how is money created where does it come from who benefits and what purpose does it serve a money system what is the money behind the money system for centuries the mechanics of the monetary system have remained hidden from the prying eyes of the populace yet its impact both on a national and international level is perhaps unsurpassed for it is is the monetary system that provides the foundations for international dominance and National control today as these very foundations are being shaken by crisis the need for open and honest Dialogue on the future of the monetary system
has never been greater this economic crisis it's like a cancer if you just wait and wait thinking this is going to go away just like a cancer it's going to grow and it's going to be too late what I would say to everybody is get prepared uh there's not a time right now to um wish will thinking the government is going to sort things out the governments don't rule the world Goldman Sachs rules the world we're on the verge of a perfect storm in opposition lie corrupt and entrenched interests that lurk in the corridors of
power for whom there are no reasons to relinquish privileges they feel are justly deserved has he got has he got a reform plan for the NHS no has he got a police reform plan has he got a plan to count the deficit this order order do you trust the government order try to calm down and behave like an adult and if you can't if it's beyond you leave the chamber get out we'll manage without you this is the Bater feing station there's no coincidence that boom and bar started to become a real cyclical issue around
about the 1700s um when William Patterson founded the bank of England this is intolerable Behavior as far as the public no it's not funny only in your mind is it funny it's not funny at all it's disgraceful the system is inherently unstable as a result of the international power it provides to the dominant parties for at the heart of it lies the idea of how can I get something for nothing statistical analysis has found that every time an Empire begins to near its own demise you'll find that its currency will be debased there is no
guide to how this whole system operates uh to give you an example a researcher at the BBC working on Robert peston documentary went to the bank of England and said can you give me a you know a guide to how money is created and they just said no this documentary will investigate and explain this everchanging system and the impact it has both on a national and international level [Music] in 2010 the total UK money supply stood at 2.15 trillion 2.6% of this total was physical cash 53.5 billion the rest 2.1 trillion or 97.4% of the
total money supply was Commercial Bank money the 3% of money um is created uh through the Central Bank and that money essentially if you created A10 note you could sell that to a bank to put into their ATM and the bank would have to repay that £10 pound or buy it for £10 there'd be no interest made uh charged on that money but that money is then essentially transferred to the treasury and it's a it's it's a form of fundraising um for the government it's called cage [Music] when the bank of England creates A10 note
it cost it about three or 4 P to actually print that note and it sells it to the High Street banks at face value so 1010 and the profit the difference between printing the note and actually selling it for £10 goes directly to the treasury so in effect all the profit that we get on Crea physical money uh Bank notes goes to the treasury and it reduces how much taxes we have to pay um over the last 10 years that's raised about1 18 billion in 1948 notes and coins constituted 177% of the total money supply
this was one contributing factor in the government's ability to finance post-war reconstruction this included the establishment of the NHS in in only 60 years notes and coins have shrunk to less than 3% prior to 1844 Bank notes were created by private Banks and the government did not profit from their creation pre industrialization there was multiple forms of money coexisting and so the kind of Rise of kind of of government sponsored fat money as a relatively recent um phenomenon in the 1840s there was no law to stop Banks from creating their own bank notes so they
used to issue um paper notes as as kind of a a representative of what you had in the bank account instead of you taking your heavy metal coins out of the bank and then going and paying somebody with them you could get your paper which said how much money you had in the bank you could give that to somebody and they could use that to go and get the heavy metal coins from the bank now over time these paper notes became as good as money people would use the paper notes instead of going and getting
the real money from the bank and obviously as soon as the banks realized that what they were creating had become you know the dominant type of money in the economy they realized that by by creating more of it they could generate profits you know they can just print up some new notes lend it and get the interest on top of that and they did that you know up until the 1840s in the 1840s they pushed it just a little bit too far and that caused inflation destabilized the economy so in 1844 the conservative government of
Robert appeel actually passed a law that took the power to create money away from the commercial Banks um and brought it back to the state so since then the bank of England has been the only organization authorized to to create paper [Music] notes since then everything's gone digital and what we now uses money is the digital numbers that commercial Banks can create out of nothing the problem was that they did not include in that in that legislation um the deposits the demand deposits um held in banks by individuals or um electronic forms of money which
essentially what those demand deposits are today most of the money in circulation is is electronic money um and it's bank it's Bank um demand deposits um that just that that sit in our in our account so in a way the legislation has got needs to catch up with developments in in in electronic money uh and the way that Banks actually operate money held in bank accounts are called demand deposits this is an accounting term the banks use when they create credit Banks follow the same process when they create loans all money held in bank accounts
is an accounting entry the reality is now that most money is not paper and it's not metal coins it's digital it's just numbers in a computer system you know it's your Visa debit card it's your electronic you know ATM card um it's this it's plastic you know it's numbers in the computer system you move money from one computer system to another it's all a big database and this digital money is what we're now using to make payments with it's what we actually use to run the economy I think a lot of people in the UK
probably think that the government or the Central Bank um is is in control of most most money in circulation and Issues new money into circulation but that's uh not the case it's private banks that creat the vast majority of new money in circulation and also decide uh how it's allocated the official terminology for this accounting entry is Commercial Bank money when Banks issue loans to the public they create new Commercial Bank money when a customer repays a loan Commercial Bank money is destroyed the banks keep the interest as profit there's a lot of misconceptions about
the way Banks work there was a a poll done by the Cobden Center where they asked people you know how how they thought Banks actually operated around 30% of the public think that when you put your money into the bank it just stays there and it's safe and you can understand why because you know every every child has a piggy bank where you keep putting money in and then when it's a rainy day you smash it and you take that money out and you spend it so a lot of people keep this this idea of
banking you know it's somewhere safe keep your money so that it's there for whenever you need it um another the other 60% of people assume that when you put your money in that money is then being moved across to somebody who wants to borrow it so you have a pensioner who keeps saving money her entire life and then her life savings have been lent to some you know young people who want to buy a house but actually Banks don't work like that at the moment in the UK money creation uh and control is is largely
in the hands of private Banks uh about 97 to 98% of money um that's that's created is is created um as Bank Bank debt money you could call it um when Banks issue money into circulation as as loans essentially um this is very poorly understood fact it's not a conspiracy theory it's not a um it's not a crackpot Theory it's the way the bank of England describes the process when Banks make loans they create new money a few economists will realize the way the money system works but if you don't if you don't realize the
way that money works and you think that you know everybody saving is going to work well for the economy what really happens once you understand the way the money system works is that if everybody starts saving uh the amount of money in the economy shrinks and we have a recession so most economists don't have this this full picture they don't understand all elements of the system they rely on uh assumptions on you know received knowledge without actually going into the details and you know money is money is the center of the economy if you don't
understand where it comes from who it creates who creates it and when it gets created then how can you understand the entire economy when the vast majority of money that we use now is not cash but it's electronic money then whoever is creating the electronic money is getting the proceeds of creating that money and obviously creating electronic money is much more profitable than creating cash because you don't have any production costs at all so while we've got 18 billion over the course of a decade in profit from creating cash the banks have actually created 1.2
trillion pound between 1998 and 2007 the UK money supply tripled 1.2 trillion was created by Banks whilst £18 billion was created by the treasury a lot of people think when I say this or when you say this or when positive money say this that we're all just a bunch of Nutters but on the 9th of March in 2009 the governor of the Federal Reserve um Ben banki gave the first ever broadcast interview the governor of the Central Bank of the United States of America ever given and uh the day before that he bailed out AI
G um which is a insurance company not even a bank actually to the tune of about $160 billion so the journalist says him now Mr banki where did you get $160 billion to bail out AIG is that tax money that the FED is spending it's not tax money the banks have um accounts with the FED much the same way that you have an account in a commercial bank so to lend to a bank we simply use the computer to mark up the uh size of the account that they have with the Fed so it's much
more Akin uh although not exactly the same but it's much more akin to printing money than it is to borrowing Banks create new money whenever they extend credit bu existing assets or make payments on their own account which mostly involves expanding their assets when a bank buys Securities such as a corporate or Government Bond it adds the bond to its assets and increases the company's Bank deposits by the corresponding amount new Commercial Bank money enter circulation when people spend the credit that has been granted to them by Banks I found that talking on the doorstep
from August last year round two August 2009 round two the general election what eight n eight nine months I suppose knocking on doors is that when you try to explain how the money system works there's H an almost inbuilt refusal of people to accept that such a bizarre situation could actually exist no it can't possibly you know what do you mean it can't Banks can't Banks don't create money out of thin air that's ridiculous they can't do that they lend out their depositors money most people have an idea of of how money is they're used
to their own way of handling money uh and they try and Implement their own idea of how how their small household economy Works into the national economy and of course it just doesn't work out it just doesn't work out at all by 2008 the outstanding loan portfolio of Bank created credit also known as Commercial Bank money stood at over2 trillion as recently as 1982 the ratio of notes and coins to bank deposits was 1 to 12 by 2010 the ratio had risen to 1 to 37 that is for every pound of Treasury created money there
was £37 of Bank created money in the 10 years prior to the 2007 crisis the UK Commercial Bank money supply expanded by between 7 to 10% every year a growth rate of 7% is the equivalent of doubling the money supply every 10 years the amount of money they're creating out of nothing is just incredible 1.2 trillion in the last 10 years um and there's that money is being distributed according to the priorities of the banking sector you know not the priorities of society Bank sector itself grew from 1980 $2.5 trillion to $40 trillion by assets
in 1980 global bank assets were worth 20 times the then global economy by 2006 they were worth 75 times according to the UN as the following chart shows total Bank assets of UK Banks as a percentage of GDP remain relatively stable at 50 to 60% up to the end of the 1960s after that they shut up dramatically and the real money in in the world uh to be made today is not by producing anything at all it's simply by forms of speculating basically making money from money uh that's the most profitable and and by far
in way um the the biggest form of of of activity of economic activity that exists in the world today today banks are no longer restricted by how much they can lend and as such how much new credit they can create out of nothing they are restricted solely by their own willingness to lend the issue with allowing Banks to create money uh there's two main issues firstly the fact that they create this money when they make loans so it guarantees that you know we have to borrow all our money for the economy from the banks as
such to have a healthy growing economy the government needs to put in place strategies to allow for ever increasing debt the only way the government can create additional purchasing power is by getting itself and us into more depth the second big issue with allowing Banks to create money is that they have the incentive to always create more you know they create more money if they issue a loan they get the bonuses and the commissions and the incentives to create you know to lend as much as possible you have to develop a sales culture what did
they do they recruited an amazing guy lovely guy Andy Hornby who came from Asda to turn the bank into a super Market retailing operation if you trust Bankers to control the money supply the money supply will just grow and grow and grow as well the level of debt until the point where it crashes you when some people can't repay the debt and then they'll stop lending you hear politicians and journalists saying you know we've we've been living beyond our means we've become dependent on debt we need to reign in our spending and live within our
means um it's not possible in the current system you know the reason why everybody's in debt now is not because they've been recklessly borrowing um we haven't borrowed all this money from you know an army of pensioners who've been saving up their whole lives money in the current system is debt you know it's created when Banks make loans so the only way in the current system that we can have any money in the economy you know the only way we can have money for businesses to trade is if we've borrowed it all from the banks
and it's the very opposite of what the Tory part is arguing today which is that you have to create savings before you can help the National Health Service and it's because economists have completely confused those things both in monetary policy terms but also in economic thinking and because most people still Harbor the the old-fashioned view that you need savings before you can invest that we have the mess that we're in today now one of the reasons why we find it difficult to understand the banking system and credit creation is that we leave school without any
money and we go and get a job working as an apprentice to a plumber we work really hard all month and at the end of the month somebody puts money in our bank and so for us the logic is you work and then you get money you get Savings in reality you would never have got that job if credit hadn't been created in the first instance it's a really important um perceptual misunderstanding and it isn't something that the public just are guilty of economists don't understand this stuff money doesn't come out of economic activity a
lot of people have come across as kind of assume that if you've got people if you got businesses and you got people doing things that somehow money somehow emerges out of the process of people doing things doing economic making things and growing things and selling things and producing things that somehow money just emerges it's not it's like oil in the car you have to put it in when I see David Cameron talking about how um we need an economy not based on debt but we need an Economy based on savings he just doesn't know what
he say it's ridiculous it's absolutely absurd and it shows his complete lack of understanding of how our money system actually works what he's essentially saying is that we need an economy with no money if everyone was saving we'd have mass disappearing of money which is essentially what a bank write off is essentially is people defaulting on their debt which which essentially is just money disappearing but if people weren't taking on the debt then it's just it's just such a joke it's such a amateur understanding of how our economy works and how the monetary system works
and how money is actually created so um I really do get a laugh out of watching what people are actually saying and they're all just regurgitating what they've learned off each other and you just hear the same things and it just makes me it it really gets on my nerves when I hear people talking about um yeah we need more regulations we need to regulate the way banks are actually and the Bon it's all just one big smoke screen and working on all the symptoms of a greater disease which is really you need to look
at the the money system the way money is created and uh if we don't want any debt then we're essentially saying we don't want any money and we want a moneyless economy with the exception of the 3% that's created debt free you know it's a paradox under the current system if you if we as the public go into further debt then that's going to put more money into the economy and we're going to have a boom when you have a boom it's easier to borrow so people get into even more debt and eventually you know
this this cycle continues it gets easier and easier to get into debt until some people get over indebted and then you know they default they can't repay their mortgage that's what happened in you know it happened first in subprime America um and then you know that just brings through a wave of defaults which will Ripple across the entire economy the banks go in solvent then we're into a financial crisis um and then the bank stopped lending and you know the they were excessively lending in the boom and then they sto landing and then that c
makes the recession even worse people lose their jobs and then they become even more dependent on debt just to survive basically you know we have a a system where we have to borrow in order to have an economy we have to be in out to the banks and that that guarantees you know a massive profit for the banks this is the boom bust cycle and I have said before Mr Deputy speaker no return to boom and [Music] Bast net Bank lending must forever [Applause] increase we're paying interest on every single pound even if even if
you think the money belongs to you somebody somewhere is paying interest on that money the banking system has such a huge impact on the world but only because it supplies our nation's money supply we have to protect them we have to subsidize them we have to allow them to continue because the the disaster of of a bank collapse affects us all in a huge way and anyone that says that we shouldn't have bailed out the banks doesn't quite understand the the the nature of our monetary system that's like eliminating a huge chunk of our money
but also bailing out the banks is perpetuating a system which is never going to work anyway so whatever we do we're always going to have this cycle until we separate how money is created and the activities are banking then the banks can do as they wish they're a normal business like everyone else there's a a major Democratic issue here as well I mean you have these private profit-seeking Banks creating up to 200 billion pounds a year and pumping that into the economy wherever they want basically wherever it suits them whether they're pumping it into you
know these toxic D derivatives or putting money into housing bubbles just making housing more expensive 200 billion p in 2007 of new money coming into the economy created out of nothing and where that gets spent determines you know the shape of our economy effectively so if we're going to allow anybody to create new money out nothing then we should at least have some democratic control over how that money is used I mean it would we rather have had that money used for health care you have to deal with some of the environmental issues to reduce
poverty or would we rather have it to make houses more expensive so that none of us can afford to to live in a house you can see it as a subsidy a special super subsidy to the banks for the right to create money which should be for the benefit of the public and spent through a democratic process there's also another form of money which is effectively an electronic version of cash and it's a type of money that the commercial Banks use themselves to make payments between each other the High Street Banks don't want to be
carrying around huge quantities of money because it's dangerous and it's inconvenient and it's you know expensive you have to hire security guards for that type of money so what they do is they pay each other in what is an electronic version of cash um which in the industry is known as Central Bank Reserves um they keep this electronic cash in accounts at the bank of England but as a member of the public you can't access this electronic cash you can't get an account with the bank of England what they do is they they effectively sell
this central bank money to the banks and they do this by creating it out of nothing and using this money to pay for bonds to buy bonds from The High Street Banks so the High Street bank will come along with a bond which is you know effectively government debt and it will give it to the bank of England and in return the bank of England will type some new numbers into the bank's account at the bank of England so effectively they're creating Central Bank Reserves out of nothing the bank of England create Central Bank Reserves
by increasing the available credit in the settlement bank's account with the bank of England the settlement Bank in return posts bonds or sells assets as collateral for the reserves a total of 46 Banks hold Central Reserve Accounts at the bank of England smaller or foreign Banks hold accounts with one of these 46 Banks to allow them to accept or make payments in pounds sterling prior to March 2009 the bank of England would ask each of the major settlement Banks how much Reserve currency they needed the settlement Banks would then swap a bond for the reserve
currency and agree to repurchase the bond for a specific amount at a specified future date the settlement Banks would then receive interest at base or policy rate for the Central Bank Reserves they held since the crisis settlement Bank Central reserves have shot up [Music] dramatically when Bank customers transfer funds from their account to another person's account a process called intraday clearing occurs the amount of central Reserve Currency Bank a has at the bank of England is reduced by the corresponding amount that bank B receives this is the importance of central Reserve currency to Banks before
the credit crisis if a bank was short of central Reserves at the bank of England to meet its obligations then the bank would have to loan reserves from other banks with interest if you sell something on eBay you know that that Deal's not complete until you get some money put into your account you know most people actually want to see the money in their account before they're happy to close on a deal now the banks are pretty much the same but they want to see the money in their account at the bank of England before
they consider a deal complete so for example if you if you're buying a house from somebody who banks with a different bank then what what will happen after you spend quarter of a million on a house is you'll tell your bank to transfer some money to the house sellers bank and what the bank will do is actually instruct the bank of England to move 250,000 from their account at the bank of England to the bank of the house seller and that money will actually move across between the accounts at the bank of England um when
that money's moved across then the banks will consider that that payment has been made you know it's been settled um They Don't Really deal in the kind of money that we have in our accounts they deal in their special money that's can only be used at the Central Bank there are millions of people across the country all transferring money to each other using only a few major banks these Banks can keep a tally on their computer systems and usually many of the movements cancel each other out at the end of the day the five major
Banks areb s Lloyds HSBC Barkley's and Sant andere hold over 85% of all deposits as there are a limited number of banks in the system the central Reserve money can only be moved around them in a closed loop the money is just circulating through this system over and over again and if you think about it a one pound coin could be used to make a billion pounds of payments if it was circulated a billion times and that's effectively the system that you have now is you have a small pool of real money that's just going
round and around the system and it's been used to make a a huge quantity of payments on our behalf just before the crisis there was only 20 billion pounds in the accounts at the central bank if they don't have enough of this central bank money then effectively they can't make payments and if that happens then pretty quickly the entire system seizes up so the bank of England has the responsibility of making sure there's enough of this money in the system the requirements for banks to hold a specific amount of reserves has changed many times since
1947 at that time Banks needed to hold a minimum ratio of 32% of reserves cash or treasury bonds to deposits in 2006 the corridor system was introduced in which banks could set their own Reserve of targets each [Music] month the rules changed again in March 2009 when the bank of England introduced quantitative easing quantitative easing in effect gives settlement Banks the central Reserve currency for free the central Reserve currency is what is referred to as the real money in the fractional Reserve model but the fact is Banks can have as much of this this as
they want and Central Reserve currency itself is a form of fear money which is backed by nothing as a consequence there is no longer a meaningful fractional [Music] Reserve if you look over the history the last 150 years or so you you start off um with the development of of a gold standard that really comes to for in the 1880s 1890s where essentially uh countries Peg themselves to a particular defined value of gold and then they have an agreement to uh fix that value to hold that value and to trade gold amongst themselves to make
sure the balances are all there and also to try and uh restrict or expand or contract um activity in their own economies uh to make sure that the balance that particular fixed price is maintained that disintegrates uh in the well after the first World War this is where the whole thing breaks apart very major dislocation in the international military system at that point not really resolved until you get Brett and woods agreements at the end of the second world war in which everything is pegged to the dollar and the dollar is pegged to the gold
so you kind of one remove from gold backing or saying that there is a definite you know sort of solid commodity money behind the paper money and the credit money that we're all using over here you kind of one remove from it after Hiroshima Tokyo wondered when the next Stam bomb would fall they did not wander [Music] along in 1944 at Breton Woods the US and the UK began to negotiate how to govern the world economy the world monetary system and came up with the World Bank and the IMF and a series of other institutions
designed to manage the Global Currency and there was still a gold stand standard but this gold standard was going to be tied to the dollar all of the world's gold had moved from London to Fort Knox and all of the world's currencies were tied to the dollar this system was designed to manage the sorts of imbalances to avoid credit crunches or for countries credit crunches are known as balance of Trades deficits I.E when they can't pay their bills and their currency collapses the currencies were managed and the system was stable as long as the Americans
played the role of oversight now who knows the great story about how that all came to an end so the quantity of money that was needed to pay for the Vietnam War that's exactly what I was trying to get at oil shocks was another one that meant that the Americans were no longer respecting their role or playing their role governing the monetary system they were inflating the value of their own currency but ostensively it was meant to be tied tied to gold and to every other currency so what did the French do the French were
a little bit worried that President Nixon wasn't entirely honest and they were worried that they were that precisely what we described that Nixon was printing money when he shouldn't have been was going on and they were worried there wasn't enough gold to honor the exchange rate of the French Frank so they sent a gunboat to New York Harbor to ever so politely ask for our gold back please did they get their gold back go on guess they didn't and the Breton Woods system came to an end and this is the point in which we enter
the modern era of the financial system historically money creation was pegged to a commod often gold but today it is pegged to nothing which means there is nothing backing our money this piece of paper is just a piece of paper where does this leave us if money is based on nothing why do we think it has any value sorry still go and exchange it cuz we can still go and exchange it what well somebody else was going to shout great little Latin fact the word for credit comes from belief correct since the collapse of the
dollar gold standard in 1971 and the deregulation of the financial system money creation has grown exponentially the world economic Forum meeting in in DAV at the present time have called on a need for the credit within the economy uh the global economy to be expanded by 100 trillion dollar 100 trillion us doar trillion is 12 kns so 100 trillion if you want to imagine is a one followed by 14 kns they believe this credit expansion will create a boom because there is now more money in the economy with which to make investments it's fascinating that
this the emergence of digital currencies how it's transformed everything really um because it just completely Unleashed private Banks to dominate and create the money system that works for them and works for the people who run private Banks if we want to grow in economy under the current side help we have to have growing debt you can't you know this is something that very very few people really understand especially not the politicians who are managing the economy which is a a scary [Music] thought as the money supply grows more money is available which can be invested
in productive Avenues however it can also be used to gamble and drive up asset prices [Music] inflation is a rise in the general level of prices of goods and services in an economy over a period of time when the general price level rises each unit of currency buys fewer goods and services as the money supply grows and there is more currency available more money is available for investment which can lead to growth but more money is also available for purchases of goods and speculation which leads to inflation essentially inflation is what happens when too much
money is chasing too few goods and services so that there's too much money for the the actual ual output of the economy in the seven years between 2000 and 2007 the money supply doubled and the banks you know the Central Bank the bank of England in this time was under the impression that they had it under control because they were saying you know prices aren't going up that much of course they were only looking at prices in you know in your local Corner Shop they weren't looking at the price of Housing and housing is you
know the biggest expens that most people will make increasing house prices uh it may may make you feel like you're you're becoming wealthier but as your wealth increases the effect is that your children's wealth is actually decreasing so in fact there's no net gain in wealth because your children are going to have to pay even more more when they want to buy a house so in effect there's no there's no kind of net increase they're going to have to earn even more they're going to have to go into even more debt so the rising house
prices do not create additional uh net GDP value to the economy it they they actually what they do is they redistribute wealth uh towards those people who already have houses are wealthier people and remove it from poor people who can't afford to get on the housing ladder so it's another example of a very regressive policy actually to allow house prices to Simply inflate it makes everybody feel kind of like things are going well and people spend more money on other stuff they take Equity out of their houses but it it's not creating new jobs it's
not en enhancing the quality of the economy it's not helping our balance of trade it's not helping the public deficit um it's a it's a zero some game as of August 2011 85.5% of consumer Bank lending was secured as mortgages on dwellings if you have somebody creating money that can only be spent on one thing which is housing then the price of that thing is going to go up between 2000 and 2010 they created over a trillion pounds of new money 500 billion pound just in the 3 years before the crisis that's why house prices
went up the way they were there's nothing you know special about houses it was just all this funny money being pumped into that market if money is spent into the economy into into a lot of money goes into houses for example into mortgages um that's an increase in the amount of money in the economy without a corresponding increase in activity in output in GDP it's non- GDP based um spending uh that's what causes inflation and and and in the UK we've we've had it in Spades we've had you know this massive uh housing boom and
the the main cause for the housing boom in my opinion is the huge amount of speculative credit created by the Banks to go into houses if houses were cheaper um they would be easier to build more there be more of them would be built there would be less huge houses with hardly any people in them London would not be the center of a kind of very rich um speculative orgy where where all the richest people in the world want want to get a property in London because it's seen as a as a great asset you
know houses would be seen as places to live primarily rather than places to invest important thing to think about is if you're a bank and you've got to make a loan you have choices you can you can give that loan to um a small business and you'll know that the risk to you of that loan failing defaulting is actually quite High because that small business the owners of that business have limited liability which means if the business goes bust you as a bank getting nothing back essentially you know that that's it so that's kind of
high risk compared to loaning your money to somebody with some collateral with a house behind them like a mortgage so there's a there's a kind of simple incentive for banks to prefer putting money into housing than into a small business now that's a real problem or if you if you if you widen that out across the whole economy because it means there's an incentive you know to put money into speculative rather than productive investment so again we have to think about how we create a monetary system that is more balanced between those two kinds of
speculative and productive investment the government showing very little uh enormous reluctance to regulate the housing market and to again regulate the amount of money that that Banks put into houses we don't decide who creates credit for what no we leave that to a couple of chaps in a bank to decide basically a bubble occurs when there is very high inflation in the price of a specific good or service over a short period of time the idea of the Tulips and their relevance is that we have Sol the first ever Financial bubble and crash The Craze
for tulips black tulips being a mythical ideal of what somebody could genetically engineer through cultivation after many generations became a Mania in the Netherlands in the 1630s what they didn't realize was that many of the very very rare patterns on tulips were caused by a virus and weren't genetic at all but they traded in them to the extent that tulip bulbs got to the point where they were worth 10 times the average annual salary of a person working in the Netherlands there was a Futures Market in tulip bulbs because obviously you plant them now but
you don't know what's going to come out the ground so we see already 400 years ago that a money system or a financial system is not something that exists in the abstract somewhere out there in the e but something that was to do with States power trade and how they interact with each other unlike tulips which are a disposable luxury houses are both a necessity and a luxury and as such they are ideal as a vehicle for money and bubble creation a dwelling is perhaps the most prized possession of value most people aspire to inflating
house prices in this way allows a nation to expand its money supply without affecting inflation data the additional purchasing power created increases the perceived wealth in relation to other nations and thus it creates relative power it is a way of increasing monetary power without investing in the productive growth of industry but certainly if you look at Britain and America as outstanding examples of this these are countries with very high rates of private home ownership so you've got a good base to try and perform this sort of policy off the back of I think it was
quite deliberate in the case of the US almost explicit as alen Greenspan as head of the Federal Reserve when confronted by a stock market crash at the end of the 1990s quite deliberately slashed interest rates to almost zero everyone can borrow uh very very cheaply in particular it's very easy to borrow against a house because this is an asset and it's potentially something that the bank can say well okay we're not just lending your money secured you actually do have a house and that's great cuz you we can repossess it they won't tell you this
when you take them morgage but they can do this and that bubble is in what fuels expansion such as it is inside the US and inside the UK where something similar takes place for the next decade or so I think it's also a reflection of an underlying weakness of these governments that they they simply lack the will and possibly the ability but I think it more comes down to a will to challenge financial markets to challenge big cap capital and say we're going to do something different now and you're going to have to go along
with it because we've been democratically elected and you lot frankly haven't and we have a mandate to do this and we're going to make this happen just remember it's all part of the plan what are you yapping about you voted for in Holland or in the Netherlands what we had over a period of trying to get independence initially from Spain and trying to raise money to get an army to free themselves was Financial Innovation they innovated public lotteries to get money together they had public subscription this was the idea that led to the idea of
public shares a piece of the action that anybody could invest in that meant that something like 2third of the population was investing in tulip bulbs by the 1630s after Independence these these instruments were applied to financing expansion why was such a small country able to hold its own against so much bigger countries for example Spain and Portugal that had the benefits of their Empires for over a century in respect of the Netherlands why could they compete on what resource basis well they had a more efficient a more involved and a broader-based financial system with these
instruments that they' innovated that allowed them to bring more money to bear at one point than anybody else more quickly incredible but true now inflation can be avoided if the amount of money that goes into the economy um is regulated in a way that it doesn't exceed the actual activity that's happening in the economy now the best way to do that in my opinion is to make sure that money is issued into the economy only for productive investment for productive goods and services so money goes in to help a small business startup which creates jobs
which creates additional purchasing power um which means there's there's no inflation during their history almost all central banks have employed forms of direct credit regulation the central bank would determine desired nominal GDP growth then calculate the necessary amount of credit creation to achieve this and then allocate this credit creation both across the various Banks and type of Banks and across industrial sectors unproductive credit was suppressed thus it was difficult or impossible to obtain Bank credit for large scale purely speculative transactions such as today's large-scale Bank funding to hedge funds the World Bank recognized in a
1993 study that this mechanis M of intervention in credit allocation was at the core of the East Asian economic miracle there's all sorts of things that governments have done in the past uh very successfully in a number of cases and and not often not unsuccessfully in this country but you know the examples that spring to mind like South Korea Japan often in East Asia where governments been quite targeted about how they're going to rebalance the economy and picking sectors and deciding where the investment should take place I think that has to start happening in the
UK because we're in a a demand side recession rather than looking at a crisis of of Supply you you have to have a system where credit is put into productive um Avenues where credit is put into building highspeed rail links where credit is put into um building houses rather than giving people money to inflate the price of of houses so it's it's quite simple really in that way um and uh the current system is simply set up not to do that basically the creation of money by private banks for nonproductive usage causes real inflation and
as such it is a tax on the purchasing power of the medium of exchange the figures for the UK are quite Stark actually that average median real incomes for so that's you know what a bit in the middle uh for most people declined over the last eight years as or they're now in quite sharp decline as we go into the recession I mean the sharpest really since it looks like since about the 1930s put it that way so real incomes are declining Bank created fear currency allows the private Banks to suck wealth from the economy
and over time results in a gradual decrease in the standard of living as people become poorer they become even more dependent on debt and this at a time when efficiency and machination have improved dramatically you know you go back to the 1960s and we were expected to to we were looking forward to an age of leisure what will people what they were talking television programs saying what's people going to do with all their spare time you know and now we've got more people working harder than ever spending more than ever which looks great you know
everyone's spending more everyone says oh yeah you know but if you're not actually benefiting from what you're spending if you're having to spend money on child care costs on commuting costs you know and so forth uh just you know costs that people didn't in the past used to have to pay because you know you could walk to work and you know one member of the family remain was able to to stay at home and be a permanent homaker then you're not actually much you're not actually any better off you know everyone's under and everyone's under
such enormous pressures nowadays you know I am conscious that I say my four nephews and nieces are facing difficult times just going to find themselves having to work you know um very hard just to to keep just to keep a roof over them just to get a roof over there just keep a roof over their head people are getting poorer in real terms is because prices always going up because all this new funny money is being pumped into the system by the Banks and they're creating it all as debt so at the same time as
prices are going up and things are getting more expensive we're getting further and further into debt and you know our our wealth and the return that we get from actually working is getting less and less all the time when you can't deal with poverty when you have a financial system and a money system that distributes money from the poor to the very rich any distribution that you try and do in the opposite direction is um you know it's effectively pissing in the wind you look at issues like you know increasing inequality one obvious way to
tackle inequality is to have say for example a redistributive tax system you know you tax the rich you give some money to the poor you move a bit of money down down the scale um that's all very well but if you completely Overlook the fact that there's another redistributive system which is taking money from the poor and giving it to the rich then you're not really going to tackle this inequality and um the way a debt-based money system works it guarantees that for every pound of money there's going to be a pound of debt and
that debt is typically going to end up with you know the poor uh the sort of lower middle classes those people end up with the debt and they end up paying interest on that money which then goes back to the banking sector and gets distributed to the people working in the city or in Wall Street um and what this what this system does overall is it distributes money from from the poor to the rich essentially distributes money from you know the poorer regions of the UK back to the city of London and it it also
distributes money from all the small businesses you know all the little factories um around the UK and distributes that money back into the financial sector we have a system whereby the activity of actually supplying occurs under the very same roof as the same organization that's responsible for profiting from putting together borrowers and lenders I.E a bank so a bank creates our nation's money supply as well as um making loans uh for profit the government cannot allow the banking system to fail because if it did over 97% of all money would disappear this is why in
the event of a crisis the risk is transferred to the taxpayer but even during normal times Banks receive numerous guarantees and benefits beyond the right to create money Bill by the way I know the Bank of America is a very big bank it happens I've got $32 there myself Just Between Us what Assurance do I have that this money is safe well uh all deposits up to $10,000 are assured or insured by the federal government in Washington that's my guarantee yes have you heard that the federal government is about $280 billion in the [Music] hole
Banks receive large safety nets from the government the taxpayer guarantees £85,000 as Deposit Insurance and the bank of England provides liquidity Insurance in case a bank runs out of Reserve currency someone wrote that a big Investment Bank is like a giant vampire squid wrapped around the face of humanity hypnotizing politicians who throw money at the banks no strings attached no matter what damage is done crashing the planet forcing cuts to things that make life better goodbye schools goodbye playgrounds goodbye jobs the bankers that we bailed out then gave themselves bonuses that were bigger than the
first wave of public spending cuts Britain alone gave the banks more money than it cost to put a man on the moon six times over where did our money go who let the banks get away with it why can vampire squids ever be useful no government yet is brave enough to tame them perhaps they need a plan the spending cuts agenda is an attempt by the government to shift debt from its account to that of the public this is the government's response to the bank bailouts and is necessary in a debt-based monetary system where increased
purchasing power is the result of growing debt and where a diversification of debt provides overall stability and Market confidence policies such as student fee increases and the privatization of Public Services assets and Industry follow the same model the problem we're facing I think is that uh there's been there's this transference from the the public debt to to the private debt which is a which is essentially a way of transferring risk actually away from sort of UK PLC and the government onto the heads of individuals and it's going to be the most vulnerable individuals who are
going to have the most debt uh thus it's a very unprogressive regressive uh policy framework that that the government's embarking on where the risk is moved onto those who are most vulnerable and if there is another Financial shock if there's an oil shock for example the people who will pay the penalty are those are the poorest people in society or homeowners for example who will fall into negative equity if interest rates go up even 1 or 2% uh there'll be real really big problem problems so I don't think it's a a sensible Way Forward at
the moment at all and it's uh it's regressive and it's certainly not fair uh in the terms that um that the government's talking about and it's certainly not a case of we're in this together as more of a country's resources and industries are privatized the private sector takes on more debt as a result more money is created and there is a boom some private Equity companies have taken this Theory to the stream engaging in a practice known as a leveraged buyout where a company is purchased at an often inflated price and the purchase price is
transferred to the business as a debt the company becomes responsible for the funding of its own purchase these debts are often so great that the company needs to reduce staff salaries and research activities when you have to factor interest as a business if you have to factor interest repayment into your goods and services then you have to charge a perpetually higher price as you take on more and more debt an increase in the diversification of debt results in an increase in the money supply when the money supply increases more money is available for productive activities
and consumption which is the condition for a boom it's questionable whether we're going to get out of this recession or whether we'll just keep keep ticking along the way that we are now um however if we do then when we come out of this recession when growth starts again look at what happens to debt it will rise and it will keep rising and the faster the economy is growing the faster the debt will rise and then give it another 3 to 5 years we'll be back where we were you know the debt will become too
much people will start defaulting again um it's kind of the system that we're locked into now is we can't we can't grow the economy without growing the debt and the debt is the very thing that will bring down the economy the only option going forwards is to reform it to stop Banks from creating money as debt by fixing the monetary system we can prevent the banks from ever causing another financial crisis and we can also make the the current you know Public Service cuts and the tax Rises and the increase in national debt unnecessary the
current monetary system allows the banking sector to extract wealth from the economy whilst providing nothing productive in return I mean why is it that we've got all this technology um you know all this new efficiency and yet it now requires two people to finance a household whereas in the 50s it only needed one person working and the reason for that is not because you know these washing machines and everything are more expensive it's because of all the debt and it's because you know effectively the banking sector is creaming It Off from everybody else so a
growing banking sector isn't a sign you know it's not a good thing if the banking sector is growing it's either that it's becoming less efficient or it's becoming a parasite on the rest of the economy and that's you know we can talk about the banking sector becoming 4% 5% 6% of GDP what's happening to the rest of the economy it's becoming 96 95 94% of GDP we've got to get switched on to this now you know if we want to if we want to have a chance of tackling any of the other big social issues
you've got to figure out the money issue the poorest in the world pay for crisis even when they've not benefited from the um the the often re Reckless and speculative booms like the housing boom in in Ireland that preceded um that crisis you know over the last 30 years we've seen um income differentials increase so that the rich have got much much richer um and Ordinary People haven't they've stayed the same or they've they've got poorer uh and one of the ways that the economy was kept going was by providing cheap credit was by providing
debt to those very people who couldn't really afford things anymore um so they kept buying um and when it collapses it's those same people that that have to pay once again even though in in many ways they were the victims the first time around as a result of the crisis the bank of England has bought corporate debt and repackaged it at lower rates of Interest yet the average person is being asked to pay more than ever to borrow an overdrafts and credit cards depths between the very wealthy um or between governments can always be renegotiated
and always have been throughout world history there are not anything set in stone it's generally speaking when you have debts owed by the poor to the rich that suddenly debts become a sacred obligation more important than anything else um the idea of renegotiating them becomes Unthinkable can you pin down exactly what would keep investors happy make them feel more confident uh that's a tough one um personally uh it doesn't matter that that's I'm a Trader uh I don't really care about that c who you B in if I see an opportunity to make money I
go with that um so for most Traders we don't really care that much how they're going to fix the how they're going to fix the economy and how they're going to fix the uh the whole situation our job is to make money from it and personally I've been dreaming at this moment for 3 years if you know what to do you can make a lot of money from this I I had a confession which is uh I go to bed every night I dream of another recession I dream of another Moment Like This I dream
of another recession I dream of another Moment Like This you can make a lot of money from this Bruno Virginia hurt somebody real bad you are a hater way in which you can look across Europe now and see that the new prime minister of Greece Not Elected essentially po Papa deos former employee of Goldman Sachs the new prime minister and Finance Minister of Italy Maria Monte former employee of Goldman Sachs the new president of the European Central Bank former employee of Goldman Sachs it's quite you know you kind of see these people popping up absolutely
everywhere that's the way to change what we have take all power and all freedoms away from the people and collect everything into the hands of one small group with absolute power from the people without the people against the people what's been interesting out of all this I suppose is the question of democracy that's been opened up very starkly in Europe that that you have a government of Bankers essentially imposed on you it's Bankers who more or less got us into this mess to put it rather crudely but that's a good first approximation to it and
then you say okay Bankers are the people who therefore going to get us out of it and instantly they're going to run your your country now there there's a serious question democracy that's opened up here by the way the banking crisis drove more than 100 million people back into poverty the mortality statistics of people who go into poverty rise hugely for a whole range of reasons so the banking crisis isn't just about becoming poorer it was about killing people as well and guess what we haven't really got to the bottom of it we never held
anybody to account and we haven't done the radical reforming job that we really needed to do because we mistakenly thought if we destabilize the position any further it'll make matters worse and guess you took the decisions all the people who were there in the first place I think you ought to know that the business of one of these businessmen is murder their weapons are modern they thinking 2,000 years out of date look I was there when the secretary and the uh chairman of Federal Reserve came those days and talked with members of Congress about what
was going on it was about September 15th here's the facts and we don't even talk about these things on Thursday at about 11:00 in the morning the Federal Reserve noticed a tremendous draw down of uh uh uh money market accounts in the United States to the tune of 5 50 billion was being D drawn out in a matter of an hour or two the treasury opened up its uh uh window to help they pumped $ 105 billion dollar in the system and quickly realized that they could not stem the tide we were having an electronic
run on the banks they decided to close the operation close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further Panic out there and that's what actually happened if they had not done that their estimation was that by 2:00 that afternoon $5.5 trillion dollar would have been drawn out of the money market system of the United States would have collapsed the entire economy of the United States and within 24 hours the world economy would have [Music] collapsed when money is withdrawn internationally from one currency to another the reserve
currency shifts from the National Bank of one country to the reserve account of the foreign Bank foreign banks have relationships with local banks that allow them to hold foreign Reserve currencies whilst not being a part of the Central Bank scheme at the local Central Bank for example when £1,000 is transferred into Euros a UK bank will agree an exchange rate with a Euro Area Bank perhaps € 1.15 to the pound the UK bank will then transfer £1,000 of the central Reserve currency to the UK partner Bank of the European Bank whilst the European bank will
transfer € 1,150 of Reserve currency to the European partner Bank of the UK bank what happened happens when currencies and the exchange rate system is no longer managed what are some of the first consequences devaluations speculation imbalance imbalances where some countries would acrew more and more and more what what would they acrew other currencies other currencies the reserve currency needs to be spent in the country of origin or exchanged into other currencies most most foreign Banks do not have deposit taking accounts outside of their National borders and as such the foreign reserves they hold do
not come back to them in the form of deposits when a country accumulates trade imbalances it either accumulates foreign Reserve currencies in the case of surplus or spends its own reserves in the case of negative trade balances balance of trade is is basically uh the difference between what you're selling abroad and what you're buying from abroad now the feature on the the UK is that for a very long period of time it's had a deficit on something called visible balance of trade which is trading things about things that you can see so that is Goods
that you'd recognize stuff you can put in containers it's cars computers things that you'd see in a shop that's been in substantial deficit for I think it opened up in in the uh it did open up in the early 1980s and essentially it hasn't it hasn't gone away since if anything has got wider and wider foreign exchange reserves cannot be directly used for domestic spending the money can only be spent abroad or on Imports a country with a large balance of trade deficit relies on its creditors to spend the imbalances acred in its own Market
I mean there have been proposals in the past to try and create a mechanism uh for those imbalances to to match up so KES for instance John mayard KES uh at the end of the second world war his original proposal for what became Breton woods and the set of Institutions setled there like the IMF and the World Bank was that there will be a kind of international clearing Union uh this is particularly relating to to the trade side rather than the sort of the financial side directly but the principle was that you know once trade
balances had opened up everybody would Bank through an international clearing Bank uh and that would kind of force everyone to to eventually reconcile uh the imbalances that appeared in the real economy but no such mechanism exists the accumulated net trade imbalance for the UK is around 800 billion in essence what has happened is that over many years some countries have had big trade surpluses and others big trade deficits the countries with trade deficits have been spending more than they've been earning so they've had to borrow from abroad and they've been doing this year after year
countries like that of the United States ourselves and some other countries in Europe that cannot go on and there are two ways in which this can come to an end either and we're seeing this in some other countries in Europe if they can't find new ways to become competitive then their ability to repay the debts is called into question another way of doing it which we followed is that we got a credible plan to repay our debts and the value of sterling has fallen by 25% to make our exports more competitive and attractive to overseas
buyers and it to be more attractive for British consumers to buy from British producers rather than overseas producers that is what we have done to put in place a framework to rebalance our economy and I'm sure that's the right way to do it currency War also known as comp competitive devaluation is a condition where countries compete against each other to achieve a relatively low exchange rate for their currency as the price to buy a particular currency Falls so too does the real price of exports from that country domestic industry receives a boost in demand both
at home and abroad it's made British exports appear rather cheaper so they've kind of recovered a little bit but because the rest of the world is now looking really quite ropey they' started to fall back down again so what we're looking at is something that that almost kind of Anarchy and in a way the increasing Anarchy this is what's happened over the last few years where you the Brazilian Finance Minister has been most vocal about this uh talking about currency Wars talking about the desire of national governments when confronted by a major recession they think
if we could export more we could dig ourselves out of this recession if we want to export more we depreciate our currency that makes H Goods cheaper everyone else buys them we'll all be better off now the issue here is that if you depreciate it's like everybody else appreciation against you their stuff becomes more expensive so they're not too happy about that they also want to depreciate and this is where you can see a competitive round of devaluations breaking out to decrease the value of its National currency a national Central Bank sells Reserve currency into
the market it creates this currency out of nothing by typing numbers into a computer [Music] during the long phase of commodity money the exchange rate would depend on the amount of gold silver or copper contained in the coins of each country similarly after the Advent of paper money and the gold standard the exchange rate depended on the amount of gold the government promised to pay the holder of the bank notes these amounts did not vary greatly in the short term and as such exchange rates between currencies were relatively stable after the second world war currencies
were pegged to the dollar and the dollar was backed by gold this system came to an end in 1971 so we have a modern Financial system where money is now chaotically organized there is no exchange rate because there's no gold standard system to sustain so we don't need it in fact we believe the market will resolve all of the problems of exchange whether your currency should be worth more than mine is a reflection of your economy relative to mine and if that changes the currency and the exchange rate can change and if we need that
to happen it'll happen magically by the efficiency of market and profit seeking and you guys know the rest I think a currency's value in relation to another currency is determined by the market if more people want to buy a currency than sell it its value increases if more people want to sell its value decreases the value is set by individual Banks as they buy and sell currencies they will adjust the exchange rate in the last study I read in 2007 each day on currency markets $3.2 trillion are traded each day who knows what the global
GDP is 50 again Brucey higher 60 that's closer the point is think about that exchange happening every single day there's about 260 business days a year it takes a few weeks to match the global value of every economic transaction that happens everywhere every day in a year and it takes a few weeks obviously all of us Trade Currency fairly fairly regular if you go abroad you exchange into another currency that's a form of currency trading you're swapping your pounds into whatever Euros or Yen or whatever it might be that happens fairly regularly and that's a
conventional part of of the trading process now large corporations have to do this or on a regular basis where it becomes something that people question um where you get people saying well hang on this is speculation is when you get people realizing that currency move around next to each other and if they move around in value next to each other there's always an opportunity to try and make money out of those changes in value and therefore you can speculate on it and that's that's the more sort of questionable end of the market that's the bit
of the market that things like a financial transactions tax would try and chop away at because the the Assumption there and it's it's kind of not incorrect is that this just produces instability for everyone else that these people want volatility in the market because that's how they make their money they want to encourage it and they do encourage it by uh trading and speculating in the way that they do by 2010 the Foreign Exchange Market had grown to be the largest and most liquid Market in the world with an average of $4 trillion of currency
being exchanged every day volatility creates a need what does it do to countries especially perhaps small ones like developing countries if there are suddenly huge and instantly fluctuating Financial flows what do they have to do to cope production of the prodcts that they're selling on the increase their production and sell moreing price lowering the price and becom possibly even Po and becoming possibly even poor once you start talking about the International System it it becomes really quite a peculiar uh quite peculiar thing in that a lot of it depends on simply sentiment and beliefs about
what an economy is like rather more than depends on anything the might or might not actually be doing and that can shift very very rapidly because you know if if it's just somebody's belief about a currency is supportable uh then you know they can carry On Believing this until well till whatever if that belief changes and can change very rapidly in a financial Market the process of financial contagion can can take place you know in just minute seconds even that you can just move from being apparently quiet uh a stable robust uh economy to being
one that suddenly sentiment has turned against you you and you find that markets are picking on you and it can often be not much more than you're simply a nextdoor neighbor of uh you know a country that's currently in trouble many of the world's Financial crises in the past 30 years have been caused by rapid withdrawals of the nation's currency or the currencies of an entire region this type of activity is often referred to as Financial Warfare It's benefited uh major institutions really quite substantially Goldman Sachs yeah for example or any large bank has done
somewhat better out of this set of Arrangements than it would have done in a far more regulated environment it's made people very very wealthy it's allowed financial markets to expand absolutely enormously anybody involved in that is Keen on seeing a deregulated world in the case of the UK you have a government which has been quite averly and deliberately and aggressively arguing against any forms of Regulation being imposed on those financial markets but it's not the case that someone's behind the scenes pulling the strings it's it's that this is this is how the thing works quite
deliberately quite you know averly in front of you that's the world as it is it's making some people very rich they're quite happy with it I think it is a form of economic Warfare um much of the the change in in the way that the global economy works over the last 30 years result from this this debt this third world debt because it's given rich countries and Banks and the financial sector enormous amounts of power and control over the poorer bits of the world where a lot of the resources are that we like using and
um that's been used in a way that many people have compared to a form of colonialism I it's a very real direct form of of power that's been used over those countries to force those countries to do what are really in the interests of the richest segments of the world that they do and as a result of that um not only have corporations become absolutely uh in very you know made huge amounts of profits and become absolutely enormous and and um and all pervasive um but the financial sector has become even bigger than that and
the and the real money in in the world uh to be made today is not by producing anything at all it's simply by forms of speculating basically making money from money uh that's the most profitable and and by far in a way um the the biggest form of of of activity of economic activity that exists in the world today to protect themselves vulnerable countries need to acrew currency from rich countries who create these currencies out of nothing the Netherlands first governor general of Indonesia the man who built the trade routes fortified them what I mean
by that is built forts along them and fought Spanish fleets and British fleets said about the development of the SP of the of the the Netherlands Empire and Netherlands trade was we cannot make trade without War nor War without trade money and power so reserves have become the way in which you can ensure yourself against what speculation who you said speculation speculative attack fall in the market Fall in the market bubbles when a country succumbs to a speculative attack it is asked to deregulate its markets and conform its Financial system to that of the dominant
party the big problem that's faced by most developing countries who got into a debt crisis uh was that they were told by the powers that be in the world the international monetary fund um which is in many ways governs the the the Global Financial system that the way to get out of debt actually is first of all to to um restructure your economy especially to increase your exports so you're earning more more um dollars and then you can pay off your your debt which is normally in dollars or some other uh foreign currency um unfortunately
time and time again that was proved to to not be the case at all actually countries cut back their public spending to the Bone so they stopped growing they stopped having any potential um for growth um and what they did produce was was um was aimed at the export Market was aimed at creating dollars and so on so they were paying off their debts but they weren't uh developing their own economy at all they were paying far far far more in debt repayments than they were spending on health or education or anything else and their
debts just kept getting bigger and bigger and bigger the country becomes a vassel state allowing large corporations to exploit its natural resources and Workforce it's not it's not even shadowy you see there's no great mystery about about what what's happening here and about the way the world operates it's like it's it's quite blunt I mean for for the last 30 years you've got something pretty much everywhere well certainly spreads pretty much everywhere that generally gets labeled neoliberalism this idea that you should have floating exchange rates you know weak regulation particular financial markets minimal government interference
or involvement with what Market does and that's that's more or less how the world operates and then there are institutions and the outstanding one at this point is the IMF that that will actively try and enforce this state of affairs so it's it's not great Shadow if you see what I mean that that there are people behind the scenes somewhere trying to manipulate stuff is actually this is quite this is quite a vert this this is happening and this is how uh for entire my entire adult life actually is what it starts to look like
this is how the world world has operated and it's made some people very very wealthy it's produced enormous concentrations of wealth so when the international monetary fund comes in in order to try and uh alleviate a country's um debt problems it imposes a set of conditions and in the 1980s and '90s they call that set of conditions structural adjustment structural adjustment program and it tends to take very similar forms wherever it happens and indeed we can see structural adjustment programs in essence happening today in countries like Greece and Portugal and Ireland um where countries are
instructed to uh decrease the amount that they spend on the public sector um they are instructed to liberalize their their uh trade market and liberalize their um Capital Market so money can much more easily come in and out of their economy and the idea is that this will encourage investment to come in from richer parts of the world and that all of their problems will be solved from this investment and in actual fact this has proved um time and time again to be um completely without foundation in actual fact what happens is it destroys fledgling
Industries and capacities in these developing countries and developing countries become completely dependent on goods and services from developed countries and also from capital from developed countries uh one of the things the international monetary fund is very is very um keen on is um telling countries to lower the taxes um that should be paid by multinational corporations when they come and operate in a country because then you'll encourage more multinational corporations to come in of course what it also means is the profits that are made by those multinational corporations leave the country just as quickly and
the country itself doesn't benefit and today you have many developing countries which have got um almost no tax base um they've not developed a tax base at all and so they're even more dependent on International Capital markets on the money markets on creating debt um and that's why you have so many countries in the world that have really been robbed of their sovereignty it's very difficult to see how Democratic societies can evolve or function when actually a government is more dependent on the dictat of the international monetary fund and the money markets then it is
on their own people what we've seen since the 1970s is a dramatic increase in a series of phenomena that have had a Ser a stimulative effect on the changes in the financial system that have brought us to the gleaming shining metal and steel business that's over there in case you don't know that's the city of London I'm pointing out to compensate for the lack of a defined commodity-based value underlying currencies financial institutions developed securitization as a means to manage risk you know you velop securitization as a means to try and stabilize the whole system this
is a set of financial processes and financial innovations that really Accelerate from the '70s 80s onwards you had a chaotic system that needed to manage risk and you had to innovate you needed derivatives options Futures you have new markets in volatility management tools who knows what the term hedging is spreading your risk spreading your risk managing your risk ensuring against your risk precisely up until very recently you know up until the 1960s the Securities and Exchange Commission would be quite clear that you know derivatives that weren't based on real products like agricultural products so pork
belly futures or whatever would in fact be essentially kind of gambling and therefore you weren't allowed to trade them that that changes in the 60s and everybody can trade you know uh currency Futures things that are not based on real products being traded at some point in the future but are based on movements of currency prices once you have the system of fixed exchange rates breaks down obviously this thing accelerates enormously so as you get the roll back of government regulation here you get the market taking over with its own products here and the theory
is that the Market's better at regulating itself it's more stable than if you have a government interfering all the time the efficient markets hypothesis the idea that you know you set up a financial Market they're fast everybody in them is well informed they all keep a very careful eye on what everyone else is doing it will therefore uh be very stable and it reflects real changes in the economy it's not going to be driven by you know panics and Manas and speculative bubbles none that's really going to happen if if there is movement up and
down it's because something real is happening and Traders and investors in financial Market responding to it that's the efficient markets hypothesis the practice I think what you see in 2008 is the kind of end of that process the appearance of this crisis so major that the belief that it will simply be self-stabilizing self-regulating really can't carry on I mean the practice Carries On anyway but you can't really argue in the same way you used to that it's good or it's necessary or this is okay for the [Music] world in the last decade we had a
new innovation something called a credit default swap a way of buying insurance against a company you've invested in going bust and in 2002 they were less worth in total less than a trillion dollars in 2017 they were worth $60 trillion that's 5 years everybody's suddenly sitting there and thinking oh these cdos we've made uh don't in fact provide the kind of stability that we thought the maths that's inside of the is is complete nonsense it turns out uh there's far more risk attached to um trying to securitize risk and securitize debt in the way that
we have done this than we thought and we think these things are now worthless the attempt to get more and more complex ways of regulating and shaping a financial market and trying to make a quick book out of it as well actually helped produce the uh the opposite effect of what its kind of apologist said which is it led to led to a spectacular crash what we saw as a result of this very different situation was one phenomenon above all one sector above all grew and that was the financial sector while the financial sector benit
benefits enormously from the current monetary system the system is neither stable nor fair the Assumption in what the bank of England does right now is that the cash that we hold is backed up by government debt the government can back up as Promises by the fact that it can tax the public so what they're implying is that cash is backed up by government debt When government debt is backed up by the ability of government to get cash from the public time and time again over the last 30 years we've seen uh private debts being transformed
into into public debts and um the ultimately the price of that debt is paid by uh by the public in the in the data country this is why spending cuts are necessary the system is designed to make certain people very rich at the expense of a nation's citizens and taxpayers the system lowers the standard of living of the majority and distributes the wealth among the privileged so what we're left with is a financial System since the early '70s that has no fixed exchange rates that suddenly has increasingly open Financial borders that has central banks having
to manage without having any control because there's nothing here where the gold used to be chaotically they have to ease quantitatively they have to lend as a lender of Last Resort throughout history monetary systems were designed to give the dominant international power an advantage and this power is fiercely defended and expanded on what I would like to see is um a a new kind of currency that is backed by something that that is scarce and that we really need and we really value something like energy or renewable energy for example so a sort of kilowatt
hour backed currency would be would be very interesting to me we need to start valuing the things that are most scarce um and and that we need to survive as a human race in the long run and backing an international currency with something like that will generate enormous investment in for example renewable energy if that's the you know the primary International um unit of account that's that's that's being used uh another option is is a basket of of currencies so you you know you you mix up the value of of of different currencies um to
to create a very solid currency that people have confidence in perhaps even better would be a basket of Commodities with which to back up International currencies no if it was possible internationally some way or another to get all these competing and increasingly competing National economies together and say uh we're all going to sit down and write out an agreement somewhat like the Bret and woods agreement which will allow for unlike Bret and woods allow for you know some currencies to to be pegged against different baset and goods that are more appropriate to to their National
economies and you can sort of arrange this if you could arrange that to happen then that would be nice and you can see how that would start to create a kind of order in the international macro economy which is otherwise lacking the real difficulty there is just political is like who on Earth is going to do this who who is the force that's going to kind of make this thing happen creating a monetary system which is both fair and stable is possible and can be achieved what are international organizations for if not for such a
purpose this is George George worked in a big Bank in the city of London but one day without warning George's bank went bust luckily the government rescued the bank and George kept his job but the greedy government wanted something in return for their help they demanded a higher tax on George's salary and bonus for someone with a high cost lifestyle like George a shock like this can be devastating now George struggles to afford the rent on his Riverside apartment in central London the tires on his Aston Martin are wearing thin and a barely road legal
unless George's situation improves or unless someone like you helps him and George may even be forced to walk past the next several Road tailers and buy his suit from Top Shop or next even if George had anything to celebrate he can no longer afford the champagne to celebrate with George is not alone countless others are suffering like him and no one knows how long it'll be until the good times [Music] return but with your help George can turn his life around a simp monthly donation from you can bring a bit of sunshine back to George's
life just £395 will help him celebrate minor achievements with a magnum of Crystal champagne as little as £900 will help George buy a new set of tires for ason Martin £2,000 can help George recover his self-esteem with a suit from a prestigious saval Road Tor but even a small amount will help just £200 will buy a meal for George and his girlfriend experience just £200 extra will buy the drinks by adopting a banker you won't just be supporting someone like George in a time of need you'll also be supporting the trendy wine bars of the
city of London the luxury car makers of Italy and the tailor of savil R you'll be doing your patriotic duty to support Britain's greatest industry in its time of need and when the good times return George gets his bonus back the taxes he pays will help fund the public services that the rest of you scers depend on so please until the good times return for George and those like him will you give today [Music]
