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

How is money created? Where does it come from? Who benefits?
And what purpose does it serve? What is a money system? What is the money
behind the money system? For centuries the mechanics
of the money system have remained hidden
from the prying eyes of the populace. Yet its impact,
both on a national and international level, is perhaps unsurpassed, for it is the monetary system
that provides the foundations for international dominance
and national control. Today, as these very foundations
are being shaken by crises, the need for open and honest dialogue
on the future of the monetary system has never been greater. This economic crisis is like a cancer. If you just wait and wait,
thinking this is going to go away, just like a cancer it’s going to grow,
and it will be too late. What
I would say to everybody is, get prepared.+ This is not a time right now
for wishful thinking that the government
will sort things out. The governments don’t rule the world:
Goldman Sachs rules the world. “We’re on the verge of a perfect storm”. In opposition lie corrupt
and entrenched interests that lurk in the corridors of power, for whom there are no reasons to relinquish privileges that they feel are justly deserved. -Has he got a reform plan
for the NHS?
-No! -Has he got a police reform plan?
-No! -Has he got a plan to cut the deficit?
-No! Order! Misorder! Order! Do you trust the government? Try to calm down and behave like an adult,
and if you can’t, if it’s beyond you, leave the chamber. Get out.
We’ll manage without you! “This is the banking fraternities feeding station. There’s no coincidence
that boom and bust started to become a real cyclical issue
round about the 1700s, when William Paterson founded
the Bank of England. This is intolerable behaviour
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. One Solution, Revolution! The system is inherently unstable
as a result of the international power it provides to the dominant parties, for at the heart of it lies the idea of
“how can I get something for nothing?” Statistical analysis has found that every time an empire begins
to near its own demise, you’ll find
that its currency will be debased. There is no guide
to how this whole system operates. To give you an example,
a researcher at the BBC working on a Robert Peston documentary went to the Bank of England and said, “Can you give me a guide
to how money is created?” And they just said “No”. This documentary
will investigate and explain this ever changing system, and the impact it has both
on a national and international level. 97% Owned How is money created? Notes and coins In 2010 the total UK money supply
stood at 2.15 trillion pounds. 2.6 % of this total was physical cash,
53.5 billion. The rest, 2.1 trillion, or 97.4% of the total money supply,
was commercial bank money. The 3% of money is created
through the Central Bank and that money essentially,
if you created a £10 note you could sell that to a bank
to put into their ATM and the bank would have
to repay that £10 or buy it for £10. There would be no interest charged
on that money, but that money is then essentially
transferred to the Treasury and it’s a form of fundraising for the government. It’s called seigniorage. Seigniorage: Profit made
by a government by issuing currency. The difference between
the face value of notes and coins, and their production costs. When the Bank Of England
creates a £10 note, it costs it about 3 or 4 pence
to actually print that note and it sells it to a high street banks
at face value, so for £10 and the profit,
the difference between printing the note and actually selling it
for £10 goes directly to the treasury. So, in effect all the profit
that we get on creating physical money, bank notes,
goes to the Treasury, and it reduces
how much taxes we have to pay. Over the last 10 years,
that’s raised about £18 billion. In 1948 notes and coins constituted 17% of
the total money supply. This was one contributing factor in the government’s ability
to finance post-war reconstruction. This included
the establishment of the NHS. In only 60 years notes
and coins have shrunk to less than 3%. Prior to 1844,
bank notes were created by private banks and the government
did not profit from their creation. Pre-industrialisation there was
multiple forms of money co-existing, and so the rise
of government-sponsored fiat money is a relatively recent phenomenon. In the 1840s there was no law to stop banks
from creating their own bank notes. So they used to issue paper notes as kind of a representative
of what you had in the bank account. Instead of you taking
your heavy metal coins out of the bank and then going
and paying somebody with them, you could get your paper which said
how much money you had in the bank and you could give that to somebody and they could use that to go and get
the heavy metal coins from the bank. Now over time these paper notes
became as good as money. People would use paper notes instead
of getting real money from the bank and obviously as soon as the banks realised
that what they were creating had become the dominant type of money
in the economy, they realised that by creating more
of it they could generate profits. They can just print up some new notes, lend it and get the interest
on top of them. And they did that up until the 1840s. In the1840s they pushed it
just a little bit too far and that caused inflation,
destabilised the economy. So in 1844, the Conservative Government of Robert Peel
actually passed a law that took the power to create money
away from the commercial banks and brought it back to the state. So since then the Bank of England
has been the only organisation authorised to create paper notes. Since then everything has gone digital
and what we now use as money is the digital numbers that commercial banks
can create out of nothing. The problem was that they did not include
in that legislation the deposits, the demand deposits, held in banks
by individuals or electronic forms of money which essentially is
what those deposits are. Today most of the money
in circulation is electronic money, it’s bank demand deposits
that sit in our accounts. So in a way the legislation’s got
to catch up with the developments in electronic money
and the way that banks actually operate. Money held in bank accounts
are called demand deposits. This is an accounting term the banks
use when they create credit. Banks follow the same process
when they create loans. All money held in bank accounts
is an accounting entry. Commercial bank money The reality is now that most money
is not paper and it’s not metal coins. It’s digital.
It’s just numbers in a computer system. It’s your Visa debit card.
It’s your electronic ATM card. It’s this: plastic. It’s numbers in a computer system, you move money
from one computer system to another. It’s all a big database
and this digital money is what we are now using
to make payments with. It’s what we actually use
to run the economy. I think a lot of people in the UK probably think that the government
or the central bank is in control of most money in circulation
and issues new money into circulation, but that’s not the case. It’s private banks that create
the vast majority of new money in circulation and also decide how it’s allocated. The official terminology for this accounting
entry is commercial bank money. When banks issue loans to the public,
they create new commercial bank money. When a customer repays a loan,
commercial bank money is destroyed. The banks keep the interest as profit. There’re a lot of misconceptions
about the way banks work. There was a poll done by the Cobden Centre where they asked people
how they thought banks actually operated. Around 30% of the public think
that when you put your money into the bank it just stays there and it’s safe, and you can understand why
because every child has a piggy bank where you keep putting money in and when it’s a rainy day you smash it
and you take that money out and spend it. So a lot of people keep
this idea that banking it’s somewhere safe to keep your money
so that it’s there for whenever you need it. The other 60% of people assume
that when you put your money in, that money is then being moved across
to somebody who wants to borrow it. So you have a pensioner
who keeps saving money her entire life and then her life savings have been lent to some young people
who want to buy a house. But actually banks don’t work like that. “It’s basically an accounting trick.
Banks create money. They don’t lend it. When a bank gives out
what is called a loan, it basically pretends
that you have deposited the money. It has to invent the liability… This is how the money supply is created”.
(Professor Richard Werner) At the moment in the UK
money creation and control is largely in the hands of private banks. About 97 to 98% of money that’s created, is created as bank “debt money”,
you could call it, when banks issue money into circulation
as loans, essentially. This is a very poorly understood fact. It’s not a conspiracy theory,
it’s not a crackpot theory, it’s the way the Bank of England
describes the process. When banks make loans
they create new money. “by far the largest role in creating money is played
by the banking sector. When banks make loans
they create additional deposits for those that have borrowed the money”. (Paul Tucker – Deputy Governor
of the Bank of England) A few economists will realise
the way the money system works but if you don’t realise the way
that money works and you think that everybody saving is going
to work well for the economy, what really happens once you understand
the way the money system works, is that if everybody starts saving the amount of money in the economy shrinks
and we have a recession. Most economists don’t have this full picture, they don’t understand
all the elements of the system. They rely on assumptions,
on received knowledge without actually going into the details and money is the centre of the economy. If you don’t understand where it comes from, who creates it and when it gets created, then how can you understand
the entire economy? When the vast majority
of money that we use now is not cash but electronic money, then whoever’s creating the electronic money is getting the proceeds of creating that money, and obviously creating electronic money is
much more profitable than creating cash because you don’t have
any production cost at all. So while we’ve got £18 billion
over the course of the decade in profit from creating cash, the banks have actually
created £1.2 trillion. Between 1998 and 2007
the UK money supply tripled. £1.2 trillion was created by banks, whilst £18 billion was created
by the Treasury. A lot of people think when I say,
this or when you say this, or when Positive Money say this,
that we are all a bunch of nutters. But on the 9th of March in 2009, the governor of the Federal Reserve,
Ben Bernanke, gave the first ever broadcast interview
the Governor of the Central Bank of the United States of America
had ever given. The day before that he had bailed out AIG, which is an insurance company,
not even a bank, to the tune of about US$160 billion. So the journalist says to him: “Now Mr. Bernanke, where did you get
$160 billion to bail out AIG?” Is that tax money
that the Fed is spending? It’s not tax money.
The banks have accounts with the Fed, much the same way that you have
an account in a commercial bank. So to lend to a bank
we simply use the computer to mark up the size of the account
they have with the Fed. So it’s much more akin,
although not exactly the same, to printing money than it is to borrowing. Banks create new money whenever
they extend credit, buy existing assets, or make payments on their own account, which mostly involves
expanding their assets. When a bank buys securities,
such as a corporate or government bond it adds the bond to its assets
and increases the company’s bank deposits by the corresponding amount. New commercial bank money
enters circulation when people spend the credit
that has been granted to them by banks. I found that talking on the doorstep from August 2009
around to the general election, eight or nine months, I suppose,
knocking on doors, is that when we tried
to explain how the money system works, there’s an almost in-built refusal
of people to accept that such a bizarre situation
could actually exist. “Ah no, it can’t possibly. What do you mean? Banks don’t create money out of thin air. That’s ridiculous. They can’t do that.
They lend out their depositors’ money.” Most people have an idea of how money is. They are used to their own way
of handling money and they try and implement their own idea of how their small household economy works into the national economy. And of course
it just doesn’t work out at all. By 2008 the outstanding loan portfolio
of bank-created credit, also known as commercial bank money,
stood at over 2 trillion. As recently as 1982 the ratio of notes
and coins to bank deposits was 1:12. By 2010 the ratio had risen to 1:37. That is, for every pound
of Treasury-created money, there were 37 pounds of bank-created money. In the 10 years prior to the 2007 crisis, the UK commercial bank money
supply expanded by between 7 to 10% every year. A growth rate of 7% is the equivalent of doubling the money supply
every 10 years. The amount of money they’re creating
out of nothing is just incredible, 1.2 trillion in the last 10 years. That money is being distributed according
to the priorities of the banking sector, not the priorities of society. The banking sector itself grew from 1980 $2.5 trillion
to $40 trillion by assets. In 1980, global bank assets were worth
20 times the then global economy. By 2006 they were worth 75 times,
according to the UN. As the following chart shows, total bank assets
of UK banks as a percentage of GDP remained relatively stable at 50-60%
up to the end of the 1960s. After that they shot up dramatically. And the real money in the world to be made today
is not by producing anything at all. It’s simply by forms of speculating,
basically making money from money. That’s the most profitable
and by far and away, the biggest form of economic activity
that exists in the world today. Today, banks are no longer restricted
by how much they can lend, and as such, how much new credit
they can create out of nothing. They are restricted solely
by their own willingness to lend. The issue with allowing banks
to create money, there’s two main issues. Firstly, the fact that they create
this money when they make loans, so it guarantees that we have
to borrow all our money for the economy from the banks. As such,
to have a healthy growing economy, the government needs
to put in place strategies to allow for ever-increasing debt. The only way the government can create
additional purchasing power is by getting itself
and us into more debt. The second big issue
with allowing the banks to create money is that they have the incentive
to always create more. They create more money
if they issue a loan. They get the bonuses,
the commissions and the incentives to lend as much as possible. You have to develop a sales culture.
What did they do? They recruited an amazing guy,
a lovely guy, Andy Hornby, who came from Asda, to turn the bank
into a supermarket-retailing operation. If you trust bankers
to control the money supply, the money supply will just grow
and grow and grow, as will the level of debt, until the point where it crashes, when some people can’t repay
the debt and then they’ll stop lending. You hear politicians
and journalists saying, “We’ve been living beyond our means. We’ve become dependent on debt. We need to rein in our spending
and live within our means”. It’s not possible in the current system. The reason why everyone is in debt now is not because
they have been recklessly borrowing. We haven’t borrowed all this money
from an army of pensioners who’ve been saving up their whole lives. Money in the current system is debt.
It’s created when banks make loans. So the only way, in the current system,
that we can have any money in the economy, the only way we can have money
for business to trade, is if we’ve borrowed it all
from the banks. And it’s the very opposite of what the
Tory Party is arguing today, which is that you have to create savings before you can help
the National Health Service. And it’s because economists
have completely confused those things, both in monetary policy terms,
but also in economic thinking, and because most people still harbour
the old-fashioned view that you need savings
before you can invest, that we have the mess that we’re in today. One of the reasons we find it difficult to understand the banking system
and credit creation, is that we leave school without any money, and we go and get a job working
as an apprentice to a plumber. We work really hard all month
and at the end of the month somebody puts money in our bank, and so for us the logic is: you work and then you get money,
you get savings. In reality you would never
have got that job if credit hadn’t been created
in the first instance. It’s a really important
conceptual misunderstanding and it isn’t something
that the public just is guilty of. Economists don’t understand this stuff. Money doesn’t come out
of economic activity. A lot of people I’ve come across kind of
assume that if you have got businesses, and you’ve got people doing things,
that somehow money emerges out of the process of people doing things, making things and growing things,
selling things and producing things, that somehow money just emerges. It’s not. It’s like oiling a car.
You have to put it in. When I see David Cameron talking about how
we need an economy not based on debt, what we need
is an economy based on savings, he just doesn’t know what he’s saying.
It’s ridiculous. It’s absolutely absurd and it shows
his complete lack of understanding of how our money system actually works. What he is essentially saying is that
we need an economy with no money. If everyone was saving
we’d have mass disappearing of money, which is essentially
what a bank write-off is, people defaulting on their debt, which essentially
is just money disappearing. But if people weren’t taking on the debt,
then it’s just such a joke. It’s such an amateur understanding
of how our economy works and how the monetary system works
and how money is actually created. So I really do get a laugh out of watching
what people are actually saying. They are all just regurgitating
what they have learned off each other you just hear the same thing and it just really gets on my nerves
when I hear people talking about, ‘Yeah, we need more regulations, we need to regulate
the way banks are… and the bonuses…”. It’s all just one big smoke screen. and working on all the symptoms
of a greater disease which is really, you need to look at the money system,
the way money is created. If we don’t want any debt
then we don’t want any money and we want a moneyless economy with the exception
of the 3% that’s created debt-free. It’s a paradox under the current system. If we, as the public, go into further debt, that puts
more money into the economy, and we’re going to have a boom. When you have a boom, it’s easier to borrow,
so people get into even more debt. And eventually this cycle continues. It gets easier
and easier to get into debt until some people get over-indebted and then they default,
they can’t re-pay their mortgage. That’s what happened…
first in sub-prime America. And then it brings through
a wave of defaults, which will ripple
across the entire economy. The banks go insolvent.,
then we’re into a financial crisis and then the banks stop lending. They were excessively lending in the boom
and then
they stop lending, and that makes the recession even worse. People lose their jobs
and then they become even more dependent on debt
just to survive. You know, we have a system
where we have to borrow in order to have an economy. We have to be in debt to the banks. That guarantees
a massive profit for the banks. This is the boom-bust cycle. And I’ve said before, Mr Deputy Speaker,
no return to boom and bust. Net bank lending must forever increase. We are paying interest
on every single pound. Even if you think
the money belongs to you, somebody somewhere is paying interest
on that money. The banking system has
such a huge impact on the world, but only because it supplies
our nation’s money supply. We have to protect them.
We have to subsidise them. We have to allow them to continue because the disaster of a bank collapse
affects us all in a huge way. Anyone who says that
we shouldn’t have bailed out the banks doesn’t quite understand
the nature of our monetary system. That’s like eliminating
a huge chunk of our money. But also bailing out the banks
is perpetuating a system which is never going to work anyway. So whatever we do we are always
going to have this cycle until we separate how money is created and the activities of banking.
Then the banks can do as they wish. They’d be a normal business. There’s a major democratic issue
here as well. You have these private
profit-seeking banks creating up to £200 billion a year and pumping that
into the economy wherever they want, wherever it suits them, whether they’re pumping it
into these toxic derivatives, or putting money into housing bubbles,
just making housing more expensive. £200 billion in 2007 of new money coming
into the economy, created out of nothing, and where that gets spent determines
the shape of our economy, effectively. So if we are going to allow anybody
to create new money out of nothing, then we should at least have
some democratic control over how it’s used. I mean, would we rather have had
that money used for health care, or to deal with some of the environmental
issues or to reduce poverty, or to make houses more expensive, so none of us can afford to live in a house. You can see it as a subsidy,
a special super subsidy to the banks, for the right to create money, which should be
for the benefit of the public and spent through a democratic process. Central Bank reserve currency There’s also another form of money, which is effectively
an electronic version of cash and it’s a type of money
that the commercial banks use themselves to make payments between each other. The high street banks don’t want to be
carrying around huge quantities of money because it’s dangerous,
inconvenient and expensive. You have to hire security guards
for that type of money. So what they do is they pay each other
in what is an electronic version of cash which in the industry is known
as Central Bank Reserves. They keep this electronic cash
in accounts at the Bank of England. But as a member of the public
you can’t access this electronic cash, you can’t get an account
with the Bank of England. What they do is they effectively sell
this central bank money to the banks and they do this
by creating it out of nothing and using this money to pay for bonds,
to buy bonds from the high street banks. So, the high street bank
will come along with a bond, which is effectively government debt, and it will give it
to the Bank of England, that in return will type some new numbers into the bank’s account
at the Bank of England. So they are creating Central Bank
reserves out of nothing. The Bank of England creates
Central Bank reserves by increasing the available credit in the settlement bank’s account
with the Bank of England. The settlement bank in return posts bonds, or sells assets
as collateral for the reserves. A total of 46 banks hold central reserve
accounts at the Bank of England. Smaller or foreign banks hold accounts
with one of these 46 banks to allow them to accept
or make payments in pounds sterling. Prior to March 2009,
the Bank of England would ask each of the major settlement banks
how much reserve currency they needed. The settlement banks would then swap
a bond for the reserve currency and agree to repurchase the bond
for a specific amount at a specified future date. The settlement banks
would then receive interest at base or policy rate
for the central bank reserves they held. Since the crisis, settlement banks central
reserves have shot up dramatically. Significance of central bank reserves When bank customers transfer funds from their account
to another person’s account, a process called Intra-Day Clearing occurs. The amount of central reserve currency
Bank A has at the Bank of England is reduced by the corresponding amount
that Bank B receives. This is the importance
of central reserve currency to banks. Before the credit crisis, if a bank was short of central reserves
at the Bank of England to meet its obligations, then the bank would have to loan reserves
from other banks, with interest. Only central bank
reserve currency is moved, commercial bank money
is simply deducted and added. If you sell something on eBay,
you know that that deal is not complete until you get some money put
into your account. Most people want to see
the money in their account before they’re happy to close on a deal. Now the banks are pretty much the same,
but they want to see the money in their account
at the Bank of England before they consider a deal complete. So for example, if you are buying a house from somebody who banks
with a different bank, then what’ll happen after you’ve spent
a quarter of a million on a house is you’ll tell your bank to transfer
some money to the house seller’s bank, and what the bank will do is instruct the Bank of England to move £250,000 from their account at the Bank of England
to the bank of the house seller. And that money will move across between the accounts
at the Bank of England. When that money has moved across, then the banks will consider
that that payment has been settled. They don’t really deal in the kind
of money that we have in our accounts, they deal in this special money
that can only be used at the central bank. There are millions of people across the country, all transferring money to each other
using only a few major banks. These banks can keep a tally
on their computer systems, and usually many of the movements cancel each other out
at the end of the day. The five major banks – RBS, Lloyds, HSBC, Barclays and Santander – hold
over 85% of all deposits. As there are a limited number
of banks in the system, the central reserve money can only
be moved around them in a closed loop. The money is just circulating
through this system over and over again and if you think about it, a one pound coin could be used
to make a billion pounds of payments if it was circulated a billion times. And that’s the system that you have now. You have a small pool of real money that’s just going round and round the system, and it’s being used to make a huge
quantity of payments on our behalf. Just before the crisis there was only 20 billion in the accounts at the central bank. September 2007.
Thousands of Northern Rock customers queue up to withdraw their cash. The company had been forced
to seek emergency funding. It’s the first run
on a British bank in 140 years. Northern Rock had committed
to asset (mortgage) purchases, but was unable to sell securitised assets
to meet these obligations. The Bank of England was required
to step in as the lender of last resort, to supply Northern Rock
with central bank reserve currency. If they don’t have enough
of this central bank money, then effectively they can’t make payments and if that happens pretty quickly,
the entire system seizes up. So the Bank of England has
the responsibility of making sure there’s enough
of this money in the system. The requirements for banks
to hold a specific amount of reserves has changed many times since 1947. At that time, banks needed to hold
a minimum ratio of 32% of reserves, cash, or Treasury Bonds to deposits. In 2006,
the Corridor System was introduced, in which banks could set
their own reserve targets each 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 as they want. And central reserve currency itself is
a form of fiat money which is backed by nothing. As a consequence, there is no longer
a meaningful fractional reserve. A short history of money If you look over the history
of the last 150 years or so, you start off
with a development of a gold standard that really comes to the fore
in the 1880s-1890s where essentially countries peg themselves
to a particular defined value of gold, and then they have an agreement
to fix that value, to hold that value, to trade gold amongst themselves
to ensure the balances are all there and also to try and restrict or expand
or contract activity in their own economies to make sure that the balance, that particular fixed price,
is maintained. That disintegrates
after the First World War. This is where
the whole thing breaks apart, a very major dislocation in the international monetary system
at that point, not really resolved
until you get Bretton Woods agreements at the end of the Second World War, in which everything is pegged
to the dollar and the dollar to the gold. So you are kind of one removed
from gold backing or saying that there is
a definite solid commodity money behind the paper money
and the credit money that we are all using over here.
Kind of one removed from it. After Hiroshima, Tokyo wondered
when the next atom bomb would fall. They did not wonder long. In 1944, at Bretton Woods,
the US and the UK began to negotiate how to govern the world economy,
the world monetary system, and came up
with the World Bank and the IMF, and a series of other institutions
designed to manage the global currency. There was still a gold standard,
but it was going to be tied to the dollar. All of the world’s gold had moved
from London to Fort Knox, and all of the world’s currencies
were tied to the dollar. This system was designed
to manage the sorts of imbalances, to avoid credit crunches, or for countries, credit crunches are known
as balance of trade deficits, i.e., when they can’t pay their bills
and their currency collapses. The currencies were managed and the system was stable,
as long as the Americans played the role of oversight. Now, who knows the great story
about how that all came to an end? The quantity of money that
was needed to pay for the Vietnam War, that’s exactly what I was trying to get at. Oil shocks 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 their currency
that ostensibly was meant to be tied, tied to gold and to every other currency. So what did the French do? The French were a little bit worried that
President Nixon wasn’t entirely honest. And they were worried
that precisely what we described, that Nixon was printing money
when he shouldn’t have been, was going on. And they were worried
there wasn’t enough gold to honour the exchange rate
of the French franc, so they sent a gunboat to New York harbour to ever so politely “ask
for our gold back, please.” Did they get their gold back?
Go on, guess! They didn’t. And the Bretton Woods system
came to an end. And this is the point at which we enter
the modern era of the financial system. Fiat money:
A medium of exchange, which the issuer does not promise to redeem in a commodity,
and is based on confidence. Historically, money creation
was pegged to a commodity, often gold but today it is pegged to nothing. Which means there is nothing
backing our money. This piece of paper is just
a piece of paper. Where does this leave us? If money is based on nothing,
why do we think it has any value? Sorry? Because we can still go
and exchange it. What? Somebody else was going to shout. Great little Latin fact: the word for “credit” comes from…
“belief.” Correct. Credere=to believe Since the collapse
of the dollar gold standard in 1971 and the deregulation
of the financial system, money creation has grown exponentially. The World Economic Forum
meeting in Davos at the present time have called on a need
for the credit within the economy, the global economy,
to be expanded by US$100 trillion. A trillion is 12 noughts so 100 trillion, if you want to imagine,
is a 1 followed by 14 noughts. They believe this credit expansion
will create a boom because there is now more money
with which to make investments. It’s fascinating,
this emergence of digital currencies, how it’s transformed everything, really. Because it just completely unleashed
private banks to dominate and create the money system
that works for them and works for the people
who run private banks. Growth and inflation If you want a growing economy,
under the current set-up, we have to have growing debt. This is something very,
very few people really understand, especially not the politicians
who are managing the economy, which is a scary thought. GDP (Gross Domestic Product): The market value
of all final goods and services produced in a country in a given period. As the money supply grows,
more money is available, which can be invested in productive avenues. However, it can also be used to gamble
and drive up asset prices. An increase in the money supply=
A likely relative increase in economic activity. The effects of rapid credit expansion Inflation is a rise in the general level
of the prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys
fewer goods and services. As the money supply grows
and there is more currency available, more money is available for investment,
which can lead to growth, but more money is also available for purchases of goods and speculation,
which leads to inflation. Essentially, inflation is what happens when too much money is chasing
too few goods and services, so there is too much money
for the actual output of the economy. However, in practice inflation
is much more skewed and complicated. Measuring inflation is not a science and the way it is recorded
poses a dilemma. The Consumer Price Index, or CPI, is measured from a sample
of goods and services. Each category of goods
and services is given a weighing data which determines the overall impact of
the price data for a specific category. However, this measure is deemed to provide
a consistently low figure for inflation. Interestingly, house prices,
mortgage repayments and council tax are excluded, yet apps
and dating agency fees are included. The Retail Price Index,
or RPI inflation index, is another way of measuring inflation, and scores consistently higher values
than the Consumer Price Index. Recently, many pension schemes
have adjusted their annual payout increases
from RPI to CPI. This is another cost-saving measure which will leave
pensioners worse off in future. The CPI index of inflation is not geared towards providing
an accurate picture of inflation, and the deterioration
in the purchasing power of money. In the seven years
between the years 2000 and 2007, the money supply doubled
and the central bank, the Bank of England, was under the impression
that they had it under control, because they were saying
that prices weren’t going up that much. Of course they were only looking at prices
in your local corner shop. They weren’t looking
at the price of housing, and housing is the biggest expenditure
that most people will make. Many western countries heavily subsidise
agricultural production, which has the effect
of keeping prices and inflation low. Increasing house prices may make you feel
like you’re becoming wealthier, but as your wealth increases,
the effect is that your children’s wealth is actually decreasing. So in fact there is no net gain in wealth, because your children
are going to have to pay even more when they want to buy a house. So in effect there is no net increase. They’ll have to earn even more. They are going to have to go
into even more debt. So rising house prices does not create
additional net GDP value to the economy. Actually, what they do is they re-distribute wealth towards those people who already have houses, i.e. wealthier people,
and remove it from poorer people who can’t afford to get
on the housing ladder. So it’s another example
of a very regressive policy to allow house prices to simply inflate. It makes everybody feel
like things are going well and people spend money on other stuff, they take equity out of their houses,
but it’s not creating new jobs, it’s not enhancing
the quality of the economy, it’s not helping our balance of trade, it’s not helping the public deficit.
It’s a zero sum game. As of August 2011,
85.5% of consumer bank lending was secured as mortgages on dwellings. If you have somebody creating money that
can only be spent on one thing, which is housing, then the price
of that thing is going to go up. Between 2000 and 2010 they created
over a trillion pounds of new money: £500 billion just in the three years
before the crisis. That’s why house prices went up
the way they were. There’s nothing special about houses. It was just all this funny money
being pumped into that market. If money is spent into the economy,
a lot of money goes into houses, for example, into mortgages, that’s an increase
in the amount of money in the economy without a corresponding increase
in activity, in output, in GDP. It’s non-GDP-based spending.
That’s what causes inflation. In the UK we’ve had it in spades. We’ve had this massive housing boom. The main cause for the housing boom,
in my opinion, is the huge amount of speculative credit
created by the banks to go into houses. If houses were cheaper,
they would be easier to build. More of them would be built. There would be less huge houses
with hardly any people in them. London would not be the centre
of a kind of very rich speculative orgy, where all the richest people in the world
want to get a property in London, because it’s seen as a great asset. Houses would be seen
as places to live, primarily, rather than seen as places to invest. The important thing to think about is,
if you’re a bank, and you’ve got to make a loan, you have choices. You can give that loan to a small business and you’ll know that the risk to you
of that loan failing, defaulting, is actually quite high,
because that small business, the owners of that business,
have limited liability, which means if that business goes bust, you as a bank
get nothing back, essentially. So that’s kind of high risk,
compared to loaning your money to somebody with some collateral, with a house behind them, like a mortgage. So there’s a simple incentive for banks to prefer putting money into housing
than into a small business. Now that’s a real problem if you
widen that out across a whole economy, because it means
there’s an incentive to put money into speculative rather
than productive investment. So again, we have to think about how we create
a monetary system that is more balanced between those two kinds of
speculative and productive investment. The government is showing enormous
reluctance to regulate the housing market, and to regulate the amount of money
that banks put into houses. We don’t decide
swho creates credit for what. No. We leave that to a couple of chaps
in a bank to decide, basically. A short history of bubbles A bubble occurs when there is
very high inflation in the price of a specific good or service over a short period of time. The first recorded bubble was the tulip bubble of 1637. The idea of the tulips
and their relevance is that you saw the first ever
financial bubble and crash. The craze for tulips,
black tulips being a mythical ideal of what somebody
could genetically engineer through cultivation
after many generations, became a mania
in the Netherlands in the 1630s. What they didn’t realise was that many of the very, very rare patterns on tulips were caused by a virus, not genetic. But they traded them
to the extent that bulbs got to the point where they were worth
ten times the average annual salary of a person working in the Netherlands. There was a futures market in tulip bulbs, because you don’t know
what’s going to come out of the ground. So we see already, 400 years ago, that
a money system or a financial system, is not something
that exists in the abstract, somewhere out there in the ether, but something that was to do
with states, power, trade, and how they interact with each other. Unlike tulips,
which are a disposable luxury, houses are both a necessity and a luxury. And as such, they are ideal as a vehicle
for money and bubble creation. A dwelling is perhaps the most prized
possession of value most people aspire to. Inflating house prices in this way allows
a nation to expand its money supply without affecting inflation data. The additional purchasing power created increases the perceived wealth
in relation to other nations and thus it creates relative power. It is a way of increasing monetary power without investing
in the productive growth of industry. Certainly if you look
at Britain and America as outstanding examples of this, these are countries with very high rates
of private home ownership so you’ve got a good base to try and perform
this sort of policy off the back of. I think it was quite deliberate
in the case of the US, almost explicit, as Alan Greenspan,
as head of the Federal Reserve, when confronted by a stock market crash
at the end of the 1990s, quite deliberately
slashed interest rates to almost zero, everyone can borrow very, very cheaply, in particular it’s very easy to borrow
against a house because this is an asset, and is something
that the bank can say, “We’re not
just lending you money unsecured, you do have a house,
so that’s great, because we can repossess it. They don’t tell you
when you take the mortgage but they can do this, and that bubble is then what fuels
expansion such as it is inside the US and inside the UK,
where something similar takes place for the next decade or so. I think it’s also a reflection of an underlying weakness
in these governments that they simply lack the will,
and possibly the ability, but I think it more comes down to a will, to challenge financial markets,
to challenge big capital, and say, “We’re going
to do something different now. And you’re going to have
to go along with it because we’ve been democratically elected
and you haven’t, and we have a mandate to do this
and we’re going to make this happen”. Just remember it’s all part of the plan. What are you yapping about?
You voted for it! In Holland, what we had over a period of trying to get independence,
initially from Spain, and trying to raise money to get an army
to free themselves, was financial innovation. They innovated public lotteries
to get money together. They had public subscription. This was the idea
that led to the idea of public shares: a piece of the action
that anybody could invest in. that meant that something like
two thirds of the population was investing in tulip bulbs by the 1630s. After independence, these instruments
were applied for financing expansion. Why was such a small country able to hold
its own against so much bigger countries, for example Spain and Portugal,
that had the benefits of their empires for over a century
in respect of the Netherlands? Why could they compete?
On what resource basis? Well, they had a more efficient, a more evolved
and a broader-based financial system with these instruments
that they’d innovated, that allowed them
to bring more money to bear at one point than anybody else, more quickly. Incredible But True. How to avoid inflation Now, inflation can be avoided if the amount of money
that goes into the economy is regulated in a way that it doesn’t exceed the actual
activity that’s happening in the economy. Now, the best way to do that,
in my opinion, is to make sure
that money is issued into the economy only for productive investment,
for productive goods and services, so money goes in
to help a small business to start up, which creates jobs,
which creates additional purchasing power, which means there’s no inflation. During their history
almost all central banks have employed forms
of direct credit regulation. The central bank will determine
desired nominal GDP growth, then calculate the necessary amount
of credit creation to achieve this, and then allocate this credit creation
both across the various banks and type of banks,
and across the industrial sectors. Unproductive credit was suppressed. Thus it was difficult or impossible
to obtain bank credit for large scale, purely speculative transactions such as today’s large scale
bank funding to hedge funds. The World Bank recognised in a 1993 study that this method
of intervention in credit allocation was at the core
of the East Asian economic miracle. There’re all sorts of things
that governments have done in the past, very successfully in a number of cases, and often not unsuccessfully
in this country, the examples that spring to mind,
South Korea, Japan, often in East Asia,
where governments have been quite targeted about how they’re going
to rebalance the economy, picking sectors and deciding
where the investment should take place, I think that has
to start happening in the UK, because we’re in a demand-side recession,
rather than looking at crisis of supply. You have to have a system where credit
is put into productive avenues, where credit is put
into building high-speed rail links, into building houses rather
than giving people money to inflate the price of houses. It’s quite simple, really, and the current
system is simply set up not to do that. The creation of money by private banks for non-productive usage
causes real inflation, and as such it is a tax
on the purchasing power of the medium of exchange. Decrease in the standard of living The figures for the UK are quite stark actually. The average median real incomes
for most people declined over the last 8 years. They are now in quite sharp decline
as we go into recession, the sharpest really since about the 1930s,
so real income is declining. Bank-created fiat currency
allows the private banks to suck wealth from the economy
and over time results in a gradual decrease
in the standard of living. As people become poorer,
they become even more dependent on debt, and this at a time
when efficiency and mechanisation have improved dramatically. If you go back to the 1960s, we were looking forward
to an age of leisure, television programmes saying, “What are people going to do
with their spare time?” And now we have got more people
working harder than ever, spending more than ever,
which looks great, which looks great, but if you’re not actually benefiting
from what you’re spending, if you have to spend the money
on childcare costs, on commuting costs, and so forth, costs that people
didn’t in the past use to have to pay because you could walk to work, and one member of the family
was able to stay at home and be a permanent homemaker,
then you’re not actually any better off. Everyone is under
such enormous pressures nowadays. I am conscious that my four nephews
and nieces are facing difficult times. They’re just going to find themselves
having to work very hard just to keep…
to get a roof over their heads. People are getting poorer in real terms. It’s because prices are always going up because all this new funny money is being
pumped into the system by the banks and they’re creating it all as debt, so as prices are going up
and things are getting more expensive, we’re getting further and further into debt, and our wealth and the return
that we get from actually working is getting less and less all the time. You can’t deal with poverty when you have
a financial system and a money system that distributes money from
the poor to the very rich. Any distribution that you try and do
in the opposite direction is effectively pissing in the wind. If you look at issues
like increasing inequality, one obvious way to tackle inequality is to have a redistributive tax system. You tax the rich,
you give some money to the poor. You move a bit of money down the scale. That’s all very well,
but if you overlook the fact that there’s another redistributive system, which is taking money from the poor
and giving it to the rich, then you’re not really going
to tackle this inequality, and the way
a debt-based money system works is, it guarantees
that for every pound of money, there is a pound of debt. That debt is typically going to end up
with the poor, the lower middle classes, those people end up with the debt and they end up paying interest
on that money, which then goes back to the banking sector and gets distributed to the people working
in the City or in Wall Street. What this system does overall is it distributes money
from the poor to the rich, essentially, distributes money from the poorer regions
of the UK back to the City of London, and it also distributes money
from all the small businesses, all the little factories around the UK, and distributes that money
back into the financial sector. We have a system whereby the activity
of actually supplying our nation’s money occurs under the very same roof as
the same organisation that is responsible for profiting from putting
together borrowers and lenders, i.e. a bank. So, a bank creates
our nation’s money supply as well as making loans for profit. The government cannot allow
the banking system to fail because, if it did,
over 97% of all money would disappear. This is why in the event of a crisis
the risk is transferred to the taxpayer. But even during normal times banks receive
numerous guarantees and benefits beyond the right to create money. Bill, by the way, I know the Bank
of America is a very big bank, it happens that I have $32 there myself. Just between us, what assurance do I have
that this money is safe? Well, all deposits
up to $10,000 are insured by the Federal Government in Washington. -That’s my guarantee? -Yes, sir. Have you heard that the Federal Government
is about $280 billion in the hole? Banks receive large safety nets
from the government. The taxpayer guarantees £85,000
as deposit insurance. And the Bank of England
provides liquidity insurance in case a bank runs out
of reserve currency. Someone wrote that a big investment bank
is like a giant vampire squid wrapped around the face of humanity. Hypnotising politicians, who throw money
at the banks, no strings attached. No matter what damage is done. Trashing the planet. Forcing cuts to things
that make life better. Goodbye schools. Goodbye playgrounds. Goodbye jobs. The bankers that we bailed out then gave themselves bonuses
that were bigger than the first wave
of public spending cuts. Britain alone gave the banks more money than it cost to put a man
on the moon 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. Take back our banks Ever increasing debt The spending cuts agenda is an attempt
by the government to shift debt from its account
to that of the public. This is the government’s response
to the bank 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 privatisation of public services, assets and industry follow the same model. The problem we’re facing is
that there is this transference from the public debt to private debt. which is essentially
a way of transferring risk
from the public debt to private debt. which is essentially
a way of transferring risk away from UK Plc. and the government, on to the heads of individuals, and it’s going to be
the most vulnerable individuals who are going to have the most debt. Thus it’s a very regressive
policy framework that the government’s embarking on, where the risk is moved 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 the poorest people in society or homeowners for example,
who will fall into negative equity if interest rates go up
even 1 or 2 percent there will be really big problems. So I don’t think it’s a sensible way
forward for us at the moment at all. It’s regressive and it’s certainly not fair in the terms that
the government is talking about, and it’s certainly not a case
of “We are in this together”. As more of the country’s resources
and industries are privatised, the private sector takes on more debt. As a result, more money is created
and there is a boom. Some private equity companies
have taken this theory to the extreme, engaging in a practice known
as “a leveraged buyout”, where a company is purchased
at an often inflated price, and the purchase price is transferred
to the business as a debt. The company becomes responsible
for the funding of its own purchase. These debts are often so great that the company needs to reduce staff,
salaries and research activities. When you have
to factor interest as a business, if you have to factor interest repayment
into your goods and services, then you have to charge
a perpetually higher price as you take on more and more debt. An increase
in the diversification of debt results in an increase
in the money supply. When the money supply increases, more money is available
for productive activities and consumption, which is the condition for a boom. It’s questionable whether we’re going
to get out of this recession or whether we’ll just keep ticking along
the way that we are now. However, if we do, then
when we come out of this recession, and when growth starts again,
look at what happens to debt. It will rise and it will keep rising
and the faster the economy is growing, the faster the debt will rise, and then give it another 3 to 5 years,
we’ll be back where we were. The debt will become too much,
people will start defaulting again. It’s the system
that we’re locked into, we can’t grow the economy
without growing the debt, and the debt is the very thing that
will bring down the economy. The only option
going forward is to reform it, to stop banks from creating money as debt. By fixing the monetary system we can prevent the banks
from ever causing another financial crisis and we can also make
the current public service cuts and the tax rises and the increase
in national debt, unnecessary. The current monetary system allows
the banking sector to extract wealth from the economy, whilst providing nothing productive
in return. Why is it that we’ve got
all this technology, all this new efficiency, and yet it now requires two people
to finance a household, whereas in the 50s it only needed
one person working? The reason for that is not because
these washing machines and everything are more expensive. It’s because of all the debt
and because the banking sector is effectively creaming it off
from everybody else. So a growing banking sector
is not a good thing. If the banking sector is growing it’s
either that it’s becoming less efficient, or it’s becoming a parasite
on the rest of the economy. We can talk about the banking sector
becoming 4%, 5%, 6% of GDP. What’s happening
to the rest of the economy? It’s becoming 96, 95, 94% of GDP. We’ve got to get switched on to this now. If we want to have a chance of tackling
any of the other big social issues, you’ve got to figure out the money issue. The poorest in the world pay for crises even when they’ve not benefited from the often reckless
and speculative booms, like the housing boom in Ireland
that preceded that crisis. Over the last 30 years
we’ve seen income differentials increase, so that the rich have got much, much richer
and ordinary people haven’t, they’ve stayed the same
or they’ve got poorer. One of the ways
that the economy was kept going was by providing cheap credit,
providing debt to those very people who couldn’t really afford things anymore,
so they kept buying and when it collapses,
it’s those same people that have to pay once again, even though in many ways
they were the victims the first time. As a result of the crisis the Bank of England has bought
corporate debt, and repackaged it
at lower rates of interest. Yet the average person
is being asked to pay more than ever to borrow on overdrafts and credit cards. Debts between the very wealthy
or between governments can always be renegotiated, and always have been
throughout world history. They’re not anything set in stone. It’s, generally speaking, when you have debts owed
by the poor to the rich that suddenly debts become
a sacred obligation, more important than anything else. The idea of renegotiating them
becomes unthinkable. Can you pin down exactly
what would keep investors happy, make them feel more confident? That’s a tough one.
Personally, it doesn’t matter. See, I’m a trader.
I don’t really care about that. Pay your taxes! Were you born in England? If I see an opportunity to make money,
I go with that. For most traders,
we don’t really care that much how they’re going to fix the economy, how they’re going to fix
the whole situation. Our job is to make money from it, and I’ve been dreaming
about this moment for three years. If you know what to do,
you can make a lot of money from this. I have a confession which is,
I go to bed every night, I dream of another recession,
I dream of another moment like this. I dream of another recession,
I dream of another moment like this. You can make a lot of money from this. Bruno, Virginia hurt somebody real bad,
you oughta help her. Incoming! The way in which you can look
across Europe now and see that
the new Prime Minister of Greece, not elected,
essentially imposed, Papademos, former employee of Goldman Sachs. The new Prime Minister and Finance Minister
of Italy, Mario Monti, former employee of Goldman Sachs. The new President
of the European Central Bank, former employee of Goldman Sachs. You see these people popping up
absolutely everywhere. That’s the way to change what we have: take all power and all freedoms away
from the people and collect everything into the hands
of one small group with absolute power. From the people, without the people,
against the people. What’s been interesting out
of all this is the question of democracy that’s been opened up
very starkly in Europe, that you have a government
of bankers essentially imposed 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, and then you say, OK,
bankers are the people who get us out of it, and incidentally,
they’re going to run your country now. There’s a serious question of democracy
that has opened up here. By the way, the banking crisis drove more than a 100 million people
back into poverty. The mortality statistics of people
who go into poverty rise hugely for a whole range of reasons. So the banking crisis isn’t just
about becoming poorer, it was about killing people as well. And guess what? We haven’t really got
to the bottom of it. We never held anybody to account and we haven’t done the radical reforming job that we really needed to do, because we mistakenly thought
If we destabilise the position any further, it’ll make matters worse. And guess who took the decisions? All the people who were there
in the first place. “I think you ought to know, that the business of one
of these businessmen is murder”. “Their weapons are modern, their thinking:
two thousand years out of date”. Resistance to banking fiat monopoly The way that money works and how we use it to do certain types of transactions can be really very important
in terms of how, over time, it steers society in certain directions. How I use money, what I use money for, who’s controlling money
and where it ends up over time can completely transform society. The kinds of businesses that get preferred by certain types of money systems, so at the moment we have a money system that prefers large businesses that can take a lot
of their wealth offshore because that’s more efficient
for them to do that, but that means that money
ends up leaving communities. Sometimes I think it’s quite amazing that there is very little way of any individual
directing money towards their locality. There’s no way for me to actually say, “I have a little bit of savings,
I want to invest this in Norwich”. I want to invest in businesses
that want to set up here. There’s no mechanism for people
to invest within their locality. You put your money into a mainstream bank and money goes off to wherever. Who knows what this is? Shout! A Brixton Pound! Who knows what it is? It’s worth one pound this one so it’s exchangeable
for one sterling pound. -Is this money?
-Yes! On what basis? People accept it. There’re over 200 shops,
independent traders. So we represented something
like we’ve agreed, we can choose to represent
it to be something and that depends on our mutual consent. Complementary currencies The Bristol Pound Project
has been fascinating because I first started
reading about money and realised I didn’t understand it
very well when I started trying
to set up a Bristol Pound, so it’s been a bit of a journey for me and I think everybody else
who’s been doing it. We can actually build
our own currency systems which work to improve the relationships
between people within communities, where people work and share
a lot of the economic benefits from the wealth they are creating and they are constantly using
that wealth they’re creating to build positive relationships
with other people within that area. And they can see the impact of the money,
so when you spend something, if I spend 20% of my wealth
on a certain thing, I’ll see what that 20%
of my wealth is doing. I’ll see that it is really having
a positive effect because those people are using that money to go and do something else,
which is really good, or I can see that it’s actually trashing
the local woodland because I was paying that carpenter to go
and cut down all the woods, and I like going
to the woods with my dog so actually maybe I don’t want to do that, so you can include
what would normally get brushed aside as externalities…
Well externalities are actually our life! It’s what we, in communities,
make us live a good life I think. We wanted to help achieve certain things. We wanted to help build community. We wanted to support independent businesses. We want to help preference them
over big trans-national corporations, because if they’ve got hold of their money
and they can use it with each other,
We want to help preference them
over big trans-national corporations, because if they’ve got hold of their money
and they can use it with each other, then it doesn’t disappear up
out of large management structures and go offshore and end up
in an account in the Cayman Islands. When we talk to businesses,
they get it pretty intuitively. Governments often shut down these experiments The Bank of England may of course decide that this is a threat
to the stability of sterling. At the moment they are reserving
their right to take an opinion on it. They’ve sent us
all their rules and regulations and we’ve got a team of lawyers
to give loads of work pro bono, to say, “Right, we’ll work on this and we’ll make it as watertight
as we possibly can. In the end what the Bank of England
decide to do, we don’t know. You see a widespread proliferation
of alternatives normally during periods of capitalist crisis. In the Great Depression, you had
the rise of a lot of script currencies particularly in North America,
and experiments in Europe as well. And most of those got extinguished
by being made illegal by the authority of the central banks and political forces deciding that they didn’t want
those experiments to carry on. This monopoly state bank currency
that we have is very good at some things. It’s very easy
to trade internationally with it. It helps big businesses,
it cuts down their transaction costs, but it’s not so good
for independent businesses and it’s not so good for localities. So if we have a money system
where the rules value community and connection
between people within communities, over time you build up
a better and more wealthy basis for a diverse local economy. The bank run A bank run can take three forms. Customers can withdraw
their money in cash. However, this will not reduce
the digital money supply, it will merely transfer ownership. Or they can shift their money from the large institutions to smaller,
more ethical banks, such as credit unions, mutual banks
or independent building societies. Our next guest has a New Year’s resolution that she says will create
a better financial system, and it’s this: move your money
out of the nation’s big banks and into your local community bank. Shifting commercial bank money
to these institutions will reduce the monopolistic grip
of the big 5 banks. Taiwanese animated news: Christian has declared November 5th
as “Bank Transfer Day”. On that day, bank customers vow
to close their accounts and deposit the funds with credit unions. The third kind of bank run
is the international bank run. According to at least one US Senator, this is what caused
the September 2008 meltdown. Look, I was there when the Secretary and the Chairman of the Federal Reserve
came those days and talked with members
of Congress about what was going on. It was about September 15th. Here are the facts, and we don’t even talk about these things. On Thursday
at about 11 o’clock in the morning the Federal Reserve noticed
a tremendous draw down of money market accounts
in the United States, to the tune of $550 billion was being drawn out
in the matter of an hour or two. The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realised
they could not stem the tide. We were having
an electronic run on the banks. They decided to close the operation,
close down the money accounts and announce a guarantee
of $250,000 per account, so there wouldn’t be
further panic out there, that’s what actually happened. If they had not done that, their estimation was
that by 2 o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system
of the United States. It would have collapsed the entire economy
of the United States and within 24 hours the world economy
would have collapsed. International Aspects When money is withdrawn internationally
from one currency to another the reserve currency shifts
from the national bank of one country to the reserve account
of the foreign bank. Foreign banks have relationships
with local banks that allow them
to hold foreign reserve currencies whilst not being a part
of the central bank scheme at the local central bank. For example,
when £1000 is transferred into euros, a UK bank will agree an exchange rate with a Euro-area bank,
perhaps 1.15 euros to the pound. The UK bank will then transfer £1000
of the central reserve currency to the UK partner bank
of the European bank, whilst the European bank will transfer
1150 euros of reserve currency to the European partner bank
of the UK bank. What happens when currencies and the exchange rate system
is no longer managed? What are some of the first consequences? Devaluations. Speculation. Imbalances. Where some countries would accrue
more and more of what? What will they accrue? Other currencies, other currencies. The reserve currency needs to be spent
in the country of origin or exchanged into other currencies. Most foreign banks
do not have deposit-taking accounts outside of their national borders, and as such the foreign reserves they hold do not come back to them
in the form of deposits. When a country accumulates trade imbalances, it either accumulates
foreign reserve currencies in the case of surplus, or spends its own reserves,
in the case of negative trade balances. Balance of trade is basically
the difference between what you’re selling abroad
and what you’re buying from abroad. Now, the feature of the UK is that,
for a very long period of time, it’s had a deficit of something
called a visible balance of trade, which is trading things that you can see. So that is goods that you’d recognise,
stuff you can put in containers, it’s cars, computers,
things that you’d see in a shop. That’s been a substantial deficit. I think it opened up in the early 1980s
and essentially it hasn’t gone away since, if anything it’s got wider and wider. Foreign exchange reserves cannot be
directly used for domestic spending. The money can only be spent abroad
or on imports. A country with a large balance
of trade deficit relies on its creditors to spend the imbalances accrued
in its own market. There have been proposals in the past to try and create a mechanism
for those imbalances to match up. For instance, John Maynard Keynes
at the end of the Second World War. His original proposal
for what became Bretton Woods and the set of institutions set up there,
like the IMF and World Bank, was that there would be a kind
of international clearing union. This particularly related to the trade side
rather than the financial side directly, but the principle was
that once trade balances had opened up, everybody would bank
through an international clearing bank and that would kind of force everyone
to eventually reconcile the imbalances that appeared in the real economy. But no such mechanism exists. The accumulated net trade imbalance
of the UK is around £800 billion. Currency wars In essence what has happened is that,
over many years, some countries have had big trade surpluses
and others big trade deficits. The countries with trade deficits
have been spending more than they’ve been earning so they’ve had to borrow from abroad, and they’ve been doing this
year after year. Countries like that,
the United States, ourselves, and some other countries in Europe,
that cannot go on. and there are two ways
in which this can come to an end. Either, and we’ve seen this
in some of the countries in Europe, if they can’t find new ways
to become competitive, then their ability to repay
the debts is called into question. Another way of doing it, which we followed, is that we have a credible plan
to repay our debts and the value of sterling has fallen by 25% to make our exports more competitive
and attractive to overseas buyers, and to be more attractive
for British consumers to buy from British producers
rather than overseas producers. That is what we have done to put in place
a framework to rebalance our economy and I’m sure
that’s the right way to do it. Currency war,
also known as competitive devaluation, is a condition where countries compete
against each other to achieve a relatively low exchange rate
for their currency. As the price to buy a particular currency falls, so too does the real price of exports
from that country. Domestic industry receives a boost
in demand both at home and abroad. It made British exports appear rather cheaper, so they recovered a little bit, but because the rest of the world
is looking really quite ropey, they’ve started to fall back down again. So what we’re looking at is something
that is almost like a kind of anarchy and in a way an increasing anarchy. This is what’s happened
over the last few years, where the Brazilian Finance Minister
has been the most vocal about this, talking about currency wars, talking about the desire of national governments when confronted by a major recession, they think If we could export more, we can dig ourselves
out of this recession. If we want to export more
we depreciate our currency. That makes our goods cheaper,
everyone else buys them and we’ll all be better off. The issue here is if you depreciate, it’s like everyone else appreciates
against you. Their stuff becomes more expensive
so they’re not happy about that. They also want to depreciate,
and this is where you can see a competitive round of devaluations breaking out. To decrease the value of its national currency, a national central bank sells
reserve currency into the market. It creates this currency out of nothing
by typing numbers into a computer. I.e. a central bank
buys foreign reserve currency. The amount a central bank can create
is not limited because there is no defined commodity
behind the reserve currency. During the long phase of commodity money,
because there is no defined commodity
behind the reserve currency. During the long phase of commodity money, the exchange rate would depend
on the amount of gold, silver or copper contained
in the coins of each country. Similarly, after the advent of paper money
and the gold standard, the exchange rate depended
on the amount of gold the government promised to pay the holder
of the bank notes. These amounts did not vary greatly
in the short term, and, as such, exchange rates
between currencies were relatively stable. After the Second World War,
currencies were pegged to the dollar, and the dollar was backed by gold. This system came to an end in 1971. So, we have a modern financial system
where money is now chaotically organised. There is no exchange rate because there
is no gold standard system to sustain it. So we don’t need it, in fact we believe the market will resolve
all the problems of exchange. Whether your currency should be worth
more than mine is a reflection of your economy
relative to mine. And if that changes, the currency and exchange rate can change, and if we need that to happen it will happen magically by the efficiency
of market and profit seeking. You guys know the rest I think. A currency’s value
in relation to another currency is determined by the market. If more people want to buy a currency
than sell it, its value increases. If more people want to sell,
its value decreases. The value is set by individual banks. As they buy and sell currencies,
they will adjust the exchange rate. The last study I read in 2007, each day on currency markets
$3.2 trillion are traded, each day. Who knows what the global GDP is? $50 trillion? Again, Brucey, higher! 60, that’s closer. The point is, think about
that exchange happening every single day. There’s about 260 business days a year. It takes a few weeks to match the global value of every economic transaction
that happens everywhere, every day, in a year.
It takes a few weeks. Obviously, all of us
trade currency fairly regularly. If you go abroad,
you exchange into another currency. That’s a form of currency trading: you’re swapping your pounds or euros
or yen, whatever it might be. That happens fairly regularly and that’s
a conventional part of the trading process. Large corporations have to do this
on a regular basis. Where it becomes something
that people question and where you get people saying,
“Well hang on, this is speculation!” is when you get people realising that currencies move around
next to each other, and if they move around in value
next to each other there’s always an opportunity
to try and make money out of those changes in value, and therefore you can speculate on it. That’s the more questionable
end of the market, that’s the bit of the market that things
like a financial transactions tax will try and chop away at, because the assumption there, and it’s not incorrect, is that it just produces instability
for everyone else. These people want volatility in the market
because that’s how they make their money. They want to encourage it
and they do encourage it by trading and speculating
in the way that they do. By 2010 the foreign exchange
market had grown to be the largest and most liquid market
in the world, with an average of $4 trillion
of currency being exchanged every day. Volatility creates a need. What does it do to countries, especially perhaps small ones
like developing countries, if there are suddenly huge
and instantly fluctuating financial flows? What do they have to do to cope? Increase the production and sell more, lowering the price, and becoming possibly even poorer. Once you start talking
about the international system,
and becoming possibly even poorer. Once you start talking
about the international system, it becomes really quite a peculiar thing, in that a lot of it depends
on simply sentiment and beliefs about what an economy is like, rather more than it depends on anything the economy might
or might not actually be doing, and that can shift very rapidly
because if it’s just someone’s belief about a currency is supportable, then you know they can carry on
believing this until whenever. If that belief changes, it can change
very rapidly in a financial market, he process of financial contagion
can take place in just minutes or seconds even. You can just move from being an apparently
quite a stable robust economy, to being one that suddenly
sentiment has turned against you, and you find
that the markets are picking on you. It can often be not much more ª
than you’re simply the next door neighbour of a country that’s currently in trouble. Many of the world’s financial crises ª
in the past thirty years have been caused by rapid withdrawals of a nation’s currency
or the currencies of an entire region. This type of activity is often
referred to as financial warfare. It’s benefited major institutions
really quite substantially, like Goldman Sachs for example, or any large bank has done somewhat better
out of this set of arrangements than it would have done
in a far more regulated environment. It’s made people very, very wealthy. It’s allowed financial markets
to expand absolutely enormously. Anybody involved in that is keen
on seeing a deregulated world. In the case of the UK,
you have a government which has been quite overtly
and deliberately and aggressively arguing against any forms of regulation
being imposed on those financial markets. But it’s not that there’s someone
behind the scenes pulling the strings. This is how things work. Quite deliberately, overtly,
in front of you. That’s the world as it is. It is making some people very rich.
They’re quite happy with it. I think it is a form of economic warfare. Much of the change in the way
that the global economy works over the last thirty years result
from this debt, this thrid world debt, because it’s given rich countries
and banks and the financial sector,
enormous amounts of power and control over the poorer bits of the world, where a lot of the resources are
that we like using, and that’s being used
in a way that many people have compared to a form of colonialism. It’s a very real direct form of power
that’s being used over those countries to force those countries to do
what are really in the interests of the richest segments
of the world that they do. And as a result of that, not only have corporations
become absolutely… made huge amounts of profit,
and absolutely enormous and all-pervasive, but the financial sector has become
even bigger than that, and the real money to be made
in the world today, is not by producing anything at all, it’s simply by forms of speculating,
making money from money. That’s the most profitable
and by far and away the biggest form of economic activity that exists in the world today. To protect themselves, vulnerable countries need
to accrue currency from rich countries, who create these currencies
out of nothing. The Netherlands,
first Governor General of Indonesia, the man who built the trade routes,
fortified them. What I mean by that is
he built forts along them and fought Spanish fleets
and British fleets, Said about the development
of the Netherlands Empire an trade was: “We cannot make trade without war,
nor war without trade”. Money and power. Financial Imperialism So reserves have become the way in which you can insure yourself,
against what? Speculation. Speculative attack.
Falling markets. Bubbles. When a country succumbs
to a speculative attack, it is asked to deregulate its markets and conform its financial system
to that of the dominant party. The big problem that’s faced
by most developing countries who’ve got into a debt crises was that they were told
by the powers that be in the world, the International Monetary Fund, which in many ways governs
the global financial system, that the way to get out of debt is
first of all to restructure your economy. especially to increase your exports
so you’re earning more dollars, and then you can pay off your debt, which is normally in dollars
or some other foreign currency. Unfortunately time and time again
that was proved to not be the case at all. Actually countries cut back
their public spending to the bone, so they stopped growing, they stopped having
any potential for growth, and what they did produce
was aimed at the export market, was aimed at creating dollars. They were paying off their debts but they weren’t developing
their own economy at all. They were paying far more
in debt repayments than they were spending on health
or education or anything else, their debts just kept getting bigger
and bigger. The country becomes a vassal state, allowing large corporations to exploit
its natural resources and workforce. Financial Imperialism: Expanding and maintaining imperial power
through monetary dominance. It’s not even shadowy. There’s no great mystery
about what’s happening here and how the world operates.
It’s quite blunt. For the last thirty years you’ve got something that spreads
pretty much everywhere, that generally
gets labelled Neo-Liberalism. This idea that you should have
floating exchange rates, weak regulation
particularly of financial markets, minimal government interference
or involvement in what the market does, and that’s more or less
how the world operates. And then there are institutions, the outstanding one
at this point is the IMF, that will actively try and enforce
this state of affairs. So it’s not greatly shadowy, that there are people
behind the scenes somewhere trying to manipulate stuff.
This is actually quite overt. This is happening
and this is how it has been for my entire adult life. This is how the world is operated
and it’s made some people very wealthy, it’s produced enormous concentrations
of wealth. So when the International Monetary Fund
comes in, in order to try and alleviate
a country’s debt problems, it imposes a set of conditions. In the 1980s and 90s they called that set of conditions
“a Structural Adjustment Programme” and it tends to take very similar forms
wherever it happens. Indeed we can see
structural adjustment programmes in essence happening today in countries like Greece
and Portugal and Ireland, where countries are instructed to decrease
the amount they spend on the public sector, they are instructed to liberalise
their trade market and liberalise their capital market, so money can much more easily come
in and out of their economy. The idea is that
this will encourage investment to come in from richer parts of the world, and that all of their problems
will be solved from this investment. In actual fact this has proved
time and time again to be completely without foundation. In actual fact what happens is it destroys fledgling industries
and capacities in these developing countries, and developing countries
become completely dependent on goods and services
from developed countries, and also from capital from developed countries. One of the things the International
Monetary Fund is very keen on is telling countries to lower the taxes that should be paid
by multinational corporations when they come and operate in a country because then you’ll encourage
more multinationals to come in. Of course what it also means is
the profits that are made by those multinational corporations leave those countries just as quickly, and the country itself doesn’t benefit. Today, many developing countries
have got almost no tax base. They’ve not developed a tax base at all and so they’re even more dependent
on international capital markets, on the money markets,
on creating debt and that’s why you have so many countries in the world that have really been robbed
of their sovereignty, and it’s very difficult to see
how democratic societies can evolve or function when a government
is more dependent on the diktats
of the International Monetary Fund and the money markets
than it is on their own people. Financial instruments What we’ve seen since the 1970s is a dramatic increase
in a series of phenomena that have had a stimulative effect
on the changes in the financial system that have brought us to the gleaming
and shiny metal and steel business that’s over there. In case you don’t know,
that’s the City of London. To compensate for the lack of a defined, commodity-based value underlying currencies, financial institutions developed
securitisation as a means to manage risk. You develop securitisation as a means
to try and stabilise the whole system this is a set of financial processes
and financial innovations that really accelerate
from the 70s-80s onwards. You had a chaotic system that needed
to manage risk, and you had to innovate. You needed derivatives, options, futures. You have new markets in volatility-management tools. Who knows what the term “hedging” is? Spreading your risk. Managing your risk,
insuring against it, precisely. Up until very recently, until the 1960s, the Securities and Exchange Commission
would be quite clear that derivatives that weren’t based on real products like agricultural products, so pork belly futures or whatever, would in fact be essentially
a kind of gambling and you weren’t allowed to trade them. That changes in the sixties,
and everyone can trade currency futures, things that are not based on real products
being traded at some point in the future, but are based on the movement
of currency prices. Once the system
of fixed exchange rates breaks down, obviously this accelerates enormously, so as you get the rollback
of government regulation here, you get the market taking over
with its own products here, and the theory is that the market is better
at regulating itself, it’s more stable than if you have
a government interfering all the time. The efficient markets hypothesis, the idea that you have set up
a financial market, they’re fast, everybody in them is well informed, they all keep a very careful eye
on what everyone else is doing, it’ll therefore be very stable
and reflect real changes in the economy. It’s not going to be driven by panics,
manias, speculative bubbles. None of this is going to happen. If there is movement up and down
it’s because something real is happening, and traders and investors
in financial markets are responding to it. So that’s the efficient markets hypothesis. What you see in 2008 is the end of that process, the appearance of a crisis so major, the belief that it’ll simply be
self-stabilising and self-regulating, really can’t carry on. The practice carries on anyway but you can’t argue
in the same way that you used to, it’s good or It’s necessary,
or this is OK for the world. In the last decade we had
a new innovation: called “a credit default swap”. A way of buying insurance against
a company you invested in going bust, and in 2002 they were worth
less than $1 trillion. In 2007 they were worth $60 trillion. That’s five years. Everybody is suddenly sitting there saying,
“Oh! These CDOs we’ve made don’t in fact provide
the kind of stability that we thought. The math that’s inside of them
is complete nonsense it turns out. There’s far more risk attached to trying
to securitise risk and securitise debt in the way that we have done this
than we thought, and we now think
these things are now worthless! The attempt to get
more and more complex ways of regulating and shaping a financial market and trying to make a quick buck out of it helped produce the opposite effect
to what its apologists said, which is, it led to a spectacular crash. What we saw as a result
of this very different situation was one phenomenon above all, one sector above all grew,
and that was the financial sector. While the financial sector
benefits enormously from the current monetary system, the system is neither stable nor fair. The assumption
in what the Bank of England does right now is that the cash that we hold
is backed up by government debt. The government can back up its promises
by the fact that it can tax the public. So what they’re implying is
that cash is backed up by government debt, when government debt is backed up
by the ability of government to get cash from the public. Time and time again
over the past thirty years, we’ve seen private debts
being transformed into public debts, and ultimately the price
of that debt is being paid by the public in the debtor country. This is why spending cuts are necessary. The system is designed
to make certain people very rich at the expense
of a nation’s citizens and tax payers. The system lowers
the standard of living of the majority and distributes this wealth
amongst the privileged. So what we are left with is
a financial system, since the early 70s, that has no fixed exchange rates, that suddenly has
increasingly open financial borders, that has central banks having to manage
without having any control because there’s nothing here
where the gold used to be. Chaotically, they have to ease quantitatively. They have to lend as a lender
of last resort. Throughout history,
monetary systems were designed to give the dominant international power
an advantage, and this power is fiercely defended
and expanded on. And they flee in terror
from an incredible bogey man. An American flag is burned
at the height of the demonstration. Both President Johnson
and Francisco Franco were vilified. A new low in public protest added strain
on Spanish-American relations. Order in the court, order in the court. I want Americans and all the world to know… Come on, fire. I want Americans and all the world to know America has no regard for conventions
of war or rules of morality. Fire! Objection overruled. International currency reform What I would like to see is a new kind of currency that is backed by something that is scarce and that we need and we value. Something like energy or renewable energy,
for example, a kilowatt-hour-backed currency
would be very interesting to me. We need to start valuing things
that are most scarce and that we need to survive
as a human race in the long run. Backing an international currency
with something like that will generate enormous investment in,
for example, renewable energy, if that’s the primary international unit
of account that is being used. Another option is a basket of currencies, so you mix up the value
of different currencies to create a very solid currency
that people have confidence in. Perhaps even better would be
a basket of commodities with which to back up
international currencies. Now if it was possible, internationally,
some way or another, to get all these increasingly competing
national economies together, and say, “We’re all going to sit down
and write out an agreement, somewhat like the Bretton Woods agreement, which will allow for,
unlike Bretton Woods, some currencies to be pegged
against different baskets of goods more appropriate
to their national economies. If you could arrange for that to happen
then that would be nice, and that would start
to create a kind of order in the international macro-economy
which is otherwise lacking. The real difficulty there
is just political: who on Earth is going to do this? Who is the force
that is going to make this thing happen? Creating a monetary system which is both fair and stable is possible
and can be achieved. What are international organisations
for if not for such a purpose? National currency reform Banks are the most
heavily subsidised businesses in the world, specially protected by governments. While the money runs out
for the rest of us, the largest private banks still thrive. This is because they get
the biggest subsidy of them all: the licence to print money. Hard to believe? Martin Wolf, the Chief Economics Editor
of the Financial Times, said it recently: “The essence
of the contemporary monetary system is the creation of money out of nothing
by private banks, often foolish lending”. You heard that right. Private banks create money out of nothing. Then, they loan it to us
and ask for interest on top. If you’ve ever wondered
why the bank buildings around the world soar higher than any palace
or spire ever did, you now have the answer. But the banks don’t simply print money using secret printing presses
in their basements. They don’t have to. Like so many other things these days,
printing money has now gone digital. With the popular use of debit cards, electronic fund transfers
and internet banking, only 3% of the money in the UK
is now made of paper and metal coin. The other 97% is entirely in computers. Electronic money is convenient
for everyone, but it’s especially convenient
for the private banks, since they own, run and control
the entire digital money system. And what do they do
with this special privilege? Do they channel new money,
the blood supply of the nation, towards the things we need like hospitals,
schools, universities and public transport? Not if it doesn’t make a profit for them. Instead, they use their licence
to print money to gamble on the financial markets and push house prices out of reach
of ordinary people by pumping hundreds of billions
of pounds into risky mortgages. This is exactly how the banks caused
the financial crisis, and now the rest of us are being asked
to pay for it. If we can’t afford to run hospitals
and build schools, can we really afford
to subsidise the financial industry? Should we have to live
with less so the bankers can have more? This is ludicrous
and it’s time to put a stop to it. The private banks can’t be trusted
to hold the reins to our entire economy. We need to take away the banks’ power
to create money out of nothing. This will stop them from causing
yet another financial meltdown and allow us to afford the crucial services
that we as a society need. Democratise the money supply What does a progressive financial system
look like? And I want to hear what you think. Who thinks, for example, that we should ban banks
from creating money? Control over how money is created
and what it’s used for is a democratic issue. You currently have
the profit-seeking banking sector, not accountable to anybody
other than themselves, who are creating up to £200 billion a year
of new spending power and deciding where in the economy that goes. Monetary reformers believe
that that entire money supply should be for the benefit of the public and should never be created
by a private organisation as debt. Democratising the money supply means
putting the power to issue and allocate money
back into hands of people, and taking it away
from private organisations and institutions that don’t actually represent the people, that aren’t democratically accountable
to the people. The banks aren’t
democratically accountable. They’re accountable to their shareholders
and their shareholders only. Now they’re underwritten by us, by the taxpayer, but they’re not accountable to us. That doesn’t make any sense at all. So, if you democratise
the monetary system, you are subjecting it
to the same kinds of discipline, as the education system,
as the health service, and other key publicly needed services. There is no reason that money
should be viewed as any different. It is a fundamentally important service
that everybody needs. I can’t survive without enough money,
nobody can. So it cannot be controlled purely
by this small elite of big banks, as it is in the UK. We do need a different system. We believe that the activity
of supplying a nation with money should be completely separate
from the activity of banking. What we need to do now is update
that law from 1844 to make the digital money real money. It could be electronic money,
but it needs to be classified as money. We just want banks to be like
every other private company in the economy, to be subject to market discipline. The problem is that now we’re
in this hybrid model where we have no control
over how they spend the money, which creates our money, but also we’re reliant on them
to create our money. We’re all constantly in debt. We’ll be in debt
pretty much for the rest of our lives, and the younger generations have it
even worse than the older generations. I’ve just been reading a report from the United Nations
Environment Programme, and they say we need $2 trillion a year. Can you imagine what two trillion is? It’s a lot of money. $2 trillion a year to finance
the greening of the economy, to move away from poisonous carbon, which is poisoning the atmosphere,
to alternatives to carbon. When the banks collapsed in 2007-9,
we found, according to the Bank of England, not me, the Bank of England tells me
that we raised $14 trillion in a year to bail out the banks, so against that, $2 trillion a year
to bail out the ecosystem is no big deal. This kind of model doesn’t make
any sense either from an orthodox free-market perspective, because these banks are monopolists: effectively they monopolise
credit creation, so they don’t obey the rules
of any free-market discipline. Yet at the same time,
they are not producing socially or environmentally beneficial
outcomes along any real scale. All that money does is enable us
to do what we can do, and once we get our heads around that,
we can make money work for what we need. The power to create money is so powerful. You’ve got to be very concerned
about who has that power. If it’s somebody who’s going
to benefit from creating the money, then they’re going to have the incentive to create more
than the economy actually needs. The same would probably happen
if you give that power to politicians. You know, you can’t trust the politicians
to be trying to please voters and to have power over creating money
at the same time. It’s a real conflict of interest. The only thing you really can do is to give it to somebody
who has no conflict of interest, an independent, transparent,
accountable body. Money could be allocated according to the needs and desires
of the population. Systems could be put in place to allow for direct democratic allocation
of funds, either wholly or partially. A framework and rules could be established
to incorporate up-to-date economic theory into how much money should be created
and for what types of purposes. The government would no longer be able
to get access to large sums of money
to pursue armed conflict, if this was not sanctioned
by the populace. We would be able to see exactly
what they’re doing with the power to create money. We would be able to see
how much they’re creating and where that money is going. And that is pretty much
the only way we can get control over the power to create money
and stop it being abused. The Money Reform Party was established
in 2005, just after the 2005 general election. The idea of the Money Reform Party was
that we would have this basic core issue that people would agree with. They might disagree on other issues
, that’s fair enough, there are different ways
of going about it, but that was the idea, to go for what you might call
the lowest common denominator, to attract people with disparate views. Getting elected to Parliament
is not the issue, it’s getting the issue of money reform
into the public domain so people will begin to talk about it. Safe banking Banks should not be able to gamble
with your money without your permission, so they should offer two types of account. One is a safe account,
a transactions account. Put your money in there,
the bank doesn’t lend it, they don’t put it at any risk whatsoever. The other is an investment account, where you put your money in
for a certain period of time, and then the bank takes that away
and they invest it. What happens when you use
these two types of account is that, in the event that a bank fails, the money in the safe accounts is still there, it’s not at risk. So you just move all the safe accounts
to a bank that is still healthy. Those people who put their money
in the investment account, they don’t lose everything, but they have to wait
for the standard liquidation procedure to find out how much of the assets
of the banks will be returned to them. It means that the government
then never needs to bail out a bank. Banks can be allowed to fail. The system would actually be
how people think it is, that when you put your money
in the bank it’s really safe, or at least they used to think,
perhaps before the 2008 crisis. There’s a spectrum of opportunities there which we’re just not exploring
at the moment, that’s what’s upsetting me,
that we’re not even experimenting, when we know that the system we have now
is fundamentally flawed. We’ve just had the biggest crisis
since the Second World War, since the 1930s, really. We know we have a system where the creators
of money are underwritten by us anyway. It’s kind of the worst of both worlds
the situation we have at the moment, which is why we need to start thinking
of genuine alternatives. So when we’re talking about
what life is going to be like in the post-reformed system, it doesn’t mean that you can’t borrow, it doesn’t mean
that you have to save up for 50 years before you can buy a house. It does mean that you might not be able
to buy a house that’s 10 or 12 times your income, but on the flip side, it means
that the house that you want to buy probably shouldn’t cost you
10 or 12 times your income. Houses should be affordable,
as should everything else. You’ll still be able to get a mortgage. You’ll still be able
to get finance for a car. Businesses will still get investment. It just means that debt won’t be so high. It won’t be such a huge feature
of people’s lives. Person to person banking Person to person banking has been around
for a while. It’s essentially the eBay of banking, so it allows borrowers and lenders
to be put together in a marketplace. Default rates at the largest
peer-to-peer lender, Zopa, are 0.7%. Risk is minimised by pooling funds so that each investor’s contribution
to a specific loan remains minimal. There’s a site which is
about currency exchange, so again, bypassing
the kind of mainstream banking or currency exchange system,
and just doing it person to person. I think a lot of the interesting stuff that’s going to happen around currencies and around money more generally, is to do with the impact of the internet. My gut feeling is that we will see more and more of those types of systems. We will also see more and more applications
and things using our phones than we would ever have imagined and I think we’re only just
at the beginning of that. Barriers to reform The issue of monetary reform has historically been
a very sensitive issue, because of the incredible power,
wealth and privileges it bestows. In an age where analytic thought
and a scientific approach are held in such high esteem, there is no justifiable argument
for keeping the mechanics and implications of the monetary process
such a taboo subject. As democratic citizens we have the right
to demand a monetary system which is both stable
and beneficial to society. The banking lobby is very powerful. I suspect that they won’t be in favour
of these kinds of models, although ultimately one could argue that it’s a much more stable footing
for banks. The coalition government has set up an Independent Commission on Banking,
the ICB, and their remit is
to essentially make recommendations to the government
on how the banking sector can be fixed. Their remit includes figuring out
how they can prevent future bailouts. When they held their public meetings
around the country, at each of those meetings,
of the five panellists at that meeting, at least about three of them
were representatives of the big banks. It’s a bizarre relationship. If you were going
to try and improve building regulations, you wouldn’t hire a cowboy builder,
who’d built a building that collapsed. So why are we asking the banks for advice
on what we should do about banking? The Independent Commission
on Banking recommended two major reforms. The first was the implementation of greater capital
and loss-absorbing capacity. This in effect is complementary to Basel three, and will not differentiate
the UK banking system from the rest of Europe. The second recommendation was
the ring-fencing of retail banks. Although portrayed as harsh to the banks,
it can also be interpreted as a benefit, as retail banks will now have
a lower capital requirement ratio than investment banks. There’s this cosy relationship
between the government and the banks. In the middle of the crisis, I spoke to somebody
who was working in the Treasury, and he said pretty much
every second person that he spoke to was working for one of the big banks. So when it comes to a decision about whether you let
one of these toxic banks fail or whether you rescue it, what kind of recommendation
are you going to get from somebody who works in that bank? I’ve got a whole string
of letters and cards from various politicians over the years. Really you get letters
which in most cases say nothing at all apart from “Thank you very much”. Thank you for your letter
or thank you for your DVD. I’ll have a look at it. Or in the case, of course, letters to the last Prime Minister
a couple of years ago, “Thank you for your letter to the Prime Minister, it’s been passed on to the Treasury, who will no doubt respond to you directly
in due course”. And of course, I’m still waiting, about two years later, for any sort of response from the Treasury. David Cameron is the son
of a stockbroker at Panmure Gordon. Nick Clegg’s father was chairman
of United Trust Bank. Nick Clegg has had previous employment
in the banking sector. 18 of 23 cabinet members are millionaires. 1% of UK citizens are millionaires,
but 78% of the cabinet are millionaires. “This is the banking fraternities feeding station.” Banks balance sheets are now
4 times GDP at £6 trillion. They are holding the public hostage. Their wealth has become so great
through gaming the financial system that we are at a tipping point, whereby a single bank could now
take down the entire economy. “Eat her, eat her now, eat her!
She’s a public sector worker! Eat her! Suck her blood, Drink her dry!” We can’t let the banks
go back to business as usual because if they do then
all we’re going to see is more debt, more poverty, more inequality
and another crisis in 5 or 10 years, which we’re going to have
to pay for again. It is a political issue, ultimately,
because the reforms that are required can only be achieved
by Parliament. We don’t need
a very big Act of Parliament. All it has to do is basically prevent
the clearing banks from creating currency based
on the debt of their borrowers. That’s it. You stop that. This is George. George worked
in a big bank in the City of London. But one day without warning
George’s bank went bust. Luckily, the government rescued the bank
and George kept his job, but the greedy government wanted something
in return for their help. They demanded a higher tax
on George’s salary and bonus. For someone with a high-cost lifestyle
like George, a shock like this can be devastating. Now George struggles to afford the rent on his riverside apartment
in central London. The tyres on his Aston Martin are wearing thin and are barely road-legal. Unless George’s situation improves,
or unless someone like you helps him, then George may even be forced
to walk past the next Saville Row tailors and buy his suit from Topshop or Next. Even if George had anything to celebrate, he can no longer afford the champagne
to celebrate with. George is not alone.
Countless others are suffering like him. No-one knows how long it’ll be
until the good times return. But with your help
George can turn his life around. A simple monthly donation from you can bring a bit of sunshine
back to George’s life. Just £395 will help him celebrate
minor achievements with a magnum of Cristal champagne. As little as £900 will help George buy
a new set of tyres for his Aston Martin. £2000 can help George recover
his self-esteem with a suit
from a prestigious Saville Row tailor. But even a small amount will help. Just £200 will buy a meal for George
and his girlfriend Experience. Just £200 extra will buy the drinks. By adopting a banker
you won’t just be supporting someone like George in a time of need, you’ll also be supporting
the trendy wine bars of the City of London, the luxury car makers of Italy
and the tailors of Saville Row. You’ll be doing your patriotic duty
to support Britain’s greatest industry in its time of need. And when the good times return
and George gets his bonus back, the taxes he pays will help fund
the public services that the rest of you scroungers depend on. So please, until the good times return for George and those like him,
will you give today?

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