite happy with it.
905
01:33:54,000 --> 01:33:57,533
I think it is a form of economic warfare.
906
01:33:58,000 --> 01:34:07,276
Much of the change in the way that the global economy
works over the last thirty years result from this debt,
907
01:34:07,000 --> 01:34:14,976
this third world debt because it's given rich countries and banks
and the financial sector enormous amounts of power and control
908
01:34:15,000 --> 01:34:19,976
over the poorer bits of the world where a
lot of the resources are that we like using
909
01:34:20,000 --> 01:34:24,976
and that's being used in a way that many
people have compared to a form of colonialism.
910
01:34:25,000 --> 01:34:31,848
It's a very real direct form of power that's being used
over those countries to force those countries to do
911
01:34:32,000 --> 01:34:36,976
what are really in the interests of the
richest segments of the world that they do.
912
01:34:37,000 --> 01:34:40,976
And as a result of that not only
have corporations become absolutely
913
01:34:41,000 --> 01:34:48,180
made huge amounts of profit and
absolutely enormous and all pervasive,
914
01:34:48,200 --> 01:34:55,984
but the financial sector has become even bigger than
that and the real money in the world to be made today
915
01:34:56,000 --> 01:35:01,976
is not by producing anything at all, it's purely
by forms of speculating. Making money from money
916
01:35:02,000 --> 01:35:10,952
- that's the most profitable and by far and away the biggest
form of economic activity that exists in the world today.
917
01:35:11,000 --> 01:35:16,568
To protect themselves, vulnerable countries
need to accrue currency from rich countries
918
01:35:17,000 --> 01:35:19,867
who create these currencies out of nothing.
919
01:35:22,000 --> 01:35:26,976
The Netherlands, first Governor General of
Indonesia the man who built the trade routes,
920
01:35:27,000 --> 01:35:33,848
fortified them, what I mean by that is built forts
along them and fought Spanish fleets and British fleets,
921
01:35:34,000 --> 01:35:47,000
said about the development of the Netherlands Empire and Netherlands
trade was "We cannot make trade without war, nor war without trade."
922
01:35:47,000 --> 01:35:48,280
Money and power.
923
01:35:54,000 --> 01:35:59,692
So reserves have become the way in
which you can insure yourself against what?
924
01:36:01,000 --> 01:36:06,120
Speculation. You said Speculation.
Speculative attack. Falling markets. Bubbles.
925
01:36:10,000 --> 01:36:15,440
When a country succumbs to a speculative
attack it is asked to deregulate its markets
926
01:36:16,000 --> 01:36:20,032
and conform its financial system
to that of the dominant party.
927
01:36:22,000 --> 01:36:26,976
The big problem that's faced by most
developing countries who've got into a debt crises
928
01:36:27,000 --> 01:36:30,976
was that they were told by the powers that be
in the world, the International Monetary Fund,
929
01:36:31,000 --> 01:36:37,592
which in many ways governs the global financial
system, that the way to get out of debt is first of all
930
01:36:38,000 --> 01:36:44,976
to restructure your economy, especially to increase your
exports so you're earning more dollars and then you can pay off
931
01:36:45,000 --> 01:36:48,976
your debt which is normally in
dollars or some other foreign currency.
932
01:36:49,000 --> 01:36:53,864
Unfortunately time and time again
that was proved to not be the case at all.
933
01:36:54,000 --> 01:37:00,976
Actually countries cut back their public spending to the bone so
they stopped growing; they stopped having any potential for growth
934
01:37:01,000 --> 01:37:06,976
and what they did produce was aimed at the export
market, was aimed at creating dollars and so on.
935
01:37:07,000 --> 01:37:10,976
They were paying off their debts but they
weren't developing their own economy at all.
936
01:37:11,000 --> 01:37:15,976
They were paying far more in debt repayments than they
were spending on health or education or anything else
937
01:37:16,000 --> 01:37:18,976
and their debts just kept
getting bigger and bigger.
938
01:37:19,000 --> 01:37:27,640
The country becomes a vassal state allowing large
corporations to exploit its natural resources and workforce.
939
01:37:32,000 --> 01:37:37,976
It's not even shadowy. There's no great mystery about
what's happening here and how the world operates.
940
01:37:38,000 --> 01:37:47,000
It's quite blunt. For the last thirty years you've got something
pretty much everywhere that generally gets labelled Neoliberalism
941
01:37:47,000 --> 01:37:52,976
- this idea that you should have floating exchange rates,
weak regulation particularly of financial markets,
942
01:37:53,000 --> 01:37:57,976
minimal government interference or involvement in what the
market does and it's more or less how the world operates.
943
01:37:58,000 --> 01:38:04,976
And then there are institutions - the outstanding one at this point
is the IMF - that will actively try and enforce this state of affairs.
944
01:38:05,000 --> 01:38:12,976
So it's not greatly shadowy, that there are people behind the scenes
somewhere trying to manipulate stuff, this is actually quite overt.
945
01:38:13,000 --> 01:38:17,944
This is happening and this is how
it has been for my entire adult life.
946
01:38:18,000 --> 01:38:25,808
This is how the world is operated and it's made some people
very wealthy, it's produced enormous concentrations of wealth.
947
01:38:26,000 --> 01:38:35,000
So when the International Monetary Fund comes in, in order to try and
alleviate a country's debt problems, it imposes a set of conditions.
948
01:38:35,000 --> 01:38:39,976
In the 1980s and 90's they called that set of
conditions a Structural Adjustment Programme
949
01:38:40,000 --> 01:38:42,976
and it tends to take very similar
forms wherever it happens.
950
01:38:43,000 --> 01:38:48,976
Indeed we can see structural adjustment programmes in essence
happening today in countries like Greece and Portugal and Ireland
951
01:38:49,000 --> 01:38:56,904
where countries are instructed to decrease
the amount they spend on the public sector,
952
01:38:57,000 --> 01:39:04,932
they are instructed to liberalise their trade
market and liberalise their capital market
953
01:39:05,000 --> 01:39:07,976
so money can much more easily
come in and out of their economy.
954
01:39:08,000 --> 01:39:12,976
The idea is that this will encourage investment
to come in from richer parts of the world
955
01:39:13,000 --> 01:39:16,976
and that all of their problems
will be solved from this investment.
956
01:39:17,000 --> 01:39:22,504
In actual fact this is proved time and time
again to be completely without foundation.
957
01:39:23,000 --> 01:39:27,976
In actual fact what happens is it destroys fledgling
industries and capacities in these developing countries
958
01:39:28,000 --> 01:39:32,976
and developing countries become completely dependent
on goods and services from developed countries
959
01:39:33,000 --> 01:39:39,976
and also from capital from developed countries. One of
the things the International Monetary Fund is very keen on
960
01:39:40,000 --> 01:39:46,976
is telling countries to lower the taxes that should be paid by
multinational corporations when they come and operate in a country
961
01:39:47,000 --> 01:39:49,976
because then you'll encourage
more multinationals to come in.
962
01:39:50,000 --> 01:39:55,976
Of course what it also means is the profits that are made by those
multinational corporations leave those countries just as quickly
963
01:39:56,000 --> 01:40:02,000
and the country itself doesn't benefit. Today you have many
developing countries which have got almost no tax base.
964
01:40:02,001 --> 01:40:09,000
They've not developed a tax base at all and so they're
even more dependent on international capital markets,
965
01:40:09,001 --> 01:40:15,000
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,
966
01:40:15,001 --> 01:40:22,000
and it's very difficult to see how democratic societies can
evolve or function when actually a government is more dependent on
967
01:40:22,001 --> 01:40:27,000
the diktats of the International Monetary Fund and
the money markets than it is on their own people.
968
01:40:33,001 --> 01:40:43,000
What we've seen since the 1970s is a dramatic increase in
a series of phenomena that have had a stimulative effect
969
01:40:43,001 --> 01:40:50,000
on the changes in the financial system that have brought us to
the gleaming and shiny metal and steel business that's over there.
970
01:40:50,001 --> 01:40:53,000
In case you don't know that's
the City of London I'm pointing at.
971
01:40:53,001 --> 01:40:59,000
To compensate for the lack of a defined
commodity based value underlying currencies,
972
01:40:59,001 --> 01:41:06,000
financial institutions developed
securitisation as a means to manage risk.
973
01:41:06,001 --> 01:41:11,000
You develop securitisation as a means
to try and stabilise the whole system
974
01:41:11,001 --> 01:41:18,000
this is a set of financial processes and financial
innovations that really accelerate from the 70s, 80s onwards.
975
01:41:18,001 --> 01:41:23,000
You had a chaotic system that needed
to manage risk and you had to innovate.
976
01:41:23,001 --> 01:41:30,000
You needed derivatives, options, futures. You
have new markets in volatility management tools.
977
01:41:30,001 --> 01:41:32,000
Who knows what the term hedging is?
978
01:41:32,001 --> 01:41:37,000
Spreading your risk. Managing
your risk, insuring against it, precisely.
979
01:41:37,001 --> 01:41:44,000
Up until very recently, until the 1960s the Securities
and Exchange Commission would be quite clear
980
01:41:44,001 --> 01:41:50,000
that derivatives that weren't based on real products like
agricultural products - so pork belly futures or whatever
981
01:41:50,001 --> 01:41:54,000
would in fact be essentially a kind of gambling
and therefore you weren't allowed to trade them.
982
01:41:54,001 --> 01:41:59,000
That changes in the sixties.
Everyone can trade currency futures,
983
01:41:59,001 --> 01:42:06,000
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.
984
01:42:06,001 --> 01:42:11,000
Once you have the system of fixed exchange rates
breaking down obviously this accelerates enormously
985
01:42:11,001 --> 01:42:17,000
so as you get the rollback of government regulation here,
you get the market taking over with its own products here
986
01:42:17,001 --> 01:42:21,000
and the theory is that the
market is better at regulating itself,
987
01:42:21,001 --> 01:42:24,000
its more stable than if you have a
government interfering all the time.
988
01:42:24,001 --> 01:42:29,000
The efficient markets hypothesis - the idea that
you have set up a financial market, they're fast,
989
01:42:29,001 --> 01:42:33,000
everybody in them is well informed, they all keep
a very careful eye on what everyone else is doing
990
01:42:33,001 --> 01:42:38,000
it'll therefore be very stable and
reflect real changes in the economy.
991
01:42:38,001 --> 01:42:44,000
So it no driven by panics, manias, speculative
bubbles. None of this is really going to happen.
992
01:42:44,001 --> 01:42:51,000
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.
993
01:42:51,001 --> 01:42:57,000
So that's the efficient markets hypothesis. The practice
- I think what you see in 2008 is the end of that process
994
01:42:57,001 --> 01:43:05,000
the appearance of a crisis so major that belief that it'll simply
be self-stabilising and self-regulating really can't carry on.
995
01:43:05,001 --> 01:43:09,000
The practice carries on anyway but you can't
really argue in the same way that you used to
996
01:43:09,001 --> 01:43:16,000
"It's good" or "It's necessary"
or "This is OK for the world".
997
01:43:16,001 --> 01:43:20,000
In the last decade we had a new innovation
- something called a credit default swap.
998
01:43:20,001 --> 01:43:24,000
A way of buying insurance against a
company you invested in going bust
999
01:43:24,001 --> 01:43:35,000
and in 2002 they were worth less than $1
trillion. In 2007 they were worth $60 trillion.
1000
01:43:35,001 --> 01:43:37,000
That's five years.
1001
01:43:37,001 --> 01:43:45,000
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.
1002
01:43:45,001 --> 01:43:49,000
The maths that's inside of them
is complete nonsense it turns out.
1003
01:43:49,001 --> 01:43:56,000
There's far more risk attached to
trying to securitise risk and securitise debt
1004
01:43:56,001 --> 01:44:02,000
in the way that we have done this than we thought.
And we now think these things are now worthless!
1005
01:44:02,001 --> 01:44:08,000
The attempt to get more and more complex
ways of regulating and shaping a financial market
1006
01:44:08,001 --> 01:44:15,000
and trying to make a quick buck out of it as well actually
helped produce the opposite effect to what its apologists said
1007
01:44:15,001 --> 01:44:18,000
- which is, it led to a spectacular crash.
1008
01:44:22,001 --> 01:44:29,000
What we saw as a result of this very different
situation was one phenomenon above all,
1009
01:44:29,001 --> 01:44:35,000
one sector above all grew,
and that was the financial sector.
1010
01:44:35,001 --> 01:44:39,000
While the financial sector benefits
enormously from the current monetary system,
1011
01:44:39,001 --> 01:44:42,000
the system is neither stable nor fair.
1012
01:44:42,001 --> 01:44:51,000
The assumption in what the Bank of England does right now is
that the cash that we hold is backed up by government debt.
1013
01:44:51,001 --> 01:44:56,000
The government can back up its
promises by the fact that it can tax the public.
1014
01:44:56,001 --> 01:45:00,000
So what they're implying is that
cash is backed up by government debt,
1015
01:45:00,001 --> 01:45:04,000
when government debt is backed up by the ability
of the government to get cash from the public.
1016
01:45:04,001 --> 01:45:11,000
Time and time again over the past thirty years we've
seen private debts being transformed into public debts,
1017
01:45:11,001 --> 01:45:19,000
and ultimately the price of that debt is
being paid by the public in the debtor country.
1018
01:45:19,001 --> 01:45:23,000
This is why spending cuts are necessary.
1019
01:45:23,001 --> 01:45:31,000
The system is designed to make certain people very rich
at the expense of a nation's citizens and tax payers.
1020
01:45:31,001 --> 01:45:39,000
The system lowers the standard of living of the majority
and distributes this wealth amongst the privileged.
1021
01:45:39,001 --> 01:45:46,000
So what we are left with is a financial system
since the early 70s that has no fixed exchange rates
1022
01:45:46,001 --> 01:45:51,000
that suddenly has increasingly
open financial borders,
1023
01:45:51,001 --> 01:46:00,000
that has central banks having to manage without having any
control because there's nothing here where the gold used to be.
1024
01:46:00,001 --> 01:46:09,000
Chaotically they have to ease quantitatively.
They have to lend as a lender of last resort.
1025
01:46:09,001 --> 01:46:17,000
Throughout history monetary systems were designed to
give the dominant international power an advantage
1026
01:46:17,001 --> 01:46:21,000
and this power is fiercely
defended and expanded on.
1027
01:46:28,001 --> 01:46:32,000
And I plea and tell of
an incredible bogey man.
1028
01:46:34,001 --> 01:46:41,000
An American flag is burned at the height of the demonstration.
Both President Johnson and Francisco Franco were vilified.
1029
01:46:41,001 --> 01:46:45,000
A new low in public protest added
strain on Spanish-American relations.
1030
01:46:48,001 --> 01:46:50,000
Order in the court,
order in the court,...
1031
01:46:52,001 --> 01:46:55,000
I want Americans and
all the world to know
1032
01:46:55,001 --> 01:46:56,000
Come on fire
1033
01:46:56,001 --> 01:47:04,000
I want Americans and all the world to know, America has
no regard for conventions of war or rules of morality.
1034
01:47:04,001 --> 01:47:06,000
Fire
1035
01:47:12,001 --> 01:47:15,000
Objection overruled.
1036
01:47:27,001 --> 01:47:38,000
What I would like to see is a new kind of currency
that is backed by something that is scarce
1037
01:47:38,001 --> 01:47:44,000
and that we really need and we really value. Something
like energy or renewable energy, for example,
1038
01:47:44,001 --> 01:47:49,000
so as a kilowatt hour backed
currency would be very interesting to me.
1039
01:47:49,001 --> 01:47:57,000
We need to start valuing things that are most scarce and
that we need to survive as a human race in the long run.
1040
01:47:57,001 --> 01:48:03,000
Backing an international currency with something
like that will generate enormous investment in,
1041
01:48:03,001 --> 01:48:14,000
for example, renewable energy, if that's the primary
international unit of account that is being used.
1042
01:48:14,001 --> 01:48:21,000
Another option is a basket of currencies so
you mix up the value of different currencies
1043
01:48:21,001 --> 01:48:27,000
to create a very solid currency
that people have confidence in.
1044
01:48:27,001 --> 01:48:35,000
Perhaps even better would be a basket of commodities
with which to back up international currencies.
1045
01:48:35,001 --> 01:48:43,000
Now if it was possible, internationally, some way or another, to
get all these increasingly competing national economies together
1046
01:48:43,001 --> 01:48:49,000
and say We're all going to sit down and write out an
agreement, somewhat like the Bretton Woods agreement
1047
01:48:49,001 --> 01:48:55,000
which will allow for, unlike Bretton Woods, some
currencies to be pegged against different baskets of goods
1048
01:48:55,001 --> 01:49:03,000
more appropriate to their national economies. If you
could arrange for that to happen then that would be nice
1049
01:49:03,001 --> 01:49:08,000
and you can see how that would start to create a kind of order
in the international macro economy which is otherwise lacking.
1050
01:49:08,001 --> 01:49:12,000
The real difficulty there is just
political who on Earth is going to do this?
1051
01:49:12,001 --> 01:49:18,000
Who is the force that is going
to make this thing happen?
1052
01:49:18,001 --> 01:49:25,000
Creating a monetary system which is both
fair and stable is possible and can be achieved.
1053
01:49:25,001 --> 01:49:32,000
What are international organisations
for if not for such a purpose?
1054
01:49:40,001 --> 01:49:46,000
Banks are the most heavily subsidised businesses
in the world, specially protected by governments.
1055
01:49:46,001 --> 01:49:51,000
While the money runs out for the rest
of us, the largest private banks still thrive.
1056
01:49:51,001 --> 01:49:57,000
This is because they get the biggest
subsidy of them all: the licence to print money.
1057
01:49:57,001 --> 01:50:02,000
Hard to believe? Martin Wolf, the Chief Economics
Editor of the Financial Times, said it recently:
1058
01:50:02,001 --> 01:50:11,000
"The essence of the contemporary monetary system is the creation
of money out of nothing by private banks' often foolish lending"
1059
01:50:11,001 --> 01:50:20,000
You heard that right. Private banks create money out of
nothing. Then, they loan it to us and ask for interest on top.
1060
01:50:20,001 --> 01:50:27,000
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.
1061
01:50:27,001 --> 01:50:34,000
But the banks don't simply print money using secret
printing presses in their basements. They don't have to.
1062
01:50:34,001 --> 01:50:38,000
Like so many other things these days,
printing money has now gone digital.
1063
01:50:38,001 --> 01:50:43,000
With the popular use of debit cards,
electronic fund transfers and internet banking,
1064
01:50:43,001 --> 01:50:52,000
only 3% of the money in the UK is now made of paper
and metal coin. The other 97% is entirely in computers.
1065
01:50:52,001 --> 01:50:58,000
Electronic money is convenient for everyone, but
it's especially convenient for the private banks,
1066
01:50:58,001 --> 01:51:03,000
since they own, run and control
the entire digital money system.
1067
01:51:03,001 --> 01:51:08,000
And what do they do with this special privilege? Do
they channel new money, the blood supply of the nation,
1068
01:51:08,001 --> 01:51:14,000
towards the things we need like hospitals,
schools, universities and public transport?
1069
01:51:14,001 --> 01:51:18,000
Not if it doesn't make a profit for them.
1070
01:51:18,001 --> 01:51:25,000
Instead, they use their licence to print money to gamble on the
financial markets and push house prices out of reach of ordinary people
1071
01:51:25,001 --> 01:51:29,000
by pumping hundreds of billions
of pounds into risky mortgages.
1072
01:51:29,001 --> 01:51:38,000
This is exactly how the banks caused the financial crisis
and now the rest of us are being asked to pay for it.
1073
01:51:41,001 --> 01:51:48,000
If we can't afford to run hospitals and build schools,
can we really afford to subsidise the financial industry?
1074
01:51:48,001 --> 01:51:52,000
Should we have to live with less
so the bankers can have more?
1075
01:51:52,001 --> 01:52:01,000
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.
1076
01:52:01,001 --> 01:52:05,000
We need to take away the banks'
power to create money out of nothing.
1077
01:52:05,001 --> 01:52:09,000
This will stop them from causing
yet another financial meltdown
1078
01:52:09,001 --> 01:52:14,000
and allow us to afford the crucial
services that we as a society need.
1079
01:52:19,001 --> 01:52:24,000
What does a progressive financial system look
like? And I want to hear what some of you think.
1080
01:52:24,001 --> 01:52:30,000
Who thinks, for example, that we
should ban banks from creating money?
1081
01:52:30,001 --> 01:52:35,000
Control over how money is created and
what it's used for is a democratic issue.
1082
01:52:35,001 --> 01:52:42,000
You currently have the profit seeking banking sector
-not accountable to anybody other than themselves-
1083
01:52:42,001 --> 01:52:51,000
who are creating up to �200 billion a year of new spending
power and deciding where in the economy that goes.
1084
01:52:51,001 --> 01:52:57,000
Monetary reformers believe that that entire money
supply should be for the benefit of the public
1085
01:52:57,001 --> 01:53:02,000
and should never be created
by a private organisation as debt.
1086
01:53:02,001 --> 01:53:12,000
Democratising the money supply - what that means is putting
the power to issue and allocate money back into hands of people
1087
01:53:12,001 --> 01:53:21,000
and taking it away from private organisations,
institutions that don't actually represent the people,
1088
01:53:21,001 --> 01:53:27,000
that aren't democratically accountable to the people.
The banks aren't democratically accountable...
1089
01:53:27,001 --> 01:53:30,000
they're accountable to their
shareholders and their shareholders only.
1090
01:53:30,001 --> 01:53:36,000
Now they're underwritten by us by the taxpayer but they're
not accountable to us. That doesn't make any sense at all.
1091
01:53:36,001 --> 01:53:43,000
So, if you democratise the monetary system,
you are subjecting it to the same kinds of discipline
1092
01:53:43,001 --> 01:53:52,000
as the education system, as the health
service and other key publicly needed services.
1093
01:53:52,001 --> 01:54:01,000
There is no reason that money should be viewed as any different.
It is a fundamentally important service that everybody needs.
1094
01:54:01,001 --> 01:54:05,000
I can't survive without
enough money, nobody can.
1095
01:54:05,001 --> 01:54:15,000
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.
1096
01:54:15,001 --> 01:54:23,000
We believe that the activity of supplying a nation with money
should be completely separate from the activity of banking.
1097
01:54:23,001 --> 01:54:32,000
What we need to do now is update that law
from 1844 to make the digital money real money.
1098
01:54:32,001 --> 01:54:36,000
It could be electronic money, but
it needs to be classified as money.
1099
01:54:36,001 --> 01:54:45,000
We just want banks to be like every other private company
in the economy - to be subject to market discipline.
1100
01:54:45,001 --> 01:54:52,000
The problem is that now we're in this hybrid model
where we have no control over how they spend the money
1101
01:54:52,001 --> 01:54:58,000
which creates our money, but also
we're reliant on them to create our money.
1102
01:54:58,001 --> 01:55:02,000
We're all constantly in debt. We'll be in
debt pretty much for the rest of our lives
1103
01:55:02,001 --> 01:55:07,000
and the younger generations have it
even worse than the older generations.
1104
01:55:07,001 --> 01:55:16,000
I've just been reading a report from the United Nations
Environment Programme and they say we need $2 trillion a year.
1105
01:55:16,001 --> 01:55:25,000
Two trillion - can you imagine what two trillion is? It's a lot of
money - a year, to finance the greening of the economy,
1106
01:55:25,001 --> 01:55:31,000
to move away from poisonous carbon which is
poisoning the atmosphere to alternatives to carbon.
1107
01:55:31,001 --> 01:55:37,000
When the banks collapsed in 2007-9, we
found according to the Bank of England, not me,
1108
01:55:37,001 --> 01:55:44,000
the Bank of England tells me that we raised
$14 trillion in a year to bail out the banks
1109
01:55:44,001 --> 01:55:50,000
so against that $2 trillion a year to
bail out the ecosystem is no big deal.
1110
01:55:50,001 --> 01:55:56,000
This kind of model doesn't make any sense
either from an orthodox free market perspective
1111
01:55:56,001 --> 01:56:04,000
because these banks are monopolists - effectively they monopolise credit
creation so they don't obey the rules of any free market discipline.
1112
01:56:04,001 --> 01:56:15,000
Yet at the same time, they are not producing socially or
environmentally beneficial outcomes along any real scale.
1113
01:56:15,001 --> 01:56:19,000
All that money does is
enable us to do what we can do
1114
01:56:19,001 --> 01:56:26,000
and once we get our heads around that
we can make money work for what we need.
1115
01:56:28,001 --> 01:56:35,000
The power to create money is so powerful. You've
got to be very concerned about who has that power.
1116
01:56:35,001 --> 01:56:39,000
If it's somebody who's going to
benefit from creating the money
1117
01:56:39,001 --> 01:56:43,000
then they're going to have the incentive to
create more than the economy actually needs.
1118
01:56:43,001 --> 01:56:46,000
The same would probably happen
if you give that power to politicians.
1119
01:56:46,001 --> 01:56:55,000
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.
1120
01:56:55,001 --> 01:57:00,000
It's a real conflict of interest.
The only thing you really can do
1121
01:57:00,001 --> 01:57:07,000
is to give it to somebody who has no conflict of
interest - an independent, transparent, accountable body.
1122
01:57:07,001 --> 01:57:12,000
Money could be allocated according to
the needs and desires of the population.
1123
01:57:12,001 --> 01:57:20,000
Systems could be put in place to allow for direct
democratic allocation of funds either wholly or partially.
1124
01:57:20,001 --> 01:57:25,000
A framework and rules could be established
to incorporate up to date economic theory
1125
01:57:25,001 --> 01:57:31,000
into how much money should be
created and for what types of purposes.
1126
01:57:31,001 --> 01:57:37,000
The Government would no longer be able to get access
to large sums of money to pursue armed conflict
1127
01:57:37,001 --> 01:57:41,000
if this was not sanctioned by the populace.
1128
01:57:41,001 --> 01:57:46,000
We would be able to see exactly what
they're doing with the power to create money.
1129
01:57:46,001 --> 01:57:49,000
We would be able to see how much they're
creating and where that money is going.
1130
01:57:49,001 --> 01:57:56,000
And that is pretty much the only way we can get control
over the power to create money and stop it being abused.
1131
01:57:56,001 --> 01:58:03,000
The Money Reform Party was established
in 2005 just after the 2005 general election.
1132
01:58:03,001 --> 01:58:11,000
The idea of the Money Reform Party was that we would
have this basic core issue that people would agree with.
1133
01:58:11,001 --> 01:58:17,000
They might disagree on other issues, that's fair
enough, there are different ways of going about it
1134
01:58:17,001 --> 01:58:27,000
but that was the idea - to go for what you might call the lowest
common denominator to attract people with disparate views.
1135
01:58:27,001 --> 01:58:35,000
Getting elected to Parliament is not the issue - it's
getting the issue of money reform into the public domain
1136
01:58:35,001 --> 01:58:37,000
so people will begin to talk about it.
1137
01:58:44,001 --> 01:58:48,000
Banks should not be able to gamble
with your money without your permission
1138
01:58:48,001 --> 01:58:56,000
so what they would need to do is to offer two types of
account. One is a safe account, a transactions account'.
1139
01:58:56,001 --> 01:59:00,000
Put your money in there - the bank doesn't
lend it. They don't put it at any risk whatsoever.
1140
01:59:00,001 --> 01:59:04,000
The other is an investment account where
you put your money in for a certain period of time
1141
01:59:04,001 --> 01:59:11,000
and then the bank takes that away and they invest it.
What happens when you use these two types of account is
1142
01:59:11,001 --> 01:59:17,000
that in the event that a bank fails, the money in
the safe accounts is still there - it's not at risk.
1143
01:59:17,001 --> 01:59:21,000
So you just move all the safe
accounts to a bank that is still healthy.
1144
01:59:21,001 --> 01:59:25,000
Those people who put their money in the
investment account - they don't lose everything
1145
01:59:25,001 --> 01:59:34,000
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.
1146
01:59:34,001 --> 01:59:39,000
It means that the government then never needs
to bail out a bank. Banks can be allowed to fail.
1147
01:59:39,001 --> 01:59:42,000
The system would actually
be how people think it is
1148
01:59:42,001 --> 01:59:48,000
- 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.
1149
01:59:48,001 --> 01:59:52,000
There's a spectrum of opportunities there
that we're just not exploring at the moment and
1150
01:59:52,001 --> 02:00:00,000
that's what's upsetting me - that we're not even experimenting
when we know that the system we have now is fundamentally flawed.
1151
02:00:00,001 --> 02:00:06,000
We've just had the biggest crisis since the
Second World War, since the 1930's really.
1152
02:00:06,001 --> 02:00:12,000
We know we have a system where the
creators of money are underwritten by us anyway.
1153
02:00:12,001 --> 02:00:19,000
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.
1154
02:00:19,001 --> 02:00:23,000
So when we're talking about what life is
going to be like in the post reformed system
1155
02:00:23,001 --> 02:00:29,000
- 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.
1156
02:00:29,001 --> 02:00:34,000
It does mean that you might not be able to
buy a house that's 10 or 12 times your income
1157
02:00:34,001 --> 02:00:41,000
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.
1158
02:00:41,001 --> 02:00:47,000
Houses should be affordable as should everything
else. You'll still be able to get a mortgage.
1159
02:00:47,001 --> 02:00:52,000
You'll still be able to get finance for a car.
Businesses will still get investment.
1160
02:00:52,001 --> 02:01:00,000
It just means that debt won't be so high.
It won't be such a huge feature of people's lives.
1161
02:01:06,001 --> 02:01:13,000
Person to person banking has been around
for a while. It's essentially the eBay of banking,
1162
02:01:13,001 --> 02:01:20,000
so it allows borrowers and lenders
to be put together in a marketplace.
1163
02:01:20,001 --> 02:01:26,000
Default rates at the largest peer
to peer lender, Zopa, are 0.7%.
1164
02:01:26,001 --> 02:01:34,000
Risk is minimised by pooling funds so that each investor's
contribution to a specific loan remains minimal.
1165
02:01:34,001 --> 02:01:44,000
There's a site which is about currency exchange, so again,
bypassing the kind of mainstream banking or currency exchange system
1166
02:01:44,001 --> 02:01:52,900
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
1167
02:01:52,901 --> 02:02:03,100
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.
1168
02:02:03,101 --> 02:02:11,100
We will also see more and more applications and things
using our phones than we would ever have imagined
1169
02:02:11,201 --> 02:02:14,200
and I think we're only
just at the beginning of that.
1170
02:02:23,001 --> 02:02:32,200
The issue of monetary reform has historically been a very sensitive
issue because of the incredible power, wealth and privileges it bestows.
1171
02:02:33,001 --> 02:02:38,000
In an age where analytic thought and a
scientific approach are held in such high esteem
1172
02:02:38,301 --> 02:02:47,300
there is no justifiable argument for keeping the mechanics
and implications of the monetary process such a taboo subject.
1173
02:02:47,301 --> 02:02:55,000
As democratic citizens we have the right to demand a monetary
system which is both stable and beneficial to society.
1174
02:02:55,201 --> 02:03:02,000
The banking lobby is very powerful. I suspect that
they won't be in favour of these kinds of models
1175
02:03:02,001 --> 02:03:08,500
although ultimately one could argue that
it's a much more stable footing for banks.
1176
02:03:10,201 --> 02:03:16,200
The coalition government has set up an
Independent Commission on Banking, the ICB
1177
02:03:16,501 --> 02:03:25,500
and their remit is to essentially make recommendations
to the government on how the banking sector can be fixed.
1178
02:03:25,901 --> 02:03:30,900
Their remit includes figuring out
how they can prevent future bailouts.
1179
02:03:30,401 --> 02:03:38,400
When they held their public meetings around the country, at
each of those meetings of the five panellists at that meeting,
1180
02:03:38,401 --> 02:03:43,400
at least about three of them were representatives
of the big banks. It's a bizarre relationship.
1181
02:03:43,401 --> 02:03:46,900
If you were going to try and
improve building regulations,
1182
02:03:47,201 --> 02:03:50,500
you wouldn't hire a cowboy builder,
who'd built a building that collapsed.
1183
02:03:51,001 --> 02:03:55,000
So why are we asking the banks for
advice on what we should do about banking?
1184
02:03:56,201 --> 02:04:01,600
The Independent Commission on
Banking recommended two major reforms.
1185
02:04:01,901 --> 02:04:08,300
The first was the implementation of
greater capital and loss absorbing capacity.
1186
02:04:08,301 --> 02:04:17,700
This in effect is complementary to Basel three and will not
differentiate the UK banking system from the rest of Europe.
1187
02:04:17,901 --> 02:04:22,900
The second recommendation
was the ring-fencing of retail banks.
1188
02:04:23,301 --> 02:04:28,400
Although portrayed as harsh to the banks,
it can also be interpreted as a benefit,
1189
02:04:29,101 --> 02:04:35,100
as retail banks will now have a lower capital
requirement ratio than investment banks.
1190
02:04:37,601 --> 02:04:40,100
There's this cosy relationship
between the government and the banks.
1191
02:04:40,401 --> 02:04:46,000
In the middle of the crisis, I spoke to somebody who
was working in the Treasury in the middle of the crisis
1192
02:04:46,301 --> 02:04:50,800
and he said pretty much every second person that
he spoke to was working for one of the big banks.
1193
02:04:50,901 --> 02:04:57,900
So when it comes to a decision about whether you let
one of these toxic banks fail or whether you rescue it,
1194
02:04:58,401 --> 02:05:03,900
what kind of recommendation are you going
to get from somebody who works in that bank?
1195
02:05:04,101 --> 02:05:14,800
I've got a whole string of letters and
cards from various politicians over the years.
1196
02:05:15,001 --> 02:05:23,000
Really you get letters which in most cases say
nothing at all apart from "Thank you very much".
1197
02:05:23,001 --> 02:05:29,200
Thank you for your letter or thank
you for your DVD. I'll have a look at it.
1198
02:05:29,201 --> 02:05:36,200
Or in the case, of course, letters to the
last Prime Minister a couple of years ago,
1199
02:05:36,201 --> 02:05:43,200
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.
1200
02:05:43,201 --> 02:05:48,700
And of course, I'm still waiting about two years
later for any sort of response from the Treasury.
1201
02:06:10,701 --> 02:06:13,700
"This is the banking fraternities' feeding station."
1202
02:06:13,901 --> 02:06:21,100
Banks balance sheets are now 4 times GDP at 6
trillion pounds. They are holding the public hostage.
1203
02:06:21,601 --> 02:06:28,600
Their wealth has become so great through gaming
the financial system that we are at a tipping point
1204
02:06:28,601 --> 02:06:32,600
whereby a single bank could
now take down the entire economy.
1205
02:06:32,601 --> 02:06:39,600
"Eat her, eat her now, eat her! She's a public sector
worker! Eat her! Suck her blood, Drink her dry!"
1206
02:06:39,601 --> 02:06:45,600
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,
1207
02:06:45,601 --> 02:06:53,100
more poverty, more inequality and another crisis in 5
or 10 years which we're going to have to pay for again.
1208
02:06:53,101 --> 02:07:02,100
It is a political issue, ultimately, because the reforms
that are required can only be achieved by Parliament.
1209
02:07:02,101 --> 02:07:07,100
We don't need a very big Act of Parliament.
All it has to do is basically prevent the clearing banks
1210
02:07:07,101 --> 02:07:15,100
from creating currency based on the debt
of their borrowers - that's it. You stop that.
1211
02:07:25,301 --> 02:07:35,300
This is George.
George worked in a big bank in the City of London.
1212
02:07:35,701 --> 02:07:43,200
But one day without warning George's bank went bust.
Luckily, the government rescued the bank
1213
02:07:43,201 --> 02:07:49,200
and George kept his job but the greedy government
wanted something in return for their help.
1214
02:07:49,201 --> 02:07:56,000
They demanded a higher tax on George's salary and bonus.
For someone with a high cost lifestyle like George,
1215
02:07:56,001 --> 02:08:03,800
a shock like this can be devastating. Now George struggles to
afford the rent on his riverside apartment in central London.
1216
02:08:04,101 --> 02:08:08,100
The tyres on his Aston Martin are
wearing thin and are barely road legal.
1217
02:08:08,501 --> 02:08:13,500
Unless George's situation improves -
or unless someone like you helps him -
1218
02:08:13,501 --> 02:08:21,500
then George may even be forced to walk to past the next
Saville Row tailors and buy his suit from Topshop or Next.
1219
02:08:22,301 --> 02:08:28,900
Even if George had anything to celebrate he can
no longer afford the champagne to celebrate with.
1220
02:08:28,901 --> 02:08:40,900
George is not alone. Countless others are suffering like him.
No-one knows how long it'll be until the good times return.
1221
02:08:40,701 --> 02:08:52,700
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.
1222
02:08:52,701 --> 02:08:59,700
Just �395 will help him celebrate minor
achievements with a magnum of Cristal champagne.
1223
02:08:59,701 --> 02:09:05,700
As little as �900 will help George buy
a new set of tyres for his Aston Martin.
1224
02:09:05,701 --> 02:09:16,700
�2000 can help George recover his self-esteem with a suit from a
prestigious Saville Row tailor. But even a small amount will help.
1225
02:09:16,701 --> 02:09:24,700
Just �200 will buy a meal for George and his girlfriend
Experience. Just �200 extra will buy the drinks.
1226
02:09:24,701 --> 02:09:31,000
By adopting a banker you won't just be
supporting someone like George in a time of need
1227
02:09:31,201 --> 02:09:38,200
- 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.
1228
02:09:38,301 --> 02:09:46,300
You'll be doing your patriotic duty to support
Britain's greatest industry in its time of need.
1229
02:09:46,201 --> 02:09:49,200
And when the good times return
and George gets his bonus back,
1230
02:09:49,301 --> 02:09:55,300
the taxes he pays will help fund the public
services that the rest of you scroungers depend on.
1231
02:09:55,301 --> 02:10:03,300
So please, until the good times return for
George and those like him, will you give today?
156257
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