NARRATOR: How is money created, where does it come from? Who benefits? And what purpose does it serve? SHOUTING: Back off you f*ing Nazi! What is the money system? What is the money behind the money system? NARRATOR: For centuries the mechanics of the money system have remained hidden from the prying eyes of the populace. Yet its impact, both on a national and international level, is perhaps unsurpassed, for it is the monetary system that provides the foundations for international dominance and national control. CHANTING: Whose streets? Our streets! NARRATOR: Today, as these very foundations are being shaken by crises, the need for open and honest dialogue on the future of the monetary system has never been greater. This economic crisis is like a cancer. If you just wait and wait, thinking this is going to go away, just like a cancer it's going to grow, and it's going to be too late. What I would say to everybody is, get prepared. This is not a time right now for wishful thinking that the government is going to sort things out. The governments don't rule the world: Goldman Sachs rules the world. "We're on the verge of a perfect storm". NARRATOR: In opposition lie corrupt and entrenched interests that lurk in the corridors of power, for whom there are no reasons to relinquish privileges that they feel are justly deserved. DAVID CAMERON: Has he got a reform plan for the NHS? [SHOUT: No!] Has he got a police reform plan? [No!] Has he got a plan to cut the deficit? [No!] SPEAKER OF THE HOUSE OF COMMONS: Order! Misorder! Order! Try to calm down and behave like an adult, and if you can't, if it's beyond you, leave the chamber. Get out. We'll manage without you! "This is the zombie banks' protected feeding station." There's no coincidence that boom and bust became a real cyclical issue around about the 1700s when William Paterson founded the Bank of England. "Eat her! Eat her now!" SPEAKER OF THE HOUSE OF COMMONS: This is intolerable behaviour as far as the public is… No, it's not funny! Only in your mind is it funny. It's not funny at all, it's disgraceful. CHANTING: Revolution! Revolution! NARRATOR: The system is inherently unstable as a result of the international power it provides to the dominant parties, for at the heart of it lies the idea of ‘How can I get something for nothing'. Statistical analysis has found that every time an empire begins to near its own demise, you'll find that its currency will be debased. There is no guide to how this whole system operates. To give you an example, a researcher at the BBC working on a Robert Peston documentary went to the Bank of England and said, "Can you give me a guide to how money is created?" And they just said, "no". NARRATOR: This documentary will investigate and explain this ever changing system, and the impact it has both on a national and international level. In 2010 the total UK money supply stood at 2.15 trillion pounds. 2.6 % of this total was physical cash, £53.5 billion. The rest, £2.1 trillion, or 97.4% of the total money supply was commercial bank money. The 3% of money is created through the central bank and that money essentially, if you created a £10 note you could sell that to a bank to put into their ATM and the bank would have to repay that £10 or buy it for £10. There would be no interest charged on that money but that money is then essentially transferred to the Treasury and it's a form of fundraising for the government. It's called seigniorage. When the Bank Of England creates a 10 pound note, it cost it about 3 or 4 pence to actually print that note and it sells it to a high street banks at face value, so 10 pounds, and the profit, the difference between printing the note and actually selling it for 10 pounds goes directly to the treasury. So, in effect all the profit that we get on creating physical money, bank notes, goes to the treasury and it reduces how much taxes we have to pay. Over the last 10 years, that's raised about 18 billion pounds. NARRATOR: In 1948 notes and coins constituted 17% of the total money supply. This was one contributing factor in the government's ability to finance post-war reconstruction. This included the establishment of the NHS. In only 60 years notes and coins have shrunk to less than 3 % Prior to 1844 bank notes were created by private banks and the government did not profit from their creation. In the 1840s there was no law to stop banks from creating their own bank notes. So they used to issue paper notes as kind of a representative of what you had in the bank account. Instead of you taking your heavy metal coins out of the bank and then going and paying somebody with them you could get your paper which said how much money you had in the bank and you could give that to somebody and they could use that to go and get the heavy metal coins from the banks. Now overtime these paper notes became as good as money. People would use paper notes instead of going and getting real money from the bank and obviously as soon as the banks realised that what they were creating had become the dominant type of money in the economy, they realised that by creating more of it they could generate profits. They can just print up some new notes, lend it and get the interest on top of them. And they did that up until the 1840s. In the 1840s they pushed it just a little bit too far and that caused inflation, destabilised the economy. So in 1844, the conservative government of Robert Peel actually passed a law that took the power to create money away from the commercial banks and brought it back to the state. So since then the Bank of England has been the only organisation authorised to create paper notes. Since then everything has gone digital and what we now use as money is digital numbers that commercial banks can create out of nothing. The problem was that they did not include in that legislation the deposits, the demand deposits, held in banks by individuals or electronic forms of money which essentially what those demand deposits are. Today most of the money in circulation is electronic money, it's bank demand deposits that sit in our accounts. So in a way the legislation's got to catch up with the developments in electronic money and the way that banks actually operate. NARRATOR: Money held in bank accounts are called demand deposits. This is an accounting term the banks use when they create credit. Banks follow the same process when they create loans. All money held in bank accounts, is an accounting entry. The reality is now that most money is not paper and it's not metal coins, its digital. It's just numbers in a computer system. It's your Visa debit card, it's your electronic ATM card. It's this, its plastic. Its numbers in a computer system, you move money from one computer system to another, it's all a big database and this digital money is what we are now using to make payments with, it's what we actually use to run the economy. I think a lot of people in the UK probably think that the government or the central bank is in control of most money in circulation and issues new money into circulation, but that's not the case. It's private banks that create the vast majority of new money in circulation and also decide how it's allocated. NARRATOR: The official terminology for this accounting entry is commercial bank money. When banks issue loans to the public, they create new commercial bank money. When a customer repays a loan, commercial bank money is destroyed. The banks keep the interest, as profit. There's a lot of misconceptions about the way banks work. There was a poll done by the Cobden Centre where they asked people how they thought banks actually operated. Around 30% of the public think that when you put your money into the bank it just stays there and its safe and you can understand why because every child has a piggy and you spend it. So a lot of people keep this idea of banking, it's somewhere safe to keep your money so that it's there whenever you need it. Another, the other 60% of people assume that when you put your money in that money is the same being moved across to somebody who wants to borrow it. So you have a pensioner who keeps saving money her entire life and then her life savings have been lent to some young people who want to buy a house. But actually banks don't work like that. At the moment in the UK money creation and control is largely in the hands of private banks. About 97 to 98% of money that's created is created as bank "debt money", you can call it, when banks issue money into circulation as loans essentially. This is a very poorly understood fact. It's not a conspiracy theory, it's not a crackpot theory, it's the way the Bank of England describes the process. When banks make loans they create new money. A few economists will realise the way the money system works but if you don't realise the way that money works and you think that everyone saving is going to work well for the economy. What really happens once you understand the way the money system works is that if everybody starts saving, the amount of money in the economy shrinks and we have a recession. So most economists don't have this full picture. They don't understand all the elements of the system. They rely on assumptions, on received knowledge without actually going into the details, and money is the centre of the economy. If you don't understand where it comes from, who creates it and when it gets created then how can you understand the entire economy? When the vast majority of money that we use now is not cash but its electronic money then whoever's creating the electronic money is getting the proceeds of creating that money and obviously creating electronic money is much more profitable than creating cash because you don't have any production cost at all. So while we've got £18 billion over the course of the decade in profit from creating cash, the banks have actually created £1.2 trillion. Between 1998 and 2007 the UK money supply tripled. £1.2 trillion pounds was created by banks, whilst £18 billion was created by the Treasury. A lot of people think when I say this or when you say this or when Positive Money say this that we are all a bunch of nutters. But on the 9th of March in 2009, the governor of the Federal Reserve, Ben Bernanke gave the first ever broadcast interview, the governor of the central bank of the United States of America had ever given and the day before that he bailed out AIG which is an insurance company, not even a bank actually to the tune of about a US$160 billion. So the journalist says to him: "Now Mr. Bernanke where did you get $160 billion to bail out AIG?" JOURNALIST: Is that tax money that the Fed is spending? BERNANKE: It's not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So to lend to a bank we simply use the computer to mark up the size of the account they have with the Fed. So it's much more akin, although not exactly the same, to printing money than it is to borrowing. I found that talking on the door step from August last year around to August 2009 around to general election 8-9 months I suppose knocking on the doors, is that we tried to explain how the money system works, there's an almost in-built refusal of people to accept that such a bizarre situation could actually exist. "Ah no, it can't possibly. What do you mean? It can't...banks can't...banks don't create money out of thin air. That's ridiculous. They can't do that. They lend out their depositors' money." Most people have an idea of how money is. They are used to their own way of handling money and they try and implement their own idea of how their small household economy works into the national economy. And of course it just doesn't work out, it just doesn't work out at all. NARRATOR: By 2008 the outstanding loan portfolio of bank created credit, also known as commercial bank money, stood at over £2 trillion. As recently as 1982 the ratio of notes and coins to bank deposits was 1:12. By 2010 the ratio had risen to 1:37, that is for every pound of treasury-created money, there were 37 pounds of bank-created money. In the 10 years prior to the 2007 crisis, the UK commercial bank money supply expanded by between 7 to 10% every year. A growth rate of 7% is the equivalent of doubling the money supply every 10 years. DYSON: The amount of money they're creating out of nothing is just incredible, £1.2 trillion in the last 10 years. That money is being distributed according to the priorities of the banking sector, not the priorities of society. The banking sector itself grew from 1980, $2.5 trillion to $40 trillion by assets. In 1980, global bank assets were worth 20 times the then global economy. By 2006 they were worth 75 times according to the UN. NARRATOR: As the following chart shows, total bank assets of UK banks as a percentage of GDP remained relatively stable at 50-60%, up to the end of the 1960s. After that they shot up dramatically. And the real money in the world to be made today is not by producing anything at all. It's simply by forms of speculating. Basically, making money from money. That's the most profitable and by far and away the biggest form of economic activity that exists in the world today. NARRATOR: Today, banks are no longer restricted by how much they can lend, and as such how much new credit they can create out of nothing. They are restricted solely by their own willingness to lend. DYSON: The issue with allowing banks to create money, there's two main issues. Firstly, the fact that they create this money when they make loans. So it guarantees that we have to borrow all our money for the economy from the banks. NARRATOR: As such, to have a healthy, growing economy the government needs to put in place strategies to allow for ever-increasing debt. The only way the government can create additional purchasing power is by getting itself and us, into more debt. DYSON: The second big issue with allowing the banks to create money is that they have the incentive to always create more.  They create more money if they issue a loan. They get the bonuses, the commissions and the incentives to lend as much as possible. You have to develop a sales culture.  What did they do?  They recruited an amazing guy – a lovely guy – Andy Hornby, who came from Asda, to turn the bank into a supermarket retailing operation. If you trust bankers to control the money supply, the money supply will just grow and grow and grow, as will the level of debt, until the point where it crashes, when some people can't repay the debt and then they'll stop lending. You hear politicians and journalists saying, we've been living beyond our means; we've become dependent on debt.  We need to reign in our spending and live within our means. It's not possible in the current system.  The reason why everyone is in debt now is not because they have been recklessly borrowing.  We haven't borrowed all this money from an army of pensioners who've been saving up their whole lives.  Money in the current system is debt.  It's created when the banks make loans.  So the only way, in the current system, that we can have any money in the economy – the only way we can have money for business to trade – is if we've borrowed it all from the banks. And it's the very opposite of what the Tory Party is arguing today, which is that you have to create savings before you can help the National Health Service.  And it's because economists have completely confused those things, both in monetary policy terms, but also in economic thinking, and because most people still harbour the old fashioned view that you need savings before you can invest, that we have the mess that we're in today.  Now, one of the reasons why we find it difficult to understand the banking system and credit creation is that we leave school without any money and we go and get a job working as an apprentice to a plumber. We work really hard all month and at the end of the month somebody puts money in our bank, and so for us the logic is: you work and then you get money – you get savings.  In reality you would never have got that job if credit hadn't been created in the first instance.  It's a really important conceptual misunderstanding and it isn't something that the public just is guilty of.  Economists don't understand this stuff. ANNE BELSEY: Money doesn't just come out of economic activity.  A lot of people have come across - kind of assume - that if you have got businesses, and you've got people doing things, that somehow money somehow emerges out of the process of people doing things, making things and growing things, selling things and producing things, that somehow money just emerges.  It's not. It's like oiling a car. You have to put it in. When I see David Cameron talking about how we need an economy not based on debt, but we need an economy based on savings, he just doesn't know what he's saying.  It's ridiculous. It's absolutely absurd and it shows his complete lack of understanding of how our money system actually works. You know, it's a paradox under the current system.  If we as the public go into further debt, then that's going to put more money into the economy and we're going to have a boom.  When you have a boom, it's easier to borrow, so people get into even more debt. And eventually this cycle continues. It gets easier and easier to get into debt until some people get over-indebted and then they default.  They can't re-pay their mortgage.  That's what happened first in sub-prime America.  And then it brings through a wave of defaults, which will ripple across the entire economy.  The banks go insolvent.  Then we're into a financial crisis and then the banks stop lending.  They were excessively lending in the boom and then they stop lending and that makes the recession even worse.  People lose their jobs and then they become even more dependent on debt just to survive, basically. You know we have a system where we have to borrow in order to have an economy.  We have to be in debt to the banks.  That guarantees a massive profit for the banks. NARRATOR: This is the boom-bust cycle. GORDON BROWN: "And I've said before, Mr Deputy Speaker, no return to boom and bust." NARRATOR: Net bank lending must forever increase. We are paying interest on every single pound. Even if you think the money belongs to you, somebody somewhere is paying interest on that money. The banking system has such a huge impact on the world, but only because it supplies our nation's money supply.  We have to protect them. We have to subsidise them.  We have to allow them to continue, because the disaster of a bank collapse, affects us all in a huge way.  Anyone who says that we shouldn't have bailed out the banks doesn't quite understand the nature of our monetary system.  That's like eliminating a huge chunk of our money. But also, bailing out the banks is perpetuating a system which is never going to work anyway. So whatever we do, we are always going to have this cycle until we separate how money is created and the activities of banking.  Then the banks could do as they wish.  They'd be a normal business like everyone else. There's a major democratic issue here as well.  You have these private, profit-seeking banks creating up to 200 billion pounds a year and pumping that into the economy wherever they want, basically, wherever it suits them, whether they're pumping it into these toxic derivatives, or putting money into housing bubbles, just making housing more expensive.  200 billion pounds in 2007 of new money coming into the economy, created out of nothing; and where that gets spent determines the shape of our economy effectively.  So if we are going to allow anybody to create new money out of nothing, then we should at least have some democratic control over how that money's used.  I mean, would we rather have had that money used for health care, or to deal with some of the environmental issues, or to reduce poverty, or would we rather have it to make houses more expensive so none of us can afford to live in a house. You can see it as a subsidy, a special super subsidy to the banks, for the right to create money, which should be for the benefit of the public and spent through a democratic process. Banks are the most heavily subsidised businesses in the world, specially protected by governments. While the money runs out for the rest of us, the largest private banks still thrive. This is because they get the biggest subsidy of them all: the licence to print money. Hard to believe?  Martin Wolf, the Chief Economics Editor of the Financial Times, said it recently: "The essence of the contemporary monetary system is the creation of money out of nothing by private banks' often foolish lending…" You heard that right.  Private banks create money out of nothing.  Then, they loan it to us and ask for interest on top.  If you've ever wondered why the bank buildings around the world soar higher than any palace or spire ever did, you now have the answer. But the banks don't simply print money using secret printing presses in their basements.  They don't have to.  Like so many other things these days, printing money has now gone digital. With the popular use of debit cards, electronic fund transfers and internet banking, only 3% of the money in the UK is now made of paper and metal coin.  The other 97% is entirely on computers.  Electronic money is convenient for everyone, but it's especially convenient for the private banks, since they own, run and control the entire digital money system. And what do they do with this special privilege? Do they channel new money, the blood supply of the nation, towards the things we need like hospitals, schools, universities and public transport? Not if it doesn't make a profit for them. Instead, they use their licence to print money to gamble on the financial markets and push house prices out of reach of ordinary people by pumping hundreds of billions of pounds into risky mortgages.  This is exactly how the banks caused the financial crisis and now the rest of us are being asked to pay for it. If we can't afford to run hospitals and build schools, can we really afford to subsidize the financial industry?  Should we have to live with less so the bankers can have more? This is ludicrous and it's time to put a stop to it.  The private banks can't be trusted to hold the reigns to our entire economy. We need to take away the banks' power to create money out of nothing.  This will stop them from causing yet another financial meltdown and allow us to afford the crucial services that we as a society need. If you want a growing economy, under the current set-up, we have to have growing debt.  This is something very, very few people really understand, especially the politicians who are managing the economy, which is a scary thought. NARRATOR: As the money supply grows, more money is available, which can be invested in productive avenues.  However, it can also be used to gamble and drive up asset prices. NARRATOR: Inflation is a rise in the general level of the prices of goods and services in an economy over a period of time.  When the general price level rises each unit of currency buys fewer goods and services. As the money supply grows, and there is more currency available, more money is available for investment, which can lead to growth, but more money is also available for purchases of goods and speculation, which leads to inflation. Essentially, inflation is what happens when too much money is chasing too few goods and services, so there is too much money for the actual output of the economy. In the seven years between the years 2000 and 2007 the money supply doubled and the essential bank, the Bank of England was under the impression at this time that they had it under control, because they were saying that prices weren't going up that much.  Of course they were only looking at prices in your local corner shop.  They weren't looking at the price of housing and housing is the biggest expenditure that most people will make. Increasing house prices, it may make you feel like you're becoming wealthier, but as your wealth increases, the effect is that your children's wealth is actually decreasing.  So in fact there is no net gain in wealth, because your children are going to have to pay even more when they want to buy a house. So in effect, there is no net increase.  They are going to have to earn even more. They are going to have to go into even more debt.  So, rising house prices do not create additional net GDP value to the economy. Actually what they do, is re-distribute wealth towards those people who already have houses i.e. wealthier people and remove it from poorer people who can't afford to get on the housing ladder, so it's another example of a very regressive policy to allow house prices to simply inflate.  It makes everybody feel kind of like things are going well and people spend money on other stuff.  They take equity out of their houses.  But it's not creating new jobs.  It's not enhancing the quality of the economy.  It's not helping our balance of trade.  It's not helping the public deficit. It's a zero sum game. NARRATOR: As of August 2011, 85.5% of consumer bank lending was secured as mortgages on dwellings. If you have somebody creating money that can only be spent on one thing, which is housing, then the price of that thing is going to go up.  Between 2000 and 2010 they created over a trillion pounds of new money - 500 billion pounds just in the three years before the crisis.  That's why house prices went up they way they were.  There's nothing special about houses.  It was just all this funny money being pumped into that market. If money is spent into the economy, a lot of money goes into houses, for example into mortgages, that's an increase in the amount of money in the economy, without a corresponding increase in activity, in output, in GDP. It's non-GDP based spending.  That's what causes inflation.  In the UK we've had it in spades.  We've had this massive housing boom.  The main cause for the housing boom, in my opinion, is the huge amount of speculative credit created by the banks, to go into houses. If houses were cheaper, they would be easier to build.  More of them would be built. There would be less huge houses, with hardly any people in them.  London would not be the centre of a kind of very rich speculative orgy, where all the richest people in the world want to get a property in London, because it's seen as a great asset.  Houses would be seen as places to live primarily, rather than seen as places to invest.  The important thing to think about is, if you are a bank and you've got to make a loan, you have choices. You can give that loan to a small business and you'll know that the risk to you of that loan failing, defaulting, is actually quite high, because that small business, the owners of that business, have limited liability, which means if that business goes bust, you as a bank get nothing back, essentially.  So that's kind of high risk, compared to loaning your money to somebody with some collateral, with a house behind them, like a mortgage. So there's a simple incentive for banks to prefer putting money into housing than into a small business. Now that's a real problem if you widen that out across a whole economy, because it means there's an incentive to put money into speculative rather than productive investment.  So again, we have to think about how we create our monetary system that is more balanced between those two kinds of speculative and productive investment.  The government is showing enormous reluctance to regulate the housing market and to again regulate the amount of money that banks put into houses. We don't decide who creates credit for what. No, we leave that to a couple of chaps in a bank to decide, basically. Now, inflation can be avoided if the amount of money that goes into the economy is regulated in a way that it doesn't exceed the actual activity that's happening in the economy. Now, the best way to do that, in my opinion, is to make sure that money is issued into the economy only for productive investment, for productive goods and services, so money goes in to help a small business to start up which creates jobs, which creates additional purchasing power which means there's no inflation. You have to have a system where credit is put into productive avenues, where credit is put into building high speed rail links, where credit is put into building houses rather than giving people money to inflate the price of houses. So it's quite simple, really in that way, and the current system is simply set up not to do that, basically. The creation of money by private banks for non-productive usage causes real inflation and as such it is a tax on the purchasing power of the medium of exchange. The figures for the UK are quite stark actually, the average median real incomes (for the bit in the middle) for most people declined over the last 8 years. There are now in quite sharp decline as we go into recession, the sharpest really since, it looks like, since about the 1930s, put it that way, so real income is declining. NARRATOR: Bank created fiat currency allows the private banks to suck wealth from the economy and over time results in a gradual decrease in the standard of living. As people become poorer, they become even more dependent on debt. And this at a time when efficiency and machination have improved dramatically. If you go back to the 1960's and we were expected to, we were looking forward to an age of leisure, television programmes saying, what are people going to do with their spare time? And now we have got more people working harder than ever. Spending more than ever, which looks great, you know, everyone is spending more, but if you're not actually benefitting from what you're spending, if you having to spend the money on childcare costs on commuting costs and so forth. Costs that people didn't in the past used to have to pay because you could walk to work and one member of the family was able to stay at home and be a permanent homemaker, then you're not actually any better off. Everyone is under such enormous pressures nowadays, you know, I am conscious that my four nephews and nieces are facing difficult times. They're just going to find themselves having to work very hard just to keep a roof over their heads, to get a roof over their heads. People are getting poorer in real terms, it's because prices are always going up because all this new funny money is being pumped into the system by the banks and they're creating all this debt so at the same time as prices are going up and things are getting more expensive, we're getting further and further into debt and our wealth and the return that we get from actually working is getting less and less all the time. You can't deal with poverty when you have a financial system and a money system that distributes money from the poor to the very rich; any distribution that you try and do in the opposite direction is effectively pissing in the wind. If you look at issues like increasing inequality, one obvious way to tackle inequality is to have, say for example, a redistributive tax system. You tax the rich, you give some money to the poor. You move a bit of money down the scale. That's all very well but if you completely overlook the fact that there's another redistributive system which is taking money from the poor and giving it to the rich, then you're not really going to tackle this inequality and the way a debt-based money system works, it guarantees that for every pound of money there's going to be a pound of debt. That debt is typically going to end up with the poor, the lower-middle classes, those people end up with the debt and they end up paying interest on that money which then goes back to the banking sector and gets distributed to the people working in the city or in Wall Street. What this system does overall is it distributes money from the poor to the rich essentially, distributes money from the poorer regions of the UK back to the City of London and it also distributes money from all the small businesses, all the little factories around the UK and distributes that money back into the financial sector. We have a system, where by, the activity of actually supplying occurs under the very same roof as the same organisation that is responsible for profiting from putting together borrowers and lenders i.e. a bank. So, a bank creates our nation's money supply as well as making loans for profit. NARRATOR: The government cannot allow the banking system to fail, because if it did, over 97% of all money would disappear. This is why in the event of a crisis, the risk is transferred to the taxpayer. But even during normal times banks receive numerous guarantees and benefits beyond the right to create money. Bill, by the way, I know the Bank of America is a very big bank, it happens that I have 32 dollars there myself. Just between us what assurance do I have that this money is safe? Well, all deposits up to ten thousand dollars are insured by the federal government in Washington. That's my guarantee? Yes. Have you heard that the federal government is about 280 billion dollars in the hole? NARRATOR: Banks receive large safety nets from the government. The taxpayer guarantees £85,000 as deposit insurance. And the Bank of England provides liquidity insurance, in case a bank runs out of reserve currency. It's questionable whether we're going to get out of this recession or whether we'll just keep ticking along the way the way that we are now. However if we do, then when we come out of this recession and when growth starts again, look at what happens to debt, it will rise and it will keep rising and the faster the economy is growing, the faster the debt will rise and then give it another 3 to 5 years, we'll be back where we were, the debt will become too much, people will start defaulting again. It's kind of the system that we're locked into now is that we can't grow the economy without growing the debt and the debt is the very thing that will bring down the economy. The only option going forward is to reform it, to stop banks from creating money as debt. By fixing the monetary system we can prevent the banks from ever causing another financial crisis and we can also make the current public service cuts and the tax rises and the increase in national debt unnecessary. NARRATOR: The current monetary system allows the banking sector to extract wealth from the economy, whilst providing nothing productive in return. Why is it that we've got all this technology, all this new efficiency and yet it now requires two people to finance a household whereas in the 50's it only needed one person working and the reason for that is not because these washing machines and everything are more expensive, it's because of all the debt and because it's effectively the banking sector is creaming it off from everybody else. So a growing banking sector is not a good thing. If the banking sector is growing, it's either that it's becoming less efficient or it's becoming a parasite on the rest of the economy. We can talk about the banking sector becoming 4%, 5%, 6% of GDP, what's happening to the rest of the economy? It's becoming 96, 95, 94% of GDP. We've got to get switched on to this now. If we want to have a chance of tackling any of the other big social issues, you got to figure out the money issue. The poorest in the world pay for crises even when they've not benefitted from the often reckless and speculative booms, like the housing boom in Ireland that preceeded that crisis. You know over the last 30 years, we've seen income differentials increase so that the rich have got much, much richer and ordinary people haven't, they've stayed the same or they've got poorer and one of the ways that the economy was kept going was by providing cheap credit, was by providing debt to those very people who couldn't really afford things anymore, so they kept buying and when it collapses it's those same people that have to pay once again even though in many ways there were the victims the first time. NARRATOR: As a result of the crisis the Bank of England has bought corporate debt and repackaged it at lower rates of interest. Yet the average person is being asked to pay more than ever to borrow on overdrafts and credit cards. Debts between the very wealthy or between governments can always be renegotiated and always have been throughout world history, there not anything set in stone. Generally speaking, when you have debts owed by the poor to the rich that's suddenly, debts become a sacred obligation more important than anything else. The idea of renegotiating them becomes unthinkable. NEWSREADER: Can you pin down exactly what would keep investors happy, make them feel more confident? ALESSIO RASTANI: That's a tough one, personally it doesn't matter, see I'm a trader, I don't really care about that kind of stuff. CHANTING: Pay your taxes! BANKER TO PROTESTER: "Were you born in England?" ALESSIO RASTANI: If I see an opportunity to make money, I go with that. For most traders, we don't really care that much how they're going to fix the economy, how they're going to fix the whole situation, our job is to make money from it and personally I've been dreaming about this moment for three years. If you know what to do, you can make a lot of money from this. I have a confession which is, I go to bed every night I dream of another recession, I dream of another moment like this. I dream of another recession, I dream of another moment like this. You can make a lot of money from it. GIRL: Bruno, Virginia hurt somebody real bad, you oughtta hate her . CROWD: Incoming! The way in which you can look across Europe now and see that the new prime minister of Greece, not elected, essentially imposed, Papademous, former employee of Goldman Sachs, the new prime minister and finance minister of Italy, Mario Monti, former employee of Goldman Sachs, the new president of the European Central Bank, former employee of Goldman Sachs, you see these people popping up absolutely everywhere. VOICEOVER: That's the way to change what we have, take all power and all freedoms away from the people and collect everything into the hands of one small group with absolute power. From the people, without the people, against the people. What's been interesting out of all this I suppose is the question of democracy that's been opened up very starkly in Europe, that you have a government of bankers essentially imposed on you. Its bankers who more or less got us into this mess to put it rather crudely but that's a good first approximation to it and then you say, ok, bankers are the people who therefore are going to get us out of it and incidentally there going to run your country now. There's a serious question of democracy that has opened up here. By the way, the banking crisis drove more than a 100 million people back into poverty. The mortality statistics of people who go into poverty rise hugely for a whole range of reasons, so the banking crisis isn't just about becoming poorer, it was about killing people as well. And guess what? We haven't really got to the bottom of it, we never held anybody to account and we haven't done the radical reforming job that we really needed to do because we mistakenly thought: if we destabilise the position any further, it'll make matters worse and guess who took the decisions, all the people who were there in the first place. "I think you ought to know, the business of one of these businessmen is murder." "Their weapons are modern, their thinking: two thousand years out of date." What does a progressive financial system look like? And I want to hear what some of you think. Who thinks, for example, that we should ban banks from creating money? Control over how money is created and what it's used for is, it's a democratic issue. You currently have the banking sector, profit seeking banking sector, you know, not accountable to anybody other than themselves who are creating up to 200 billion pounds a year of new spending power and deciding where in the economy that goes. Monetary reformers believe that that entire money supply should be for the benefit of the public and should never be created by a private organisation as debt. Democratising the money supply, what that means is putting the power to issue and allocate money back into hands of people and taking it away from private organisations, institutions that don't actually represent the people, that aren't democratically accountable to the people, the banks aren't democratically accountable to the people; they're accountable to their shareholders and their shareholders only. Now they're underwritten by us, by the taxpayer but they're not accountable to us. That doesn't make any sense at all. So, if you democratise the monetary system, you are subjecting it to the same kinds of discipline as the education system, as the health service and other key, publicly needed services. There is no reason that money should be viewed as any different. It is a fundamentally important service that everybody needs. I can't survive without enough money, nobody can. So it cannot be controlled purely by this small elite of big banks, as it is in the UK. We do need a different system. We believe that the activity of supplying a nation with money should be completely separate from the activity of banking. What we need to do now is update that law from 1844 to make the digital money [into] real money. It could be electronic money, but it needs to be classified as money. We just want banks to be like every other private organisation, private company in the economy to be subject to market discipline. The problem is that now we're in this hybrid model where we have no control over how they spend the money, but also we're reliant on them to create our money. We're all constantly in debt, we'll be in debt pretty much for the rest of our lives and the younger generations have it even worse than the older generations. I've just been reading a report from the United Nations environment programme and they say we need US$2 trillion a year. Two trillion - can you imagine what two trillion is? It's a lot of money. $2 trillion a year to finance the greening of the economy, to move away from poisonous carbon which is poisoning the atmosphere to alternatives to carbon. When the banks collapsed in 2007-9, we found according to the Bank of England, not me, the Bank of England tells me that we raised 14 trillion dollars in a year to bail out the banks so against that 2 trillion dollars a year to bail out the ecosystem is no big deal. This kind of model doesn't make any sense either from an orthodox free market perspective because these banks are monopolists effectively they monopolise credit creation so they don't obey the rules of any free market discipline. Yet at the same time, they are not producing socially or environmentally beneficial outcomes along any real scale. All that money does is to enable us to do what we can do and once we get our heads around that we can make money work for what we need. The power to create money is so powerful; you got to be very concerned about who has that power. If it's somebody who's going to benefit from creating the money, then they're going to have the incentive to create more than the economy actually needs. The same would probably happen if you give that power to politicians. You know you can't trust a politician to be trying to please voters and to have power over creating money at the same time. It's a real conflict of interest. The only thing you really can do is to give it to somebody who has no conflict of interest, an independent, transparent, accountable body. NARRATOR: Money could be allocated according to the needs and desires of the population, systems could be put in place to allow for direct democratic allocation of funds either wholly or partially. A framework and rules could be established to incorporate up to date economic theory into how much money should be created, and for what types of purposes. The Government would no longer be able to get access to large sums of money to pursue armed conflict, if this was not sanctioned by the populace. We would be able to see exactly what they're doing with the power to create money. We would be able to see how much they're creating and where that money is going. And that is pretty much the only way we can get control over the power to create money and stop it being abused. The Money Reform Party was established in 2005 just after the 2005 general election. The idea of the Money Reform Party was that we would have this basic core issue that people would agree with. They might disagree on other issues, that's fair enough, there are different ways of going about it but that was the idea was to go for what you might call the lowest common denominator to attract people with disparate views. Getting elected to Parliament is not the issue, it's getting the issue of money reform into the public domain, so people will begin to talk about it. Banks should not be able to gamble with your money without your permission, so what they would need to do is to offer two types of account: One is a safe, we call it a ‘transactions account'. Put your money in there, the bank doesn't lend it, they don't put it at any risk whatsoever. The other is an investment account where you put your money in for a certain period of time and then the bank takes that away and they invest it. What happens when you use these two types of account is that in the event that a bank fails, the money in the safe account is still there, it's not at risk. So you just move all the safe accounts to a bank that is still healthy and then those people who put their money in the investment account, they don't lose everything but they have to wait for the standard liquidation procedures to find out how much of the assets of the banks will be returned to them and it means that the government then never needs to bail out a bank. Banks can be allowed to fail. The system would actually be how people think it is, that when you put your money in the bank, it's really safe or at least they used to think perhaps before the 2008 crisis. There's a spectrum of opportunities there that we're just not exploring at the moment and that's what's upsetting me that we're not even experimenting when we know that the system we have now is fundamentally flawed. We've just had the biggest crisis since the second world war, since the 1930's really. We know we have a system where the creators of money are underwritten by us anyway. It's kind of the worst of both worlds the situation we have at the moment which is why we need to start thinking of genuine alternatives. So when we're talking about what life is going to be like in the post reformed system, it doesn't mean that you can't borrow, it doesn't mean that you have to save up for 50 years before you can buy a house. It does mean that you might not be able to buy a house that's 10 or 12 times your income but on the flip side, it means that the house that you want to buy probably shouldn't cost you 10 or 12 times your income. Houses should be affordable as should everything else. You'll still be able to get a mortgage; you'll still be able to get finance for a car. Businesses will still get investment. It just means that debt won't be so high, it won't be such a huge feature of people's lives. NARRATOR: The issue of monetary reform has historically been a very sensitive issue because of the incredible power, wealth and privileges it bestows. In an age where analytic thought and a scientific approach are held in such high esteem, there is no justifiable argument for keeping the mechanics and implications of the monetary process such a taboo subject. As democratic citizens we have the right to demand a monetary system, which is both stable and beneficial to society The banking lobby is very powerful. I suspect that they won't be in favour of these kinds of models although ultimately one could argue that's it's a much more stable footing for banks. There's this cosy relationship between the government and the banks. In the middle of the crisis, I spoke to somebody who was working in the Treasury in the middle of the crisis and he said pretty much every second person that you spoke to was working for one of the big banks. So when it comes to a decision about whether you let one of these toxic banks fail or whether you rescue it, what kind of recommendation are you going to get from somebody who works in that bank. "This is the zombie banks' protected feeding station." NARRATOR: Banks balance sheets are now 4 times GDP at 6 trillion pounds; they are holding the public hostage. Their wealth has become so great through gaming the financial system that we are at a tipping point whereby a single bank could now take down the entire economy. "Eat her, eat her now, eat her, she's a public sector worker, eat her, suck her blood, drink her dry!" It is a political issue, ultimately, because the reforms that are required can only be achieved by Parliament. We don't need a very big act of Parliament. All it has to do is basically prevent the clearing banks from creating currency based on the debt of their borrowers, that's it. You stop that. We can't let the banks go back to business as usual because if they do, then all we're going to see is more debt, more poverty, more inequality and another crisis in 5 or 10 years, which we're going to have to pay for again.