1 00:00:02,470 --> 00:00:08,690 NARRATOR: How is money created, where does it come from? Who benefits? And what purpose 2 00:00:08,690 --> 00:00:09,730 does it serve? 3 00:00:09,730 --> 00:00:11,810 SHOUTING: Back off you f*ing Nazi! 4 00:00:11,810 --> 00:00:16,109 What is the money system? What is the money behind the money system? 5 00:00:16,109 --> 00:00:21,369 NARRATOR: For centuries the mechanics of the money system have remained hidden from the 6 00:00:21,369 --> 00:00:28,739 prying eyes of the populace. Yet its impact, both on a national and international level, 7 00:00:28,739 --> 00:00:36,210 is perhaps unsurpassed, for it is the monetary system that provides the foundations for international 8 00:00:36,210 --> 00:00:39,290 dominance and national control. 9 00:00:39,290 --> 00:00:43,250 CHANTING: Whose streets? Our streets! 10 00:00:43,250 --> 00:00:49,430 NARRATOR: Today, as these very foundations are being shaken by crises, the need for open 11 00:00:49,430 --> 00:00:55,240 and honest dialogue on the future of the monetary system has never been greater. 12 00:00:55,240 --> 00:00:59,850 This economic crisis is like a cancer. If you just wait and wait, thinking this is going 13 00:00:59,850 --> 00:01:03,990 to go away, just like a cancer it's going to grow, and it's going to be too late. What 14 00:01:03,990 --> 00:01:10,720 I would say to everybody is, get prepared. This is not a time right now for wishful thinking 15 00:01:10,720 --> 00:01:14,570 that the government is going to sort things out. The governments don't rule the world: 16 00:01:14,570 --> 00:01:16,680 Goldman Sachs rules the world. 17 00:01:16,680 --> 00:01:19,700 "We're on the verge of a perfect storm". 18 00:01:19,700 --> 00:01:25,830 NARRATOR: In opposition lie corrupt and entrenched interests that lurk in the corridors of power, 19 00:01:25,830 --> 00:01:32,000 for whom there are no reasons to relinquish privileges that they feel are justly deserved. 20 00:01:32,000 --> 00:01:38,000 DAVID CAMERON: Has he got a reform plan for the NHS? [SHOUT: No!] Has he got a police 21 00:01:38,000 --> 00:01:41,820 reform plan? [No!] Has he got a plan to cut the deficit? [No!] 22 00:01:41,820 --> 00:01:58,409 SPEAKER OF THE HOUSE OF COMMONS: Order! Misorder! Order! Try to calm down and behave like an 23 00:01:58,409 --> 00:02:04,780 adult, and if you can't, if it's beyond you, leave the chamber. Get out. We'll manage without 24 00:02:04,780 --> 00:02:06,310 you! 25 00:02:06,310 --> 00:02:09,310 "This is the zombie banks' protected feeding station." 26 00:02:09,310 --> 00:02:14,830 There's no coincidence that boom and bust became a real cyclical issue around about 27 00:02:14,830 --> 00:02:21,090 the 1700s when William Paterson founded the Bank of England. 28 00:02:21,090 --> 00:02:24,490 "Eat her! Eat her now!" 29 00:02:24,490 --> 00:02:31,980 SPEAKER OF THE HOUSE OF COMMONS: This is intolerable behaviour as far as the public is… No, it's 30 00:02:31,980 --> 00:02:41,060 not funny! Only in your mind is it funny. It's not funny at all, it's disgraceful. 31 00:02:41,060 --> 00:02:43,310 CHANTING: Revolution! Revolution! 32 00:02:43,310 --> 00:02:48,400 NARRATOR: The system is inherently unstable as a result of the international power it 33 00:02:48,400 --> 00:02:54,920 provides to the dominant parties, for at the heart of it lies the idea of ‘How can I 34 00:02:54,920 --> 00:02:57,640 get something for nothing'. 35 00:02:57,640 --> 00:03:03,730 Statistical analysis has found that every time an empire begins to near its own demise, 36 00:03:03,730 --> 00:03:06,680 you'll find that its currency will be debased. 37 00:03:06,680 --> 00:03:11,500 There is no guide to how this whole system operates. To give you an example, a researcher 38 00:03:11,500 --> 00:03:16,069 at the BBC working on a Robert Peston documentary went to the Bank of England and said, "Can 39 00:03:16,069 --> 00:03:21,780 you give me a guide to how money is created?" And they just said, "no". 40 00:03:21,780 --> 00:03:27,040 NARRATOR: This documentary will investigate and explain this ever changing system, and 41 00:03:27,040 --> 00:04:05,300 the impact it has both on a national and international level. 42 00:04:05,300 --> 00:04:12,330 In 2010 the total UK money supply stood at 2.15 trillion pounds. 43 00:04:12,330 --> 00:04:17,720 2.6 % of this total was physical cash, £53.5 billion. 44 00:04:17,720 --> 00:04:27,580 The rest, £2.1 trillion, or 97.4% of the total money supply was commercial bank money. 45 00:04:27,580 --> 00:04:36,370 The 3% of money is created through the central bank and that money essentially, if you created 46 00:04:36,370 --> 00:04:42,240 a £10 note you could sell that to a bank to put into their ATM and the bank would have 47 00:04:42,240 --> 00:04:48,370 to repay that £10 or buy it for £10. There would be no interest charged on that money 48 00:04:48,370 --> 00:04:56,410 but that money is then essentially transferred to the Treasury and it's a form of fundraising 49 00:04:56,410 --> 00:05:07,210 for the government. It's called seigniorage. 50 00:05:07,210 --> 00:05:13,280 When the Bank Of England creates a 10 pound note, it cost it about 3 or 4 pence to actually 51 00:05:13,280 --> 00:05:20,520 print that note and it sells it to a high street banks at face value, so 10 pounds, 52 00:05:20,520 --> 00:05:27,009 and the profit, the difference between printing the note and actually selling it for 10 pounds 53 00:05:27,009 --> 00:05:33,759 goes directly to the treasury. So, in effect all the profit that we get on creating physical 54 00:05:33,759 --> 00:05:40,910 money, bank notes, goes to the treasury and it reduces how much taxes we have to pay. 55 00:05:40,910 --> 00:05:44,410 Over the last 10 years, that's raised about 18 billion pounds. 56 00:05:44,410 --> 00:05:52,610 NARRATOR: In 1948 notes and coins constituted 17% of the total money supply. This was one 57 00:05:52,610 --> 00:05:58,090 contributing factor in the government's ability to finance post-war reconstruction. This included 58 00:05:58,090 --> 00:06:00,169 the establishment of the NHS. 59 00:06:00,169 --> 00:06:10,650 In only 60 years notes and coins have shrunk to less than 3 % 60 00:06:10,650 --> 00:06:18,150 Prior to 1844 bank notes were created by private banks and the government did not profit from 61 00:06:18,150 --> 00:06:20,860 their creation. 62 00:06:20,860 --> 00:06:26,080 In the 1840s there was no law to stop banks from creating their own bank notes. So they 63 00:06:26,080 --> 00:06:33,509 used to issue paper notes as kind of a representative of what you had in the bank account. Instead 64 00:06:33,509 --> 00:06:37,889 of you taking your heavy metal coins out of the bank and then going and paying somebody 65 00:06:37,889 --> 00:06:42,490 with them you could get your paper which said how much money you had in the bank and you 66 00:06:42,490 --> 00:06:45,430 could give that to somebody and they could use that to go and get the heavy metal coins 67 00:06:45,430 --> 00:06:52,039 from the banks. Now overtime these paper notes became as good as money. People would use 68 00:06:52,039 --> 00:06:57,340 paper notes instead of going and getting real money from the bank and obviously as soon 69 00:06:57,340 --> 00:07:03,340 as the banks realised that what they were creating had become the dominant type of money 70 00:07:03,340 --> 00:07:08,120 in the economy, they realised that by creating more of it they could generate profits. They 71 00:07:08,120 --> 00:07:13,080 can just print up some new notes, lend it and get the interest on top of them. And they 72 00:07:13,080 --> 00:07:18,949 did that up until the 1840s. In the 1840s they pushed it just a little bit too far and 73 00:07:18,949 --> 00:07:26,110 that caused inflation, destabilised the economy. So in 1844, the conservative government of 74 00:07:26,110 --> 00:07:31,949 Robert Peel actually passed a law that took the power to create money away from the commercial 75 00:07:31,949 --> 00:07:36,490 banks and brought it back to the state. So since then the Bank of England has been the 76 00:07:36,490 --> 00:07:47,889 only organisation authorised to create paper notes. Since then everything has gone digital 77 00:07:47,889 --> 00:07:56,080 and what we now use as money is digital numbers that commercial banks can create out of nothing. 78 00:07:56,080 --> 00:08:03,210 The problem was that they did not include in that legislation the deposits, the demand 79 00:08:03,210 --> 00:08:11,509 deposits, held in banks by individuals or electronic forms of money which essentially 80 00:08:11,509 --> 00:08:17,440 what those demand deposits are. Today most of the money in circulation is electronic 81 00:08:17,440 --> 00:08:26,580 money, it's bank demand deposits that sit in our accounts. So in a way the legislation's 82 00:08:26,580 --> 00:08:35,729 got to catch up with the developments in electronic money and the way that banks actually operate. 83 00:08:35,729 --> 00:08:41,169 NARRATOR: Money held in bank accounts are called demand deposits. This is an accounting 84 00:08:41,169 --> 00:08:47,050 term the banks use when they create credit. Banks follow the same process when they create 85 00:08:47,050 --> 00:09:00,000 loans. All money held in bank accounts, is an accounting entry. 86 00:09:00,000 --> 00:09:05,989 The reality is now that most money is not paper and it's not metal coins, its digital. 87 00:09:05,989 --> 00:09:10,569 It's just numbers in a computer system. It's your Visa debit card, it's your electronic 88 00:09:10,569 --> 00:09:18,720 ATM card. It's this, its plastic. Its numbers in a computer system, you move money from 89 00:09:18,720 --> 00:09:25,379 one computer system to another, it's all a big database and this digital money is what 90 00:09:25,379 --> 00:09:29,819 we are now using to make payments with, it's what we actually use to run the economy. 91 00:09:29,819 --> 00:09:35,989 I think a lot of people in the UK probably think that the government or the central bank 92 00:09:35,989 --> 00:09:43,149 is in control of most money in circulation and issues new money into circulation, but 93 00:09:43,149 --> 00:09:49,540 that's not the case. It's private banks that create the vast majority of new money in circulation 94 00:09:49,540 --> 00:09:53,079 and also decide how it's allocated. 95 00:09:53,079 --> 00:10:02,499 NARRATOR: The official terminology for this accounting entry is commercial bank money. 96 00:10:02,499 --> 00:10:08,290 When banks issue loans to the public, they create new commercial bank money. When a customer 97 00:10:08,290 --> 00:10:15,779 repays a loan, commercial bank money is destroyed. The banks keep the interest, as profit. 98 00:10:15,779 --> 00:10:21,369 There's a lot of misconceptions about the way banks work. There was a poll done by the 99 00:10:21,369 --> 00:10:28,389 Cobden Centre where they asked people how they thought banks actually operated. Around 100 00:10:28,389 --> 00:10:32,720 30% of the public think that when you put your money into the bank it just stays there 101 00:10:32,720 --> 00:10:43,999 and its safe and you can understand why because every child has a piggy and you spend it. 102 00:10:43,999 --> 00:10:49,470 So a lot of people keep this idea of banking, it's somewhere safe to keep your money so that 103 00:10:49,470 --> 00:10:56,549 it's there whenever you need it. Another, the other 60% of people assume that when you 104 00:10:56,549 --> 00:11:00,629 put your money in that money is the same being moved across to somebody who wants to borrow 105 00:11:00,629 --> 00:11:06,660 it. So you have a pensioner who keeps saving money her entire life and then her life savings 106 00:11:06,660 --> 00:11:11,819 have been lent to some young people who want to buy a house. But actually banks don't work 107 00:11:11,819 --> 00:11:26,529 like that. 108 00:11:26,529 --> 00:11:33,499 At the moment in the UK money creation and control is largely in the hands of private 109 00:11:33,499 --> 00:11:43,079 banks. About 97 to 98% of money that's created is created as bank "debt money", you can call 110 00:11:43,079 --> 00:11:50,059 it, when banks issue money into circulation as loans essentially. This is a very poorly 111 00:11:50,059 --> 00:11:52,970 understood fact. 112 00:11:52,970 --> 00:11:59,910 It's not a conspiracy theory, it's not a crackpot theory, it's the way the Bank of England describes 113 00:11:59,910 --> 00:12:08,439 the process. When banks make loans they create new money. 114 00:12:08,439 --> 00:12:19,230 A few economists will realise the way the money system works but if you don't realise 115 00:12:19,230 --> 00:12:24,299 the way that money works and you think that everyone saving is going to work well for 116 00:12:24,299 --> 00:12:28,160 the economy. What really happens once you understand the way the money system works 117 00:12:28,160 --> 00:12:33,959 is that if everybody starts saving, the amount of money in the economy shrinks and we have 118 00:12:33,959 --> 00:12:38,709 a recession. So most economists don't have this full picture. They don't understand all 119 00:12:38,709 --> 00:12:46,649 the elements of the system. They rely on assumptions, on received knowledge without actually going 120 00:12:46,649 --> 00:12:52,999 into the details, and money is the centre of the economy. If you don't understand where 121 00:12:52,999 --> 00:12:59,999 it comes from, who creates it and when it gets created then how can you understand the 122 00:12:59,999 --> 00:13:05,679 entire economy? 123 00:13:05,679 --> 00:13:11,720 When the vast majority of money that we use now is not cash but its electronic money then 124 00:13:11,720 --> 00:13:15,569 whoever's creating the electronic money is getting the proceeds of creating that money 125 00:13:15,569 --> 00:13:19,329 and obviously creating electronic money is much more profitable than creating cash because 126 00:13:19,329 --> 00:13:25,790 you don't have any production cost at all. So while we've got £18 billion over the course 127 00:13:25,790 --> 00:13:33,619 of the decade in profit from creating cash, the banks have actually created £1.2 trillion. 128 00:13:33,619 --> 00:13:40,959 Between 1998 and 2007 the UK money supply tripled. £1.2 trillion pounds was created 129 00:13:40,959 --> 00:13:48,569 by banks, whilst £18 billion was created by the Treasury. 130 00:13:48,569 --> 00:13:52,540 A lot of people think when I say this or when you say this or when Positive Money say this 131 00:13:52,540 --> 00:13:58,529 that we are all a bunch of nutters. But on the 9th of March in 2009, the governor of 132 00:13:58,529 --> 00:14:04,429 the Federal Reserve, Ben Bernanke gave the first ever broadcast interview, the governor 133 00:14:04,429 --> 00:14:09,660 of the central bank of the United States of America had ever given and the day before 134 00:14:09,660 --> 00:14:16,709 that he bailed out AIG which is an insurance company, not even a bank actually to the tune 135 00:14:16,709 --> 00:14:22,000 of about a US$160 billion. So the journalist says to him: "Now Mr. Bernanke where did you 136 00:14:22,000 --> 00:14:25,989 get $160 billion to bail out AIG?" 137 00:14:25,989 --> 00:14:27,529 JOURNALIST: Is that tax money that the Fed is spending? 138 00:14:27,529 --> 00:14:34,799 BERNANKE: It's not tax money. The banks have accounts with the Fed, much the same way that 139 00:14:34,799 --> 00:14:39,919 you have an account in a commercial bank. So to lend to a bank we simply use the computer 140 00:14:39,919 --> 00:14:45,149 to mark up the size of the account they have with the Fed. So it's much more akin, although 141 00:14:45,149 --> 00:14:49,399 not exactly the same, to printing money than it is to borrowing. 142 00:14:49,399 --> 00:14:56,540 I found that talking on the door step from August last year around to August 2009 around 143 00:14:56,540 --> 00:15:04,459 to general election 8-9 months I suppose knocking on the doors, is that we tried to explain 144 00:15:04,459 --> 00:15:13,019 how the money system works, there's an almost in-built refusal of people to accept that 145 00:15:13,019 --> 00:15:21,119 such a bizarre situation could actually exist. "Ah no, it can't possibly. What do you mean? 146 00:15:21,119 --> 00:15:25,569 It can't...banks can't...banks don't create money out of thin air. That's ridiculous. 147 00:15:25,569 --> 00:15:30,519 They can't do that. They lend out their depositors' money." Most people have an idea of how money 148 00:15:30,519 --> 00:15:36,959 is. They are used to their own way of handling money and they try and implement their own 149 00:15:36,959 --> 00:15:43,660 idea of how their small household economy works into the national economy. And of course 150 00:15:43,660 --> 00:15:48,049 it just doesn't work out, it just doesn't work out at all. 151 00:15:48,049 --> 00:15:53,299 NARRATOR: By 2008 the outstanding loan portfolio of bank created credit, also known as commercial 152 00:15:53,299 --> 00:15:57,759 bank money, stood at over £2 trillion. 153 00:15:57,759 --> 00:16:05,579 As recently as 1982 the ratio of notes and coins to bank deposits was 1:12. By 2010 the 154 00:16:05,579 --> 00:16:14,350 ratio had risen to 1:37, that is for every pound of treasury-created money, 155 00:16:14,350 --> 00:16:18,999 there were 37 pounds of bank-created money. 156 00:16:18,999 --> 00:16:25,549 In the 10 years prior to the 2007 crisis, the UK commercial bank money supply expanded 157 00:16:25,549 --> 00:16:28,579 by between 7 to 10% every year. 158 00:16:28,579 --> 00:16:35,399 A growth rate of 7% is the equivalent of doubling the money supply every 10 years. 159 00:16:35,399 --> 00:16:40,839 DYSON: The amount of money they're creating out of nothing is just incredible, £1.2 trillion 160 00:16:40,839 --> 00:16:47,079 in the last 10 years. That money is being distributed according to the priorities of 161 00:16:47,079 --> 00:16:51,929 the banking sector, not the priorities of society. 162 00:16:51,929 --> 00:17:02,919 The banking sector itself grew from 1980, $2.5 trillion to $40 trillion by assets. In 163 00:17:02,919 --> 00:17:09,649 1980, global bank assets were worth 20 times the then global economy. By 2006 they were 164 00:17:09,649 --> 00:17:13,110 worth 75 times according to the UN. 165 00:17:13,110 --> 00:17:20,220 NARRATOR: As the following chart shows, total bank assets of UK banks as a percentage of 166 00:17:20,220 --> 00:17:28,380 GDP remained relatively stable at 50-60%, up to the end of the 1960s. After that they 167 00:17:28,380 --> 00:17:29,990 shot up dramatically. 168 00:17:29,990 --> 00:17:35,259 And the real money in the world to be made today is not by producing anything at all. 169 00:17:35,259 --> 00:17:40,909 It's simply by forms of speculating. Basically, making money from money. That's the most profitable 170 00:17:40,909 --> 00:17:49,600 and by far and away the biggest form of economic activity that exists in the world today. 171 00:17:49,600 --> 00:17:56,990 NARRATOR: Today, banks are no longer restricted by how much they can lend, and as such how 172 00:17:56,990 --> 00:18:03,470 much new credit they can create out of nothing. They are restricted solely by their own willingness 173 00:18:03,470 --> 00:18:05,659 to lend. 174 00:18:05,659 --> 00:18:11,820 DYSON: The issue with allowing banks to create money, there's two main issues. Firstly, the 175 00:18:11,820 --> 00:18:17,190 fact that they create this money when they make loans. So it guarantees that we have 176 00:18:17,190 --> 00:18:20,929 to borrow all our money for the economy from the banks. 177 00:18:20,929 --> 00:18:25,779 NARRATOR: As such, to have a healthy, growing economy the government needs to put in place 178 00:18:25,779 --> 00:18:30,850 strategies to allow for ever-increasing debt. 179 00:18:30,850 --> 00:18:35,940 The only way the government can create additional purchasing power is by getting itself and 180 00:18:35,940 --> 00:18:37,720 us, into more debt. 181 00:18:37,720 --> 00:18:44,350 DYSON: The second big issue with allowing the banks to create money is that they have 182 00:18:44,350 --> 00:18:48,830 the incentive to always create more.  They create more money if they issue a loan. 183 00:18:48,830 --> 00:18:53,839 They get the bonuses, the commissions and the incentives to lend as much as possible. 184 00:18:53,839 --> 00:18:55,899 You have to develop a sales culture.  What 185 00:18:55,899 --> 00:19:01,019 did they do?  They recruited an amazing guy – a lovely guy – Andy Hornby, who came 186 00:19:01,019 --> 00:19:07,350 from Asda, to turn the bank into a supermarket retailing operation. 187 00:19:07,350 --> 00:19:10,320 If you trust bankers to control the money 188 00:19:10,320 --> 00:19:14,630 supply, the money supply will just grow and grow and grow, as will the level of debt, 189 00:19:14,630 --> 00:19:19,730 until the point where it crashes, when some people can't repay the debt and then they'll 190 00:19:19,730 --> 00:19:22,419 stop lending. 191 00:19:22,419 --> 00:19:26,690 You hear politicians and journalists saying, we've been living beyond our means; we've 192 00:19:26,690 --> 00:19:32,809 become dependent on debt.  We need to reign in our spending and live within our means. 193 00:19:32,809 --> 00:19:37,679 It's not possible in the current system.  The reason why everyone is in debt now is 194 00:19:37,679 --> 00:19:43,029 not because they have been recklessly borrowing.  We haven't borrowed all this money from an 195 00:19:43,029 --> 00:19:47,799 army of pensioners who've been saving up their whole lives.  Money in the current system 196 00:19:47,799 --> 00:19:53,539 is debt.  It's created when the banks make loans.  So the only way, in the current system, 197 00:19:53,539 --> 00:19:57,600 that we can have any money in the economy – the only way we can have money for business 198 00:19:57,600 --> 00:20:02,090 to trade – is if we've borrowed it all from the banks. 199 00:20:02,090 --> 00:20:06,379 And it's the very opposite of what the Tory 200 00:20:06,379 --> 00:20:11,429 Party is arguing today, which is that you have to create savings before you can help 201 00:20:11,429 --> 00:20:16,850 the National Health Service.  And it's because economists have completely confused those 202 00:20:16,850 --> 00:20:21,799 things, both in monetary policy terms, but also in economic thinking, and because most 203 00:20:21,799 --> 00:20:27,870 people still harbour the old fashioned view that you need savings before you can invest, 204 00:20:27,870 --> 00:20:34,000 that we have the mess that we're in today.  Now, one of the reasons why we find it difficult 205 00:20:34,000 --> 00:20:39,299 to understand the banking system and credit creation is that we leave school without any 206 00:20:39,299 --> 00:20:45,340 money and we go and get a job working as an apprentice to a plumber. We work really hard 207 00:20:45,340 --> 00:20:50,299 all month and at the end of the month somebody puts money in our bank, and so for us the 208 00:20:50,299 --> 00:20:55,850 logic is: you work and then you get money – you get savings.  In reality you would 209 00:20:55,850 --> 00:21:01,559 never have got that job if credit hadn't been created in the first instance.  It's a really 210 00:21:01,559 --> 00:21:09,419 important conceptual misunderstanding and it isn't something that the public just is 211 00:21:09,419 --> 00:21:11,829 guilty of.  Economists don't understand this stuff. 212 00:21:11,829 --> 00:21:13,610 ANNE BELSEY: Money doesn't just come out of 213 00:21:13,610 --> 00:21:18,299 economic activity.  A lot of people have come across - kind of assume - that if you 214 00:21:18,299 --> 00:21:24,820 have got businesses, and you've got people doing things, that somehow money somehow emerges 215 00:21:24,820 --> 00:21:29,779 out of the process of people doing things, making things and growing things, selling 216 00:21:29,779 --> 00:21:34,629 things and producing things, that somehow money just emerges.  It's not. It's like 217 00:21:34,629 --> 00:21:36,889 oiling a car. You have to put it in. 218 00:21:36,889 --> 00:21:42,860 When I see David Cameron talking about how we need an economy not based on debt, but 219 00:21:42,860 --> 00:21:47,679 we need an economy based on savings, he just doesn't know what he's saying.  It's ridiculous. 220 00:21:47,679 --> 00:21:53,659 It's absolutely absurd and it shows his complete lack of understanding of how our money system 221 00:21:53,659 --> 00:21:54,500 actually works. 222 00:21:54,500 --> 00:21:59,419 You know, it's a paradox under the current system.  If we as the public go into further 223 00:21:59,419 --> 00:22:03,190 debt, then that's going to put more money into the economy and we're going to have a 224 00:22:03,190 --> 00:22:07,360 boom.  When you have a boom, it's easier to borrow, so people get into even more debt. 225 00:22:07,360 --> 00:22:12,360 And eventually this cycle continues. It gets easier and easier to get into debt until some 226 00:22:12,360 --> 00:22:18,169 people get over-indebted and then they default.  They can't re-pay their mortgage.  That's 227 00:22:18,169 --> 00:22:25,580 what happened first in sub-prime America.  And then it brings through a wave of defaults, 228 00:22:25,580 --> 00:22:30,639 which will ripple across the entire economy.  The banks go insolvent.  Then we're into 229 00:22:30,639 --> 00:22:37,570 a financial crisis and then the banks stop lending.  They were excessively lending in 230 00:22:37,570 --> 00:22:43,080 the boom and then they stop lending and that makes the recession even worse.  People lose 231 00:22:43,080 --> 00:22:48,169 their jobs and then they become even more dependent on debt just to survive, basically. 232 00:22:48,169 --> 00:22:53,379 You know we have a system where we have to borrow in order to have an economy.  We have 233 00:22:53,379 --> 00:22:59,719 to be in debt to the banks.  That guarantees a massive profit for the banks. 234 00:22:59,719 --> 00:23:01,860 NARRATOR: This is the boom-bust cycle. 235 00:23:01,860 --> 00:23:12,320 GORDON BROWN: "And I've said before, Mr Deputy Speaker, no return to boom and bust." 236 00:23:12,320 --> 00:23:19,399 NARRATOR: Net bank lending must forever increase. 237 00:23:19,399 --> 00:23:24,210 We are paying interest on every single pound. 238 00:23:24,210 --> 00:23:28,659 Even if you think the money belongs to you, somebody somewhere is paying interest on that 239 00:23:28,659 --> 00:23:28,820 money. 240 00:23:28,820 --> 00:23:35,259 The banking system has such a huge impact on the world, but only because it supplies 241 00:23:35,259 --> 00:23:40,350 our nation's money supply.  We have to protect them. We have to subsidise them.  We have 242 00:23:40,350 --> 00:23:46,889 to allow them to continue, because the disaster of a bank collapse, affects us all in a huge 243 00:23:46,889 --> 00:23:52,249 way.  Anyone who says that we shouldn't have bailed out the banks doesn't quite understand 244 00:23:52,249 --> 00:23:57,720 the nature of our monetary system.  That's like eliminating a huge chunk of our money. 245 00:23:57,720 --> 00:24:03,870 But also, bailing out the banks is perpetuating a system which is never going to work anyway. 246 00:24:03,870 --> 00:24:08,620 So whatever we do, we are always going to have this cycle until we separate how money 247 00:24:08,620 --> 00:24:12,720 is created and the activities of banking.  Then the banks could do as they wish.  They'd 248 00:24:12,720 --> 00:24:15,389 be a normal business like everyone else. 249 00:24:15,389 --> 00:24:22,139 There's a major democratic issue here as well.  You have these private, profit-seeking banks 250 00:24:22,139 --> 00:24:26,759 creating up to 200 billion pounds a year and pumping that into the economy wherever they 251 00:24:26,759 --> 00:24:32,960 want, basically, wherever it suits them, whether they're pumping it into these toxic derivatives, 252 00:24:32,960 --> 00:24:38,499 or putting money into housing bubbles, just making housing more expensive.  200 billion 253 00:24:38,499 --> 00:24:44,889 pounds in 2007 of new money coming into the economy, created out of nothing; and where 254 00:24:44,889 --> 00:24:49,960 that gets spent determines the shape of our economy effectively.  So if we are going 255 00:24:49,960 --> 00:24:54,200 to allow anybody to create new money out of nothing, then we should at least have some 256 00:24:54,200 --> 00:24:59,190 democratic control over how that money's used.  I mean, would we rather have had that money 257 00:24:59,190 --> 00:25:03,789 used for health care, or to deal with some of the environmental issues, or to reduce 258 00:25:03,789 --> 00:25:07,929 poverty, or would we rather have it to make houses more expensive so none of us can afford 259 00:25:07,929 --> 00:25:13,830 to live in a house. 260 00:25:13,830 --> 00:25:22,049 You can see it as a subsidy, a special super subsidy to the banks, for the right to create 261 00:25:22,049 --> 00:25:28,320 money, which should be for the benefit of the public and spent through a democratic 262 00:25:28,320 --> 00:25:32,700 process. 263 00:25:32,700 --> 00:25:37,200 Banks are the most heavily subsidised businesses in the world, specially protected by governments. 264 00:25:37,200 --> 00:25:43,139 While the money runs out for the rest of us, the largest private banks still thrive. 265 00:25:43,139 --> 00:25:50,139 This is because they get the biggest subsidy of them all: the licence to print money. 266 00:25:50,139 --> 00:25:52,610 Hard to believe?  Martin Wolf, the Chief 267 00:25:52,610 --> 00:25:56,870 Economics Editor of the Financial Times, said it recently: "The essence of the contemporary 268 00:25:56,870 --> 00:26:02,529 monetary system is the creation of money out of nothing by private banks' often foolish 269 00:26:02,529 --> 00:26:03,840 lending…" 270 00:26:03,840 --> 00:26:09,960 You heard that right.  Private banks create money out of nothing.  Then, they loan it 271 00:26:09,960 --> 00:26:15,580 to us and ask for interest on top.  If you've ever wondered why the bank buildings around 272 00:26:15,580 --> 00:26:20,009 the world soar higher than any palace or spire ever did, you now have the answer. 273 00:26:20,009 --> 00:26:23,090 But the banks don't simply print money using 274 00:26:23,090 --> 00:26:27,559 secret printing presses in their basements.  They don't have to.  Like so many other things 275 00:26:27,559 --> 00:26:31,029 these days, printing money has now gone digital. 276 00:26:31,029 --> 00:26:36,279 With the popular use of debit cards, electronic fund transfers and internet banking, only 277 00:26:36,279 --> 00:26:43,580 3% of the money in the UK is now made of paper and metal coin.  The other 97% is entirely 278 00:26:43,580 --> 00:26:48,769 on computers.  Electronic money is convenient for everyone, but it's especially convenient 279 00:26:48,769 --> 00:26:56,089 for the private banks, since they own, run and control the entire digital money system. 280 00:26:56,089 --> 00:26:57,970 And what do they do with this special privilege? 281 00:26:57,970 --> 00:27:02,649 Do they channel new money, the blood supply of the nation, towards the things we need 282 00:27:02,649 --> 00:27:07,729 like hospitals, schools, universities and public transport? 283 00:27:07,729 --> 00:27:10,519 Not if it doesn't make a profit for them. 284 00:27:10,519 --> 00:27:15,889 Instead, they use their licence to print money to gamble on the financial markets and push 285 00:27:15,889 --> 00:27:20,370 house prices out of reach of ordinary people by pumping hundreds of billions of pounds 286 00:27:20,370 --> 00:27:26,980 into risky mortgages.  This is exactly how the banks caused the financial crisis and 287 00:27:26,980 --> 00:27:33,859 now the rest of us are being asked to pay for it. 288 00:27:33,859 --> 00:27:36,249 If we can't afford to run hospitals and build 289 00:27:36,249 --> 00:27:41,629 schools, can we really afford to subsidize the financial industry?  Should we have to 290 00:27:41,629 --> 00:27:44,320 live with less so the bankers can have more? 291 00:27:44,320 --> 00:27:51,269 This is ludicrous and it's time to put a stop to it.  The private banks can't be trusted 292 00:27:51,269 --> 00:27:54,320 to hold the reigns to our entire economy. 293 00:27:54,320 --> 00:27:59,090 We need to take away the banks' power to create money out of nothing.  This will stop them 294 00:27:59,090 --> 00:28:03,929 from causing yet another financial meltdown and allow us to afford the crucial services 295 00:28:03,929 --> 00:28:11,000 that we as a society need. 296 00:28:11,000 --> 00:28:17,419 If you want a growing economy, under the current set-up, we have to have growing debt.  This 297 00:28:17,419 --> 00:28:22,190 is something very, very few people really understand, especially the politicians who 298 00:28:22,190 --> 00:28:32,000 are managing the economy, which is a scary thought. 299 00:28:32,000 --> 00:28:33,990 NARRATOR: As the money supply grows, more 300 00:28:33,990 --> 00:28:40,519 money is available, which can be invested in productive avenues.  However, it can also 301 00:28:40,519 --> 00:28:57,000 be used to gamble and drive up asset prices. 302 00:28:57,000 --> 00:29:00,460 NARRATOR: Inflation is a rise in the general 303 00:29:00,460 --> 00:29:07,169 level of the prices of goods and services in an economy over a period of time.  When 304 00:29:07,169 --> 00:29:13,990 the general price level rises each unit of currency buys fewer goods and services. 305 00:29:13,990 --> 00:29:18,129 As the money supply grows, and there is more currency available, more money is available 306 00:29:18,129 --> 00:29:23,990 for investment, which can lead to growth, but more money is also available for purchases 307 00:29:23,990 --> 00:29:30,129 of goods and speculation, which leads to inflation. 308 00:29:30,129 --> 00:29:38,580 Essentially, inflation is what happens when too much money is chasing too few goods and 309 00:29:38,580 --> 00:29:46,049 services, so there is too much money for the actual output of the economy. 310 00:29:46,049 --> 00:29:49,350 In the seven years between the years 2000 311 00:29:49,350 --> 00:29:56,649 and 2007 the money supply doubled and the essential bank, the Bank of England was under 312 00:29:56,649 --> 00:29:59,539 the impression at this time that they had it under control, because they were saying 313 00:29:59,539 --> 00:30:03,169 that prices weren't going up that much.  Of course they were only looking at prices 314 00:30:03,169 --> 00:30:08,549 in your local corner shop.  They weren't looking at the price of housing and housing 315 00:30:08,549 --> 00:30:13,039 is the biggest expenditure that most people will make. 316 00:30:13,039 --> 00:30:17,230 Increasing house prices, it may make you feel 317 00:30:17,230 --> 00:30:24,600 like you're becoming wealthier, but as your wealth increases, the effect is that your 318 00:30:24,600 --> 00:30:29,899 children's wealth is actually decreasing.  So in fact there is no net gain in wealth, 319 00:30:29,899 --> 00:30:37,039 because your children are going to have to pay even more when they want to buy a house. 320 00:30:37,039 --> 00:30:40,840 So in effect, there is no net increase.  They are going to have to earn even more. 321 00:30:40,840 --> 00:30:47,889 They are going to have to go into even more debt.  So, rising house prices do not create 322 00:30:47,889 --> 00:30:53,509 additional net GDP value to the economy. 323 00:30:53,509 --> 00:30:58,869 Actually what they do, is re-distribute wealth towards those people who already have houses 324 00:30:58,869 --> 00:31:04,539 i.e. wealthier people and remove it from poorer people who can't afford to get on the housing 325 00:31:04,539 --> 00:31:10,149 ladder, so it's another example of a very regressive policy to allow house prices to 326 00:31:10,149 --> 00:31:16,600 simply inflate.  It makes everybody feel kind of like things are going well and people 327 00:31:16,600 --> 00:31:21,149 spend money on other stuff.  They take equity out of their houses.  But it's not creating 328 00:31:21,149 --> 00:31:27,059 new jobs.  It's not enhancing the quality of the economy.  It's not helping our balance 329 00:31:27,059 --> 00:31:33,720 of trade.  It's not helping the public deficit. It's a zero sum game. 330 00:31:33,720 --> 00:31:39,049 NARRATOR: As of August 2011, 85.5% of consumer 331 00:31:39,049 --> 00:31:43,049 bank lending was secured as mortgages on dwellings. 332 00:31:43,049 --> 00:31:48,169 If you have somebody creating money that can only be spent on one thing, which is housing, 333 00:31:48,169 --> 00:31:53,450 then the price of that thing is going to go up.  Between 2000 and 2010 they created over 334 00:31:53,450 --> 00:31:59,080 a trillion pounds of new money - 500 billion pounds just in the three years before the 335 00:31:59,080 --> 00:32:03,570 crisis.  That's why house prices went up they way they were.  There's nothing special 336 00:32:03,570 --> 00:32:07,720 about houses.  It was just all this funny money being pumped into that market. 337 00:32:07,720 --> 00:32:11,970 If money is spent into the economy, a lot 338 00:32:11,970 --> 00:32:17,840 of money goes into houses, for example into mortgages, that's an increase in the amount 339 00:32:17,840 --> 00:32:24,970 of money in the economy, without a corresponding increase in activity, in output, in GDP. 340 00:32:24,970 --> 00:32:34,389 It's non-GDP based spending.  That's what causes inflation.  In the UK we've had it 341 00:32:34,389 --> 00:32:42,110 in spades.  We've had this massive housing boom.  The main cause for the housing boom, 342 00:32:42,110 --> 00:32:49,000 in my opinion, is the huge amount of speculative credit created by the banks, to go into houses. 343 00:32:48,999 --> 00:32:56,119 If houses were cheaper, they would be easier to build.  More of them would be built. 344 00:32:56,119 --> 00:33:02,169 There would be less huge houses, with hardly any people in them.  London would not be 345 00:33:02,169 --> 00:33:08,789 the centre of a kind of very rich speculative orgy, where all the richest people in the 346 00:33:08,789 --> 00:33:13,669 world want to get a property in London, because it's seen as a great asset.  Houses would 347 00:33:13,669 --> 00:33:19,169 be seen as places to live primarily, rather than seen as places to invest.  The important 348 00:33:19,169 --> 00:33:24,889 thing to think about is, if you are a bank and you've got to make a loan, you have choices. 349 00:33:24,889 --> 00:33:33,169 You can give that loan to a small business and you'll know that the risk to you of that 350 00:33:33,169 --> 00:33:38,360 loan failing, defaulting, is actually quite high, because that small business, the owners 351 00:33:38,360 --> 00:33:43,629 of that business, have limited liability, which means if that business goes bust, you 352 00:33:43,629 --> 00:33:50,739 as a bank get nothing back, essentially.  So that's kind of high risk, compared to loaning 353 00:33:50,739 --> 00:33:56,299 your money to somebody with some collateral, with a house behind them, like a mortgage. 354 00:33:56,299 --> 00:33:58,970 So there's a simple incentive for banks to 355 00:33:58,970 --> 00:34:06,330 prefer putting money into housing than into a small business. Now that's a real problem 356 00:34:06,330 --> 00:34:12,559 if you widen that out across a whole economy, because it means there's an incentive to put 357 00:34:12,559 --> 00:34:17,740 money into speculative rather than productive investment.  So again, we have to think about 358 00:34:17,740 --> 00:34:23,520 how we create our monetary system that is more balanced between those two kinds of speculative 359 00:34:23,520 --> 00:34:30,159 and productive investment.  The government is showing enormous reluctance to regulate 360 00:34:30,159 --> 00:34:36,109 the housing market and to again regulate the amount of money that banks put into houses. 361 00:34:36,109 --> 00:34:38,559 We don't decide who creates credit for what. 362 00:34:38,559 --> 00:34:47,000 No, we leave that to a couple of chaps in a bank to decide, basically. 363 00:34:47,000 --> 00:34:56,000 Now, inflation can be avoided if the amount of money that goes into the economy is regulated 364 00:34:56,000 --> 00:35:03,049 in a way that it doesn't exceed the actual activity that's happening in the economy. 365 00:35:03,049 --> 00:35:09,450 Now, the best way to do that, in my opinion, is to make sure that money is issued into 366 00:35:09,450 --> 00:35:17,119 the economy only for productive investment, for productive goods and services, so money 367 00:35:17,119 --> 00:35:25,140 goes in to help a small business to start up which creates jobs, which creates additional 368 00:35:25,140 --> 00:35:33,369 purchasing power which means there's no inflation. You have to have a system where credit is 369 00:35:33,369 --> 00:35:39,680 put into productive avenues, where credit is put into building high speed rail links, 370 00:35:39,680 --> 00:35:45,569 where credit is put into building houses rather than giving people money to inflate the price 371 00:35:45,569 --> 00:35:54,150 of houses. So it's quite simple, really in that way, and the current system is simply 372 00:35:54,150 --> 00:35:58,299 set up not to do that, basically. 373 00:35:58,299 --> 00:36:03,540 The creation of money by private banks for non-productive usage causes real inflation 374 00:36:03,540 --> 00:36:15,349 and as such it is a tax on the purchasing power of the medium of exchange. 375 00:36:15,349 --> 00:36:23,030 The figures for the UK are quite stark actually, the average median real incomes (for the bit 376 00:36:23,030 --> 00:36:28,970 in the middle) for most people declined over the last 8 years. There are now in quite sharp 377 00:36:28,970 --> 00:36:33,900 decline as we go into recession, the sharpest really since, it looks like, since about the 378 00:36:33,900 --> 00:36:37,569 1930s, put it that way, so real income is declining. 379 00:36:37,569 --> 00:36:42,180 NARRATOR: Bank created fiat currency allows the private banks to suck wealth from the 380 00:36:42,180 --> 00:36:48,760 economy and over time results in a gradual decrease in the standard of living. As people 381 00:36:48,760 --> 00:36:55,450 become poorer, they become even more dependent on debt. And this at a time when efficiency 382 00:36:55,450 --> 00:36:58,059 and machination have improved dramatically. 383 00:36:58,059 --> 00:37:05,160 If you go back to the 1960's and we were expected to, we were looking forward to an age of leisure, 384 00:37:05,160 --> 00:37:11,400 television programmes saying, what are people going to do with their spare time? And now 385 00:37:11,400 --> 00:37:19,319 we have got more people working harder than ever. Spending more than ever, which looks 386 00:37:19,319 --> 00:37:25,720 great, you know, everyone is spending more, but if you're not actually benefitting from 387 00:37:25,720 --> 00:37:30,119 what you're spending, if you having to spend the money on childcare costs on commuting 388 00:37:30,119 --> 00:37:38,319 costs and so forth. Costs that people didn't in the past used to have to pay because you 389 00:37:38,319 --> 00:37:44,980 could walk to work and one member of the family was able to stay at home and be a permanent 390 00:37:44,980 --> 00:37:50,559 homemaker, then you're not actually any better off. Everyone is under such enormous pressures 391 00:37:50,559 --> 00:37:59,950 nowadays, you know, I am conscious that my four nephews and nieces are facing difficult 392 00:37:59,950 --> 00:38:09,589 times. They're just going to find themselves having to work very hard just to keep a roof 393 00:38:09,589 --> 00:38:13,480 over their heads, to get a roof over their heads. 394 00:38:13,480 --> 00:38:17,420 People are getting poorer in real terms, it's because prices are always going up because 395 00:38:17,420 --> 00:38:23,599 all this new funny money is being pumped into the system by the banks and they're creating 396 00:38:23,599 --> 00:38:28,059 all this debt so at the same time as prices are going up and things are getting more expensive, 397 00:38:28,059 --> 00:38:33,910 we're getting further and further into debt and our wealth and the return that we get 398 00:38:33,910 --> 00:38:38,500 from actually working is getting less and less all the time. You can't deal with poverty 399 00:38:38,500 --> 00:38:43,059 when you have a financial system and a money system that distributes money from the poor 400 00:38:43,059 --> 00:38:49,819 to the very rich; any distribution that you try and do in the opposite direction is effectively 401 00:38:49,819 --> 00:38:56,809 pissing in the wind. If you look at issues like increasing inequality, one obvious way 402 00:38:56,809 --> 00:39:02,630 to tackle inequality is to have, say for example, a redistributive tax system. You tax the rich, 403 00:39:02,630 --> 00:39:08,180 you give some money to the poor. You move a bit of money down the scale. That's all 404 00:39:08,180 --> 00:39:13,700 very well but if you completely overlook the fact that there's another redistributive system 405 00:39:13,700 --> 00:39:18,000 which is taking money from the poor and giving it to the rich, then you're not really going 406 00:39:18,000 --> 00:39:25,400 to tackle this inequality and the way a debt-based money system works, it guarantees that for 407 00:39:25,400 --> 00:39:29,040 every pound of money there's going to be a pound of debt. That debt is typically going 408 00:39:29,040 --> 00:39:35,299 to end up with the poor, the lower-middle classes, those people end up with the debt 409 00:39:35,299 --> 00:39:39,109 and they end up paying interest on that money which then goes back to the banking sector 410 00:39:39,109 --> 00:39:46,150 and gets distributed to the people working in the city or in Wall Street. What this system 411 00:39:46,150 --> 00:39:51,960 does overall is it distributes money from the poor to the rich essentially, distributes 412 00:39:51,960 --> 00:39:59,200 money from the poorer regions of the UK back to the City of London and it also distributes 413 00:39:59,200 --> 00:40:05,480 money from all the small businesses, all the little factories around the UK and distributes 414 00:40:05,480 --> 00:40:07,849 that money back into the financial sector. 415 00:40:07,849 --> 00:40:14,299 We have a system, where by, the activity of actually supplying occurs under the very same 416 00:40:14,299 --> 00:40:20,210 roof as the same organisation that is responsible for profiting from putting together borrowers 417 00:40:20,210 --> 00:40:28,720 and lenders i.e. a bank. So, a bank creates our nation's money supply as well as making 418 00:40:28,720 --> 00:40:30,960 loans for profit. 419 00:40:30,960 --> 00:40:35,740 NARRATOR: The government cannot allow the banking system to fail, because if it did, 420 00:40:35,740 --> 00:40:42,470 over 97% of all money would disappear. This is why in the event of a crisis, the risk 421 00:40:42,470 --> 00:40:48,910 is transferred to the taxpayer. But even during normal times banks receive numerous guarantees 422 00:40:48,910 --> 00:40:51,349 and benefits beyond the right to create money. 423 00:40:51,349 --> 00:40:56,569 Bill, by the way, I know the Bank of America is a very big bank, it happens that I have 424 00:40:56,569 --> 00:41:01,400 32 dollars there myself. Just between us what assurance do I have that this money is safe? 425 00:41:01,400 --> 00:41:08,380 Well, all deposits up to ten thousand dollars are insured by the federal government in Washington. 426 00:41:08,380 --> 00:41:14,609 That's my guarantee? Yes. Have you heard that the federal government is about 280 billion 427 00:41:14,609 --> 00:41:18,510 dollars in the hole? 428 00:41:18,510 --> 00:41:23,750 NARRATOR: Banks receive large safety nets from the government. The taxpayer guarantees 429 00:41:23,750 --> 00:41:30,660 £85,000 as deposit insurance. And the Bank of England provides liquidity insurance, in 430 00:41:30,660 --> 00:41:37,990 case a bank runs out of reserve currency. 431 00:41:37,990 --> 00:41:41,170 It's questionable whether we're going to get out of this recession or whether we'll just 432 00:41:41,170 --> 00:41:47,369 keep ticking along the way the way that we are now. However if we do, then when we come 433 00:41:47,369 --> 00:41:51,780 out of this recession and when growth starts again, look at what happens to debt, it will 434 00:41:51,780 --> 00:41:55,490 rise and it will keep rising and the faster the economy is growing, the faster the debt 435 00:41:55,490 --> 00:42:02,109 will rise and then give it another 3 to 5 years, we'll be back where we were, the debt 436 00:42:02,109 --> 00:42:06,589 will become too much, people will start defaulting again. It's kind of the system that we're 437 00:42:06,589 --> 00:42:11,559 locked into now is that we can't grow the economy without growing the debt and the debt 438 00:42:11,559 --> 00:42:15,950 is the very thing that will bring down the economy. The only option going forward is 439 00:42:15,950 --> 00:42:21,650 to reform it, to stop banks from creating money as debt. By fixing the monetary system 440 00:42:21,650 --> 00:42:26,670 we can prevent the banks from ever causing another financial crisis and we can also make 441 00:42:26,670 --> 00:42:33,289 the current public service cuts and the tax rises and the increase in national debt unnecessary. 442 00:42:33,289 --> 00:42:38,039 NARRATOR: The current monetary system allows the banking sector to extract wealth from 443 00:42:38,039 --> 00:42:43,700 the economy, whilst providing nothing productive in return. 444 00:42:43,700 --> 00:42:50,630 Why is it that we've got all this technology, all this new efficiency and yet it now requires 445 00:42:50,630 --> 00:42:56,930 two people to finance a household whereas in the 50's it only needed one person working 446 00:42:56,930 --> 00:43:02,250 and the reason for that is not because these washing machines and everything are more expensive, 447 00:43:02,250 --> 00:43:06,990 it's because of all the debt and because it's effectively the banking sector is creaming 448 00:43:06,990 --> 00:43:13,319 it off from everybody else. So a growing banking sector is not a good thing. If the banking 449 00:43:13,319 --> 00:43:17,799 sector is growing, it's either that it's becoming less efficient or it's becoming a parasite 450 00:43:17,799 --> 00:43:24,770 on the rest of the economy. We can talk about the banking sector becoming 4%, 5%, 6% of 451 00:43:24,770 --> 00:43:30,539 GDP, what's happening to the rest of the economy? It's becoming 96, 95, 94% of GDP. We've got 452 00:43:30,539 --> 00:43:36,270 to get switched on to this now. If we want to have a chance of tackling any of the other 453 00:43:36,270 --> 00:43:38,940 big social issues, you got to figure out the money issue. 454 00:43:38,940 --> 00:43:46,559 The poorest in the world pay for crises even when they've not benefitted from the often 455 00:43:46,559 --> 00:43:52,069 reckless and speculative booms, like the housing boom in Ireland that preceeded that crisis. 456 00:43:52,069 --> 00:43:58,130 You know over the last 30 years, we've seen income differentials increase so that the 457 00:43:58,130 --> 00:44:02,420 rich have got much, much richer and ordinary people haven't, they've stayed the same or 458 00:44:02,420 --> 00:44:07,650 they've got poorer and one of the ways that the economy was kept going was by providing 459 00:44:07,650 --> 00:44:12,089 cheap credit, was by providing debt to those very people who couldn't really afford things 460 00:44:12,089 --> 00:44:18,720 anymore, so they kept buying and when it collapses it's those same people that have to pay once 461 00:44:18,720 --> 00:44:22,869 again even though in many ways there were the victims the first time. 462 00:44:22,869 --> 00:44:28,680 NARRATOR: As a result of the crisis the Bank of England has bought corporate debt and repackaged 463 00:44:28,680 --> 00:44:34,520 it at lower rates of interest. Yet the average person is being asked to pay more than ever 464 00:44:34,520 --> 00:44:38,480 to borrow on overdrafts and credit cards. 465 00:44:38,480 --> 00:44:44,530 Debts between the very wealthy or between governments can always be renegotiated and 466 00:44:44,530 --> 00:44:49,559 always have been throughout world history, there not anything set in stone. Generally 467 00:44:49,559 --> 00:44:53,559 speaking, when you have debts owed by the poor to the rich that's suddenly, debts become 468 00:44:53,559 --> 00:44:58,430 a sacred obligation more important than anything else. The idea of renegotiating them becomes 469 00:44:58,430 --> 00:44:59,799 unthinkable. 470 00:44:59,799 --> 00:45:05,789 NEWSREADER: Can you pin down exactly what would keep investors happy, make them feel 471 00:45:05,789 --> 00:45:12,049 more confident? ALESSIO RASTANI: That's a tough one, personally 472 00:45:12,049 --> 00:45:16,030 it doesn't matter, see I'm a trader, I don't really care about that kind of stuff. 473 00:45:16,030 --> 00:45:17,170 CHANTING: Pay your taxes! 474 00:45:17,170 --> 00:45:19,450 BANKER TO PROTESTER: "Were you born in England?" 475 00:45:19,450 --> 00:45:24,359 ALESSIO RASTANI: If I see an opportunity to make money, I go with that. For most traders, 476 00:45:24,359 --> 00:45:28,230 we don't really care that much how they're going to fix the economy, how they're going 477 00:45:28,230 --> 00:45:34,789 to fix the whole situation, our job is to make money from it and personally I've been 478 00:45:34,789 --> 00:45:39,119 dreaming about this moment for three years. If you know what to do, you can make a lot 479 00:45:39,119 --> 00:45:44,250 of money from this. I have a confession which is, I go to bed every night I dream of another 480 00:45:44,250 --> 00:45:48,809 recession, I dream of another moment like this. I dream of another recession, I dream 481 00:45:48,809 --> 00:45:55,000 of another moment like this. You can make a lot of money from it. 482 00:45:55,000 --> 00:46:00,880 GIRL: Bruno, Virginia hurt somebody real bad, you oughtta hate her . 483 00:46:00,880 --> 00:46:02,999 CROWD: Incoming! 484 00:46:02,999 --> 00:46:09,710 The way in which you can look across Europe now and see that the new prime minister of 485 00:46:09,710 --> 00:46:14,470 Greece, not elected, essentially imposed, Papademous, former employee of Goldman Sachs, 486 00:46:14,470 --> 00:46:18,510 the new prime minister and finance minister of Italy, Mario Monti, former employee of 487 00:46:18,510 --> 00:46:23,520 Goldman Sachs, the new president of the European Central Bank, former employee of Goldman Sachs, 488 00:46:23,520 --> 00:46:25,950 you see these people popping up absolutely everywhere. 489 00:46:25,950 --> 00:46:30,319 VOICEOVER: That's the way to change what we have, take all power and all freedoms away 490 00:46:30,319 --> 00:46:34,809 from the people and collect everything into the hands of one small group with absolute 491 00:46:34,809 --> 00:46:44,150 power. From the people, without the people, against the people. 492 00:46:44,150 --> 00:46:47,510 What's been interesting out of all this I suppose is the question of democracy that's 493 00:46:47,510 --> 00:46:51,960 been opened up very starkly in Europe, that you have a government of bankers essentially 494 00:46:51,960 --> 00:46:56,450 imposed on you. Its bankers who more or less got us into this mess to put it rather crudely 495 00:46:56,450 --> 00:47:00,760 but that's a good first approximation to it and then you say, ok, bankers are the people 496 00:47:00,760 --> 00:47:04,049 who therefore are going to get us out of it and incidentally there going to run your country 497 00:47:04,049 --> 00:47:07,670 now. There's a serious question of democracy that has opened up here. 498 00:47:07,670 --> 00:47:16,520 By the way, the banking crisis drove more than a 100 million people back into poverty. 499 00:47:16,520 --> 00:47:23,380 The mortality statistics of people who go into poverty rise hugely for a whole range 500 00:47:23,380 --> 00:47:29,010 of reasons, so the banking crisis isn't just about becoming poorer, it was about killing 501 00:47:29,010 --> 00:47:35,089 people as well. And guess what? We haven't really got to the bottom of it, we never held 502 00:47:35,089 --> 00:47:39,599 anybody to account and we haven't done the radical reforming job that we really needed 503 00:47:39,599 --> 00:47:47,130 to do because we mistakenly thought: if we destabilise the position any further, it'll 504 00:47:47,130 --> 00:47:53,079 make matters worse and guess who took the decisions, all the people who were there in 505 00:47:53,079 --> 00:47:54,520 the first place. 506 00:47:54,520 --> 00:48:04,049 "I think you ought to know, the business of one of these businessmen is murder." 507 00:48:04,049 --> 00:48:23,000 "Their weapons are modern, their thinking: two thousand years out of date." 508 00:48:23,000 --> 00:48:26,910 What does a progressive financial system look like? And I want to hear what some of you 509 00:48:26,910 --> 00:48:33,529 think. Who thinks, for example, that we should ban banks from creating money? 510 00:48:33,529 --> 00:48:38,559 Control over how money is created and what it's used for is, it's a democratic issue. 511 00:48:38,559 --> 00:48:44,299 You currently have the banking sector, profit seeking banking sector, you know, not accountable 512 00:48:44,299 --> 00:48:51,000 to anybody other than themselves who are creating up to 200 billion pounds a year of new spending 513 00:48:51,000 --> 00:48:54,220 power and deciding where in the economy that goes. 514 00:48:54,220 --> 00:48:59,609 Monetary reformers believe that that entire money supply should be for the benefit of 515 00:48:59,609 --> 00:49:06,069 the public and should never be created by a private organisation as debt. 516 00:49:06,069 --> 00:49:12,869 Democratising the money supply, what that means is putting the power to issue and allocate 517 00:49:12,869 --> 00:49:21,490 money back into hands of people and taking it away from private organisations, institutions 518 00:49:21,490 --> 00:49:26,490 that don't actually represent the people, that aren't democratically accountable to 519 00:49:26,490 --> 00:49:30,549 the people, the banks aren't democratically accountable to the people; they're accountable 520 00:49:30,549 --> 00:49:35,890 to their shareholders and their shareholders only. Now they're underwritten by us, by the 521 00:49:35,890 --> 00:49:40,210 taxpayer but they're not accountable to us. That doesn't make any sense at all. So, if 522 00:49:40,210 --> 00:49:47,740 you democratise the monetary system, you are subjecting it to the same kinds of discipline 523 00:49:47,740 --> 00:49:56,059 as the education system, as the health service and other key, publicly needed services. There 524 00:49:56,059 --> 00:50:02,680 is no reason that money should be viewed as any different. It is a fundamentally important 525 00:50:02,680 --> 00:50:09,230 service that everybody needs. I can't survive without enough money, nobody can. So it cannot 526 00:50:09,230 --> 00:50:16,099 be controlled purely by this small elite of big banks, as it is in the UK. We do need 527 00:50:16,099 --> 00:50:17,950 a different system. 528 00:50:17,950 --> 00:50:23,890 We believe that the activity of supplying a nation with money should be completely separate 529 00:50:23,890 --> 00:50:26,599 from the activity of banking. 530 00:50:26,599 --> 00:50:33,730 What we need to do now is update that law from 1844 to make the digital money [into] 531 00:50:33,730 --> 00:50:38,740 real money. It could be electronic money, but it needs to be classified as money. 532 00:50:38,740 --> 00:50:45,510 We just want banks to be like every other private organisation, private company in the 533 00:50:45,510 --> 00:50:48,529 economy to be subject to market discipline. 534 00:50:48,529 --> 00:50:54,369 The problem is that now we're in this hybrid model where we have no control over how they 535 00:50:54,369 --> 00:51:00,920 spend the money, but also we're reliant on them to create our money. 536 00:51:00,920 --> 00:51:05,190 We're all constantly in debt, we'll be in debt pretty much for the rest of our lives 537 00:51:05,190 --> 00:51:10,270 and the younger generations have it even worse than the older generations. 538 00:51:10,270 --> 00:51:14,279 I've just been reading a report from the United Nations environment programme and they say 539 00:51:14,279 --> 00:51:22,900 we need US$2 trillion a year. Two trillion - can you imagine what two trillion is? It's 540 00:51:22,900 --> 00:51:28,750 a lot of money. $2 trillion a year to finance the greening of the economy, to move away 541 00:51:28,750 --> 00:51:33,890 from poisonous carbon which is poisoning the atmosphere to alternatives to carbon. 542 00:51:33,890 --> 00:51:42,279 When the banks collapsed in 2007-9, we found according to the Bank of England, not me, 543 00:51:42,279 --> 00:51:48,650 the Bank of England tells me that we raised 14 trillion dollars in a year to bail out 544 00:51:48,650 --> 00:51:52,670 the banks so against that 2 trillion dollars a year to bail out the ecosystem is no big 545 00:51:52,670 --> 00:51:53,000 deal. 546 00:51:53,000 --> 00:51:58,960 This kind of model doesn't make any sense either from an orthodox free market perspective 547 00:51:58,960 --> 00:52:04,670 because these banks are monopolists effectively they monopolise credit creation so they don't 548 00:52:04,670 --> 00:52:10,170 obey the rules of any free market discipline. Yet at the same time, they are not producing 549 00:52:10,170 --> 00:52:18,569 socially or environmentally beneficial outcomes along any real scale. 550 00:52:18,569 --> 00:52:24,779 All that money does is to enable us to do what we can do and once we get our heads around 551 00:52:24,779 --> 00:52:30,309 that we can make money work for what we need. 552 00:52:30,309 --> 00:52:37,839 The power to create money is so powerful; you got to be very concerned about who has 553 00:52:37,839 --> 00:52:42,760 that power. If it's somebody who's going to benefit from creating the money, then they're 554 00:52:42,760 --> 00:52:46,630 going to have the incentive to create more than the economy actually needs. The same 555 00:52:46,630 --> 00:52:50,440 would probably happen if you give that power to politicians. You know you can't trust a 556 00:52:50,440 --> 00:52:57,670 politician to be trying to please voters and to have power over creating money at the same 557 00:52:57,670 --> 00:53:04,049 time. It's a real conflict of interest. The only thing you really can do is to give it 558 00:53:04,049 --> 00:53:09,970 to somebody who has no conflict of interest, an independent, transparent, accountable body. 559 00:53:09,970 --> 00:53:15,660 NARRATOR: Money could be allocated according to the needs and desires of the population, 560 00:53:15,660 --> 00:53:20,220 systems could be put in place to allow for direct democratic allocation of funds either 561 00:53:20,220 --> 00:53:26,529 wholly or partially. A framework and rules could be established to incorporate up to 562 00:53:26,529 --> 00:53:34,589 date economic theory into how much money should be created, and for what types of purposes. 563 00:53:34,589 --> 00:53:38,520 The Government would no longer be able to get access to large sums of money to pursue 564 00:53:38,520 --> 00:53:44,010 armed conflict, if this was not sanctioned by the populace. 565 00:53:44,010 --> 00:53:49,010 We would be able to see exactly what they're doing with the power to create money. We would 566 00:53:49,010 --> 00:53:54,140 be able to see how much they're creating and where that money is going. And that is pretty 567 00:53:54,140 --> 00:53:58,380 much the only way we can get control over the power to create money and stop it being 568 00:53:58,380 --> 00:53:58,829 abused. 569 00:53:58,829 --> 00:54:06,640 The Money Reform Party was established in 2005 just after the 2005 general election. 570 00:54:06,640 --> 00:54:13,819 The idea of the Money Reform Party was that we would have this basic core issue that people 571 00:54:13,819 --> 00:54:19,170 would agree with. They might disagree on other issues, that's fair enough, there are different 572 00:54:19,170 --> 00:54:23,990 ways of going about it but that was the idea was to go for what you might call the lowest 573 00:54:23,990 --> 00:54:31,539 common denominator to attract people with disparate views. Getting elected to Parliament 574 00:54:31,539 --> 00:54:39,079 is not the issue, it's getting the issue of money reform into the public domain, so people 575 00:54:39,079 --> 00:54:47,930 will begin to talk about it. 576 00:54:47,930 --> 00:54:52,260 Banks should not be able to gamble with your money without your permission, so what they 577 00:54:52,260 --> 00:54:58,490 would need to do is to offer two types of account: One is a safe, we call it a ‘transactions 578 00:54:58,490 --> 00:55:01,769 account'. Put your money in there, the bank doesn't lend it, they don't put it at any 579 00:55:01,769 --> 00:55:06,069 risk whatsoever. The other is an investment account where you put your money in for a 580 00:55:06,069 --> 00:55:11,849 certain period of time and then the bank takes that away and they invest it. What happens 581 00:55:11,849 --> 00:55:17,319 when you use these two types of account is that in the event that a bank fails, the money 582 00:55:17,319 --> 00:55:22,549 in the safe account is still there, it's not at risk. So you just move all the safe accounts 583 00:55:22,549 --> 00:55:26,539 to a bank that is still healthy and then those people who put their money in the investment 584 00:55:26,539 --> 00:55:31,880 account, they don't lose everything but they have to wait for the standard liquidation 585 00:55:31,880 --> 00:55:38,089 procedures to find out how much of the assets of the banks will be returned to them and 586 00:55:38,089 --> 00:55:41,750 it means that the government then never needs to bail out a bank. Banks can be allowed to 587 00:55:41,750 --> 00:55:43,049 fail. 588 00:55:43,049 --> 00:55:46,220 The system would actually be how people think it is, that when you put your money in the 589 00:55:46,220 --> 00:55:51,329 bank, it's really safe or at least they used to think perhaps before the 2008 crisis. There's 590 00:55:51,329 --> 00:55:56,789 a spectrum of opportunities there that we're just not exploring at the moment and that's 591 00:55:56,789 --> 00:56:01,900 what's upsetting me that we're not even experimenting when we know that the system we have now is 592 00:56:01,900 --> 00:56:08,470 fundamentally flawed. We've just had the biggest crisis since the second world war, since the 593 00:56:08,470 --> 00:56:13,680 1930's really. We know we have a system where the creators of money are underwritten by 594 00:56:13,680 --> 00:56:18,309 us anyway. It's kind of the worst of both worlds the situation we have at the moment 595 00:56:18,309 --> 00:56:22,039 which is why we need to start thinking of genuine alternatives. 596 00:56:22,039 --> 00:56:27,160 So when we're talking about what life is going to be like in the post reformed system, it 597 00:56:27,160 --> 00:56:31,369 doesn't mean that you can't borrow, it doesn't mean that you have to save up for 50 years 598 00:56:31,369 --> 00:56:35,619 before you can buy a house. It does mean that you might not be able to buy a house that's 599 00:56:35,619 --> 00:56:40,109 10 or 12 times your income but on the flip side, it means that the house that you want 600 00:56:40,109 --> 00:56:45,750 to buy probably shouldn't cost you 10 or 12 times your income. Houses should be affordable 601 00:56:45,750 --> 00:56:50,440 as should everything else. You'll still be able to get a mortgage; you'll still be able 602 00:56:50,440 --> 00:56:58,609 to get finance for a car. Businesses will still get investment. It just means that debt 603 00:56:58,609 --> 00:57:08,019 won't be so high, it won't be such a huge feature of people's lives. 604 00:57:08,019 --> 00:57:18,430 NARRATOR: The issue of monetary reform has historically been a very sensitive issue because 605 00:57:18,430 --> 00:57:24,980 of the incredible power, wealth and privileges it bestows. In an age where analytic thought 606 00:57:24,980 --> 00:57:30,450 and a scientific approach are held in such high esteem, there is no justifiable argument 607 00:57:30,450 --> 00:57:37,289 for keeping the mechanics and implications of the monetary process such a taboo subject. 608 00:57:37,289 --> 00:57:42,900 As democratic citizens we have the right to demand a monetary system, which is both stable 609 00:57:42,900 --> 00:57:45,569 and beneficial to society 610 00:57:45,569 --> 00:57:51,750 The banking lobby is very powerful. I suspect that they won't be in favour of these kinds 611 00:57:51,750 --> 00:57:57,450 of models although ultimately one could argue that's it's a much more stable footing for 612 00:57:57,450 --> 00:57:58,400 banks. 613 00:57:58,400 --> 00:58:02,369 There's this cosy relationship between the government and the banks. In the middle of 614 00:58:02,369 --> 00:58:07,980 the crisis, I spoke to somebody who was working in the Treasury in the middle of the crisis 615 00:58:07,980 --> 00:58:12,260 and he said pretty much every second person that you spoke to was working for one of the 616 00:58:12,260 --> 00:58:16,660 big banks. So when it comes to a decision about whether you let one of these toxic banks 617 00:58:16,660 --> 00:58:24,230 fail or whether you rescue it, what kind of recommendation are you going to get from somebody 618 00:58:24,230 --> 00:58:25,589 who works in that bank. 619 00:58:25,589 --> 00:58:29,329 "This is the zombie banks' protected feeding station." 620 00:58:29,329 --> 00:58:35,019 NARRATOR: Banks balance sheets are now 4 times GDP at 6 trillion pounds; they are holding 621 00:58:35,019 --> 00:58:39,869 the public hostage. Their wealth has become so great through gaming the financial system 622 00:58:39,869 --> 00:58:44,559 that we are at a tipping point whereby a single bank could now take down the entire economy. 623 00:58:44,559 --> 00:58:52,930 "Eat her, eat her now, eat her, she's a public sector worker, eat her, suck her blood, drink 624 00:58:52,930 --> 00:58:54,410 her dry!" 625 00:58:54,410 --> 00:59:01,089 It is a political issue, ultimately, because the reforms that are required can only be 626 00:59:01,089 --> 00:59:06,950 achieved by Parliament. We don't need a very big act of Parliament. All it has to do is 627 00:59:06,950 --> 00:59:14,079 basically prevent the clearing banks from creating currency based on the debt of their 628 00:59:14,079 --> 00:59:17,859 borrowers, that's it. You stop that. 629 00:59:17,859 --> 00:59:22,549 We can't let the banks go back to business as usual because if they do, then all we're 630 00:59:22,549 --> 00:59:29,619 going to see is more debt, more poverty, more inequality and another crisis in 5 or 10 years, 631 00:59:29,619 --> 99:59:59,999 which we're going to have to pay for again.