0:00:00.662,0:00:03.303 So, let's start at the beginning. 0:00:03.303,0:00:07.138 Back in the 1800s through to the 1840s. 0:00:07.200,0:00:12.345 Banks, at that time, actually had the ability to create money. 0:00:12.345,0:00:16.031 The way they did this was through printing pieces of paper. 0:00:16.031,0:00:19.983 When you put your coins into the banks, they give you a receipt 0:00:19.983,0:00:23.224 and that receipt would say you've deposited £5 0:00:23.224,0:00:30.052 and because it was more convenient to carry bits of paper around than to carry metal coins around, 0:00:30.052,0:00:32.425 people used to use the pieces of paper as though they were money. 0:00:32.425,0:00:35.464 They'd actually spend the paper in the shop, and so long as the 0:00:35.464,0:00:39.463 shopkeeper knew the bank and trusted the bank 0:00:39.463,0:00:45.094 he'd accept the paper. So, basically the pieces of paper that banks were issuing 0:00:45.140,0:00:48.830 were treated as money, and they became as good as money. 0:00:48.830,0:00:51.745 Now, when the banks caught on to this, they realised that 0:00:51.745,0:00:55.522 actually if we just issue more pieces of paper, 0:00:55.522,0:01:00.084 with more sums of money written on them and people treat them as money, 0:01:00.084,0:01:02.396 then effectively we have the power to create money. 0:01:02.396,0:01:04.024 So, the more that we issue 0:01:04.024,0:01:06.531 the more we can lend, and the more we can lend, the more interest we can get. 0:01:06.531,0:01:11.144 So, you can imagine with incentives like these, it didn't end well. 0:01:11.144,0:01:16.199 They created too much money and it started to cause instability in the economy. 0:01:16.199,0:01:18.583 It caused banking crises, and after 0:01:18.583,0:01:22.823 a number of years of this happening, the government of the day 0:01:22.823,0:01:25.398 It was a Conservative Prime Minister, 0:01:25.398,0:01:27.094 Sir Robert Peel, stepped in and said, 0:01:27.094,0:01:29.855 Well, we can no longer allow banks to issue paper money 0:01:29.855,0:01:32.282 because of the problems that it's causing in the economy. 0:01:32.282,0:01:35.225 So, they passed this piece of legislation 0:01:35.225,0:01:36.658 'The Bank Charter Act' 0:01:36.658,0:01:38.907 which said from this point on, only the Bank of England 0:01:38.907,0:01:41.304 will have the authority to create paper money 0:01:41.304,0:01:43.032 but they missed something out, 0:01:43.032,0:01:45.919 because paper money isn't the only way that you can make payments 0:01:45.919,0:01:49.384 and with the increasing use of cheques 0:01:49.384,0:01:52.507 people had a way of making payments using the numbers 0:01:52.507,0:01:55.581 that were in the ledger books at the banks, 0:01:55.581,0:01:58.475 the accounting entries. So they had this way of making payments 0:01:58.475,0:02:01.463 without actually needing the real paper or metal money. 0:02:01.463,0:02:06.004 Over time as we discovered electricity, we got debit cards 0:02:06.004,0:02:10.116 electronic fund transfers and internet banking. 0:02:10.116,0:02:14.366 To the point now where more than 99% of all the money that changes hands 0:02:14.366,0:02:16.624 does so electronically. 0:02:16.624,0:02:21.198 The shocking thing is that even though our monetary system now is electronic, 0:02:21.198,0:02:25.264 this law has never been updated since 1844, 0:02:25.264,0:02:29.145 which means that it's just shy of 170 years out of date. 0:02:29.145,0:02:32.544 The law that actually governs our monetary system. 0:02:32.544,0:02:35.984 Now, the reason that banks can create money 0:02:35.984,0:02:38.744 is that the liabilities, the accounting entries that they create 0:02:38.744,0:02:40.868 are what we are using as money. 0:02:40.868,0:02:46.545 When you use a debit card, there's no £10 notes 0:02:46.545,0:02:49.367 moving from your account to somebody else's account 0:02:49.367,0:02:51.984 It's actually just accounting entries between the banks 0:02:51.984,0:02:55.667 The Bank of England explains this quite clearly. 0:02:55.667,0:02:58.031 They say, 'the money-creating sector in the United Kingdom 0:02:58.031,0:03:00.983 consists of resident banks and building societies. 0:03:00.983,0:03:04.304 Money-creating organisations issue liabilities that are 0:03:04.304,0:03:06.544 treated as a media exchange by others. 0:03:06.544,0:03:09.948 and those liabilities are the numbers that you see in your account. 0:03:09.948,0:03:16.303 Now, what this has meant is with the rise of electronic means of payment 0:03:16.303,0:03:18.503 is that we reached the point where, 0:03:18.503,0:03:21.544 [Sir Mervyn King] "Most of the money in our economy 0:03:21.544,0:03:25.032 broad money, comprises liabilities of banks in the form of bank deposits." 0:03:25.032,0:03:27.304 So, most of the money in our economy comprises 0:03:27.304,0:03:29.704 liabilities of banks in the form of bank deposits. 0:03:29.704,0:03:34.544 When we talk about 97% of the money supply being created by banks 0:03:34.544,0:03:36.282 this is what we are talking about. 0:03:36.282,0:03:40.463 This chart. The blue line is the bank-issued money supply. 0:03:40.463,0:03:42.462 This is cash down here at the bottom. 0:03:42.462,0:03:47.265 So, this is 3% of all the money that exists. 0:03:47.265,0:03:50.544 and then this is the 97% of the money supply 0:03:50.544,0:03:52.866 that is created by the banking sector. 0:03:52.866,0:03:55.704 and this 3% is what is covered by the law. 0:03:55.704,0:03:59.782 and this is the 97% that is ignored by the current laws. 0:03:59.782,0:04:02.864 I always found it curious that there's this 0:04:02.864,0:04:06.224 one part of the state, the police, which is responsible for 0:04:06.224,0:04:10.543 hunting down and prosecuting anybody who prints their own money 0:04:10.543,0:04:13.965 privately; they call it counterfeiting. 0:04:13.980,0:04:16.055 Yet, there's a whole other part of the state, 0:04:16.055,0:04:18.704 which actually has more resources and more funding 0:04:18.704,0:04:22.625 to do everything possible to encourage banks, private companies 0:04:22.625,0:04:24.344 to create money. 0:04:24.344,0:04:28.532 and I could never really understand why this contradiction was there 0:04:28.532,0:04:32.224 and why it was good for electronic money to be created 0:04:32.224,0:04:36.263 by the private banking sector, but bad if anybody is printing paper money. 0:04:36.263,0:04:41.145 Now, I stumbled across this interview with Paul Fisher on the BBC 0:04:41.145,0:04:45.904 [Paul Fisher] "When you start printing money, you create some value for yourself. 0:04:45.904,0:04:48.825 If you can issue a thousand pounds-worth of IOUS to everybody, 0:04:48.825,0:04:50.949 you've got a thousands pounds for nothing. 0:04:50.949,0:04:55.907 And so we do restrict the ability of people to create their own notes in that way." 0:04:55.907,0:04:57.782 [Interviewer] "You're protecting us from ourselves?" 0:04:57.782,0:05:01.746 [Paul Fisher] "We're protecting you from charlatans". 0:05:01.746,0:05:05.584 [Laughter from audience] 0:05:05.584,0:05:09.305 He was talking about counterfeiting, but for me the key phrase is this 0:05:09.305,0:05:13.033 'If you can issue a thousand pounds-worth of IOUs to everybody, 0:05:13.033,0:05:15.504 you've got a thousand pounds for nothing'. 0:05:15.504,0:05:17.032 Now, what banks do when they create loans is 0:05:17.032,0:05:22.065 they issue liabilities, IOUs. In the last ten years alone, 0:05:22.065,0:05:26.427 banks have issued more than £1 trillion of these new 0:05:26.441,0:05:30.824 IOUs, these liabilities. Now, the something that they got for nothing 0:05:30.824,0:05:37.032 was £1 trillion worth of debt, of interest-bearing contracts. 0:05:37.032,0:05:40.745 This is mortgages, personal loans, business loans. 0:05:40.745,0:05:43.583 This is debt from us to the banking sector. 0:05:43.583,0:05:47.705 As you've seen this morning, the total interest that has to be paid on that debt 0:05:47.705,0:05:51.743 is a transfer from society to the banking sector 0:05:51.743,0:05:56.781 of between £108bn to £217bn every single year. 0:05:56.781,0:05:58.781 Now, of course, some of this comes back to people 0:05:58.781,0:06:00.983 through the interest on savings accounts, 0:06:00.983,0:06:04.742 and through the bonuses, the commissions and the taxes that banks pay, 0:06:04.742,0:06:08.583 but it's still a huge amount of this is creamed off in the middle, 0:06:08.583,0:06:10.824 and it's a massive transfer of wealth, 0:06:10.824,0:06:13.585 and it exacerbates inequality. 0:06:13.585,0:06:21.064 Now, I think, the economists and the people in government who defend this system 0:06:21.064,0:06:23.305 and say it's something we should keep and something useful, 0:06:23.305,0:06:27.137 I think they do so because they believe it can be controlled. 0:06:27.137,0:06:29.745 and they believe it can be controlled because they are taught 0:06:29.745,0:06:32.385 certain stories in Economics courses about the money multiplier 0:06:32.385,0:06:37.010 and that the central bank has control over how much money there is in the economy. 0:06:37.087,0:06:39.504 We really don't believe it can be controlled 0:06:39.504,0:06:44.116 and this is one of the reasons why we've settled on this particular style of reform. 0:06:44.116,0:06:48.224 but the reason it can't be controlled. For a start this doesn't look like 0:06:48.224,0:06:52.117 a money supply that has been controlled. This is something that's out of control. 0:06:52.117,0:06:55.616 but even Mervyn King has said that the Bank of England's key role 0:06:55.616,0:07:00.264 has always been to ensure the economy is supplied with the right quantity of money 0:07:00.264,0:07:03.305 neither too much nor too little. 0:07:03.305,0:07:07.225 'For fifty years, my predecessors struggled to prevent there being too much, so leading to inflation. 0:07:07.225,0:07:11.824 I find myself in the opposite situation of having to explain that there is too little money in the economy.' 0:07:11.824,0:07:17.116 So, this is the most powerful man at one of the most powerful central banks in the world 0:07:17.116,0:07:22.745 admitting that for the last half a century, they have struggled to keep the banks under control, 0:07:22.745,0:07:25.199 to keep the money supply under control. 0:07:25.199,0:07:30.383 And if you get an admission like this, I think it really shows that the system can't be controlled. 0:07:30.383,0:07:37.116 The book actually goes into great detail; probably about sixty pages explaining why the mechanism that 0:07:37.116,0:07:41.384 economists believe can control the money supply, no longer work. 0:07:41.384,0:07:47.665 But, fundamentally it's because you have this battle between the desire of the banking sector 0:07:47.665,0:07:50.700 to create as much money as possible to maximise their profits, 0:07:50.700,0:07:54.943 because the more money they create, the more they lend, and the more they lend, the more interest they receive, 0:07:54.943,0:07:59.823 and the need of the Bank of England to protect the public interest, 0:07:59.823,0:08:02.904 to limit inflation and instability in the economy. 0:08:02.904,0:08:06.506 And, these two for the last 50 years at least, 0:08:06.506,0:08:10.615 it's been the profit motive of the banks that has won out. 0:08:10.615,0:08:12.423 So, what are the consequences of this? 0:08:12.423,0:08:15.949 Well, firstly we know that banks create too much money. 0:08:15.949,0:08:19.224 They create this money for the wrong things. 0:08:19.224,0:08:25.664 So, we see the majority of money, when it's newly created it goes straight into the housing market and into the financial sector. 0:08:25.664,0:08:31.225 Very little, about 13%, over the last ten years has gone into non-financial businesses. 0:08:31.225,0:08:36.864 So, this is the real economy; the jobs, shops, businesses and factories. 0:08:36.864,0:08:42.949 And, about 10% has gone into credit cards, and personal loans, consumer finance. 0:08:42.949,0:08:47.544 And this has led to financial crises. As Adair Turner said, and as we saw this morning, 0:08:47.544,0:08:53.116 Some of the headlines that have been coming out of the last few days are getting worse and worse. 0:08:53.116,0:08:55.543 Britain is experiencing a worse slump than during the Great Depression. 0:08:55.543,0:09:00.663 For a while, we've been talking about we're in recovery; growth has been 0.1%. 0:09:00.663,0:09:04.366 Now, we're back into the double-dip recession, 0:09:04.366,0:09:07.300 and then we're back into recovery again, and now we're back into the triple-dip recession. 0:09:07.300,0:09:09.700 This is a real rollercoaster. 0:09:09.700,0:09:15.464 Global unemployment will reach a record £200 million in 2013. 0:09:15.464,0:09:22.867 200 million people. Is there nothing useful for those people to be doing, given the situation we're in right now? 0:09:22.867,0:09:29.867 But, there's not enough money. There's not enough numbers in computer systems created by the banking sector 0:09:29.867,0:09:32.282 to allow those people to do something useful. 0:09:32.282,0:09:38.031 It's led to massive indebtedness because money is created by banks when they make loans. 0:09:38.031,0:09:40.117 So, as the money supply goes up, the debt goes up. 0:09:40.117,0:09:45.703 And an entire generation has been priced out of being able to buy a home. 0:09:45.703,0:09:48.343 The inequality that we discussed. 0:09:48.343,0:09:51.304 The instability, which is really really bad for business. 0:09:51.304,0:09:57.366 You'll always hear economists and lobbyists for the banks saying that the current banking system is good, 0:09:57.366,0:09:59.583 because it provides credit for business and helps the economy to grow, 0:09:59.583,0:10:08.385 but actually we believe that on net this current banking system is really harmful for the business economy and for actual wealth-creation. 0:10:08.385,0:10:11.200 It's very environmentally destructive as we've talked about this morning. 0:10:11.200,0:10:13.741 And, it's bad for democracy as well. 0:10:13.741,0:10:19.464 The banks now have more power to shape the economy through their lending than the whole of government. 0:10:19.464,0:10:22.782 But, we have all these MPs scrutinising what the government does, 0:10:22.782,0:10:27.361 and only about 80 board members paying attention to what the banks are doing. 0:10:27.361,0:10:32.463 And the reason the system's got to this point is because every time something has gone wrong with the current banking system, 0:10:32.463,0:10:38.905 the government has stepped in with a safety net or a new support measure to allow the system to continue. 0:10:38.905,0:10:42.304 And you've seen this at it's most extreme over the last five or six years. 0:10:42.304,0:10:51.383 Now, I want to make the point that some people assume that if the banking system is structured in a certain way, 0:10:51.383,0:10:54.065 it's because some wise men have sat down and designed it. 0:10:54.065,0:11:00.592 But the current banking system is, without getting into the evolutionist debate here, 0:11:00.592,0:11:04.543 there is no signs of intelligent design in the current banking system. 0:11:04.543,0:11:06.824 {laughter from audience] 0:11:06.824,0:11:08.782 It's evolved over time, and every time there's been a crisis 0:11:08.782,0:11:14.281 there's been some new package from the government, some new measure from the Bank of England. 0:11:14.281,0:11:20.704 Things like the bailouts, the funding for lending; all these different schemes to keep the system going. 0:11:20.704,0:11:27.328 Now, sometimes evolution works out really well, and you get something that is quite beautiful and efficient and effective 0:11:27.344,0:11:29.224 Sometimes it doesn't work out that well. 0:11:29.224,0:11:34.345 There's no prize for guessing which of these two fish represents the banking sector right now. 0:11:34.345,0:11:41.948 So, the thing is you know if you build your house on sand, it's going to collapse. 0:11:41.948,0:11:43.704 This is what we have at the moment. 0:11:43.704,0:11:45.616 We have a banking system that is really built on sand. 0:11:45.616,0:11:49.984 It doesn't matter how much reinforcement, or how much support you do. 0:11:49.984,0:11:52.224 It's not enough to go to the occupants and say, 0:11:52.224,0:11:55.781 'please tred lightly while you're inside the house, because it's a bit unstable, 0:11:55.781,0:11:58.383 and if you could lose some weight that would be great too.' 0:11:58.383,0:12:04.700 You have to wipe it away. You have to start again and build something on firm foundations from the ground up. 0:12:04.700,0:12:08.064 And, this is what we believe we are doing in the book here. 0:12:08.064,0:12:11.447 So, we have this very dysfunctional system, 0:12:11.447,0:12:16.532 that isn't really working in the interests of the economy or the interests of society. 0:12:16.532,0:12:24.224 My colleague Andrew Jackson, who's done, by far, the largest part of the work on this book, found this quote, 0:12:24.224,0:12:28.116 which I think really sums up part of the ethos behind the book. 0:12:28.116,0:12:33.904 'Our problems are man-made, therefore the may be solved by man. No problem of human destiny is beyond human beings'. 0:12:33.904,0:12:38.781 The monetary system is just a collection of rules and laws and computer systems. 0:12:38.781,0:12:41.544 And it's actually remarkably easy to change. 0:12:41.544,0:12:49.367 The real challenges are the things like the environmental crisis, the water crisis, the energy crises, 0:12:49.367,0:12:54.464 the changes that we're going to see over the next 40 years, the growing population; 0:12:54.464,0:13:00.159 those are real tangible problems that we need to find real practical ways of dealing with. 0:13:00.159,0:13:03.500 This is just an artificial monetary system. 0:13:03.500,0:13:05.282 It's a computer system. 0:13:05.282,0:13:13.616 We can't let ourselves be distracted from those big challenges by this artificial, broken, dysfunctional monetary system. 0:13:13.616,0:13:16.032 So, what do we do? 0:13:16.032,0:13:19.366 Well, I'll take you through these quickly. 0:13:19.366,0:13:22.065 And, then we'll go into a bit more detail on each of them. 0:13:22.065,0:13:25.449 The first thing is that we need to remove the power of banks to create money. 0:13:25.449,0:13:29.504 We need to return that power to a transparent and accountable process. 0:13:29.504,0:13:32.984 We have money created free of debt. 0:13:32.984,0:13:36.866 We create money only when inflation is low and stable. 0:13:36.866,0:13:43.544 We make sure that any new money goes into the real economy instead of into the financial markets and property. 0:13:43.544,0:13:52.104 And, we give us, as customers of banks and as members of the public, control and transparency over how our money is actually invested. 0:13:52.104,0:13:55.745 First one; removing the power of banks to create money. 0:13:55.745,0:13:58.865 I don't want to take you through all the technical details of how this is done. 0:13:58.865,0:14:01.505 It's explained quite simply in the book. 0:14:01.505,0:14:08.063 but we'll also be releasing, in the next month, a series of videos that go through step-by-step if you prefer to see things visually. 0:14:08.063,0:14:10.984 But, just a quick overview. 0:14:10.984,0:14:14.308 As I said, banks currently have the power to create money, 0:14:14.308,0:14:18.426 because the liabilities that they issue are the money that we use in the economy. 0:14:18.426,0:14:23.666 So, money-creating organisations issue liabilities that are treated as media of exchange by others. 0:14:23.666,0:14:26.424 We use these liabilities to make payments to each other. 0:14:26.424,0:14:32.385 In the current system, we're here using the liabilities of these banks to make our payments. 0:14:32.385,0:14:36.032 And what we do through the particular reforms outlined in the book, 0:14:36.032,0:14:40.365 is that we actually start using money that is created by the Bank of England. 0:14:40.365,0:14:46.366 So, instead of you using a promise to pay from a bank as your way of paying somebody else, 0:14:46.366,0:14:50.662 you're actually using real electronic money that is being created by the Bank of England. 0:14:50.662,0:14:54.583 What this means for you as a customer of a bank is that you have two options when you get your salary. 0:14:54.583,0:14:59.304 You can either say to the bank, 'look, keep it safe for me', or you can say to them, 0:14:59.304,0:15:02.143 'I want you to go and invest it for me. I want to get some interest'. 0:15:02.143,0:15:06.866 And, if you say you want your money to be kept safe, then this money will be put into a transaction account, 0:15:06.866,0:15:10.117 which is effectively the same as a current account now. 0:15:10.117,0:15:12.463 But, the difference between a current account and these new accounts 0:15:12.463,0:15:16.781 is that your money would actually be at the Bank of England. 0:15:16.781,0:15:20.305 It would actually be electronic money stored electronically at the Bank of England. 0:15:20.305,0:15:23.283 And, that would actually be yours. 0:15:23.283,0:15:24.703 It wouldn't be the banks. 0:15:24.703,0:15:28.199 They wouldn't be able to play with it, to invest it, to do anything with it. 0:15:28.199,0:15:33.864 This investment account, what you're actually doing there is you're giving your electronic money that was created by 0:15:33.864,0:15:39.903 the Bank of England to your bank, so that they can then go and lend it to somebody else. 0:15:39.903,0:15:45.144 What this does, through the fairly simple rule changes and a few accounting changes, 0:15:45.144,0:15:52.384 this makes banks into what people think they are now, which is intermediaries, middle-men between savers and borrowers. 0:15:52.384,0:15:59.183 After this reform, what banks will be doing is taking money from savers and investors, 0:15:59.183,0:16:03.031 and actually lending it to borrowers, doing exactly what people think they do now. 0:16:03.031,0:16:05.949 So, with banks no longer having the power to create money, 0:16:05.949,0:16:08.906 we need to return that power to a transparent and accountable process. 0:16:08.906,0:16:17.144 I'm sure everybody is here, because they know we can't trust banks to create money for all the reasons that we've discussed. 0:16:17.144,0:16:21.025 But, I guess you wouldn't trust these people either, 0:16:21.025,0:16:26.543 because the problem is that politicians have the same incentives to abuse the power to create money as the banks do. 0:16:26.543,0:16:33.064 The more of it they create, the more of an artificial boom they can create in the economy to get people to vote for them. 0:16:33.064,0:16:35.543 And, that's going to end up badly. 0:16:35.543,0:16:43.064 So, the absolute key thing that needs to be done is that you have to separate the decision over how much money is created, 0:16:43.064,0:16:45.449 and what that money is used for. 0:16:45.449,0:16:50.384 Because as soon as the same person or the same organisation is making those two decisions you have a conflict of interest. 0:16:50.384,0:16:55.503 So, what we've suggested is that a new committee, the Money Creation Committe, 0:16:55.503,0:16:58.144 which would replace the Bank of England's Monetary Policy Committee, 0:16:58.144,0:17:03.667 becomes responsible for deciding how much the money in the economy needs to increase or decrease by, 0:17:03.667,0:17:08.663 and the government would be responsible for actually deciding how to get that money into the economy. 0:17:08.663,0:17:15.305 The really important thing is that you make sure that this money creation committee is sheltered from lobbyists. 0:17:15.305,0:17:21.505 Either from the elected government of the day, who will have their own objectives for what they want the economy to do, 0:17:21.505,0:17:24.222 which might not line up with the best interests of the economy, 0:17:24.222,0:17:26.199 and from the banks as well. 0:17:26.199,0:17:29.279 This whole process needs to be transparent, accountable, 0:17:29.279,0:17:31.672 accountable to parliament. 0:17:31.672,0:17:35.064 We can't have George Osborne calling up the Money Creation Committee and saying, 0:17:35.064,0:17:40.544 'Can you put another £100 billion into the economy, because I really need a recovery before 2015?' 0:17:40.544,0:17:44.949 Then, you need to make sure that money is only created when inflation is low and stable. 0:17:44.949,0:17:47.665 So, let me show you what happens with the current system. 0:17:47.665,0:17:51.365 So, banks increase their lending, which means they are creating more money. 0:17:51.365,0:17:55.200 This starts to push prices up, and they think the economy is healthy, so they lend more. 0:17:55.200,0:17:58.223 And, they say, 'Wow, look at house prices. We should be lending even more' 0:17:58.223,0:18:01.985 And, at this point you're in a bubble, but everybody is convincing themselves that it's not a bubble. 0:18:01.985,0:18:06.065 And, this is more or less what has happened to the money supply over the last 40 years, 0:18:06.065,0:18:07.905 particularly over the last 10 years. 0:18:07.905,0:18:14.064 What would happen with the Money Creation Committee is that they start putting into the economy, 0:18:14.064,0:18:18.463 and when it starts to cause prices rises, so it starts to cause inflation, then they stop. 0:18:18.463,0:18:24.949 When the inflation goes down, they create money again, and then they stop again until things settle out. 0:18:24.949,0:18:30.703 Instead of when the banks are creating money, the more they create the more inflation there is, 0:18:30.703,0:18:32.303 and the more they want to create, 0:18:32.303,0:18:37.543 because they think, 'house prices are rising, so we can afford to lend more to people to buy houses'. 0:18:37.543,0:18:42.984 The Money Creation Committee actually has a responsibility to stop creating money when it causes inflation. 0:18:42.984,0:18:46.700 So, it's completely the opposite of what the banks will do in that situation. 0:18:46.700,0:18:53.102 We often get the question, 'Isn't all money creation inflationary? Isn't all money creation going to push up prices?' 0:18:53.102,0:18:55.905 Well, it really depends. 0:18:55.905,0:19:01.424 Because, if you put 40% of all new money that you create into housing and into financial markets, 0:19:01.424,0:19:04.783 then you're going to expect prices in those markets to go up. 0:19:04.783,0:19:08.463 And, we've seen that with housing. We've seen that with the Stock Market. 0:19:08.463,0:19:12.624 I don't know if you've seen the newspaper yesterday, but there was a weird headline. 0:19:12.624,0:19:16.949 First, it was, 'This slump is worse than the Great Depression', 0:19:16.949,0:19:20.573 and beneath that it's, 'Markets hit 4 1/2 year high.' 0:19:20.573,0:19:23.077 It's like why is this, why? 0:19:23.077,0:19:26.750 It's a symptom of where thie money is going, particularly quantitive easing. 0:19:26.750,0:19:32.825 If you instead put money into non-financial businesses, so into the real economy, 0:19:32.825,0:19:35.624 then what you're going to do is stimulate that part of the economy. 0:19:35.624,0:19:40.532 You know we have 2 1/2 million people at home doing nothing. They can be employed. 0:19:40.532,0:19:46.782 What you actually get is economic activity will increase. So, the economy will grow. 0:19:46.782,0:19:49.503 So, not all money creation is inflationary. 0:19:49.503,0:19:56.344 It can actually, if it's put into the right parts of the economy, it can help the economy to grow faster than any inflationary pressure. 0:19:56.344,0:19:58.781 We need to create money free of debt. 0:19:58.781,0:20:02.281 Now, this is one of the most fundamental points of this whole book, 0:20:02.281,0:20:10.949 because when 97% of all the money we are using is created by banks when they are making loans, 0:20:10.949,0:20:15.507 that means that the more money we want in the economy, the more debt we have to have. 0:20:15.507,0:20:19.102 If we've just had a crisis, and we need some new money into the economy, 0:20:19.102,0:20:23.583 then the only real way to get it in there is to have the banks increase their lending, 0:20:23.583,0:20:27.624 which is why you see such an emphasis now on, 'well, we've got to get banks lending again'. 0:20:27.624,0:20:30.345 Even though the crisis was caused by people having too much debt. 0:20:30.345,0:20:34.031 And, vice versa if we want less debt in the economy, then we have to have less money, 0:20:34.031,0:20:37.449 because as you repay your debts that money is effectively cancelled out. 0:20:37.449,0:20:40.464 It's just the reverse accounting process of money creation. 0:20:40.464,0:20:48.904 We what actually need is less debt, and we need more money in the economy to get out of this current crisis, this current recession. 0:20:48.904,0:20:52.544 That's impossible in the current system. As you see here, the two of them are tied together. 0:20:52.544,0:20:55.184 As the money supply goes up, the debt does up, 0:20:55.184,0:21:01.781 because the money and the debt is the opposite side of the same accounting entry, the same balance sheet. 0:21:01.781,0:21:08.419 So, this what we can expect to see happen if we do have a recovery now with the current system, that the debt will rise. 0:21:08.419,0:21:13.987 And, eventually this is going to lead to yet another crisis, but it may be much much worse the next time. 0:21:13.987,0:21:18.199 What these reforms do is they separate the creation of money from the creation of debt. 0:21:18.199,0:21:25.866 So, when banks are lending, they are actually transferring existing money from a saver to a borrow, 0:21:25.866,0:21:28.281 but they are not creating money in the process. 0:21:28.281,0:21:32.950 So, the money can be created, and that money can be used to pay off a lot of the existing debt. 0:21:32.950,0:21:37.144 And, also because of some of the other changes that need to be made to the accounting, 0:21:37.144,0:21:46.145 which are explained in the book, it allows us to pay off nearly a £1 trillion of household and personal debt over the course of about 20 years. 0:21:46.145,0:21:52.946 Just think about how much of a complete transformation that will make for the lives of most of the people in this country, 0:21:52.946,0:21:58.224 to not have this enormous debt. Personal debt is as high as it's ever been. 0:21:58.224,0:22:03.199 And, these changes to the system actually allow this debt to be reduced. 0:22:03.199,0:22:10.224 So, instead of having this annual interest charge on the entire money supply of £108bn to £217bn a year, 0:22:10.224,0:22:14.703 that could be cut down to possibly half of that, maybe even less. 0:22:14.703,0:22:17.544 The fifth thing. We need to put money into the real economy. 0:22:17.544,0:22:23.382 We talked briefly about this. There are about four options that you could use to get this money into the economy. 0:22:23.382,0:22:28.585 So, you can spend more on public services; put the money into the government. 0:22:28.585,0:22:31.905 You can cut taxes. You could pay down the National Debt. 0:22:31.905,0:22:36.502 Or, you could actually just divide it up between people and give it directly to people. 0:22:36.502,0:22:42.782 We talk in the book about the combination of these that you would probably want to use and why. 0:22:42.782,0:22:48.046 And actually paying down the National Debt should be probably the last priority. 0:22:48.046,0:22:53.385 But the important thing is that all of these things, if they are done right, will get money into the real economy. 0:22:53.385,0:22:57.782 Whereas what we have now is we have banks putting most of the money into housing and financial markets. 0:22:57.782,0:23:02.744 And, some of this money trickles out of that market into the real economy. 0:23:02.744,0:23:08.543 What we'd like to see is that as the money comes in, as it's created, it goes to government, 0:23:08.543,0:23:12.032 and then it comes into the real economy first. 0:23:12.032,0:23:16.143 and, then the banks need to borrow that money from people and businesses in the real economy 0:23:16.143,0:23:24.782 before they can then lend it back to the real economy, back to businesses or to housing and to the financial markets. 0:23:24.782,0:23:30.704 One of the things we would like to see is that this flow of money into the financial markets and speculation, 0:23:30.704,0:23:35.424 and trading should really be reduced. 0:23:35.424,0:23:40.781 So, we need to give ourselves control and transparency over where our money is invested. 0:23:40.781,0:23:45.033 Now, I saw this advert the other day, which really made me laugh. 0:23:45.033,0:23:46.983 'Ever wondered where your money goes?' 0:23:46.983,0:23:50.344 This is Lloyds TSB saying, 'Have you ever wondered where your money goes'. 0:23:50.344,0:23:55.743 [Laughter from audience] 0:23:55.743,0:24:02.224 I think they weren't aware of the Move Your Money campaign or how much they were falling into their trap there 0:24:02.224,0:24:06.704 because, no, most people don't think about where their money goes, 0:24:06.704,0:24:10.031 and that's because the bank never tells you. 0:24:10.031,0:24:12.543 So, one of the things that we would do as part of these reforms 0:24:12.543,0:24:19.144 is require that if you're putting your money into an investment account, you're giving your money up so that the bank can go and invest it, 0:24:19.144,0:24:25.743 that the bank will actually tell you ok, 'we're going to use for the arms trade, for the oil industry, 0:24:25.743,0:24:31.145 for Tar Sands, for investing in businesses or investing in commodity speculation'. 0:24:31.145,0:24:38.304 Some people, we're not naive, won't care about this. They're not going to be bothered. 0:24:38.304,0:24:44.742 But it means that the people who do care what their money is used for, have that option to opt out. 0:24:44.742,0:24:47.305 To say, 'I don't want my money to be used in this way'. 0:24:47.305,0:24:51.464 And to choose different accounts, where their money will be used differently. 0:24:51.464,0:24:53.985 Is it going to be easy to get this through? Of course, not! 0:24:53.985,0:24:58.144 There's going to be massive opposition. There's huge vested interests. 0:24:58.144,0:25:05.064 And, some of the things that we'll hear over the next few years as these things get out into the mainstream, 0:25:05.064,0:25:11.144 things like, 'It'll be inflationary'. If you allow the state to create money, that's going to cause inflation. 0:25:11.144,0:25:13.985 Really this is quite an easy one to answer. 0:25:13.985,0:25:16.823 Well, which of these two is most likely to cause inflation. 0:25:16.823,0:25:23.544 You know banks who want to create as much money as possible, because they maximise their profits by creating more, 0:25:23.544,0:25:29.867 or a committee that is responsible for stopping money creation when inflation starts to go up. 0:25:29.867,0:25:32.306 It's quite a clear choice. 0:25:32.306,0:25:38.305 And they you'll get, 'I'll be hyperinflationary'. We'll end up like Zimbabwe or Germany in the 1920s. 0:25:38.305,0:25:48.115 Well, the people making that claim, unfortunately, are very ignorant of what actually happened in Zimbabwe 0:25:48.115,0:25:50.825 and what actually happened in Weimer Republic Germany. 0:25:50.825,0:25:58.469 Now, in the book there's a whole appendix on Zimbabwe and other examples where there have been hyperinflations, 0:25:58.469,0:26:02.366 and other examples where states have created money without hyperinflations, 0:26:02.366,0:26:10.449 There's a study that we've quoted in there where they go through all 50 recorded hyperinflations in history, 0:26:10.449,0:26:17.186 and found that all of them there's been an economic collapse or a political collapse or a war 0:26:17.186,0:26:19.384 before the hyperinflation actually started. 0:26:19.384,0:26:24.747 It wasn't just because some central bankers started printing money willy-nilly. 0:26:24.747,0:26:29.143 There was some fundamental collapse in the economy, before these hyperinflations started. 0:26:29.143,0:26:35.384 So, the idea that this will lead to hyperinflation is very misguided. 0:26:35.384,0:26:38.986 You'll hear this one all the time. 'It'll drastically reduce the level of credit.' 0:26:38.986,0:26:41.344 We actually heard it from the Independent Commission on Banking. 0:26:41.344,0:26:45.742 We asked them what they meant by the word drastic. 0:26:45.742,0:26:50.950 Did they mean a 10% or a 50% [decrease]? They didn't really know; they didn't get back to us on that. 0:26:50.950,0:26:57.867 We also asked them if we could see their calculations or their modelling or the working out that they'd done 0:26:57.867,0:27:01.782 to show it would be drastic, and funnily enough they didn't get back to us on that either. 0:27:01.782,0:27:07.342 So, this is just a knee-jerk reaction without really understanding the way the system works. 0:27:07.342,0:27:13.144 The savings products at the moment where people have said I don't need my money for the next 6 or 12 months, 0:27:13.144,0:27:18.624 already today, there is enough money in those accounts, enough liabilities, 0:27:18.624,0:27:23.464 to cover all of the investment that is needed in the business economy, 0:27:23.464,0:27:28.031 and to keep people being able to buy houses without pushing house prices up. 0:27:28.031,0:27:33.983 There's already enough money out there to provide finance to the bits of the economy that we really need. 0:27:33.983,0:27:40.185 There might not be enough money to push house prices up at 200% in ten years. 0:27:40.185,0:27:43.750 There might not be enough money to fund all this speculation in the financial markets, 0:27:43.750,0:27:45.781 and I think that's a good thing. 0:27:45.781,0:27:49.367 And, then you'll hear this one. 'Well, you'll kill Britain's best industry'. 0:27:49.367,0:27:55.533 You know, we need the banking sector, because the taxes they pay, pay for our schools, our hospitals. 0:27:55.533,0:27:59.781 If not we'd all be scratching out a living in the dirt.' 0:27:59.781,0:28:10.867 It's not true. The banking sector; in the year that it paid the most tax in history, manufacturing in this country paid three times more tax. 0:28:10.867,0:28:17.781 Does anybody want to take a guess at what this number represents? 0:28:17.781,0:28:22.225 It's the number of workers in banking relative to the number of workers in the rest of the economy. 0:28:22.225,0:28:26.144 Banking only employs one in every 53 people. 0:28:26.144,0:28:31.531 So, for every one person in banking, every one person in this industry that we are protecting, 0:28:31.531,0:28:37.623 by not asking them to make changes and not asking them to reform the way that they do business, 0:28:37.623,0:28:43.783 there are 52 people in the rest of the economy that are negatively affected by the impacts of this banking sector. 0:28:43.783,0:28:50.624 So, these reforms are really for the other 98% of the working population. 0:28:50.624,0:28:54.345 for the businesses, for the people with jobs outside of banking. 0:28:54.345,0:29:02.905 So, I should probably qualify this. There's nothing personal about what we're doing against banks, or the people who work in them. 0:29:02.905,0:29:07.905 It's the industry that's the problem. It's the design of the industry and the effects that it's having. 0:29:07.905,0:29:14.700 And, it not about the people in them. It's about changing the rules of the game, and the ways these companies can operate. 0:29:14.700,0:29:17.063 And, you'll also hear. 'It's too radical', 0:29:17.063,0:29:22.304 which is quite bizarre given that we're just proposing that this law from the 1840s is updated. 0:29:22.304,0:29:27.224 I can't imagine the Conservatives of the 1840s were really considered to be radicals. 0:29:27.224,0:29:29.185 So, the benefits of reforming. 0:29:29.185,0:29:34.183 We get stable money. We get this instead of this. 0:29:34.183,0:29:37.624 We get debt falling like this. 0:29:37.624,0:29:43.985 Instead of house price bubbles we'll have house prices that will stay flat until earnings have actually caught up, 0:29:43.985,0:29:45.615 and they become affordable again. 0:29:45.615,0:29:49.780 Unemployment, I just want to give you one example of how ridiculous this current system is to wrap up with. 0:29:49.780,0:29:56.704 We have 2.5 million people sat at home, doing nothing, desperately looking for something useful to do for a job. 0:29:56.704,0:30:01.543 We also have things that need doing in the economy. 0:30:01.543,0:30:03.067 We have schools that need rebuilding. 0:30:03.067,0:30:08.304 The government has been dilly-dallying over this school rebuilding programme for the last few years, 0:30:08.304,0:30:13.065 saying, 'there's not enough money. We're in a recession. We need to get our public finances under order'. 0:30:13.065,0:30:18.183 And, they finally came out and allocated £2 billion for rebuilding schools in England. 0:30:18.183,0:30:21.903 Now, £2 billion sounds like a lot of money, 0:30:21.903,0:30:26.343 and it's so much money that they've had to borrow it from Private Finance Initiative. 0:30:26.343,0:30:30.948 So, they are actually borrowing money that is created through accounting entries from banks, 0:30:30.948,0:30:37.222 and paying interest on that, because they haven't got enough money of their own to fund rebuilding of the schools. 0:30:37.222,0:30:41.982 Now, the reason for that, according to the BBC is that, 0:30:41.982,0:30:45.623 'This arrangement will spare the Department for Education's meagre capital budget, 0:30:45.623,0:30:51.305 the annual value of which is being halved over this parliament to £3.8 billion. 0:30:51.305,0:30:55.903 So, £3.8 billion pounds for rebuilding schools and keeping this whole education system, 0:30:55.903,0:30:59.905 the actual physical infrastructure of this, in order. 0:30:59.905,0:31:06.182 Again, sounds like a a lot of money, but this green line at the top here 0:31:06.182,0:31:12.366 is how much money has been put into mortgages and consumer finance over the last 20 odd years. 0:31:12.366,0:31:22.281 In June 1999, the banks created £4.5 billion of new money in one month to put into the property market. 0:31:22.281,0:31:25.116 Into buying existing houses and building a few new ones. 0:31:25.116,0:31:29.281 In 2005, they created £7 billion in one month. 0:31:29.281,0:31:35.033 In September 2007, they created £16 billion in one month to go into property. 0:31:35.033,0:31:42.224 So, in the space of one week, they've created as much money as the government is willing to spend on rebuilding schools in an entire year. 0:31:42.224,0:31:45.948 Now, this is crazy. If we give banks the power to create money, this is what they are going to do. 0:31:45.948,0:31:50.064 They're going to put it into markets like this instead of doing things that we actually need to do. 0:31:50.064,0:31:56.225 As I said before, we can't allow this system to continue working the way it is, 0:31:56.225,0:32:00.032 given the real challenges that we're going to face over the next 40 years. 0:32:00.032,0:32:02.584 So, this is what the book is about. 0:32:02.584,0:32:05.345 It can be heavy-going. 0:32:05.345,0:32:11.032 We've had to design it partly for the economists who would normally dismiss these ideas, 0:32:11.032,0:32:15.703 but we have tried to write it so that if you don't have that background in Economics, 0:32:15.703,0:32:19.665 if you start from the beginning, your knowledge will build up and this will really start to make sense. 0:32:19.665,0:32:27.422 And, if you get to the end, then you will know more about the monetary system than 99% of professional economists. 0:32:27.422,0:32:31.383 So, this is it. This is what we need to do. 0:32:31.383,0:32:35.781 The pressure is really on, because of the real challenges that we are facing. 0:32:35.781,0:32:42.985 The movement in this country is by far the strongest in the world. 0:32:42.985,0:32:49.200 This is the biggest gathering that I know of for reforming the monetary system. 0:32:49.200,0:32:53.383 So, if we don't do it then nobody else is going to push it through. 0:32:53.383,0:32:57.705 So, it's really down to us. That's what the rest of this afternoon is going to be about. 0:32:57.705,0:33:01.783 How we really change the system.