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Missing words are marked with #. 17 minutes at the end remain to be subtitled. 2 00:00:05,199 --> 00:00:08,161 If two parties instead of being a bank and an individual were an individual and an individual, 3 00:00:08,661 --> 00:00:11,144 they could not inflate the circulating medium by a loan transaction, 4 00:00:11,705 --> 00:00:15,747 for the simple reason that the lender could not lend what he didn't have, as banks can do... 5 00:00:15,896 --> 00:00:20,337 Only commercial banks and trust companies can lend money that they manufacture by lending it. 6 00:00:20,853 --> 00:00:23,796 Professor Irving Fisher, economist in his book "100% Money" (1935) 7 00:00:49,041 --> 00:00:51,842 The study of money, above all other fields in economics, 8 00:00:52,035 --> 00:00:56,503 is one in which complexity is used to disguise or to evade truth not to reveal it. 9 00:00:56,857 --> 00:00:59,203 John Kenneth Galbraith economist, author 10 00:01:03,570 --> 00:01:06,345 The issue which has swept down the centuries... 11 00:01:06,277 --> 00:01:10,044 and which will have to be fought sooner or later, is the people versus the banks. 12 00:01:10,345 --> 00:01:12,615 Lord Acton (1834-1902) English historian 13 00:01:21,742 --> 00:01:23,721 Money as Debt II 14 00:01:30,376 --> 00:01:31,882 Promises Unleashed 15 00:01:58,804 --> 00:02:01,233 Anybody here want lemonade? 16 00:02:07,082 --> 00:02:09,097 For a job well done! 17 00:02:15,891 --> 00:02:17,836 You kids are real go-getters! 18 00:02:18,338 --> 00:02:21,004 It's time we opened some bank accounts... 19 00:02:21,250 --> 00:02:24,416 so you can put your money to work for you! 20 00:02:30,256 --> 00:02:33,178 We'd like to open bank accounts please. 21 00:02:36,842 --> 00:02:38,550 We're just like grownups! 22 00:02:38,786 --> 00:02:41,574 Yeah, we have our money in the bank! 23 00:02:45,624 --> 00:02:50,376 Maybe your first experience of putting money in the bank wasn't quite as hard warming as this... 24 00:02:50,734 --> 00:02:55,443 but odds are years later, you still refer to the balance showing on your bank account... 25 00:02:55,533 --> 00:02:59,206 is being your money in the bank, but it isn't. 26 00:03:00,451 --> 00:03:04,942 If we had a deposit box in the bank, the valuables we put in it are still ours. 27 00:03:05,494 --> 00:03:08,011 We're just renting secure space to store them. 28 00:03:08,572 --> 00:03:12,286 In common usage, the word "deposit" means to set something down. 29 00:03:12,827 --> 00:03:17,232 But the use of the word "deposit" to refer to a bank account is misleading. 30 00:03:17,556 --> 00:03:21,909 The bank deposit is in reality a loan. 31 00:03:22,547 --> 00:03:27,823 With the amount in our bank account really indicates is how much money the bank owes us. 32 00:03:28,155 --> 00:03:33,375 It's a record of the bank's promise to pay us money not the money we deposited itself. 33 00:03:34,151 --> 00:03:36,229 The difference is important. 34 00:03:36,777 --> 00:03:40,822 The truth is from # the contents for piggy bank to the bank teller... 35 00:03:40,877 --> 00:03:44,925 our money becomes the bank's money to do with it as it pleases. 36 00:03:45,044 --> 00:03:49,883 All the money in the bank is the bank's money, none of it is ours. 37 00:03:50,668 --> 00:03:55,147 That's why the bank pay us interest, we have loaned the bank our money. 38 00:03:56,153 --> 00:03:58,802 This may seem to be a semantic distinction. 39 00:03:59,401 --> 00:04:03,965 We know, we can go to the bank at any time and take our money out in cash if we want to. 40 00:04:04,333 --> 00:04:08,037 But the distinction is not semantic nor is a trivia. 41 00:04:08,377 --> 00:04:10,772 The distinction is crucial. 42 00:04:13,386 --> 00:04:18,060 What happens if banking affects everyone and yet few of us know anything at all... 43 00:04:18,061 --> 00:04:20,051 about how banking really works? 44 00:04:20,421 --> 00:04:25,236 The entire world economy now runs on a system of credit provided by banks... 45 00:04:25,755 --> 00:04:29,707 and when that credit system breaks down, everyone suffers. 46 00:04:31,679 --> 00:04:35,609 Defaults, foreclosures, bankruptcies, bank failures, gov't bailouts. 47 00:04:37,462 --> 00:04:42,289 To make things worse, the explanations for these break downs offered by the experts... 48 00:04:42,517 --> 00:04:44,731 never look at the root cause. 49 00:04:44,787 --> 00:04:50,822 Namely that other than cash and coins which make up just 1-5% of money in circulation... 50 00:04:50,923 --> 00:04:56,348 all the money in existence today was created as the principal of a bank loan... 51 00:04:56,323 --> 00:05:01,559 with the banks requiring principal plus interest as so-called repaiment. 52 00:05:02,264 --> 00:05:07,573 Not only does this make the existence of money entirely dependant on the existence of bank credit. 53 00:05:08,051 --> 00:05:16,486 It makes the system as a whole bankrupted by design as total # (principal+interest) exceed total assets 54 00:05:16,443 --> 00:05:19,334 for the moment the first loan document has signed. 55 00:05:21,045 --> 00:05:25,183 As the global banking system staggers towards worldwide collapse... 56 00:05:25,489 --> 00:05:32,181 more and more people are realising they can no longer ignore the realities behind banking as it is practiced today. 57 00:05:32,949 --> 00:05:38,998 Many have lost their homes and jobs # entirely unastainable practises of money lenders. 58 00:05:39,513 --> 00:05:46,090 It's time people understood money and the pressing need to fundamentaly change the way it works. 59 00:05:51,446 --> 00:05:56,149 Clarifying with the words used in banking really mean, is the first step. 60 00:05:57,272 --> 00:06:01,405 Now that we know that a deposit is in truth a loan to a bank... 61 00:06:01,307 --> 00:06:05,866 the next question is what does a loan that we take out from a bank. 62 00:06:07,447 --> 00:06:13,238 When we sign for a loan, we give the bank a pledge to pay the amount of the loan plus interest. 63 00:06:13,515 --> 00:06:18,287 In return the bank credits our account in the same amount as the so-called loan. 64 00:06:19,009 --> 00:06:22,780 When we speak of the bank is having put the loan money into our account... 65 00:06:23,208 --> 00:06:28,654 in reality the only thing the bank puts into our account is its promise to pay the money. 66 00:06:29,405 --> 00:06:32,446 What it's actually happen is an exchange of promises. 67 00:06:32,990 --> 00:06:37,295 Neither party has delivered anything to the other except matching pledges of debt. 68 00:06:37,698 --> 00:06:40,217 So who's the borrower and who's the lender? 69 00:06:41,200 --> 00:06:45,735 The terms loan, lender and borrower are all misleading. 70 00:06:47,225 --> 00:06:50,877 The truth is, the two parties have traded promises to pay and... 71 00:06:51,104 --> 00:06:55,444 in the process created something called bank credit or checkbook money... 72 00:06:55,686 --> 00:06:58,546 that can be legally spent as money. 73 00:07:00,313 --> 00:07:06,135 Bank credit can be spent because we in our innosence notice that each time we deposit into our account... 74 00:07:06,331 --> 00:07:08,980 it increases our balance by the same amount. 75 00:07:09,328 --> 00:07:12,984 In fact, unless we put something in our account would be empty. 76 00:07:13,425 --> 00:07:18,195 Thus, it's a natural assumption that money in an account is money someone put in. 77 00:07:19,567 --> 00:07:23,365 The account is a promise to pay not the money itself. 78 00:07:23,553 --> 00:07:27,365 In fact, a promise always indicates the absence of the item promised. 79 00:07:27,594 --> 00:07:30,090 Otherwise why does it need to be promised? 80 00:07:31,437 --> 00:07:34,814 Now, because all bank accounts are promises to pay... 81 00:07:35,060 --> 00:07:38,464 the bank and the borrower can simply exchange promises and... 82 00:07:38,700 --> 00:07:44,030 in the flash of few key strokes a positive balance appears to the borrower's bank account... 83 00:07:44,246 --> 00:07:47,287 with no anyone putting an existing money in. 84 00:07:49,383 --> 00:07:52,839 Now, you know the real source of what we called a bank loan. 85 00:07:54,138 --> 00:07:57,178 Commercial banks create checkbook money whenever they grant a loan, 86 00:07:57,564 --> 00:08:01,964 simply by adding new deposit dollars in accounts on their books in exchange for a borrower's IOU. 87 00:08:02,358 --> 00:08:05,465 Federal Reserve Bank of New York, I Bet You Thought, p.19 88 00:08:09,470 --> 00:08:14,193 How different would it be if two parties just got together in a basement with a printing press... 89 00:08:14,460 --> 00:08:16,335 and created new money that way? 90 00:08:17,562 --> 00:08:21,554 We # understand the act of fraud called counterfeiting. 91 00:08:22,038 --> 00:08:27,946 Imprinting fake hundred dollar bills, the counterfeiters also create new money out of thin air. 92 00:08:28,944 --> 00:08:33,355 Money give us the ability to purchase the real goods and services of the world. 93 00:08:33,802 --> 00:08:38,960 It's clear that the counterfeiters have created new ability to purchase real goods and services... 94 00:08:39,145 --> 00:08:43,753 without giving anything in exchange except the fancy piece of paper 95 00:08:46,293 --> 00:08:48,270 Counterfeiters get something for nothing... 96 00:08:48,401 --> 00:08:52,330 directly at the expense of whoever gets caught with the counterfeit money. 97 00:08:52,805 --> 00:08:58,985 And if the counterfeit money is not discovered, it # the money supply, stealing from everyone. 98 00:08:59,618 --> 00:09:03,289 Counterfeiting is a serious crime and it is easy to understand why. 99 00:09:03,783 --> 00:09:08,428 It's cheating on a basic social agreement, "Thou shalt not steal". 100 00:09:11,214 --> 00:09:15,485 But taking a loan from a bank also creates new purchasing power... 101 00:09:15,815 --> 00:09:22,438 however instead of being considered a form of theft, it is the very basis of our monetary system. 102 00:09:23,118 --> 00:09:25,915 Banks lend by creating credit. They create the means of payment out of nothing. 103 00:09:26,204 --> 00:09:28,177 Ralph M. Hawtrey 1879-1975 former secretary of the British Treasury 104 00:09:29,986 --> 00:09:33,534 How do one form of creating new money out of thin air become a crime... 105 00:09:33,714 --> 00:09:38,545 and the other becomes standar business practise and the source of almost all our money? 106 00:09:38,947 --> 00:09:41,081 For this is what it happened. 107 00:09:41,534 --> 00:09:46,044 To understand how, we need to look at the history of the laws governing commerce. 108 00:09:46,464 --> 00:09:51,635 Before that we need to understand the logic of the loan process itself. 109 00:10:02,425 --> 00:10:05,216 Anatomy of a Loan 110 00:10:08,711 --> 00:10:10,795 The Motive 111 00:10:13,723 --> 00:10:18,769 The borrower wants to purchase an item that doesn't have the funds to do so at the present time. 112 00:10:19,377 --> 00:10:23,608 However the borrower does have confidence in having sufficient funds over time... 113 00:10:23,832 --> 00:10:28,093 to pay both the original price of the item and the interest # loan. 114 00:10:29,112 --> 00:10:31,557 So he goes to a bank to arrange a loan. 115 00:10:32,304 --> 00:10:36,673 The borrower is capable of making # promise of money in the future. 116 00:10:36,706 --> 00:10:42,277 But otherwise at this moment he comes with empty pockets, that's why he needs the loan. 117 00:10:43,964 --> 00:10:45,476 The Method 118 00:10:48,692 --> 00:10:51,692 We propably all familiar with what happens next. 119 00:10:52,035 --> 00:10:54,516 The bank gets the borrower to sign an agreement... 120 00:10:54,438 --> 00:10:58,462 in which the borrower promises to pay the bank the amount of the loan plus interest... 121 00:10:58,657 --> 00:11:04,354 or in default surrender to the bank the object that it is to purchased with the loan. 122 00:11:04,912 --> 00:11:07,990 This is done countless times every day all over the world. 123 00:11:08,703 --> 00:11:10,055 But there is a problem. 124 00:11:10,336 --> 00:11:15,590 How can the borrower pledges collateral something the borrower does not yet own? 125 00:11:16,054 --> 00:11:21,420 If I wanted to borrow 10.000$ from you to go on a luxury cruise to Europe... 126 00:11:21,327 --> 00:11:24,176 would you accept my neighboor's car as collateral? 127 00:11:24,573 --> 00:11:29,505 Of course not, because you know very well that I have no legal right to give you my neighboor's car... 128 00:11:29,764 --> 00:11:31,556 ...no matter how much I owe you. 129 00:11:31,786 --> 00:11:37,258 But if instead, I promised to buy my neighboor's car with the 10.000$ you lend me... 130 00:11:37,427 --> 00:11:39,121 ...the situation is different. 131 00:11:39,712 --> 00:11:43,834 You might agree to lend me the 10.000$ believing that I would buy the car... 132 00:11:43,911 --> 00:11:48,402 and will pledge it as collateral for the loan, once I obtain legal title to it. 133 00:11:48,670 --> 00:11:56,101 However, until the transaction is completed your 10.000$ loan cannot be secured by title to a car. 134 00:11:59,084 --> 00:12:02,461 The sequence of event's problem could be very simply avoid it. 135 00:12:02,841 --> 00:12:05,738 You can buy the car and then sell it to me. 136 00:12:06,929 --> 00:12:08,420 The bank can do it this way too. 137 00:12:08,832 --> 00:12:14,132 If the borrower commits to the bank to buy the item why doesn't the bank just buy it with its own money... 138 00:12:14,372 --> 00:12:17,619 and then sell it to the borrower on time payments and interest. 139 00:12:18,296 --> 00:12:21,880 Well, the answer to that question is also very simple. 140 00:12:22,155 --> 00:12:28,477 Because the bank, like the borrower, has come to the transaction with empty pockets. 141 00:12:29,846 --> 00:12:36,443 The bank fulfills its part of the so-called loan transaction by creating an account for the borrower. 142 00:12:38,005 --> 00:12:44,385 The truth is the so-called borrower has funded his own account by # pledging a car, 143 00:12:44,421 --> 00:12:46,800 he does not yet own as collateral. 144 00:12:47,265 --> 00:12:51,465 And the bank, the so-called lender hasn't put up any existing money at all. 145 00:12:51,758 --> 00:12:55,261 And if all goes well, it never will. 146 00:12:56,625 --> 00:12:58,186 Acceptance of the Fraud 147 00:12:59,903 --> 00:13:05,013 The borrower believes the new numbers in his account now represent his money in the bank. 148 00:13:05,250 --> 00:13:10,719 He like the rest of us doesn't understand the difference between existing money and a promise of money. 149 00:13:11,065 --> 00:13:13,956 If you gonna spend it, what does it matter? 150 00:13:14,699 --> 00:13:19,613 So now, the question is: Will the seller of the item accept the bank's promise to pay? 151 00:13:20,978 --> 00:13:28,071 Well, some people may # for cash say yes to a check or an electronic funds transfer from the buyer's bank. 152 00:13:28,377 --> 00:13:31,188 Why? Because the seller knows from experience... 153 00:13:31,442 --> 00:13:36,375 that she can deposit the check at her bank and it will increase her account accordingly. 154 00:13:37,138 --> 00:13:38,917 So, what happens next? 155 00:13:42,916 --> 00:13:45,293 Balancing the Promises 156 00:13:49,224 --> 00:13:53,234 Well obviously the buyer's bank now owes the seller's bank the amount of the loan. 157 00:13:53,713 --> 00:13:57,567 So, you might be thinking isn't this where the money comes out of deposit. 158 00:13:58,627 --> 00:14:02,829 The bank's promise to pay the borrower has just been transformed by the transaction... 159 00:14:02,856 --> 00:14:06,018 into a promise to pay the seller's bank instead. 160 00:14:07,681 --> 00:14:13,446 So now the buyer's bank has to transfer # that's existing money to the seller's bank, correct? 161 00:14:14,450 --> 00:14:17,509 Yes, but probably only a small proportion. 162 00:14:18,108 --> 00:14:22,393 In over the long term, as long as the bank gets its fair share of deposits... 163 00:14:22,613 --> 00:14:28,982 the net amount of existing money, the bank needs to cover its loans can theoretically be zero. 164 00:14:30,845 --> 00:14:31,390 How? 165 00:14:31,629 --> 00:14:36,900 Well, imagine first that the seller has her account at the same bank as the buyer. 166 00:14:37,418 --> 00:14:40,308 She deposits the buyer's check into her account. 167 00:14:40,974 --> 00:14:43,681 All the bank has to do to complete the transaction... 168 00:14:43,968 --> 00:14:48,359 is reduce the buyer's account by the same amount and increases the seller's account. 169 00:14:48,808 --> 00:14:53,311 As both accounts are just promises no existing money is involved in doing this. 170 00:14:53,580 --> 00:14:55,470 What is the end result? 171 00:14:57,808 --> 00:15:02,443 The bank has created bank credit for the borrower to the sum of 10.000$. 172 00:15:02,831 --> 00:15:06,854 The borrower has bought the car that it existed in the world of real things... 173 00:15:07,109 --> 00:15:11,060 and the seller now has that bank credit of 10.000$. 174 00:15:11,861 --> 00:15:16,585 Thus, a brand new claim upon 10.000$ worth of real goods of value... 175 00:15:16,836 --> 00:15:22,496 was accomplished with absolutely zero dollars of the bank's or anybody else's money. 176 00:15:23,082 --> 00:15:27,545 On top of that, the bank gets to have all the so-called money paid back... 177 00:15:27,651 --> 00:15:32,883 by the borrower's on # plus interest or the bank gets the car. 178 00:15:34,629 --> 00:15:38,024 Magic like this is usually seen on stage. 179 00:15:40,173 --> 00:15:45,385 So now let's examine what happens if the seller deposits her check in a different bank. 180 00:15:45,866 --> 00:15:51,436 Won't that require a transfer of existing bank funds from the buyer's bank to the seller's bank? 181 00:15:51,791 --> 00:15:52,994 Perhaps. 182 00:15:53,307 --> 00:15:56,307 But it will almost certainly never be anywhere near the whole amount... 183 00:15:56,455 --> 00:16:01,103 because #, the banking system functions as one bank. 184 00:16:01,644 --> 00:16:05,556 To illustrate let's add another transaction to this senario. 185 00:16:06,977 --> 00:16:11,096 That same day, the seller's bank made a similar loan to a little old lady... 186 00:16:11,087 --> 00:16:13,095 who bought a mega home theater system. 187 00:16:13,516 --> 00:16:17,010 The electronic store deposited her check at their bank. 188 00:16:17,459 --> 00:16:23,183 The electronic store's bank made a similar loan that was deposited at the original borrower's bank. 189 00:16:24,213 --> 00:16:28,912 And when all the various balances were settled the banks didn't own each other anything. 190 00:16:29,168 --> 00:16:35,780 And even if there were differences, they would have been just a small portion of the total credit created. 191 00:16:37,559 --> 00:16:43,877 So, at this point we can say that all # banks actually lend their depositors money is most of 192 00:16:44,037 --> 00:16:46,745 they still need deposits to make loans. 193 00:16:47,181 --> 00:16:50,474 This is because banks need incoming credit from other banks... 194 00:16:50,547 --> 00:16:54,499 to asset their own credit being deposited at those banks. 195 00:16:55,106 --> 00:16:59,153 As long as banks keep their outgoing credit balanced with incoming credit, 196 00:16:59,356 --> 00:17:04,267 they're free to make new loans and thereby keep creating brand new credit money. 197 00:17:04,591 --> 00:17:08,087 None of it will ever have to come out of the bank's pockets. 198 00:17:08,779 --> 00:17:12,443 The bank is free to invest its own funds in corporate and goverment bonds... 199 00:17:12,488 --> 00:17:15,066 and whatever other instruments #. 200 00:17:15,946 --> 00:17:20,165 If one draws a diagram of a # it looks like this. 201 00:17:22,973 --> 00:17:28,792 The interest, goverments and corporations, pay the banks on their bonds is paid by us. 202 00:17:29,074 --> 00:17:35,361 We pay it as a portion of our taxes and we pay it in the price of all the goods and services that we buy. 203 00:17:35,909 --> 00:17:38,793 And there is another thing passed on to us as well 204 00:17:38,996 --> 00:17:44,427 And that's the risk that the bank will go broke and not be able to honor its promises to pay. 205 00:17:45,080 --> 00:17:49,403 Now you may wonder, how can a bank go broke if it doesn't put any money up in the first place? 206 00:17:49,570 --> 00:17:51,025 What have they got to lose? 207 00:17:51,495 --> 00:17:55,438 The answer to that question is that banks differ from counterfeiters... 208 00:17:55,525 --> 00:18:01,744 in that the banks are legally allow to create new money but only by certain rules of accounting. 209 00:18:02,403 --> 00:18:07,621 Banks can only create money by entering a borrower's payments and collateral as an asset... 210 00:18:07,880 --> 00:18:12,665 on the positive sign of the # balanced on the negative sign by the loan... 211 00:18:12,926 --> 00:18:17,911 or what the banks call for deposit liability created by the bank. 212 00:18:19,040 --> 00:18:26,288 When the borrower defaults on the payments, the asset pledged as collateral is siezed by the bank and sold. 213 00:18:26,460 --> 00:18:29,542 In a declining market where # is most common, 214 00:18:29,651 --> 00:18:33,962 the new lower value of the asset doesn't cover the bank's liabilities... 215 00:18:34,148 --> 00:18:36,683 which were based on the previous higher value. 216 00:18:37,198 --> 00:18:40,156 This shows up as a loss on the bank books. 217 00:18:40,463 --> 00:18:44,246 When foreclosures are # as a collapsing real estate market... 218 00:18:44,398 --> 00:18:49,885 much of the value of the banks collateral simply evaporates as home prices drop... 219 00:18:49,960 --> 00:18:53,190 exposing the bank to huge losses. 220 00:18:54,266 --> 00:18:58,149 In truth it's all just numbers created out of thin air. 221 00:18:58,367 --> 00:19:01,372 But banks must adhere to the dictates of these numbers... 222 00:19:01,635 --> 00:19:05,530 and the coincequences of bank arithmitic gone wrong can include: 223 00:19:05,579 --> 00:19:08,516 economic standstill, social disentegration... 224 00:19:08,748 --> 00:19:14,237 total financial chaos, #, starvation and war. 225 00:19:16,088 --> 00:19:18,080 Those who live by numbers can also perish by them... 226 00:19:18,334 --> 00:19:21,619 and it is a terrifying thing to have an adding machine write an epitaph. 227 00:19:21,979 --> 00:19:24,935 George J.W. Goodman best-selling author, The Money Game (1968) 228 00:19:35,389 --> 00:19:38,853 However for the purposes of understanding the anatomy of the loan, 229 00:19:39,100 --> 00:19:41,921 we shall assume that the system is still functional... 230 00:19:42,060 --> 00:19:45,796 and all three of the loans we were looking at will get paid. 231 00:19:45,966 --> 00:19:51,282 The end result is that none one dollar of existing money has changed hands... 232 00:19:56,287 --> 00:20:01,950 but 30.000$ of new bank credit has been created and spend into the money supply. 233 00:20:01,985 --> 00:20:06,905 And each of the three banks gets to collect interest on 10.000$ of it. 234 00:20:09,133 --> 00:20:15,186 Is creation of this brand new 30.000$ really an act of fraud like counterfeiting? 235 00:20:15,523 --> 00:20:18,819 The obvious difference is that the banking system is legal... 236 00:20:18,867 --> 00:20:24,410 regulated by goverment and discipled by the courts to follow the rules of accounting. 237 00:20:26,338 --> 00:20:29,142 Another difference is that there is no obvious victim... 238 00:20:29,424 --> 00:20:32,018 like the person getting caught with a counterfeiting bill. 239 00:20:32,560 --> 00:20:38,190 Banks argue that the buyer and the seller both # they wanted and agree to, so where's the fraud? 240 00:20:38,697 --> 00:20:40,982 And if there was a fraud, who lost out? 241 00:20:41,451 --> 00:20:46,515 To detertant that let us list who got what out of the deal. 242 00:20:49,154 --> 00:20:53,292 The borrower got the item he desired on terms he willingly agree to. 243 00:20:53,626 --> 00:20:57,303 He may curses decision later as he strungles to make the interest payments. 244 00:20:57,428 --> 00:21:01,404 or he may live happily ever after thankfully got the loan. 245 00:21:02,203 --> 00:21:04,429 The seller got an increase in bank credit... 246 00:21:04,508 --> 00:21:09,007 which she's been # since childhood to think of as her money in the bank. 247 00:21:09,510 --> 00:21:13,558 She's confident that she'll able to spend it in turn and she will. 248 00:21:13,625 --> 00:21:17,329 So as far as the seller is concerned she's been paid in full. 249 00:21:17,824 --> 00:21:18,834 She's happy. 250 00:21:19,346 --> 00:21:22,423 So who if anyone suffer as a result of the deal? 251 00:21:22,692 --> 00:21:25,921 Is there another party to this transaction, we've overlooked? 252 00:21:26,224 --> 00:21:30,817 Well, there is also the bank that gets to collect interest on promise to pay money. 253 00:21:31,106 --> 00:21:34,380 That's the business there're in and usually do very well by. 254 00:21:35,031 --> 00:21:36,633 And anyone else? 255 00:21:37,215 --> 00:21:39,313 Where were # car come from? 256 00:21:40,152 --> 00:21:42,584 It came from the world of real things. 257 00:21:42,759 --> 00:21:46,912 Natural resources, energy and labor were expended to produce it. 258 00:21:47,352 --> 00:21:51,352 What if we consider the hidden party to be society at large... 259 00:21:51,579 --> 00:21:55,102 and the natural world from which all things ultimately come. 260 00:21:55,627 --> 00:21:58,783 Because the brand new bank credit money didn't just sit there. 261 00:21:59,016 --> 00:22:02,695 It got spend into the general circulation in the real world. 262 00:22:02,913 --> 00:22:07,891 It's the real world that ultimately gets the new money and exchanges for its car. 263 00:22:08,744 --> 00:22:11,333 This new money might stimulate new production, 264 00:22:11,441 --> 00:22:15,194 temporarely enlarging the economy, making lots of people happy. 265 00:22:15,466 --> 00:22:20,322 In fact it often does, as most bank credit comes into being as a home mortgage, 266 00:22:20,311 --> 00:22:25,908 stimulus for the residential construction industry, big provider of good paying jobs. 267 00:22:27,194 --> 00:22:31,874 However after its initial productive use, this newelly created money, 268 00:22:32,147 --> 00:22:34,541 more basically just daillout the money supply, 269 00:22:34,647 --> 00:22:38,144 reducing money's purchasing power by a very small amount. 270 00:22:39,194 --> 00:22:43,815 So in contrast, a counterfeiting where the laws occurs to specific victims 271 00:22:43,952 --> 00:22:46,606 here the loss is born by us all... 272 00:22:47,173 --> 00:22:53,516 because the real substance of the loan (car) was extracted from the economy at large 273 00:22:53,650 --> 00:22:56,947 by a slight loss in the value of everyone's money. 274 00:22:57,352 --> 00:22:59,645 "The decrease in purchasing power incurred by holders of money... 275 00:22:59,986 --> 00:23:02,344 due to infation imparts gains to the issuers of money." 276 00:23:02,938 --> 00:23:04,635 St. Louis Federal Reserve Bank, Review, Noov 1975, p 22 277 00:23:07,405 --> 00:23:10,551 To continue our comparison of bank credit with counterfeiting, 278 00:23:10,876 --> 00:23:15,036 counterfeit cash eventually gets detected and removed from circulation, 279 00:23:15,303 --> 00:23:18,416 causing a direct loss to whoever accepted it. 280 00:23:18,717 --> 00:23:21,582 There is of course no guarantee of how much will be detected, 281 00:23:21,991 --> 00:23:25,167 nor any prescribed schedule for its removal. 282 00:23:26,363 --> 00:23:29,688 Bank credit is also removed from circulation over time... 283 00:23:29,775 --> 00:23:35,596 because as bank credit is paid back, the principal part of every payment is extinqueshed. 284 00:23:35,815 --> 00:23:40,467 Now remember that almost all the money in existence today is bank credit. 285 00:23:40,901 --> 00:23:45,829 Therefore almost every dollar that passes through our bank accounts has a schedule appointment... 286 00:23:45,956 --> 00:23:51,179 to one day be paid as a principal payment on a bank loan and siezed to exist. 287 00:23:51,988 --> 00:23:54,243 On top of the principal are the interest payments... 288 00:23:54,560 --> 00:23:57,914 which will become bank income much of which will be recycled... 289 00:23:57,996 --> 00:24:02,002 into the economy as interest to depositors and other bank expenses. 290 00:24:03,029 --> 00:24:04,951 So it's not immediately apparent that... 291 00:24:04,810 --> 00:24:09,533 there is a loss to someone as a result of bank credit being withdrawn from circulation... 292 00:24:09,600 --> 00:24:11,743 the way there is with counterfeit cash. 293 00:24:12,435 --> 00:24:15,985 But if we look closer, we find an interesting situation. 294 00:24:16,377 --> 00:24:18,977 We don't need anything more than fundamental arithmitic... 295 00:24:19,152 --> 00:24:22,723 to understand the power that lies in controling the money supply. 296 00:24:22,871 --> 00:24:30,041 And why is # currently designed total debt must constantly expand or the system collapses. 297 00:24:31,073 --> 00:24:35,979 Whenever the rate of debt money creation falls behind the rate of debt money destruction... 298 00:24:36,233 --> 00:24:38,944 the total amount of money in use will shrink. 299 00:24:39,686 --> 00:24:45,212 This is called deflation because the money supply is shrinking, like a deflating balloon. 300 00:24:45,421 --> 00:24:49,618 The result is less money relevant to the goods and services available. 301 00:24:50,482 --> 00:24:55,215 The less money around to pay for them the prices of goods and services go down. 302 00:24:55,764 --> 00:24:58,827 At first this sounds like a good thing and it could be... 303 00:24:59,032 --> 00:25:02,254 if money were not created as debt and interest. 304 00:25:02,926 --> 00:25:07,710 For anyone not in debt, deflation would be like a general divident on money... 305 00:25:07,986 --> 00:25:11,124 paid in good and services of our choice. 306 00:25:13,148 --> 00:25:18,525 It would be as if money were the people's stock in their own prosperous company, their nation. 307 00:25:19,054 --> 00:25:21,146 People wouldn't have to demand a pay raise. 308 00:25:21,309 --> 00:25:25,316 If a nation were more productive as a whole thus deserving of a raise, 309 00:25:25,524 --> 00:25:29,810 everyone would benefit automatically by having their money buy more. 310 00:25:30,351 --> 00:25:34,517 However this is definately not the affect, deflation has in a system... 311 00:25:34,741 --> 00:25:37,893 where money comes in the form of interest # debt. 312 00:25:38,948 --> 00:25:45,435 More than 95% of all money currently in existence is in the form of debt to banks. 313 00:25:45,370 --> 00:25:48,176 Promises to pay with interest add it. 314 00:25:48,458 --> 00:25:53,144 And as we have seen the principal is created but not the interest. 315 00:25:53,609 --> 00:25:57,235 Due to the time delay between money's creation and its repayment... 316 00:25:57,471 --> 00:26:01,132 and the recycling of interest turnings as bank operating expenses, 317 00:26:01,361 --> 00:26:05,553 most of us can keep our part payments while the money supply is increasing. 318 00:26:06,064 --> 00:26:10,325 However if the money supply or total debt is decreasing, 319 00:26:10,692 --> 00:26:13,662 money becomes harder to earn due to its scarcity... 320 00:26:13,992 --> 00:26:16,927 and fixed payments become harder to meet. 321 00:26:17,387 --> 00:26:22,006 For those heavilly in debt, the money shortage can become catastrophic. 322 00:26:31,454 --> 00:26:33,521 The entire world economy rests on the consumer; 323 00:26:33,923 --> 00:26:37,706 if he ever stops spending money he doesn't have on things he doesn't need we're done for. 324 00:26:37,981 --> 00:26:40,466 Bill Bonner, author, publisher and columnist on economics and money 325 00:26:43,634 --> 00:26:50,715 Unfortunately the psychological effects of falling wages and prices rapidly accelerate the process... 326 00:26:50,927 --> 00:26:56,607 as borrowers, including large businesses, loose confidence in being able to repay loans. 327 00:26:56,842 --> 00:26:58,874 So they don't sign up for any. 328 00:26:59,259 --> 00:27:01,572 Without new loans to replace old loans, 329 00:27:01,811 --> 00:27:07,696 the money shortage rapidly gets worse resulting in a decrease in jobs and purchasing power... 330 00:27:07,869 --> 00:27:12,093 even in the # to the abundant resources and productive capacity. 331 00:27:12,698 --> 00:27:17,278 This # spiral math makes mass foreclosures inevitable. 332 00:27:17,753 --> 00:27:20,763 Prices # as noone wants to spend their money. 333 00:27:20,959 --> 00:27:24,173 Shrinking values destroy the value of loan collateral... 334 00:27:24,232 --> 00:27:27,292 causing banks to ride off huge losses. 335 00:27:27,523 --> 00:27:29,110 Some even close their doors. 336 00:27:29,315 --> 00:27:31,926 Consumer and business confidences is loss. 337 00:27:32,176 --> 00:27:36,280 # economical and social disfunction follows. 338 00:27:38,045 --> 00:27:39,509 "With the monetary system we have now, 339 00:27:39,763 --> 00:27:42,469 the careful saving of a lifetime can be wiped out in an eyeblink." 340 00:27:42,909 --> 00:27:45,412 Larry Parks, Executive Director, FAME 341 00:27:46,108 --> 00:27:49,103 This disastrous spiral cannot be turned around... 342 00:27:49,248 --> 00:27:54,539 unless the goverment creates new money at self or goes deeply in debt to private banks 343 00:27:54,814 --> 00:28:00,220 in order to create enough new money to reorganise and # the economy. 344 00:28:03,543 --> 00:28:08,414 The most familiar example of this is the stock market crush of 1929. 345 00:28:08,679 --> 00:28:13,737 The psychological follow of the stock market collapse resulted in less borrowing... 346 00:28:14,099 --> 00:28:16,043 and thus less new money. 347 00:28:16,465 --> 00:28:20,147 The Federal Reserve did nothing to correct the resulting deflation... 348 00:28:20,394 --> 00:28:25,006 and by 1932 the money supply had been reduced by a third. 349 00:28:25,130 --> 00:28:27,545 Countless people were # from their homes... 350 00:28:27,842 --> 00:28:33,262 because the money to make their mortgage payments simply siezed to exist. 351 00:28:35,321 --> 00:28:40,218 Then in 1932, Franklin Rusvelt became the US President. 352 00:28:40,488 --> 00:28:46,272 Rusvelt's "New Deal" set out to restore the economy by restoring the money supply. 353 00:28:46,286 --> 00:28:50,854 To counter the money shortage, Rusvelt borrowed from the private banking system. 354 00:28:51,103 --> 00:28:53,286 Factories started hiring again. 355 00:28:53,571 --> 00:28:55,638 But only when the war arrived, 356 00:28:55,982 --> 00:29:01,896 # suddently no shortage of jobs and funds available to do what was necessary for the war effort. 357 00:29:06,079 --> 00:29:10,585 It was the money expended on WWII that ended the great depression. 358 00:29:11,026 --> 00:29:14,378 The war also resulted in 50 million deaths worldwide... 359 00:29:14,770 --> 00:29:18,046 and led to a new hostile international balance of power... 360 00:29:18,275 --> 00:29:21,557 with its # arm's raises, # 361 00:29:21,809 --> 00:29:25,962 and sweeping social and technological transformations 362 00:29:35,534 --> 00:29:38,515 When a goverment is dependant upon bankers for money, 363 00:29:38,767 --> 00:29:42,100 they and not the leaders of the goverment control the situation, 364 00:29:42,455 --> 00:29:45,446 since the hand that gives is above the hand that takes. 365 00:29:48,281 --> 00:29:50,759 Money has no motherland; financiers are without patriotism 366 00:29:51,054 --> 00:29:54,390 and without decency; their sole object is gain. 367 00:29:55,084 --> 00:29:56,898 Napoleon Bonaparte 368 00:30:02,436 --> 00:30:05,908 I wouldn't go to war again as I have done to protect some lousy investment of the bankers. 369 00:30:06,163 --> 00:30:08,033 There are only two things we should fight for. 370 00:30:08,270 --> 00:30:10,870 One is the defence of our homes and the other is the Bill of Rights. 371 00:30:11,144 --> 00:30:13,198 War for any other reason is simply a racket. 372 00:30:13,498 --> 00:30:15,431 Major General Smedley Darlington Butler USA (1881-1940) 373 00:30:19,029 --> 00:30:21,736 There is nothing left now for us but to get ever deeper and deeper 374 00:30:22,024 --> 00:30:24,537 into debt to the banking system in order to provide 375 00:30:24,820 --> 00:30:27,642 the increasing amounts of money the nation requires for its expansion and growth. 376 00:30:27,913 --> 00:30:30,737 Our money system is nothing better than a confidence trick... 377 00:30:31,062 --> 00:30:33,051 The "money power" which has been able to overshadow 378 00:30:33,288 --> 00:30:36,169 ostensibly responsible government is not the power of the merely ultra-rich 379 00:30:36,879 --> 00:30:39,829 but is nothing more or less than a new technique to destoy money 380 00:30:40,096 --> 00:30:41,926 by adding and withdrawing figures in bank ledges, 381 00:30:42,239 --> 00:30:44,529 without the slightest concern for the interests of the community 382 00:30:44,794 --> 00:30:46,768 or the real role money ought to perform therein... 383 00:30:47,058 --> 00:30:50,388 to allow it to become a source of revenue to private issuers is to create, 384 00:30:50,580 --> 00:30:53,726 first, a secret and illicit arm of government and, last, a rival power strong enough 385 00:30:53,761 --> 00:30:56,018 to ultimately overthrow all other forms of government 386 00:30:56,404 --> 00:30:58,145 ...an honest money system is the only alternative. 387 00:30:58,362 --> 00:31:01,352 Dr. Frederick Soddy. Nober Prize winner (1921) author of Wealth, Virtual Wealth and Debt 388 00:31:09,860 --> 00:31:14,132 The cycle of economic boom and bust is commonly called the business cycle. 389 00:31:14,656 --> 00:31:18,796 # if were a natural occurence like the hydrological or carbon cycle. 390 00:31:19,324 --> 00:31:23,133 These natural cycles are ultimately driven by the sun. 391 00:31:23,442 --> 00:31:26,004 But what is it that drives the business cycle? 392 00:31:27,261 --> 00:31:29,864 One answer is the supply of money... 393 00:31:29,955 --> 00:31:34,394 and as we've seen, the supply of money is dependant on loans. 394 00:31:34,680 --> 00:31:38,829 So let's look at what happens during the lifetime of an individual loan. 395 00:31:39,350 --> 00:31:43,411 We've seen how bank credit is nothing more than the bank's promise to pay, 396 00:31:43,653 --> 00:31:48,087 which the bank is created on its books to balance the borrower's promise to pay... 397 00:31:48,311 --> 00:31:49,879 ...that it has received. 398 00:31:50,404 --> 00:31:55,000 The bank's promise to pay is usually spent on some real good or service... 399 00:31:55,204 --> 00:31:56,615 and allowed to circulate, 400 00:31:56,749 --> 00:32:01,129 making the efficient exchange of goods and services easier to accomplish. 401 00:32:01,493 --> 00:32:05,376 As a medium of exchange today's promise to pay money... 402 00:32:05,759 --> 00:32:09,103 is unsurpassed in its usefullness and flexibility. 403 00:32:09,432 --> 00:32:12,522 However, because no money is created to pay the interest... 404 00:32:12,742 --> 00:32:16,338 # impossible situation is created. 405 00:32:20,637 --> 00:32:24,574 On the face of it, if borrowers had to pay the interest they owe # at once, 406 00:32:24,848 --> 00:32:28,161 they would have to fight it out for a limited sum of existing money... 407 00:32:28,412 --> 00:32:31,757 that was very much less than the total owned. 408 00:32:32,177 --> 00:32:37,290 The percentage that would be unable to pay off their loans would be simple to calculate. 409 00:32:38,005 --> 00:32:42,391 However, interest is usually paid over time not all at once. 410 00:32:42,667 --> 00:32:46,904 If this interest incomes recycled into the general economy as spending, 411 00:32:47,248 --> 00:32:49,948 it can be available to be earned repeatedly. 412 00:32:50,789 --> 00:32:57,083 Once we understand this, the question of whether interest is actually unpayble becomes more #. 413 00:32:58,823 --> 00:33:01,953 Is there such a thing as a sustainable system of lending... 414 00:33:02,149 --> 00:33:06,430 that does not produce mathematically inevitable defaults? 415 00:33:08,835 --> 00:33:12,305 In the middle ages, usury meaning charging interest... 416 00:33:12,424 --> 00:33:17,595 or any form of making gain solely from having money was #damned as a sin. 417 00:33:18,060 --> 00:33:21,947 While the justification was moral, the reason was practical. 418 00:33:22,121 --> 00:33:24,539 In a fixed money supply like gold, 419 00:33:24,556 --> 00:33:28,787 anyone systematically # over all of their loan money at interest... 420 00:33:29,046 --> 00:33:31,342 would soon end up with all the money. 421 00:33:31,864 --> 00:33:34,897 This problem was a big factor in the # of Rome. 422 00:33:35,291 --> 00:33:38,904 Private accumulations of gold forced the government to make coins, 423 00:33:39,182 --> 00:33:42,123 made of base metals instead of the real thing. 424 00:33:42,560 --> 00:33:47,539 Debase currency that # confidence and ultimately decline. 425 00:33:47,629 --> 00:33:49,413 The lesson was well learned. 426 00:33:49,817 --> 00:33:55,882 For the next 1.000 years, the Roman catholic church declare collecting interest on a loan to be a sin, 427 00:33:56,028 --> 00:33:58,730 punishable by #. 428 00:33:58,948 --> 00:34:03,385 In some countries, the penalty for practising usury was death. 429 00:34:04,829 --> 00:34:07,456 Does charging interest really is sin? 430 00:34:08,026 --> 00:34:11,385 Well today it seems very reasonable to charge for the use of money. 431 00:34:11,648 --> 00:34:15,409 There is a simple and unavoidable problem with doing so. 432 00:34:15,764 --> 00:34:19,524 Unless money lenders spend every penny of interest they receive... 433 00:34:19,819 --> 00:34:24,795 in such a way that the borrowers can earn it again, the borrowers are going to come up short... 434 00:34:24,976 --> 00:34:28,281 regardless of their hard work and personal virtues. 435 00:34:28,539 --> 00:34:33,235 Someone will default simply as a result of the arithmitic. 436 00:34:34,696 --> 00:34:39,413 This is easy to picture whether is a fix money supply like gold coin. 437 00:34:39,968 --> 00:34:44,956 As long as all of the coins taking as interest are spent so that the borrowers can earn them. 438 00:34:45,328 --> 00:34:49,095 The same coins can be used to pay the interest over and over. 439 00:34:49,601 --> 00:34:52,813 The lender can profit by buying real things with this coin 440 00:34:53,068 --> 00:34:58,811 but the coin itself must be spent, not lend or removed from circulation. 441 00:34:59,134 --> 00:35:04,132 Living aside any more on considerations, this arrangement would be sustainable. 442 00:35:08,319 --> 00:35:11,094 However if the interest coins are relend at interest... 443 00:35:11,403 --> 00:35:13,878 were removed from circulation by hoarding, 444 00:35:13,930 --> 00:35:19,090 there would be an inherit shortage of coins with which to pay off the aggregate debt. 445 00:35:25,039 --> 00:35:30,429 The situation has escentially no different in our current debt base system. 446 00:35:32,779 --> 00:35:37,542 As we have seen, nowdays # every dollar comes into existence as debt... 447 00:35:37,576 --> 00:35:43,210 with a scheduled appointment to be extinqushed as a principal payment on a loan that created it. 448 00:35:43,439 --> 00:35:48,226 Thus, for all borrowers to be able to make their payments of principal plus interest... 449 00:35:48,588 --> 00:35:50,206 ...two things must be true. 450 00:35:50,763 --> 00:35:56,426 The dollar created as the principal of the loan must be available to be earned by the borrower... 451 00:35:56,672 --> 00:36:00,569 in order to make the principal payment that extinqushes that dollar. 452 00:36:01,048 --> 00:36:05,283 And every dollar the borrower pays to the bank as interest... 453 00:36:05,481 --> 00:36:08,825 must also be available to be repeatedly earned by the borrower, 454 00:36:09,054 --> 00:36:12,516 so that it can be paid as interest again and again. 455 00:36:14,841 --> 00:36:18,202 There is a common theory undoubtebly popular with lenders... 456 00:36:18,452 --> 00:36:22,385 that because the bank spend the interest turnings as operating expenses, 457 00:36:22,569 --> 00:36:25,207 interest to depositors and shareholders dividends, 458 00:36:25,581 --> 00:36:30,599 There is in fact enough money released back to the community to make all payments. 459 00:36:31,011 --> 00:36:35,950 However like the idea of absolute shortage this is an over simplification. 460 00:36:36,669 --> 00:36:42,312 Picture what happens if someone else such as you or I or an institutional non bank lender... 461 00:36:42,448 --> 00:36:45,679 obtains this dollar and then lends it out at interest. 462 00:36:46,088 --> 00:36:50,884 Well, now that same dollar is simustenaly own to two lenders... 463 00:36:51,180 --> 00:36:54,860 and # two simusteous interest charges attached to it. 464 00:36:55,006 --> 00:36:59,759 In addition, if this dollar is loaned, repaid and reloaned by the secondary lender... 465 00:36:59,966 --> 00:37:03,537 it is not available to pay off the principal of the loan that created it, 466 00:37:03,824 --> 00:37:05,908 except as an other loan. 467 00:37:08,209 --> 00:37:14,311 So, can we borrow from Peter to pay Paul and borrow from Paul to pay Peter? 468 00:37:14,650 --> 00:37:16,154 This gets interesting. 469 00:37:16,413 --> 00:37:23,730 We can, however each time money is borrowed there is an interest charge added it, that also must be paid. 470 00:37:24,097 --> 00:37:28,444 If all added interest charges can be earned, all payments can be made. 471 00:37:29,004 --> 00:37:32,629 On this basis many economists and defenders of the current system... 472 00:37:32,896 --> 00:37:37,743 claim there can never be a shortage of money and all payments can be made. 473 00:37:39,286 --> 00:37:41,546 But this seems to be a false assurance. 474 00:37:41,989 --> 00:37:45,773 For instance, if secondary lenders capture some of the money... 475 00:37:45,705 --> 00:37:51,644 needed to retire the loan that created that money, the original loan can never be retired. 476 00:37:52,191 --> 00:37:57,357 The # will have to be borrowed over and over for ever, each time at interest 477 00:37:58,035 --> 00:38:05,713 Each # would be #, adding to an ever building total of debt that can never be paid off. 478 00:38:05,831 --> 00:38:11,404 And it stands to reason that for each # interest charge in the system as a whole, 479 00:38:11,724 --> 00:38:16,253 something extra is demanded of the system as whole to pay for it. 480 00:38:17,143 --> 00:38:20,770 This affects everyone: producers, governments and consumers. 481 00:38:21,194 --> 00:38:27,470 For producers that something extra must be # through higher prices or more sales. 482 00:38:28,494 --> 00:38:35,053 However, competition for more sales usually requires lower prices # even more sales... 483 00:38:35,298 --> 00:38:39,000 and leads to over production and saturation of the market. 484 00:38:39,269 --> 00:38:43,694 The end result can be job losses, plant closures and bankruptcies. 485 00:38:44,733 --> 00:38:49,516 For governments that something extra is raised by increasing taxes. 486 00:38:49,610 --> 00:38:53,028 But increasing taxes drains money for the productive economy, 487 00:38:53,184 --> 00:38:56,955 resulting in reduction in the collective ability to pay taxes... 488 00:38:57,166 --> 00:39:02,755 which then necessiates increase government borrowing and additional interest charges. 489 00:39:03,330 --> 00:39:07,453 For consumers, something extra can mean getting an additional job... 490 00:39:07,820 --> 00:39:13,000 or borrowing to pay past debts or paying off debt over longer periods of time. 491 00:39:13,662 --> 00:39:19,220 Competition for jobs tends to lower wages and paying over the longer periods of time... 492 00:39:19,345 --> 00:39:22,212 adds enormously to the amount of interest owned. 493 00:39:22,864 --> 00:39:29,277 And of course borrowing to pay off past debts is like trying filling a hole with more hole. 494 00:39:30,950 --> 00:39:34,255 And that is the situation, we find ourselves in today. 495 00:39:34,993 --> 00:39:39,011 Producers can't sell more because consumers can't afford to buy. 496 00:39:44,939 --> 00:39:49,912 Governments are cutting taxes not raising them, hoping to stimulate consumer demand... 497 00:39:49,790 --> 00:39:56,745 and consumer's real incomes are limited or even falling due to competition for a limited number of jobs. 498 00:39:57,300 --> 00:40:03,312 Therefore any increase in the total amount of interest charges within the monetary system as a whole... 499 00:40:03,533 --> 00:40:06,940 will result in a # shortage of money. 500 00:40:07,551 --> 00:40:13,776 This is because the real productive economy is limited by the availability of nature's resources. 501 00:40:14,325 --> 00:40:17,528 The productive economy exists to serve actuall needs 502 00:40:17,878 --> 00:40:22,587 It simply cannot keep pace with the demands of the artificial financial economy... 503 00:40:22,729 --> 00:40:25,675 which is an unlimited appetite for profit... 504 00:40:25,920 --> 00:40:30,938 and which operates with no regard for the natural limitations of the real world. 505 00:40:37,778 --> 00:40:42,979 The theory that there is always enough money to pay the interest has a certain elegance #. 506 00:40:43,591 --> 00:40:46,666 However by the very nature of the # to be true, 507 00:40:46,957 --> 00:40:50,925 it has to be a 100% true. This is impossible. 508 00:40:51,714 --> 00:40:54,927 For one thing secondary lenders # not banks 509 00:40:55,344 --> 00:40:58,200 do comprise a significant proportion of lenders. 510 00:40:58,596 --> 00:41:03,557 And they add their interest charges to money that already # in interest burdain. 511 00:41:03,983 --> 00:41:11,293 Beyond that, we have a cultural expectation: # was money expects to generate more. 512 00:41:11,618 --> 00:41:16,324 Money that needs to be spent to made available to be earned by its original borrower... 513 00:41:16,481 --> 00:41:20,717 is instead lended at interest or invested for gain. 514 00:41:21,474 --> 00:41:25,480 Therefore, we can conclude that the two conditions that must be true... 515 00:41:25,653 --> 00:41:29,602 for all borrowers to be able to make their payments of principal plus interest... 516 00:41:29,852 --> 00:41:36,007 and thus permenately discharged their debt, those conditions are not met by the current system. 517 00:41:36,961 --> 00:41:42,349 Nowhere in the current system # any restriction or relending money that was created as a loan. 518 00:41:42,710 --> 00:41:47,516 Nor is # any obligation upon banks to make their profits from interest available 519 00:41:47,689 --> 00:41:52,340 to be earned by borrowers enabling them to extinqushed their debts. 520 00:41:52,690 --> 00:41:57,590 Quite the opposite, banks invest these profits to make further profits. 521 00:41:57,705 --> 00:41:59,849 And it's not just the banks that cause the problem. 522 00:42:00,205 --> 00:42:05,102 Anyone who takes their ball of money and starts rolling it like a snowball to make it bigger, 523 00:42:05,345 --> 00:42:09,259 does so with the expence of borrowers who will not find that money available... 524 00:42:09,576 --> 00:42:12,792 to pay their debts except as more debt. 525 00:42:13,429 --> 00:42:17,392 And of course, those rolling the biggest snowballs pick up the more snow. 526 00:42:17,788 --> 00:42:22,044 As the same goes, the rich get richer and the poor get poorer. 527 00:42:23,866 --> 00:42:28,033 Money needed by borrowers in the lower realms of # and productive economics, 528 00:42:28,333 --> 00:42:32,790 moves up stairs to play in the cazino world of abstract financial profit... 529 00:42:33,049 --> 00:42:37,074 and that's a world where transactions are little more than gabling on numbers... 530 00:42:37,386 --> 00:42:39,839 in an effort to achieve higher numbers. 531 00:42:40,157 --> 00:42:44,897 They've little or nothing to do with providing the necessities of life. 532 00:42:54,547 --> 00:42:58,194 Today the largest volume of money by far is changing hands... 533 00:42:58,377 --> 00:43:01,503 in where as best described as the gabling economy. 534 00:43:01,830 --> 00:43:07,088 The # exchange markets, the # market and the rest of the financial instruments... 535 00:43:07,228 --> 00:43:11,863 being played by banks and investment funds for as much profit as possible. 536 00:43:12,541 --> 00:43:16,764 For example the volume of trade on the world's foreign exchange markets... 537 00:43:17,091 --> 00:43:24,479 In just one week exceeds the total volume of world trade in real goods and services during an entire year. 538 00:43:24,810 --> 00:43:27,773 This money is in continous played by speculators... 539 00:43:27,891 --> 00:43:31,554 looking to make # profits on currency fluctuations. 540 00:43:31,701 --> 00:43:34,830 It exists but only in the gabling economy. 541 00:43:35,940 --> 00:43:41,436 So how unpayable is the # interest burdain in actual fact? 542 00:43:41,766 --> 00:43:46,240 That it could only be deternaned with certainty by tracking all of the money in the world. 543 00:43:47,304 --> 00:43:51,209 With over six billion people earning, spending, borrowing and lending... 544 00:43:51,459 --> 00:43:55,972 the world's money flows are at least as complex as the flows of the ocean. 545 00:43:56,338 --> 00:43:58,445 They are impossible to know. 546 00:43:58,846 --> 00:44:01,427 But the direction is pretty clear and simple. 547 00:44:01,739 --> 00:44:03,298 And it's the same old story, 548 00:44:03,648 --> 00:44:07,592 the rich are taking increasingly more money into the gabling economy... 549 00:44:08,008 --> 00:44:11,728 where ordinary borrowers have almost no chance to obtain it. 550 00:44:11,936 --> 00:44:16,163 And the only way the system can stay # is to create more money... 551 00:44:16,432 --> 00:44:18,449 and as money is created as debt, 552 00:44:18,688 --> 00:44:23,502 the only way to create more money is to create more debt in every way possible. 553 00:44:23,823 --> 00:44:31,024 Including ridicously easy credit for unquelifed borrowers, massive government expendures on security and war 554 00:44:31,222 --> 00:44:34,328 and bailouts # banks. 555 00:44:49,772 --> 00:44:55,765 How does the individual loan cycle relate to the boom and bust phenomena known as the business cycle? 556 00:44:56,554 --> 00:44:59,795 The individual loan cycle can be described like this: 557 00:45:00,388 --> 00:45:03,938 First there is economic stimulation because of initial spending, 558 00:45:04,657 --> 00:45:10,080 this is followed by inflation because new money basically just dailouts the money supply... 559 00:45:10,089 --> 00:45:13,685 and eventually inflation is followed by deflation... 560 00:45:13,991 --> 00:45:19,792 as loan repayments grantually extinqush the principal removing that money from circulation. 561 00:45:20,920 --> 00:45:27,024 As long as the individual loan cycle # match up, these cycles can smooth each other out. 562 00:45:27,226 --> 00:45:31,363 This creates a fairly stable money supply that leads to fairly stable prices. 563 00:45:31,700 --> 00:45:35,978 Although continous growth of the money supply is required at least in part... 564 00:45:36,162 --> 00:45:41,206 because as you recall the money to cover the interest was never created. 565 00:45:41,858 --> 00:45:45,976 This is the model on which our economy is currently based. 566 00:45:46,452 --> 00:45:52,942 Avoiding deflationary spirals and keeping inflation at a level that doen't upset people's # 567 00:45:53,164 --> 00:45:55,899 constitutes the art of # the economy... 568 00:45:56,124 --> 00:46:00,996 which is rather narrowly defined as achieving so-called price stability. 569 00:46:01,590 --> 00:46:06,680 However a look at the purchasing power of US dollar in real goods over the last century... 570 00:46:06,992 --> 00:46:11,816 instantly reveals what the so-called price stability has really meant. 571 00:46:11,879 --> 00:46:16,880 The dollar has clearly lost almost all its value (96%) 572 00:46:17,082 --> 00:46:20,362 ...and is continouing to do so at a rapid pace. 573 00:46:20,789 --> 00:46:23,473 So, price stability is not being achieved... 574 00:46:23,666 --> 00:46:28,274 # hardly needs a degree in psychology to understand how human nature itself... 575 00:46:28,372 --> 00:46:33,956 # the individual loan cycle into the collective phenomena of the business cycle. 576 00:46:34,277 --> 00:46:38,214 The simple reason # that if one person sees great prospects... 577 00:46:38,511 --> 00:46:44,248 into # doing well borrowing and expanding, others would have a confidence to do the same. 578 00:46:48,186 --> 00:46:53,248 Beyond the merely psychological effects, if one business is expanding on the basis of credit, 579 00:46:53,536 --> 00:46:57,738 its suppliers and distributers will find it necessary to do so as well... 580 00:46:58,115 --> 00:47:00,862 or lose that business to someone who will. 581 00:47:01,560 --> 00:47:07,473 The same # effect would occur for a # look and a company credit contraction. 582 00:47:07,798 --> 00:47:15,530 Thus, is entirely predictable that individuals loan cycles would have a built in # to line themselves up... 583 00:47:15,781 --> 00:47:21,958 rather than be randomly distributed and when they do, we see largest scale cycle called the business cycle... 584 00:47:22,151 --> 00:47:27,655 emerging directly from the cummulative of effects of individual loan cycles. 585 00:47:28,295 --> 00:47:34,481 So to sum up, one could say that out of the exchange of promises made by the bank and the borrower... 586 00:47:34,672 --> 00:47:40,650 society gets chronic inflation and # dependancy on banks for increasing infusions of money... 587 00:47:41,005 --> 00:47:44,047 to pay ultimately impossible interest payments. 588 00:47:44,664 --> 00:47:49,613 This results in an inescepable tredmill of accelerating debt and depriciating money. 589 00:47:49,919 --> 00:47:57,053 The only alternative being a deflationary collapse of the economy followed by social chaos or war. 590 00:47:57,526 --> 00:48:04,178 This # unhealthy situation filters down through society weaking harm on every level. 591 00:48:05,587 --> 00:48:06,641 We are like addicts... 592 00:48:06,967 --> 00:48:11,541 but the fix is not more and more heroin, it's more and more credit money. 593 00:48:11,718 --> 00:48:18,513 And eventually our collective ability to borrow and repay so much credit becomes exhausted. 594 00:48:18,903 --> 00:48:23,589 This then creates the need for constant expansion of credit into new markets. 595 00:48:23,980 --> 00:48:31,330 In essence creating a # to drive everyone in the world further and further into deb for ever. 596 00:48:32,110 --> 00:48:38,286 In US this constant debt expansion has led to a total credit market debt in 2008 597 00:48:38,429 --> 00:48:46,140 of more than 53 trillion dollars which is about five times the total annual income of the entire country. 598 00:48:46,604 --> 00:48:50,816 So is the world at large happy about its end of the loan transaction? 599 00:48:51,116 --> 00:48:52,486 Probably not. 600 00:48:52,938 --> 00:48:57,675 But the world at large has very little awareness of where these problems originate. 601 00:48:57,894 --> 00:49:03,809 The illusive system of counterfeiting and hidden control that is modern banking. 602 00:49:05,723 --> 00:49:10,289 And how about the banks? How of the bank's fair has resulted of the system? 603 00:49:11,275 --> 00:49:16,421 Well first, by putting up only a small fraction of the money they # lend 604 00:49:16,922 --> 00:49:22,815 tha banks have obtained a river of income from interest payments on consumer loans and mortgages. 605 00:49:23,031 --> 00:49:28,828 Second by using their credit powers to acquire a large portofolios of corporate and government bonds 606 00:49:29,112 --> 00:49:33,686 banks collectively appropriate control over government and industry. 607 00:49:40,304 --> 00:49:43,625 And thirdly, due the inevitable defaults and foreclosures, 608 00:49:43,934 --> 00:49:48,247 the banks gain legal title to a lot of real property the world over. 609 00:49:48,948 --> 00:49:51,222 And finally, if the worst happens. 610 00:49:51,399 --> 00:49:55,330 If borrowers default on mass causing the banks large losses 611 00:49:55,667 --> 00:49:59,839 the government is forced to rescue the banks with multi-billion dollar bailouts... 612 00:49:59,963 --> 00:50:02,251 to save the financial system. 613 00:50:03,355 --> 00:50:06,725 And what are these bailouts financed with? You guest it. 614 00:50:07,011 --> 00:50:09,328 More tax payer debt. 615 00:50:10,136 --> 00:50:12,945 # really quite an achievement to pull this off... 616 00:50:13,123 --> 00:50:16,638 and without most of the victims even being aware off. 617 00:50:18,735 --> 00:50:21,097 If you're now thinking there ought to be a law... 618 00:50:21,343 --> 00:50:26,835 well, there is a whole body of law that makes all of this legal. 619 00:50:27,363 --> 00:50:31,475 So how # a system like this ever become the law? 620 00:50:32,084 --> 00:50:36,522 To answer that we go back to England in the mids 17th century. 621 00:50:37,872 --> 00:50:41,325 When plunder becomes a way of live for a group of men living together in society, 622 00:50:41,586 --> 00:50:43,925 they create for themsevles in the course of time a legal system... 623 00:50:44,211 --> 00:50:47,251 that authorizes it and a moral code that glorifies it. 624 00:50:47,590 --> 00:50:49,753 Frederic Bastiat 1801-1850 political economist 625 00:51:00,723 --> 00:51:05,184 With the development of better ships and the new explorations they allowed... 626 00:51:05,464 --> 00:51:08,149 ...trade was expanding rapidly. 627 00:51:08,388 --> 00:51:12,979 In order to carry # commerce especially over great distances and lengths of time... 628 00:51:13,269 --> 00:51:18,813 written contracts would be becoming more and more important and more sophisticated. 629 00:51:19,386 --> 00:51:22,446 Under english common law that long had been established... 630 00:51:22,517 --> 00:51:28,086 that a contract could only been enforced # something of real sustance has changed hands. 631 00:51:28,412 --> 00:51:33,384 A transfer of goods or rights in property was the real stuff of the exchange... 632 00:51:33,723 --> 00:51:36,554 and that was what the court would evaluate for fairness, 633 00:51:36,959 --> 00:51:39,128 not just the words on the document. 634 00:51:40,283 --> 00:51:43,988 A contract under which there had been no exchange of consideration, 635 00:51:44,139 --> 00:51:48,152 meaning real goods or rights in property was # to be empty... 636 00:51:48,275 --> 00:51:51,909 and was therefore not enforc# by the court. 637 00:51:52,280 --> 00:51:56,412 So a contract in which a borrower say pledged a car... 638 00:51:56,692 --> 00:52:00,190 he does not own in exchange for a bank's promise of payment... 639 00:52:00,438 --> 00:52:02,911 would not even qualify as a contract. 640 00:52:03,155 --> 00:52:06,028 No common law court would enforce it. 641 00:52:07,319 --> 00:52:11,887 As well, in the event of a dispute over a contract under common law, 642 00:52:11,915 --> 00:52:16,118 only someone who had actually provided consideration to the transaction, 643 00:52:16,307 --> 00:52:21,333 in other words, only someone who delivered the goods had the right to # in court... 644 00:52:21,558 --> 00:52:24,806 for fullfilment of the contract by the other party. 645 00:52:25,228 --> 00:52:28,928 This right was not transferable to a third party. 646 00:52:34,966 --> 00:52:39,150 When early traders went off personally on expenditions with trade goods... 647 00:52:39,619 --> 00:52:42,196 they bought those goods at home with their local currency... 648 00:52:42,435 --> 00:52:46,381 and would sell them for foreign currency in the distant destination. 649 00:52:46,537 --> 00:52:49,092 They would then buy foreign goods with the foreign money, 650 00:52:49,336 --> 00:52:53,184 bring those goods home and sell them for the local currency. 651 00:52:53,447 --> 00:52:54,484 Pretty simple. 652 00:52:55,252 --> 00:53:00,397 But as trade became more sophisticated, traders became more # to stay home... 653 00:53:00,590 --> 00:53:03,424 and just hire ships to carry out deliveries. 654 00:53:03,690 --> 00:53:08,489 This gave traders the freedom to import cargos of foreign goods from different sources... 655 00:53:08,587 --> 00:53:12,385 than in the destination to which their home goods had been exported. 656 00:53:12,555 --> 00:53:14,999 Thus, a problem was created. 657 00:53:16,028 --> 00:53:23,115 The exported goods had been paid for with foreign coin, the value of which needed to be spent somewhere else. 658 00:53:23,326 --> 00:53:26,676 Moving money as coins entailed a high risk of theft... 659 00:53:27,028 --> 00:53:32,460 as well as the near certainty of partial loss by currency conversion in a different land. 660 00:53:34,135 --> 00:53:39,594 This problem of payments from a distance was overcome by the use of bills of exchange. 661 00:53:39,904 --> 00:53:44,057 A bill of exchange was a signed order from a payer to an #... 662 00:53:44,355 --> 00:53:51,615 demanding that the # pay a certain specified sum of money to the person identified as the payee. 663 00:53:52,391 --> 00:53:54,307 These were secured by signature... 664 00:53:54,502 --> 00:53:59,480 and they could not be acted upon in court by anyone other than the original parties. 665 00:53:59,937 --> 00:54:03,881 Thus, they're have no use to a thief or any other third party. 666 00:54:04,597 --> 00:54:08,320 You probably recognize that these were the pre# of checks. 667 00:54:08,710 --> 00:54:13,492 I the payer instruct the bank the adr# to pay the payee, 668 00:54:13,713 --> 00:54:17,384 a person named on the check a certain sum of money. 669 00:54:18,322 --> 00:54:23,037 This was all well and good for transactions among parties who were known to each other. 670 00:54:23,134 --> 00:54:29,099 The bill of exchange was used merely as a way to order payment in coin at a distant location. 671 00:54:29,487 --> 00:54:35,148 But merchants soon wanted more flexibility, they wanted to be able to use bills of exchange... 672 00:54:35,242 --> 00:54:39,066 to # payments among many merchants in many locations... 673 00:54:39,358 --> 00:54:42,828 using bills of exchange like money itself. 674 00:54:43,199 --> 00:54:50,133 For this to work, bills of exchange had to be # to and enforceable by third parties. 675 00:54:50,847 --> 00:54:58,324 As we shall see, this was the moment in legal history that gave # to the banking system we have today. 676 00:54:59,125 --> 00:55:03,089 A third party who might have honoursly purchased a bill of exchange... 677 00:55:03,270 --> 00:55:06,363 several steps remove from the original exchange... 678 00:55:06,595 --> 00:55:11,644 could not be expected nor would have the right to show up in a common law court... 679 00:55:11,735 --> 00:55:15,391 and defend the # of the contract and collect on it. 680 00:55:16,095 --> 00:55:20,761 This made third party bills of exchange an unacceptable risk. 681 00:55:21,182 --> 00:55:28,620 So, in order to be able to use bills of exchange as a convenient and guarante third party payment system, 682 00:55:28,740 --> 00:55:30,742 essentially equavalant to money, 683 00:55:30,905 --> 00:55:36,494 the common law practise had to be set aside regarding bills of exchange. 684 00:55:36,980 --> 00:55:42,688 In England, by a series of legal decisions from 1664 to 1699... 685 00:55:42,833 --> 00:55:49,124 this problem for commerce was remedied by making bills of exchange enforceable by third parties. 686 00:55:49,611 --> 00:55:54,657 If a third party had purchased a bill for valueable consideration and in good faith... 687 00:55:54,963 --> 00:56:00,690 having no apparent reason to suspect fraud or some # in the right of the seller to sell it, 688 00:56:00,713 --> 00:56:06,928 then the bill automatically became good and enforceable by the court against the signer. 689 00:56:07,691 --> 00:56:09,395 What did this change mean? 690 00:56:09,916 --> 00:56:16,177 It meant essentually that any bill of exchange would be consider legitimate once it was sold. 691 00:56:16,884 --> 00:56:21,531 Bills of exchange and all other subsequent types of signed promises to pay... 692 00:56:21,835 --> 00:56:27,930 with the notably exceptions of checks became transferable and enforceable in court. 693 00:56:28,168 --> 00:56:29,792 Just what the merchants wanted. 694 00:56:30,413 --> 00:56:37,435 Now debt contracts could be sold like things and transacting business would be a whole lot easier. 695 00:56:37,876 --> 00:56:45,350 Not only that, it opened up a whole new market for profit seekers, trading bills of exchange themselves. 696 00:56:46,139 --> 00:56:49,205 The marketing of debt was born. 697 00:56:53,986 --> 00:56:56,927 The change in the law had another affect as well. 698 00:56:57,232 --> 00:57:02,849 It made # to trick or even force a person into signing a legally binding promise to pay... 699 00:57:02,963 --> 00:57:09,027 and then if that promise were purchased by a third party for real consideration and in good faith... 700 00:57:09,366 --> 00:57:12,734 it would be enforceable against the signer in court. 701 00:57:14,313 --> 00:57:19,215 Ultimately, this became one of the foundation # principals of the uniform commercial code... 702 00:57:19,570 --> 00:57:26,481 which governs the contact of business in the US and by extension in most of the world. 703 00:57:27,510 --> 00:57:31,084 The entire taxing and monetary systems are hereby placed under the U.C.C. 704 00:57:31,441 --> 00:57:33,594 US Federal Tax Lien Act of 1966 705 00:57:34,000 --> 00:57:42,599 # if we buy a stolen laptop from a guy on the street, we're guilty of receiving stolen goods, a criminal #. 706 00:57:42,907 --> 00:57:46,907 Doesn't matter if we # on its money and were unaware the goods were stolen. 707 00:57:47,219 --> 00:57:50,330 The court will restore the goods to the rightfull owner. 708 00:57:50,537 --> 00:57:56,795 We as purchasers, innocent or not, lose our money and may even be charged with a crime. 709 00:57:57,089 --> 00:58:02,860 But if we buy a loan contract from a banker and give him real value for it in good faith... 710 00:58:03,144 --> 00:58:08,286 it doesn't matter that the loan contract may have come into existence under false pretenses. 711 00:58:08,352 --> 00:58:12,854 Whoever signed it, is required by commercial contract law to pay up... 712 00:58:12,915 --> 00:58:15,488 and the courts will enforce the obligation. 713 00:58:16,145 --> 00:58:23,579 Today, debt contracts come in a myriad of forms, including and especially loans and mortgages. 714 00:58:23,995 --> 00:58:29,017 It's significant to know that just as these common law restrictions were been removed, 715 00:58:29,062 --> 00:58:32,194 the brand new Bank of England was been established. 716 00:58:32,706 --> 00:58:36,745 The first banks # authorize to create money out of thin air. 717 00:58:37,308 --> 00:58:45,223 The new loss # perfectly, making the new bank's empty contracts enforceable against the so-called borrower. 718 00:58:45,952 --> 00:58:49,258 The bank hath benefit of interest on all moneys which it creates ouf on nothing. 719 00:58:49,568 --> 00:58:51,423 William Paterson founder, Bank of England 720 00:58:53,636 --> 00:58:56,754 Those who've discovered the true nature of their own bank loans... 721 00:58:56,964 --> 00:59:01,492 and have attempted to challenge the # of their debt contracts in modern courts... 722 00:59:01,833 --> 00:59:09,845 have discovered to their # that this commercial contract law is still the # rock defence of money as debt. 723 00:59:10,389 --> 00:59:14,885 The bank would have sold the original loan agreement to a third party for value... 724 00:59:14,963 --> 00:59:19,348 and even though that third party is often just a sister company of the bank, 725 00:59:19,556 --> 00:59:26,156 all that matters to the judge is who # the document, what it says and whose signature is on it. 726 00:59:27,003 --> 00:59:31,709 The bank's failure to inform the borrower about the true nature of the loan contract... 727 00:59:37,760 --> 00:59:43,561 and the absence of any actual money loan on the bank's part is not relavant. 728 00:59:49,968 --> 00:59:51,992 So, to conclude our investigation... 729 00:59:52,282 --> 00:59:57,813 it appears that modern banking practise rests on several dinstict violations of... 730 00:59:57,905 --> 01:00:02,090 common law, common sense and natural justice. 731 01:00:03,090 --> 01:00:13,090 Downloaded From www.AllSubs.org