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There are three fatal flaws at the heart of the banking system. These three fatal flaws
are at the root of many of the problems that we are trying to tackle right now.
They make some of the social and economic problems a lot harder to solve and make some
of them impossible to solve. But the good news is that there's three very
simple fixes to these fatal flaws. And I'm going to show you what these simple fixes
are.
We can use the principles of leverage to make some simple changes to the banking system
which will help us deal with some huge problems that we are facing right now and then we can
use that to turn these major problems into these solutions.
So these three fatal flaws at the heart of the banking right now.
Flaw 1: Banks can lend your money whether you like it or not! When you put your money
into the bank it becomes the legal property of the bank.
Just a quick question, did anybody here tick a box when you put your money into the bank
saying “I’d like you to lend it to families in sub-prime America?” You don't get this
option. When you put your money into the bank it automatically becomes the property of the
bank and they use it effectively however they like.
The people who are in charge of these investment decisions are given incentive by bonuses and
commissions to take these short term risks.
That can quite often lead to them gambling with your money. Sometimes this gambling goes
wrong and goes wrong in a big way and when it goes wrong we as taxpayers have to step
in and pick up the tab.
This is exactly what happened with Northern Rock and then what happened to the other major
banks that followed Northern Rock that we had to nationalise with our taxpayers money.
Flaw Number 2: Banks can invest your money however they like.
You don't get a choice over how that money is invested, when you put your money into
the bank it's then there for them to use however they like essentially.
I confirmed this by speaking to somebody who's spent two decades working at the top of one
of the largest banks in the UK. She saw exactly where the money came from and where it goes
to and she confirmed effectively that there's no connection between the money coming in
and the money going out.
You could put your money into the bank thinking you were putting your life savings in there
and you want it to be invested in some small businesses. It could then be used for things
that aren't really something you'd be ethically be comfortable with.
For example your life savings could be helping to fund British Aerospace's latest weapon
of mass destruction. Or you could be funding commodity speculation.
Now commodity speculation is a nice word for gambling on the price of food so your money
could be being used by the banks right now to force up the price of food for poor families
in developing countries. Or something a bit closer to home: has anyone
here got kids or teenagers? Your life savings may have been used in the last ten years to
blow up the housing bubble to push house prices up to the extent to where your kids can't
actually afford to buy somewhere to live. Or if you’re investing in a pension and
at the same time you have your savings may be in an ISA in a bank, it's possible that
the savings that you put into your ISA have been put into the banks to take a position
on financial markets which would push down the prices of some of the stocks that are
in your own pension so your life savings could be used to reduce the value of your own pension.
We don't get any say over how these funds are used when you put your money in the bank,
so that's the second fatal flaw in the banking system right now.
The third fatal flaw, this is the big one is that banks can actually create money.
Now this is going to require a bit more explanation. So we all know what this is and I guess most
people probably know who creates these as well. Who creates £10 and £20 notes? The
Bank of England, excellent, the clue is written on the note.
What happens if you make your own? You would expect the police to come smashing threw your
door at 2am in the morning. Why? Counterfeiting, to prevent inflation? We know you can't just
go and print your own money at home it's wrong it's illegal, it's detrimental to the economy.
Here's a question for you. What does your bank account look like? I'm
going to make it multiple choice to make it a bit easier.
Does it look like this? Or like this? B is correct! The vast majority of money now is
just numbers in a computer system so actually what's happened over time is that the financial
system has become more and more electronic is that cash has shrunk as a percentage of
all the money in the economy to just 3%.
So cash now is just 3% of all the money in the economy, the other 97% is just numbers
in computer systems owned and controlled by the banks.
Over time the nature of money has changed. We used to use metal coins that were issued
by the king. What happened over time is that people used to put these metal coins into
the bank or into local goldsmiths. He would have a vault where you could keep your money
safe.
So people would put their money into the bank and in return they would receive a piece of
paper which would say maybe £5.
You put £5 into the bank and you get this piece of paper saying the bank now owes you
£5 and what would happen over time is that instead of people taking the piece of paper
to the bank and getting the metal coins, taking the metal coins down the high street shop,
giving it to the shop keeper taking the metal coins back to the bank which is a bit of an
inefficient way of doing things people would just start handing around the pieces of paper.
So you would put your money into the bank put your metal coins into the bank get a piece
of paper that would say £5 on it and you could start to use this piece of paper in
the economy to make payments.
What happened over a period of time is that people really started to trust these pieces
of paper almost as well as the coins and these pieces of paper came to function as money,
people trusted them and believed they were equivalent to the metal coins.
Now the banks realised that if they created more of these pieces of paper even if the
money wasn't actually in the bank itself, people would still accept it and people would
borrow this money and pay interest on it and believe that it was as good as the metal money
issued by the king.
Of course they then saw the profit opportunity and they took this too far, too quickly. They
created too much of this paper money, lent it into the economy. It started to push up
the price of property, the price of assets it caused a bit of a bubble and this gradually
lend to inflation in the economy and eventually destabilised the entire economy.
This was around the 1840's.
In 1844 the government then recognised there was a big problem with banks creating their
own money effectively without restraint and they passed a law which made it illegal for
anybody but the Bank of England to create money.
This law was actually passed by conservative Prime Minister Sir Robert Peel and this law
took away the power to create money away from the commercial banks and brought that back
to the state, back to the Bank of England.
So since 1844 the nature of money has changed again.
What we use as money now is electronic money in computer systems and this electronic money
is created by the commercial banks, by the high street banks that we use everyday and
here's the point; the law that was passed in 1844 to return the power to create money
back to the state, back to the Bank of England has never been updated so it's not actually
illegal right now to create digital money.
There is no law saying that banks can not create money.
I found this a little hard to believe, the first time that somebody told that banks can
create money effectively out of nothing I was like no you've misunderstood something
definitely.
So I thought I'd go looking for an authoritative source so I figured the Bank of England, they
would know surely.
I went back and found some reports from the Bank of England and found some quotes in here
that really sort of cast light on the process.
This first one here, "The money creating sector in the United Kingdom consists of resident
banks including the Bank of England and building societies.” Money-creating sector? Most
people would assume that only the bank of England can create money , yet here it says
that UK Banks and building societies can create money as well .
I needed a bit more confirmation so I kept reading. “By far the largest role in creating
broad - that’s digital - money is played by the banking sector. When banks make loans
they create additional deposits for those that have borrowed the money.
So when banks make loans they create additional deposits for those that have created the money.
And for those who aren’t familiar with banking jargon, deposits are the numbers in your bank
account. So Paul Tucker, second in command at the Bank
of England, confirms this again with the phrase that: “ Banks make loans by simply increasing
the borrowing customer’s current account. That is, banks make loans by creating money.”
I thought that this money came from pensions like my grandmother, who’s been saving up
her entire life, and that it was lent to young people to buy houses. But he’s saying that
banks make loans by creating money. If you need further confirmation this is Martin
Wolf, the chief economics editor at the Financial Times - he should be a fairly credible source.
Now Martin’s actually also on the Independent Banking Commission, which means that the government
respects his opinion enough to ask him what should be done to fix the banks. And he quite
recently said: “The essence of the contemporary monetary
system is the creation of money, out of nothing, by private banks’ often foolish lending.”
So how does this process work? How do private banks create money out of nothing by lending?
Well I don’t want anyone to panic but there’s something you need to know.
There is NO money in your bank account. Absolutely nothing.
Your bank account is not a safe deposit box. It’s not a box where you can put your money
in and expect them to keep it safe. Unless you’re talking about a Swiss safe
deposit box. Are there any exiled dictators or drug dealers in the room? No, so let’s
assume that everybody here uses a normal electronic bank account.
When you put your money into the account, you lend it to the bank. It becomes the property
of the bank, and in return you get a number in your account which says that the bank will
repay you at some point in the future. So your bank balance really is not the balance
of the money in your account. It’s a record of what the bank owes you. It’s what the
bank needs to repay to you at some point in the future.
So your bank balance just shows you how much the bank owes you. It doesn’t mean there’s
actually any money in your bank. And this is true - there probably isn’t
much money in your bank. So right now, this is going from Bank of England
figures that were about a month old, if we all went to the bank today and said we wanted
our money back, then the bank could repay roughly £71 for every £1,000 in your account.
Before the crisis that was even worse. Before the crisis, they could repay just £12.50
for every £1000 in your accounts. So there is no money in your bank account.
There probably is no money in your bank either.
You can see this by looking at RBS’s balance sheet. Under RBS’s balance under liabilities
is an item called customer accounts. That is the money in everybody’s customer accounts.
And there’s around £680 billion in RBS’s customers’ accounts.
Are there any RBS customers here? A quick show of hands…
OK, just a couple. So that’s the balance of your accounts along
with the accounts of everyone else who banks with RBS.
In terms of whether they actually have the money that you put into your account: if we
look at the assets, this is cash and balances at central banks. There’s only £17 billion
there. So in fact for that £680 billion of customers
money that they have taken in, they now only have £17billion of actual money. So there’s
a massive difference between what they have, and what they tell you they have in your account.
The key point is that the numbers in your account are not really money. In accounting
terms they are liabilities - they are a record of what the bank owes you and what the bank
promises to repay you. And the way this works is as follows:
We have the general public. Almost everybody has a bank account with one of the major banks.
So you have your people here with bank accounts. Now each bank has an account at the Bank of
England, so Natwest, Barclays, Santander each have an account at the Bank of England.
Now the Bank of England isn’t like your normal bank that you can just walk into on
the high street. It’s a special bank that provides particular services to the other
commercial banks. So it’s at the centre of this whole system.
Prior to the crisis there was just £20 billion of real money in these accounts owned by commercial
banks at the Bank of England. So all the banks together had only £20 billion
of real money. The type of money that these banks keep in
the accounts at the BAnk of England is a special type of money that bankers refer to as ‘Central
Bank Reserves’ or ‘Base Money’. It’s not a kind of money that we can use, because
we can’t have an account at the Bank of England. But this is in effect, ‘real’
money. On the back of this £20 billion of real money,
the commercial banks expanded this up to £1,600billion of the money in our accounts. So they effectively
multiplied this £20 billion up by 80 times to turn it into £1,600 billion in our accounts.
And they do this through the lending process, through effectively recycling this £20 billion
over and over again. Every time they lend they type new numbers
into people’s accounts, and they create new money by making loans.
So this £1,600 billion of money in our accounts is also matched by a larger amount of debt
that we owe to the commercial banks.
So there’s some key rules of money under this system − like the laws of physics.
Very few people understand these. Very few politicians understand these, and particularly
not the people in the Treasury who are trying to rescue the economy right now. We know this
from first hand experience. The key rules of Money:
When a bank creates a loan, it increases the amount of money in the hands of the public…by
increasing the total quantity of bank deposits (the electronic numbers in your account).
So when a bank makes a loan it increases the amount of money in the economy.
Secondly, when a member of the public repays a loan, then it reduces the amount of money
in the economy, by reducing the quantity of these electronic bank deposits, that were
created by the banks. Very very simply: That means if we want more
money in the economy, we have to have more debt. And if we want less debt in the economy,
then we have to have less money. Now there’s some real implications of this
that we’ll go through shortly. But here’s a question for you. If you don’t
have any ‘numbers’ in your bank account (I’m not going to call it money for the
time being, because technically the numbers in your bank account aren’t money)…Now
if you don’t have any numbers in your bank account, can you buy anything from this shop?
[Yes] How?
[Credit] OK, Credit’s a different issue. But assuming
that you don’t have credit and don’t have an overdraft, then you can’t buy anything
from this shop. But what about cash? Maybe you can just bypass the electronic system
and use cash. Well here’s the deal. When you go to a cash
machine, you’re not taking the electronic money out of your account. What you’re doing
is swapping the electronic numbers in your account for physical cash that’s in the
cash machine. You’re actually using the electronic bank-created money in your account
to BUY cash from the bank. You’re buying these paper notes from the bank.
…The public as a whole - so families, individuals, small businesses, large businesses - the only
way that we, the public as a whole, can get money into the economy, is by borrowing it
from the banks. It’s the only way we can get money into
the economy. So we’re entirely dependent on the banks
to put money into the economy and make sure that the economy can actually function.
How much money have the banks created? Does anybody know?
[Trillions?] Trillions? It is in the trillions…
You can take an educated guess if you look at the incentives for bank employees. Now
if you remember that money is created when banks make loans, through the accounting process
that they use… If you’re working in a bank and your job
is to make loans, and to lend money to people, then you have two options when someone comes
in through the door: You either lend, or you don’t lend.
Now if you lend, you could get a commission you could get a bonus you get to keep your
job and you get the opportunity of being promoted. Now if you don't lend well there's absolutely
no reward for a banker that doesn't lend money. If you consistently don't lend you get fired.
So when the incentives stack up like this what option are they going to tend to? They're
going to lend.
So these are the people who are deciding how much money is going to be in the economy,
their incentives are entirely stacked up towards lending.
So therefore they lend and they lend and they lend until people become so heavily indebted
that somebody starts to default and we have a financial crisis.
But if we look at where we've go to now, this is the total amount of cash in the economy
and it adds up to £57 billion pounds so to put that into some kind of perspective that's
roughly 19 Richard Branson's or 351 thousand houses.
All the digital money in the economy taken from Bank of England figures adds up to, this
is to scale, £2,200 billion and that's 733 Richard Branson's or 13 and a half million
houses.
Now to put that number into perspective there's only actually 22 million houses in the entire
economy, so effectively the banks have created enough money to buy up more than half the
houses in the entire UK.
That gives you an incite into the process a lot of money banks create they create by
lending for mortgages and they've effectively been able to buy up half the housing stock
of the UK which is why there such enormous levels of mortgage debt right now.
Looking at this overtime since 1969, this yellow line at the bottom is the total amount
of cash in the economy.
This green line is the money created by commercial banks electronically and this red line is
our total debt to the banks.
Now this has just got completely out of control over the last twenty or thirty years.
You can actually see that the debt that we owe to the banks now far exceeds the money
that we actually have in the banks, so if we actually took all the money we have and
used it to pay off all the debts we have we'd be left with absolutely no money and we'd
still owe around three or £400 billion to the banks.
OK so we can break this down over a period of time and see how much money has been added
to the money supply every singe year through lending and you can see going up to 2008 that
this was getting out of control.
£171 billion, £176 billion, £266 billion in 2008 of new money created through lending
and then we hit the financial crisis, then we had a credit crunch and in 2009 the banks
only created £106 billion of new money through lending.
You can see that through the impact of the credit crunch we've become completely dependant
on this money creation by commercial banks.
Just to put this into some kind of perspective £176 billion created by the banks in 2007
is equivalent to everything we spent on universities, schools, healthcare, defence and the police
all in one year but it's roughly a third of the spending power of the government.
So what's the implications? What's the human impact of the way this system works? Well,
it explains the power of the banks, firstly, this collection of companies that are centred
in the City of London effectively have a monopoly on the supply of money to the entire UK economy
and actually this system is replicated around the world so banks around the world have a
monopoly on the supply of money to their economies.
So we have the banks here and we have the public and the only way the public can get
money, can get these electronic bank deposits into the hands of the public is by borrowing
from banks through lending; and of course all the debt has to be repaid with the interest
on top.
We're effectively paying interest on every single pound of money that exists in the economy
right now.
With the banks having this monopoly on the supply of money to the economy right now,
if the banks don't lend then there is no money in the economy and that's when you have a
credit crunch and things just grind to a halt.
Now you might have heard after the financial crisis that we've become addicted to debt
we've been living beyond our means, we've been irresponsible, we need to reign in our
spending and cut down this addiction to debt.
But I've got a question for you! Is it possible to be addicted to oxygen? Oxygen is a necessity
of life, you can not survive you can not function without oxygen and yet if one company had
a monopoly on the supply of oxygen to the economy then yes we'd be addicted to oxygen,
we can not run the economy without money unless we go back to barter, unless we go back to
swapping a pig for a pair of shoes and things like this and we're not going to do that so
we need money in the economy and if the only way we can get it is by borrowing then the
only way we can get money is by going into debt so of course it appears as if we're addicted
to debt.
There are other implications as well, when banks pare the only ones putting money into
the economy because they're the only ones creating it the n that means they have complete
control over the shape of the economy.
They decide what they lend for so they decided what gets funded and what doesn't.
Again if you remember earlier I said we don't decide we don't get to choose where our money
goes it's up to the banks.
So this is roughly £200 billion a year of new spending power that the banks have (at
least going up the the financial crisis) and they get to choose how all the money is spent
and where it goes.
So that means they can decide whether it goes into something useful or whether it goes into
speculating.
This is the roughly proportional direction of the funds that banks lend.
Around 25% of what they lend goes into small businesses and real job creators you know
people who actually produce stuff.
The other 75% goes into property and commercial property and speculation.
Another reason why the banks are so powerful and to be polite politicians get confused
by large numbers and these numbers that the banks throw around like how much profit they
make, how much they contribute to the UK tax system tend to bewitch and hypnotise politicians.
If you look at the British Bankers Association and how they describe themselves they say
"The British Bankers Association is the leading UK banking and financial services trade association
and acts on behalf on its members on domestic and international issues.
Our 227 members are from 60 different countries and collectively provide the full range of
banking and financial services, they operate some 130 million personal accounts and contribute
50 billion to the economy, together make up the worlds largest international banking centre.
" Wow 130 million personal accounts, 50 billion contributed to the UK economy, that's not
an industry we'd want to mess with.
They may have skewed up big time but we'll let them off this time lets let them get back
to making money and paying more tax and that will help us reduce the deficit.
Well we need to look at how much the banks really do contribute to the economy, contributing
£50 billion a year to the economy sounds like a lot but we need to look at how much
the banks really do contribute to the UK economy.
It might be the case that we're actually subsiding the banks that the contribution is on negative.
This is a chart from the Bank of England published in December 2010 and they estimated that the
tax payer support for the banking sector in 2009 was worth a total of £100 billion to
banks so without this tax payer support the banks would not have made a penny of profit
they'd still be making losses and they certainly wouldn't have been making bonuses.
So without the subsides the banks would not be able to turn a profit, they're not really
profitable they depend on the tax payer support, the too big to fail guarantee, they know that
if they go down the government will rescue them time and time again.
OK so what do the banks really contribute? Well there's this for 2009, they paid £18
billion is salary taxes (PAYE) these figures are from HMRC, they paid a further £8 billion
in corporation tax…a tax on their profits.
The Bank of England estimates that they received £100 billion as a subsidy from tax payer
support and tax payer guarantees for the banking sector and we've independently estimated that
they receive a further subsidy of £30 billion a year through their monopoly on the supply
of money thorough being able to create the money we all have to use to run the economy
and being able to charge interest on all that money.
So this contribution of the financial sector to the UK economy is starting to look a bit
more questionable right now, it could be the case that were contributing more to them then
they are to the UK economy so what does this mean to us what's the human impact? Well firstly
it means that most of us will spend a lifetime in debt and the reason for this is that if
banks create all money as debt, now remember that when they make a loan they do it by effectively
creating this new money out of nothing.
You go to the bank and take out a loan you get two things; you get the debt which is
a contract that says you must repay this money over the next 25 years, you also get the money
which is the numbers that were type into your account by the bank when you signed the contract.
Which means that for every pound in the economy there's also a pound of debt and somebody
has to have that debt.
The current figures are there's around £2,200 billion pounds in the economy according to
the Bank of England, there's around £2,600 billion pounds of debt again according to
the Bank of England.
So this basically guarantees that there will be poverty and there will be debt because
some people must hold the debt.
Also if we all went and repaid our debts the amount of money left in the economy would
be zero so when you have a debt based system in this way the average cash wealth of the
public is going to balance out at zero or it could even be negative as it is right now.
If we took all the money we have a used it to pay off all the debt then we'd actually
have no money and yet we'd still owe hundreds of billions.
So in terms of you know you hear the phrase 'drowning in debt' the reason is that the
only way one of us can get out of debt is if someone else is going deeper into debt
The only way you can pay off your debts is by getting the numbers that were created by
banks when somebody else borrowed them.
So for one person to get out of debt requires that somebody else goes deeper into debt.
The only other option is that if people start to get out of debt no body else goes into
debt and then the money supply of the economy shrinks.
Now if the money supply to the economy shrinks then pretty soon we'll have a recession and
when you have a recession people lose their jobs and people start borrowing again.
So household debt is still rising even though we've just had a crisis that was caused by
excessive indebtedness, household debt is still rising 2007 it was £1,325 billion,
2010 £1,457 billion.
It's risen by an average of around £3000 per person of the last three years and you
have to understand that in order for the economy to grow in this current system the only way
we can get more money into the system is by borrowing it from banks.
So if we want the economy to grow and we want to avoid a recession then we're going to have
to go into further debt.
This system has led to people being priced out of a home.
This green line here is the money created by the banks over the decades and this is
the chart of house prices, now you'll probably be able to see the correlation there and this
is why in 1952 a house would cost you £1900 where as it now costs you £184,000 that's
inflation 9,584% over the last 60 odd years.
Now if house prices are kept in line with the average income since then, since 1952
then a house to day would cost £88,000 so in effect the banks being able to create money
and pump it into these property bubbles have been able to double the cost of a place to
live for the average person and if your twenties and your buying a house now your going to
have to borrow an extra £100,000 from the bank which is then going to mean that your
going to have to repay all the interest on that for the next 25 years and your going
to end up paying the banks roughly an extra quarter of a million as a result of the house
price bubble that we've had over the last ten years.
So this is a massive transfer of wealth from younger people back to the financial sector
now in terms of how long it's going to take your to pay off this debt, with the interest,
in 1952 in would take you five years and three months so five years and three months of your
salary would be used to pay for your house.
Right now were looking at eleven years and eight months so that's a decade of your life
spent working for the banks and you can see this in the way the banks have been lending
money into property and not into business, this is what caused this house price bubble.
This debt based money system leads to the inequality in the economy becoming even worse.
There's three ways in which this system redistributes money upwards from the poor and those people
on average incomes right up to the guys at the very top on the mega-million bonuses.
Firstly money is redistributed from the real economy, the shops, the businesses, the factories
back to the financial sector and the reason for this is that all these real economy businesses
need money in order to trade, in order to function and that money has to be borrowed
from the banks, remember that banks have a monopoly on the supply of money to the economy.
Second distribution effect is that money is redistributed from the poor to the rich through
this system so you have the poor who tend to end up with the debt and people who are
working in the banks the people responsible for creating and lending money end up collecting
most of the interest on this money which leads to money being redistributed from those at
the bottom of the ladder right up to those at the top.
You also have money being redistributed from the UK as a whole back to the City of London.
The reason for that is, is because Scotland and Northern Ireland and the rest of the UK
need to have money in order for their local economies to run and all that money again
has to be borrowed from the banks.
The highest paid staff of the banks are concentrated in the City of London so you have this distribution
of money from Scotland, from Northern Ireland, from the North, from the South East, South
West going back to the City.
So this is a system redistributes money from the furthest places in the UK back to the
City of London, from the poorest up to the richest and this redistribution could add
up to about £100 billion a year.
So in terms of welfare spending, in terms of progressive taxation (tax on the rich more
than you tax on the poor) those things are almost entirely cancelled out by the way that
this system redistributes money back up to those at the top.
It also leads to a lot of insecurity for both those people who are working, employees and
also for those people who own businesses.
In 2006 we had this elaborate financial system that seemed like it could turn paper into
gold essentially and the reality behind it is that the money supply the economy was running
on was entirely dependant on lending so there was actually no stable money supply.
There wasn't a firm foundation for the UK economy and you saw the incentives that bank
employees had lend.
This is going to lead to them lending more and more and more right up to the point where
so people can no longer afford to repay and these people then default, they're unable
to repay their debts.
This leads to the banks becoming bankrupt.
So this is the boom-bust cycle that we've had for decades, the one which wipes out businesses
every few years.
This is how it happens, the banks start of by lending more, that leads to people then
spending more because there's more new money coming into the economy, when people are spending
more people feel more confident they think their jobs secure they're going to get a pay
rise.
That leads to the borrowing more which leads to even more money creation.
Gradually we all end up owing more and we all end up repaying more in the interest on
that and eventually somebody will be unable to keep up with this debt treadmill so then
that leads to defaults which then leads to the banks panicking and saying actually we're
not going to lend now because we don't know who's a good risk and who's going to go bust
– so this is a credit crunch.
When they're not lending and at the same time people are continuing to repay their debt
and the money supply of the economy is shrinking and there's less money in the economy which
is going to lead to less spending which is then going to lead to a recession so there
you have your boom-bust cycle which almost heavily fuelled by banks lending to the point
where we have a crisis and then panicking and then refusing to lend.
This is because we are entirely dependant on the banks lending in order to have a money
supply for the economy.
So the impact that this has on poverty, you can not tackle poverty without tackling this
system.
In a recession, you've just seen how recessions are caused by banks lending and then refusing
to lend, in a recession is tends to be the lowest paid who get laid off first, so they
lose their jobs first.
So this instability that this banking system creates in the economy is responsible for
those people on lower salaries being repeatedly made redundant every few years every time
there is another recession and there's also the fact that somebody must hold the debt,
remember every pound in the economy was created by the banks when they were lending and therefore
for every pound of money there must be a pound of debt, somebody must end up holding this
debt otherwise there would be no money and it typically ends up being the poorer and
people on low to medium incomes who end up holding the bulk of this debt.
This is what turns life into this game where your constantly trying to get out of debt
and what we don't realise is that were all having to fight each other to get out of debt
because the only way you can get out of debt is if somebody else is going deeper into debt.
It's like trying to keep your head above the water by keeping everybody else down.
It doesn't have to be this way, this is a design feature of this system.
It also leads to environmental destruction, you put your money into the bank and they
effectively have no constraints on how they use it so they'll use it for whatever delivers
the greatest short term profit.
That can quite often be oil extraction, fossil fuels and we've seen the kind of chaos that
can lead to.
It could be digging up Canada to try and find oil below the surface.
This is may be something you wouldn't be quite happy with; there's a Canadian in the room,
I'm sure he wouldn't be happy with his money savings being used to fund the destruction
of Canadian habitat in order to find this oil.
There are people who do want us to transition away from oil to clean renewable energies.
If you had the option of being able to put your money into an account and saying no I
don't want this to be used for oil extraction or for British Aerospace's weapons development
then you could remove the funding from that.
But this is the way in which the system leads to faster destruction of the environment by
chasing short term profit.
It leads to a fall in quality of life for effectively everybody, for us, here's one
example in 1997 the national debt was £8,900 per person, this was your share of the national
debt, today it's £20,577 and by 2015 it's going to rocket up to £35,600 per person.
When the national debt reaches £35,000 per person then your interest on the national
debt will be around £81 per month so that's in the taxes that you pay £81 a month will
be going to pay interest on the national debt, for the entire country that's £120 million
pounds a day! Can anyone here think of a better way to spend £120 million then an interest
on the national debt? The reason this national debt is rising, there's effectively three
reasons why the national debt goes up, firstly bad politicians because it's a lot easier
to borrow and spend the same amount than actually raise taxes by the same amount so it's a kind
of cowards way of bribing you voters.
Banks come to the government for a bail out when things go wrong and things do go wrong
and also this banking system with banks swelling and contracting the money supply of the nation
leads to recessions and when there's a recession people pay less tax because people are made
redundant, business is bad and when the tax rate shrinks the governments faced with a
choice with either do you close down the schools and the hospitals or do you just borrow some
more and add to the national debt so this financial, this banking system is one of the
real causes for the national debt, for the austerity programme, for the cuts that are
going on right now has lead to the age of austerity and as I was showing before once
I get into the austerity programme it squeezes peoples actual incomes so ordinary people
have less money to spend because VAT is going up, taxes are going up, spendings going down
and that could lead us into this downward spiral where this leads to further bailouts
for the banks and this leads to more cuts in government services and more tax rises.
Just an aside, one of the reasons the Bank of England seem so reluctant to raises interest
rates even though inflation is going way above their target is that they know that as soon
as interest rates go up a lot of people who are currently surviving by being of tracker
rate mortgages with low interest rates are going to become unable to repay so what will
happen is if they raise interest rates to where they should be again maybe like 5% a
lot of people are going to go bankrupt and that's going to lead to a lot of the assets
of the banks suddenly going up in smoke and that's going to lead to the banks coming back
to the tax payer to ask for a second bailout.
So the Bank of England is really in a Catch 22 situation now, they're not really sure
what to do.
It also leads to some massive wasted opportunities, if you remember that banks are creating all
this money effectively out of nothing and deciding where it gets spent, they created
£1.2 trillion over the last ten years, they doubled the money supply in just the space
of ten years.
That is a hell of a lot of money, to put it into perspective the national debt currently
stands at about £925 billion so it's slightly less than that.
It's about double what the government spends in a year and there are so many things that
we could of done with that money that would have been better than having asset bubbles
and a house price bubble and a financial crisis! You could have had high speed rail going up
to Edinburgh, you could have had, well we could all of had a new car, we could all had
a redecorated house, we could have had free university education for everybody who wanted
to go.
These are all political decisions but that was a hell of a lot of money to blow on some
expensive champagne in the City.
So this leads to some massive wasted opportunities, it also makes things very difficult for businesses,
it makes things very difficult for economic progress.
If your running a small business and your trying to grow that business year on year
your going to improve your business improve the products your selling, your making progress
and then if every seven years along comes recession and wipes you out then you lose
all of that progress.
What businesses need really is a stable economy where they can continue to innovate, to develop
things, to grow and that's not what there getting from this system so every seven years
we get a recession that wipes out a lot of the progress and the innovation and the advancement
that we've been making in the economy.
It's also incredibly unfair because the way the Bank of England tries to stop this system
getting out of hand is by rasing and lowering interest rates so in a recession we lower
interests to try and encourage people to start borrowing more so that's very good for young
people who've got tracker rate mortgages.
But it's not very good for pensioners who very often get thrown into poverty because
they were living off the interest on their savings and then this interest suddenly becomes
zero.
Then when the younger people actually did fall for the bait and went further into debt
and spent to stimulate the economy then the interest rates go back up so those people
who took on tracker rate mortgages when interest rates were low then find the interest rate
going back up to 5% so you almost bankrupt the very people who borrowed in order rescue
the economy from a recession.
Obviously it's good for pensioners but not very good for younger people and those who
have to borrow.
So this is a way of managing the economy that has massive collateral damage, it also leads
to massive inflation, inflation isn't caused by governments creating to much money it's
caused by banks creating to much money and reason why inflation is such a problem is
because it transfers wealth from people who have savings and money to people who property,
gold and other investments.
It doesn't effect the rich because the rich don't hold their wealth in money, they hold
assets and property.
It affects people like my grandmother who has some money in an ISA, it affects people
with just a small amount of savings.
So it's basically a way of transferring wealth from those people with moderate wealth or
small wealth to those people with a hell of a lot.
So all this adds up to the governor of the Bank of England saying "Of all the many ways
of organising banking, the worst is the one we have today" and I completely agree with
him.