1
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Making this film was harder
than I thought.

2
00:01:02,280 --> 00:01:04,397
It started with simple curiosity.

3
00:01:06,080 --> 00:01:07,639
Since the financial crisis,

4
00:01:08,000 --> 00:01:11,072
I've tried to understand how our
economic system works.

5
00:01:15,720 --> 00:01:19,350
economic growth -
concentration of wealth - debt

6
00:01:21,280 --> 00:01:23,272
But the numbers alone surprise me.

7
00:01:24,720 --> 00:01:28,077
Over recent decades, economic output

8
00:01:28,400 --> 00:01:31,199
has increased many times over,
as has debt.

9
00:01:34,320 --> 00:01:37,518
And inequality in wealth
distribution has grown steadily.

10
00:01:37,920 --> 00:01:41,630
So the gulf between rich and poor is
widening all the time.

11
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So is there a connection
between economic output,

12
00:01:47,280 --> 00:01:49,351
debt and private wealth?

13
00:01:51,080 --> 00:01:53,436
What are the rules of this system?

14
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Can I help set it up?

15
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It's pretty much done.

16
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We'll play with one dice.

17
00:02:26,800 --> 00:02:28,678
When one of you builds a house,

18
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that doesn't mean that the
bank earns money,

19
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it means that the other economic
participants get it,

20
00:02:36,200 --> 00:02:39,511
because they are effectively the
ones building the house.

21
00:02:40,000 --> 00:02:42,435
The house owner

22
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takes out a loan, creates money,
which then circulates.

23
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So we're ready to start

24
00:02:49,680 --> 00:02:51,353
and so we can be sure

25
00:02:51,720 --> 00:02:54,599
of following through from boom to crisis

26
00:02:54,920 --> 00:02:57,435
this is a short version,
building one house each

27
00:02:57,840 --> 00:02:59,957
so we reach saturation point.

28
00:03:00,320 --> 00:03:02,835
In Monopoly, money's just
'there' given out to all

29
00:03:03,200 --> 00:03:06,432
but here it seems the money only comes
when we build, is that right?

30
00:03:07,160 --> 00:03:09,550
Because we're brought up with
the piggy-bank model,

31
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as a child you're told, here's
your pocket money,

32
00:03:12,800 --> 00:03:15,952
you get some coins, put them
in your piggy-bank

33
00:03:16,360 --> 00:03:18,829
and you can only invest, buy
a toy or whatever,

34
00:03:19,240 --> 00:03:20,515
when the piggy-bank is full.

35
00:03:20,920 --> 00:03:24,516
But here, you invest - then
the money appears.

36
00:03:24,920 --> 00:03:27,435
Money only exists when there's
economic activity

37
00:03:27,880 --> 00:03:30,111
I think that's a really important point.

38
00:03:32,840 --> 00:03:35,753
During my research, some are
interested in my questions

39
00:03:36,080 --> 00:03:38,311
but others are reserved and suspicious.

40
00:03:39,640 --> 00:03:41,597
Interviewees wanting to
remain anonymous,

41
00:03:41,920 --> 00:03:43,513
filming permission withdrawn

42
00:03:43,840 --> 00:03:45,593
or filming micromanaged.

43
00:03:49,400 --> 00:03:52,711
I start keeping detailed notes of my
telephone conversations.

44
00:03:54,440 --> 00:03:56,830
The calls in the film are
spoken by actors,

45
00:03:57,160 --> 00:03:59,755
sometimes on the basis of
transcripts from memory.

46
00:04:15,160 --> 00:04:16,560
Hello, this is Carmen Losmann.

47
00:04:17,000 --> 00:04:18,753
I'm doing research for a documentary,

48
00:04:19,120 --> 00:04:21,589
investigating the links between
economic growth, debt

49
00:04:22,000 --> 00:04:23,832
and the concentration of wealth.

50
00:04:25,000 --> 00:04:27,640
Is there an engine driving
these phenomena?

51
00:04:28,040 --> 00:04:29,952
How does the whole thing interrelate?

52
00:04:30,320 --> 00:04:31,549
To answer that,

53
00:04:31,920 --> 00:04:34,435
you have to descend into the
engine room of capitalism

54
00:04:34,840 --> 00:04:36,991
and find out how money creation,

55
00:04:37,440 --> 00:04:40,558
the capitalist production
of money works.

56
00:04:41,480 --> 00:04:43,073
The banks play an important part,

57
00:04:43,440 --> 00:04:45,511
because they have a special privilege:

58
00:04:46,000 --> 00:04:49,038
they can create money that has
not yet been earned

59
00:04:49,720 --> 00:04:52,679
and by doing that they set a
vast dynamic in motion.

60
00:05:06,480 --> 00:05:08,233
Press department, Anja Müller, hello.

61
00:05:08,640 --> 00:05:10,279
Hello, can we use your bank to show

62
00:05:10,680 --> 00:05:13,115
how money is produced?
- Aha.

63
00:05:13,680 --> 00:05:16,832
OK, right, well, you've
wrong-footed me there.

64
00:05:17,240 --> 00:05:20,995
And actually I think 'producing money',
that's trivializing it a bit.

65
00:05:21,720 --> 00:05:23,279
I mean,

66
00:05:23,840 --> 00:05:26,992
it's not like a machine, moving
something right to left.

67
00:05:27,360 --> 00:05:28,953
It's not visible at all, as such.

68
00:05:29,880 --> 00:05:32,156
So you as a bank don't produce money?

69
00:05:33,120 --> 00:05:35,954
I can't say that we, I mean, money
production as such,

70
00:05:36,280 --> 00:05:38,795
I mean, we're not printing
money in the cellar.

71
00:05:57,880 --> 00:06:00,395
How is money created?

72
00:06:06,400 --> 00:06:09,393
Good, if there are no more questions,

73
00:06:09,760 --> 00:06:12,400
let's proceed to the vote.

74
00:06:15,760 --> 00:06:17,160
Brigitt Kienzler.
- Yes.

75
00:06:17,480 --> 00:06:18,960
Sebastian Lehrmann.
- Yes.

76
00:06:19,840 --> 00:06:21,115
Thomas Bittracher.
- Yes.

77
00:06:21,760 --> 00:06:23,717
Max Rohwee.
- Yes.

78
00:06:24,320 --> 00:06:26,118
Philipp von Homajer.
- Yes.

79
00:06:26,480 --> 00:06:27,709
I also vote yes.

80
00:06:28,840 --> 00:06:32,800
So the credit application is
unanimously approved.

81
00:06:36,400 --> 00:06:37,311
Thank you very much.

82
00:06:39,000 --> 00:06:42,391
We'll move on to the
second application...

83
00:06:43,120 --> 00:06:44,600
Dear Ms Losmann,

84
00:06:45,000 --> 00:06:48,630
we would gladly simulate a credit
committee meeting for you.

85
00:06:49,440 --> 00:06:51,159
We also offer to simulate

86
00:06:51,560 --> 00:06:54,314
a credit discussion between
our bank manager

87
00:06:54,760 --> 00:06:57,036
and a genuine customer for the camera.

88
00:06:58,160 --> 00:06:59,719
Please.
- Thank you.

89
00:07:04,800 --> 00:07:06,678
Nice we can have this talk today.

90
00:07:07,040 --> 00:07:10,636
You made a telephone enquiry
about your financing

91
00:07:11,000 --> 00:07:14,277
and we were able to discuss some
key data on the phone.

92
00:07:14,680 --> 00:07:18,674
Getting to know our credit customers
personally is also important to us.

93
00:07:19,400 --> 00:07:21,232
You said the apartment...

94
00:07:21,560 --> 00:07:22,550
400,000 francs.

95
00:07:23,000 --> 00:07:25,037
...had a purchase price of
400,000 francs.

96
00:07:25,360 --> 00:07:27,238
Yes, but I've had another look

97
00:07:27,560 --> 00:07:31,315
and I've decided that I need at least
to renovate the kitchen.

98
00:07:31,720 --> 00:07:34,633
Yes.
- And a few other minor renovations

99
00:07:35,000 --> 00:07:38,960
and I think I'd need another
25,000 francs for that.

100
00:07:39,440 --> 00:07:42,114
For us as a bank, it's crucial
in allowing credit

101
00:07:42,440 --> 00:07:45,080
that we are able to verify that you,

102
00:07:45,480 --> 00:07:48,393
as debtor, will be able to
repay the credit,

103
00:07:48,760 --> 00:07:51,639
which in practical terms means that
you can pay the interest

104
00:07:52,040 --> 00:07:53,440
out of your income

105
00:07:53,880 --> 00:07:56,679
as well as meeting the loan
repayment terms.

106
00:07:57,040 --> 00:07:58,190
So it's important

107
00:07:58,600 --> 00:08:01,195
that we understand your finances

108
00:08:01,600 --> 00:08:03,956
and an excellent basis for this
is your tax return,

109
00:08:04,360 --> 00:08:06,636
which you've provided here, and which

110
00:08:07,000 --> 00:08:10,072
on the one hand shows us your income

111
00:08:10,600 --> 00:08:12,080
and on the other

112
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also documents your assets.

113
00:08:15,360 --> 00:08:19,718
money creation

114
00:08:20,880 --> 00:08:22,394
We now come to the loan payout,

115
00:08:22,800 --> 00:08:26,396
which is a vital moment: the
money leaving the bank.

116
00:08:32,560 --> 00:08:36,190
The display shows us our bank system.

117
00:08:36,600 --> 00:08:38,592
I enter the account number here,

118
00:08:44,200 --> 00:08:47,272
the loan amount, which is
310,000 francs.

119
00:08:49,640 --> 00:08:51,518
And I add the text comment

120
00:08:52,320 --> 00:08:54,596
"credit disbursement".

121
00:08:56,480 --> 00:08:58,676
That's the debit side of the entry,

122
00:08:59,080 --> 00:09:00,355
which I now save.

123
00:09:00,720 --> 00:09:02,951
Now we move on to the credit side.

124
00:09:03,800 --> 00:09:07,680
Here I have to give the
loan amount again,

125
00:09:08,040 --> 00:09:09,235
the 310,000

126
00:09:09,640 --> 00:09:12,075
and the account number on
the credit side,

127
00:09:12,440 --> 00:09:15,319
that's the receiving
account of Ms Franzen.

128
00:09:15,760 --> 00:09:18,753
153384301.

129
00:09:19,160 --> 00:09:23,871
When the book entry is made, the
credit account increases

130
00:09:24,720 --> 00:09:28,873
and on the other side the receiving
account of the customer increases,

131
00:09:29,200 --> 00:09:31,271
so we get a balance sheet expansion

132
00:09:31,680 --> 00:09:34,434
and so we have created money.

133
00:09:34,920 --> 00:09:36,400
I click to save

134
00:09:36,800 --> 00:09:39,793
and thus the money creation is done.

135
00:09:50,920 --> 00:09:54,357
debit - credit

136
00:10:03,840 --> 00:10:05,638
In making this credit payout,

137
00:10:06,000 --> 00:10:08,993
we have not had to take money

138
00:10:09,360 --> 00:10:11,670
from deposit customers' accounts,

139
00:10:12,080 --> 00:10:16,074
to credit it to the credit customer.

140
00:10:18,080 --> 00:10:21,357
We have entered a sum of money
in the balance sheet

141
00:10:21,760 --> 00:10:23,797
that did not exist before

142
00:10:24,120 --> 00:10:26,999
thereby increasing our
balance sheet total

143
00:10:27,400 --> 00:10:30,359
and this balance sheet expansion
has created new money

144
00:10:31,160 --> 00:10:33,800
through the credit disbursement.

145
00:11:11,000 --> 00:11:13,390
I was a faithful employee

146
00:11:13,800 --> 00:11:16,076
of these institutions -

147
00:11:16,600 --> 00:11:18,398
public like the IMF,

148
00:11:18,760 --> 00:11:21,036
and later private investment banks

149
00:11:21,400 --> 00:11:26,111
and I really never bothered my head
about how money worked.

150
00:11:27,040 --> 00:11:29,396
It never really came up in
our studies either.

151
00:11:29,840 --> 00:11:33,516
Money was just there, it was like any
other investment object.

152
00:11:34,000 --> 00:11:37,437
Then along came the financial crisis and
suddenly things were happening

153
00:11:37,840 --> 00:11:39,672
that people couldn't explain.

154
00:11:40,920 --> 00:11:43,799
So then, at a somewhat advanced
age you might say,

155
00:11:44,440 --> 00:11:47,274
I tried going back to basics again

156
00:11:47,640 --> 00:11:51,236
and asking myself fundamental questions:

157
00:11:51,600 --> 00:11:53,353
How does a bank work?

158
00:11:57,320 --> 00:11:59,880
So the first obvious
question you have to ask

159
00:12:00,200 --> 00:12:02,032
that the usual theories never answer is:

160
00:12:02,440 --> 00:12:04,193
how does money come into the world?

161
00:12:04,560 --> 00:12:07,234
Everyone behaved as if
things were the same

162
00:12:07,600 --> 00:12:09,592
as they were under the Gold Standard,

163
00:12:10,120 --> 00:12:13,113
with a gold miner prospecting,
finding the stuff in a stream

164
00:12:13,440 --> 00:12:16,353
and it becomes a gold coin,
and goes to the bank

165
00:12:16,760 --> 00:12:20,356
which issues a trust receipt,
which is then a banknote

166
00:12:20,760 --> 00:12:24,117
but it issues more banknotes

167
00:12:24,480 --> 00:12:26,870
than it receives real gold coins
because it assumes

168
00:12:27,280 --> 00:12:29,795
that its gold depositors are
not all going to want

169
00:12:30,200 --> 00:12:33,238
to see their gold at once, and that's
fractional-reserve banking.

170
00:12:33,560 --> 00:12:36,155
That's what everyone learned,
including me

171
00:12:36,440 --> 00:12:39,035
and we thought that's how
the world worked.

172
00:12:39,360 --> 00:12:43,070
But it's really only a very
limited explanation

173
00:12:43,600 --> 00:12:47,435
for how money is created in a
gold-based system.

174
00:12:47,840 --> 00:12:49,638
What really happens is:

175
00:12:50,240 --> 00:12:53,312
banks use lending

176
00:12:53,720 --> 00:12:57,031
to produce book money-demand deposits.

177
00:12:57,400 --> 00:13:00,950
So when you, as a customer,
go to your bank,

178
00:13:01,320 --> 00:13:03,551
and apply for a credit,

179
00:13:04,000 --> 00:13:05,559
and the loan officer

180
00:13:06,120 --> 00:13:09,033
approves it, says you're creditworthy,

181
00:13:09,400 --> 00:13:10,436
sign here.

182
00:13:10,840 --> 00:13:11,876
The bank then goes off

183
00:13:12,200 --> 00:13:16,797
and just writes the amount as a
credit in your giro account.

184
00:13:17,200 --> 00:13:19,556
They don't need to
collect deposits first

185
00:13:19,920 --> 00:13:21,434
in order to issue the credit.

186
00:13:21,840 --> 00:13:24,400
And they do this again and again...

187
00:13:24,880 --> 00:13:27,395
listen to them carefully, these people,
bankers,

188
00:13:27,800 --> 00:13:30,235
again and again they say a bank's job is

189
00:13:30,640 --> 00:13:33,553
to collect deposits and
issue them as credits,

190
00:13:33,920 --> 00:13:35,877
professional people say this.

191
00:13:36,240 --> 00:13:37,230
And it's not true.

192
00:13:37,640 --> 00:13:40,075
The bank doesn't need money
to issue a credit,

193
00:13:40,440 --> 00:13:42,432
it produces money by issuing the credit.

194
00:13:48,880 --> 00:13:51,714
And the link between
entrepreneurial activity

195
00:13:52,360 --> 00:13:54,238
and our monetary system

196
00:13:54,840 --> 00:13:57,878
comes from this issuing of credit.

197
00:13:58,760 --> 00:14:01,434
Our money, bank money,

198
00:14:01,920 --> 00:14:04,355
is created by issuing credit.

199
00:14:04,720 --> 00:14:07,076
For that, we need businesses
taking out loans

200
00:14:07,440 --> 00:14:09,159
or households that borrow.

201
00:14:09,480 --> 00:14:11,517
But if they say no, I'm not going to,

202
00:14:12,000 --> 00:14:13,593
I'm already in so much debt,

203
00:14:14,000 --> 00:14:15,400
money production stalls.

204
00:14:15,840 --> 00:14:17,559
So it was after the financial crisis.

205
00:14:18,000 --> 00:14:20,959
The central banks have been
desperately trying

206
00:14:21,240 --> 00:14:23,277
to get things moving again,

207
00:14:23,680 --> 00:14:25,717
so more loans would be issued.

208
00:14:26,040 --> 00:14:28,077
So to keep the system going,

209
00:14:28,440 --> 00:14:31,956
to keep the economic system and
economic growth going,

210
00:14:32,400 --> 00:14:36,155
new loans must constantly be issued
so money is created.

211
00:14:36,760 --> 00:14:39,639
Economy grows as credits are issued.

212
00:14:40,040 --> 00:14:43,078
And what I'm asking myself,

213
00:14:43,440 --> 00:14:46,353
you've said that money is
produced by private banks

214
00:14:46,760 --> 00:14:49,036
when they issue credit.

215
00:14:49,440 --> 00:14:52,717
As I see it, the bank will
only give money

216
00:14:53,080 --> 00:14:54,878
to people who credibly demonstrate

217
00:14:55,320 --> 00:14:57,710
that they're going to make a profit.

218
00:14:58,120 --> 00:14:59,759
That's the idea, the business model.

219
00:15:00,160 --> 00:15:03,358
So now this is my question: To what
extent does this create

220
00:15:04,080 --> 00:15:06,231
an inherent, systemic growth compulsion,

221
00:15:06,640 --> 00:15:08,552
because in effect banks only issue loans

222
00:15:08,920 --> 00:15:11,754
when an economic situation
promises growth,

223
00:15:12,080 --> 00:15:14,311
because that's the way to make profits?

224
00:15:15,720 --> 00:15:17,393
Well, yes, they will, that's right,

225
00:15:17,760 --> 00:15:20,594
but I mean no one is forced
to take out a loan.

226
00:15:25,720 --> 00:15:27,279
Dear Ms Losmann,

227
00:15:27,640 --> 00:15:31,111
my current employer does not want to
appear in this film.

228
00:15:31,440 --> 00:15:34,592
All my remarks are therefore
personal opinions

229
00:15:35,000 --> 00:15:37,959
and do not represent the official
position of my firm.

230
00:15:54,240 --> 00:15:58,837
Economy grows as credits are issued.

231
00:16:13,040 --> 00:16:17,751
Credits are issued as economy grows.

232
00:16:27,320 --> 00:16:30,631
So up to now I've understood
that credits are issued

233
00:16:31,040 --> 00:16:32,713
when the economy is growing.

234
00:16:33,880 --> 00:16:35,633
And economic growth means

235
00:16:36,040 --> 00:16:39,158
that more goods and services are
sold this year than last,

236
00:16:39,760 --> 00:16:42,958
but that in turn requires more money,

237
00:16:43,240 --> 00:16:46,039
so that these goods and
services can be bought.

238
00:16:47,080 --> 00:16:49,834
And producing this greater
quantity of money

239
00:16:50,200 --> 00:16:51,395
requires more credits.

240
00:16:51,800 --> 00:16:54,599
So the monster is eating its own tail,
isn't it?

241
00:16:55,120 --> 00:16:57,840
It is paradoxical in a way.

242
00:16:58,440 --> 00:17:00,716
It only works for as long as it works,

243
00:17:01,280 --> 00:17:03,795
as long as the chain reaction
of economic growth

244
00:17:04,200 --> 00:17:06,669
and new credit continues.

245
00:17:07,600 --> 00:17:10,559
And the European Central Bank has a
huge influence on this,

246
00:17:10,920 --> 00:17:13,230
especially in the years after
the financial crisis.

247
00:17:13,680 --> 00:17:15,797
It tries to ensure through
its monetary policy

248
00:17:16,160 --> 00:17:18,356
that the chain doesn't break down.

249
00:17:32,680 --> 00:17:34,831
Carmen Losmann, hello.
- Hello Ms Losmann,

250
00:17:35,160 --> 00:17:37,675
I'm here with my colleague from
the media department.

251
00:17:38,000 --> 00:17:39,957
And so we'd just like to hear once again

252
00:17:40,320 --> 00:17:43,074
how you envisage Mr Praet's
role in this film,

253
00:17:43,480 --> 00:17:46,314
and what subjects you're
expecting him to talk about.

254
00:17:46,640 --> 00:17:49,792
Well, my interview
questions tell you that:

255
00:17:50,160 --> 00:17:52,311
about the monetary policy of the ECB,

256
00:17:52,720 --> 00:17:56,031
and the effects of that
policy on the economy.

257
00:17:56,400 --> 00:17:59,518
May I just jump in here, hello,
nice to talk to you.

258
00:17:59,880 --> 00:18:02,076
So the interview will not
last for two hours,

259
00:18:02,440 --> 00:18:04,033
he hasn't that kind of time.

260
00:18:04,440 --> 00:18:06,796
What we need is a clear understanding

261
00:18:07,200 --> 00:18:09,157
of your purpose in this interview.

262
00:18:10,360 --> 00:18:11,874
Well, the acceptance I received

263
00:18:12,240 --> 00:18:14,232
did say that two hours was OK,

264
00:18:14,560 --> 00:18:16,597
and I designed my questions accordingly.

265
00:18:17,000 --> 00:18:19,071
If two hours is now no good,

266
00:18:19,440 --> 00:18:22,114
I need to adapt my questions,

267
00:18:22,480 --> 00:18:24,790
but I still don't quite know

268
00:18:25,120 --> 00:18:27,237
how long you're proposing
for the interview,

269
00:18:27,600 --> 00:18:29,193
under the new conditions.

270
00:18:29,720 --> 00:18:32,155
Well he's set aside 45
minutes in his diary

271
00:18:32,480 --> 00:18:35,757
and minus a few minutes for arriving,
leaving and so on,

272
00:18:36,240 --> 00:18:40,029
I'd be looking at half an hour,
realistically.

273
00:19:36,320 --> 00:19:37,674
Dear Ms Losmann,

274
00:19:38,000 --> 00:19:42,119
unfortunately filming a real
meeting is not possible.

275
00:19:42,800 --> 00:19:46,760
However, we would be happy to
simulate a meeting for you.

276
00:22:52,680 --> 00:22:55,559
book money = 90% of our
total money supply

277
00:26:30,720 --> 00:26:33,076
After the financial crisis,
private banks

278
00:26:33,440 --> 00:26:36,831
stopped issuing enough credit,
jeopardising the money supply.

279
00:26:38,000 --> 00:26:40,037
So the ECB intervened, launching its

280
00:26:40,360 --> 00:26:42,955
'Quantitative Easing' programme,
which means

281
00:26:43,280 --> 00:26:45,636
the central bank buying assets
from major players

282
00:26:46,000 --> 00:26:48,435
in the capital markets, mainly
government bonds,

283
00:26:48,880 --> 00:26:50,678
using new money.

284
00:26:51,640 --> 00:26:55,680
The ECB itself is creating this money,
up to 80 billion a month, by the way,

285
00:26:56,160 --> 00:26:59,710
in the hope that this new
money will spur demand

286
00:27:00,560 --> 00:27:03,120
and so stimulate new economic growth.

287
00:27:04,480 --> 00:27:08,030
So why did the private banks
stop issuing credits?

288
00:27:09,560 --> 00:27:11,756
No one knew after the financial crisis

289
00:27:12,080 --> 00:27:14,754
where growth and profits
would come from.

290
00:28:08,440 --> 00:28:11,399
The best thing for you here
would be to throw a one.

291
00:28:11,760 --> 00:28:12,750
So, may I?

292
00:28:13,240 --> 00:28:16,153
We've already talked about how money
appears in this system,

293
00:28:16,440 --> 00:28:18,636
so the bank issues credit to me,

294
00:28:19,000 --> 00:28:22,596
and in return I basically
promise to pay it back

295
00:28:23,000 --> 00:28:25,037
and that brings money into the world.
- Yes.

296
00:28:25,440 --> 00:28:27,272
So, that's the starting point.

297
00:28:27,640 --> 00:28:29,359
Now I'm obliged

298
00:28:29,680 --> 00:28:33,117
to take part in the system
through my value-creation,

299
00:28:33,440 --> 00:28:37,354
and in principle to get money from all
other participants in the system

300
00:28:37,720 --> 00:28:39,837
so that I can repay my credit.

301
00:29:07,160 --> 00:29:08,594
Different in Monopoly,

302
00:29:09,000 --> 00:29:10,798
because these banknotes just exist.

303
00:29:11,120 --> 00:29:13,840
and it feels like all the bank
does is dole them out.

304
00:29:14,200 --> 00:29:17,830
So the money in circulation is fixed -
many people think it really is -

305
00:29:18,320 --> 00:29:21,074
and it's in circulation and gets used.

306
00:29:21,440 --> 00:29:24,353
But that's not our system. Our
system is more like this,

307
00:29:24,720 --> 00:29:27,952
as Samirah has tried to show, of course
a very simplified model,

308
00:29:28,360 --> 00:29:31,353
but the money is really only
created when we build

309
00:29:31,760 --> 00:29:33,240
and it disappears on repayment.

310
00:29:33,640 --> 00:29:34,835
Without new debt,

311
00:29:35,160 --> 00:29:37,755
we suddenly run out of money.
- Yes.

312
00:29:52,040 --> 00:29:55,078
So if no one takes on new debt,
we run out of money,

313
00:29:55,400 --> 00:29:57,073
but where does that money go?

314
00:29:57,440 --> 00:30:00,717
Our modern money in capitalism is
not itself a commodity,

315
00:30:01,080 --> 00:30:02,070
like seashells

316
00:30:02,440 --> 00:30:05,797
or cigarettes or whatever else
is used for barter.

317
00:30:06,400 --> 00:30:10,314
Money consists of credit and debt
at the same time.

318
00:30:13,160 --> 00:30:15,311
If you pay back your individual credit,

319
00:30:15,760 --> 00:30:17,638
the credit is still there,

320
00:30:19,120 --> 00:30:20,270
say with the trades person

321
00:30:20,680 --> 00:30:23,070
whom you've paid to renovate your house,

322
00:30:24,280 --> 00:30:26,511
but at the same time you've taken money

323
00:30:26,840 --> 00:30:30,277
out of the system elsewhere, earned
income, for example,

324
00:30:30,640 --> 00:30:32,791
to repay or liquidate your debts.

325
00:30:35,840 --> 00:30:38,639
And this liquidation reduces your
bank's balance sheet

326
00:30:39,040 --> 00:30:42,033
and so reduces our whole money supply.

327
00:30:42,840 --> 00:30:44,832
Does that make sense?

328
00:30:46,360 --> 00:30:47,874
When loans are repaid,

329
00:30:48,240 --> 00:30:50,596
new loans have to be issued immediately.

330
00:30:50,920 --> 00:30:52,957
So enough money stays in circulation.

331
00:30:53,320 --> 00:30:56,154
That, in turn, requires constant new
investment opportunities

332
00:30:56,680 --> 00:30:57,830
promising profit

333
00:30:58,280 --> 00:31:00,840
so that new loans will be
issued for them.

334
00:31:02,000 --> 00:31:04,595
So new business ideas, new
business models,

335
00:31:05,000 --> 00:31:06,116
new value chains,

336
00:31:06,440 --> 00:31:08,636
new products, new services,

337
00:31:09,040 --> 00:31:11,271
new markets...

338
00:32:55,320 --> 00:32:57,198
The next trillion dollars

339
00:32:57,560 --> 00:32:59,677
will be earned through data.

340
00:33:03,000 --> 00:33:05,276
Everyone starting to think
in business models,

341
00:33:05,680 --> 00:33:08,673
throughout the hierarchy,
not just management,

342
00:33:09,040 --> 00:33:11,839
that's very, very difficult to get
into people's heads.

343
00:33:16,000 --> 00:33:17,354
Dear Ms Losmann,

344
00:33:17,680 --> 00:33:19,876
thank you for your interview questions

345
00:33:20,280 --> 00:33:23,000
on the subject 'growth
market digitalization.'

346
00:33:23,440 --> 00:33:25,511
After lengthy deliberation,
we have decided

347
00:33:25,920 --> 00:33:29,630
not to continue our
participation in your project.

348
00:33:30,480 --> 00:33:34,713
With regret, we must therefore cancel
the interview with Dr. Jan Mrosik.

349
00:33:58,680 --> 00:34:01,673
We need 2-3 percent growth,

350
00:34:02,440 --> 00:34:05,319
if the tree stops growing, it dies.
And the same goes for us.

351
00:34:05,680 --> 00:34:07,558
No growth from innovation -

352
00:34:07,880 --> 00:34:10,315
nothing moves.

353
00:34:38,600 --> 00:34:41,354
Why is growth important to
us as investors?

354
00:34:42,000 --> 00:34:45,880
Well, growth pays the
dividends on shares

355
00:34:46,240 --> 00:34:49,790
and growth pays the coupon rates,

356
00:34:50,440 --> 00:34:54,036
on bonds, which companies
issue to invest.

357
00:34:55,360 --> 00:34:57,750
OK, but when industrial
production increases,

358
00:34:58,160 --> 00:35:01,232
that only creates more products,
more output,

359
00:35:01,720 --> 00:35:05,157
so how do the actual profits happen,
the money for profits?

360
00:35:08,360 --> 00:35:11,592
Where does money for profits come from?

361
00:35:21,480 --> 00:35:22,709
Hello Ms Losmann,

362
00:35:23,120 --> 00:35:26,272
thank you for your interest in
how value gains occur.

363
00:35:26,640 --> 00:35:28,871
A simulated 'performance discussion'

364
00:35:29,200 --> 00:35:31,351
with one of our clients

365
00:35:32,920 --> 00:35:36,038
would address appreciation of
the assets concerned

366
00:35:36,440 --> 00:35:38,750
and include analysis of value drivers.

367
00:35:40,480 --> 00:35:41,550
Please!

368
00:35:42,040 --> 00:35:42,951
Thank you.

369
00:35:45,600 --> 00:35:48,399
So, Mr Schuster, great to have you
here in our new offices,

370
00:35:48,760 --> 00:35:49,989
nice to see you again.

371
00:35:50,480 --> 00:35:53,518
We've talked on the phone several
times in recent months,

372
00:35:53,920 --> 00:35:57,800
but it's been a while since the last
performance discussion.

373
00:35:58,840 --> 00:36:00,957
I've invited you for a
performance discussion.

374
00:36:01,400 --> 00:36:04,393
As you know, in a performance discussion

375
00:36:04,720 --> 00:36:07,076
we look back at the past,

376
00:36:07,440 --> 00:36:09,079
we shed light on the present

377
00:36:09,440 --> 00:36:12,160
and then we try to use the data we have

378
00:36:12,600 --> 00:36:13,954
to peer into the future

379
00:36:14,320 --> 00:36:16,312
and develop an investment strategy.

380
00:36:17,040 --> 00:36:21,114
In 2016, we had a positive
performance of 6.7%

381
00:36:21,480 --> 00:36:24,791
on invested assets of
around 300.000 Euros

382
00:36:25,120 --> 00:36:28,591
making a profit of 20.000 Euros
plus a few hundred.

383
00:36:30,560 --> 00:36:32,791
What is particularly pleasing,

384
00:36:33,200 --> 00:36:37,558
when I look at these figures and the
performance contributions.

385
00:36:38,000 --> 00:36:40,959
is that the performance was
positive in every segment.

386
00:36:41,320 --> 00:36:45,155
I can see of course, Emerging Markets
were the biggest driver

387
00:36:45,680 --> 00:36:48,593
of this positive
development with over 10%.

388
00:36:49,120 --> 00:36:50,440
Why is that?

389
00:36:50,840 --> 00:36:53,275
Well, the Emerging Markets.

390
00:36:53,640 --> 00:36:56,360
Growth in the Emerging Markets
is still much higher

391
00:36:56,760 --> 00:36:58,558
than in developed countries

392
00:36:59,000 --> 00:37:02,550
and that's really the main driver

393
00:37:03,000 --> 00:37:04,195
that leads us to say

394
00:37:04,560 --> 00:37:07,712
that our Emerging Markets commitment
was a very good thing.

395
00:37:08,080 --> 00:37:11,960
On just a quick calculation,
today we have a...

396
00:37:18,320 --> 00:37:21,040
...a situation that we...

397
00:37:22,040 --> 00:37:25,078
Worst case,

398
00:37:25,680 --> 00:37:28,195
our performance would be around 7%

399
00:37:28,480 --> 00:37:30,676
and best case, about 15%.

400
00:37:31,320 --> 00:37:34,313
That all sounds right to me.
- Thank you.

401
00:37:39,920 --> 00:37:41,798
The economic condition we need

402
00:37:42,200 --> 00:37:45,716
for added value to be generated or
my asset value to grow

403
00:37:46,120 --> 00:37:47,440
is growth.

404
00:37:50,360 --> 00:37:51,396
We define growth

405
00:37:51,840 --> 00:37:55,231
as worldwide production
steadily increasing

406
00:37:55,680 --> 00:37:59,879
and where we see effective growth in the
sense of an enlarging market

407
00:38:00,240 --> 00:38:03,153
is obviously in the Emerging Markets.

408
00:38:04,080 --> 00:38:05,753
If you think about

409
00:38:06,160 --> 00:38:10,074
India or Indonesia

410
00:38:10,440 --> 00:38:12,511
with a lot of people getting money

411
00:38:13,240 --> 00:38:16,711
that they can spend or want to
spend on consumer goods,

412
00:38:17,080 --> 00:38:20,198
buying a phone or a car

413
00:38:20,600 --> 00:38:24,355
or a fridge or just a
bigger place to live.

414
00:38:24,760 --> 00:38:27,514
Obviously that's a huge
amount of potential

415
00:38:27,840 --> 00:38:30,719
and the Emerging Markets' shares of
course profit from that,

416
00:38:31,200 --> 00:38:33,760
because they can turn over more
in their home market.

417
00:38:34,160 --> 00:38:36,675
But there are also a lot of
companies in Germany

418
00:38:37,080 --> 00:38:40,152
like engineering firms, who are
supplying products

419
00:38:40,440 --> 00:38:43,319
that get bought by enterprises
in those countries,

420
00:38:43,720 --> 00:38:46,519
to make their own
production more efficient

421
00:38:46,880 --> 00:38:48,951
or just produce more.

422
00:38:51,360 --> 00:38:53,750
Companies' profits increase because

423
00:38:54,160 --> 00:38:56,550
they sell more products.

424
00:38:56,920 --> 00:38:58,593
Because they sell more products,

425
00:38:59,000 --> 00:39:02,277
but don't, relatively speaking,
produce more spending.

426
00:39:04,720 --> 00:39:07,633
So to sell products you need
someone with the money

427
00:39:08,000 --> 00:39:09,354
to buy them.
- Exactly right.

428
00:39:09,760 --> 00:39:13,515
So where does the money come from?
From companies borrowing,

429
00:39:13,840 --> 00:39:18,039
to buy materials, pay wages and salaries

430
00:39:18,440 --> 00:39:20,238
putting money in circulation.
- Right.

431
00:39:20,560 --> 00:39:24,315
Say a company takes out a loan
for a certain amount

432
00:39:24,680 --> 00:39:27,514
let's say 500 Euros for
simplicity's sake,

433
00:39:28,000 --> 00:39:29,150
that's now in circulation.

434
00:39:29,480 --> 00:39:33,190
But the company wants to earn 600 Euros,
so make 100 profit.

435
00:39:34,920 --> 00:39:36,274
Where does the money come from

436
00:39:36,760 --> 00:39:39,434
in the economy as a whole so
companies can make profits?

437
00:39:43,440 --> 00:39:44,715
That's a good question.

438
00:39:47,440 --> 00:39:49,159
Because that's the precondition

439
00:39:49,440 --> 00:39:51,830
for assets to grow, isn't it?
- Yes.

440
00:39:52,440 --> 00:39:55,990
So I can imagine... it's a
complex question

441
00:39:56,320 --> 00:40:00,234
and I lack to some extent the
technical background

442
00:40:00,640 --> 00:40:02,393
to explain it well

443
00:40:03,680 --> 00:40:07,959
in terms of value creation, but...

444
00:40:11,480 --> 00:40:13,119
let me think about this.

445
00:40:13,600 --> 00:40:15,398
Can we defer that question to later?

446
00:40:15,840 --> 00:40:16,830
Yes, of course,

447
00:40:17,200 --> 00:40:19,715
I'll move on to another
question that I've also...

448
00:40:20,120 --> 00:40:23,192
It's a good question, but insanely
complicated to answer.

449
00:40:39,440 --> 00:40:42,433
Where does money for profits come from?

450
00:40:45,560 --> 00:40:47,870
It's an extremely interesting point that

451
00:40:48,200 --> 00:40:50,317
we feel that money comes from work.

452
00:40:50,760 --> 00:40:52,831
I go to work and I get money,

453
00:40:53,240 --> 00:40:55,709
as if it's my work that's somehow
creating the money.

454
00:40:56,160 --> 00:40:58,720
We used to, well, I didn't, but

455
00:40:59,120 --> 00:41:00,952
a caveman would go to the woods,

456
00:41:01,280 --> 00:41:03,715
gather nuts and berries, hunt animals

457
00:41:04,080 --> 00:41:05,639
and that was his income,

458
00:41:06,000 --> 00:41:07,639
from 'work' in quotes.

459
00:41:08,000 --> 00:41:10,356
And we still think that's
how it works today,

460
00:41:10,800 --> 00:41:12,120
but it doesn't.

461
00:41:12,480 --> 00:41:15,359
In fact, your income

462
00:41:15,720 --> 00:41:18,360
only exists because we've built houses.

463
00:41:18,680 --> 00:41:21,718
That means you're actually
dependent on us investing

464
00:41:22,200 --> 00:41:25,318
making things, building houses,
for your job to exist.

465
00:41:25,680 --> 00:41:28,070
Work as much as you want,

466
00:41:28,400 --> 00:41:31,552
nothing will happen if we aren't
willing to invest.

467
00:41:53,440 --> 00:41:56,990
And we only invest if we think
we'll make a profit.

468
00:41:58,000 --> 00:42:01,391
And the profit outlook depends on the
growth of the money supply.

469
00:42:01,800 --> 00:42:03,393
Exactly.
- There's the drama.

470
00:42:08,000 --> 00:42:11,676
Profit outlook depends on
growth of money supply.

471
00:42:12,080 --> 00:42:14,072
Our game's money supply has
been shrinking,

472
00:42:14,400 --> 00:42:17,393
but in the economy as a whole it
has to grow permanently

473
00:42:17,800 --> 00:42:21,237
and we can see in reality it's grown
continuously since 1948.

474
00:42:31,880 --> 00:42:34,600
Hello Ms Losmann, please
submit your questions

475
00:42:35,000 --> 00:42:37,595
for the interview with our BMW
Chief Financial Officer

476
00:42:38,000 --> 00:42:39,400
in writing in advance.

477
00:42:44,000 --> 00:42:47,437
Our strategic goal, especially in our
core segment, automotive,

478
00:42:47,840 --> 00:42:50,116
is a margin of 8-10%.

479
00:42:50,480 --> 00:42:52,392
We have not achieved that.

480
00:42:58,600 --> 00:43:01,798
The margin is what's left

481
00:43:02,320 --> 00:43:06,030
after subtracting
expenditure from revenue.

482
00:43:06,400 --> 00:43:09,837
So on revenue of 100 Euros,

483
00:43:10,160 --> 00:43:13,153
we want to earn 8-10 Euros.

484
00:43:14,000 --> 00:43:15,719
And as I said,

485
00:43:16,880 --> 00:43:20,635
we did not achieve that
strategic goal in 2018.

486
00:43:21,040 --> 00:43:22,235
But even so,

487
00:43:22,560 --> 00:43:25,792
compared to our competitors,

488
00:43:26,160 --> 00:43:30,313
our 7.2% is a very, very good result.

489
00:45:38,000 --> 00:45:40,117
Every company wants to make profits.

490
00:45:40,560 --> 00:45:44,395
And I ask myself, OK, but where do those
7.2% profits come from,

491
00:45:44,880 --> 00:45:47,395
that the corporate sector
wants to earn extra?

492
00:45:48,400 --> 00:45:50,596
I know not everyone makes 7.2%...

493
00:45:52,080 --> 00:45:55,118
We fight for customers, and the
customer finances the company,

494
00:45:55,440 --> 00:45:58,672
by buying the product, that's the
logic you mean, isn't it?

495
00:45:59,000 --> 00:46:02,311
Well, yes, but also, where does the
customer actually get this money?

496
00:46:02,840 --> 00:46:04,274
The bottom line is,

497
00:46:04,640 --> 00:46:06,632
the corporate sector wants
to make profits,

498
00:46:07,120 --> 00:46:11,558
to get more money out of
circulation than it puts in

499
00:46:12,240 --> 00:46:15,312
so looking at the whole
economy I ask myself:

500
00:46:15,840 --> 00:46:17,752
who takes on the debt for that?

501
00:46:20,680 --> 00:46:21,875
Who takes the...

502
00:46:22,880 --> 00:46:26,510
OK, let me try from the
other perspective...

503
00:46:29,120 --> 00:46:32,318
Is this the question 'where does
economic growth come from?'

504
00:46:33,600 --> 00:46:36,274
Profits come to economic growth,
so basically yes.

505
00:46:40,240 --> 00:46:42,755
Ask it again, so I can
repeat the question.

506
00:46:44,640 --> 00:46:47,712
Where do profits come from, how does
economic growth happen?

507
00:46:48,160 --> 00:46:50,197
Economic growth...

508
00:46:51,920 --> 00:46:54,833
Companies contribute very significantly

509
00:46:55,360 --> 00:46:57,670
to economic growth.

510
00:46:58,200 --> 00:47:00,954
It's like a, I could
describe it as a kind,

511
00:47:01,280 --> 00:47:03,397
like a kind of circulation.

512
00:47:04,480 --> 00:47:08,269
Particularly in a
technology-driven industry

513
00:47:08,880 --> 00:47:12,510
like the automotive industry,

514
00:47:12,880 --> 00:47:14,439
economic growth is driven

515
00:47:14,920 --> 00:47:17,594
in the first place by innovation.

516
00:47:17,920 --> 00:47:22,392
We invest in research and development

517
00:47:22,800 --> 00:47:25,520
and produce, develop and produce thereby

518
00:47:26,000 --> 00:47:30,199
products that fortunately
customers like very much,

519
00:47:30,560 --> 00:47:35,032
and so are prepared to pay more
for those products,

520
00:47:35,640 --> 00:47:39,793
than we spent making them.

521
00:47:54,680 --> 00:47:57,434
I'd be interested to know how
important the money supply

522
00:47:57,840 --> 00:48:01,231
and its expansion are in your
profit forecasts.

523
00:48:01,720 --> 00:48:03,359
Do you look at factors like that?

524
00:48:03,720 --> 00:48:07,077
Yes, we do look very very closely
at factors like that.

525
00:48:07,440 --> 00:48:09,557
You can roughly say

526
00:48:10,040 --> 00:48:13,716
that every second vehicle
we sell worldwide

527
00:48:14,160 --> 00:48:17,073
is refinanced by the customer

528
00:48:17,440 --> 00:48:20,035
through BMW Financial Services.

529
00:48:20,360 --> 00:48:23,990
So is it fair to say that through
your credit system,

530
00:48:24,400 --> 00:48:28,599
vehicle financing, you're also creating
the money for your own profits?

531
00:48:29,360 --> 00:48:33,513
Well, the financial services
division is also profitable...

532
00:48:33,880 --> 00:48:36,349
I'm talking about in the context
of the whole economy,

533
00:48:36,720 --> 00:48:39,110
meaning: when you issue a vehicle loan

534
00:48:39,440 --> 00:48:40,794
that is a new credit -

535
00:48:41,160 --> 00:48:44,039
you're helping expand the money supply.

536
00:48:44,400 --> 00:48:46,631
Which also helps your
profit expectations.

537
00:48:47,000 --> 00:48:50,072
It helps profit expectations because

538
00:48:50,800 --> 00:48:53,634
we sell a certain share of our vehicles

539
00:48:54,200 --> 00:48:56,431
on a credit basis

540
00:48:58,400 --> 00:49:01,120
50% penetration

541
00:49:01,880 --> 00:49:03,075
and

542
00:49:03,560 --> 00:49:07,395
that's... we are a part of

543
00:49:07,840 --> 00:49:10,275
the financial banking system

544
00:49:10,680 --> 00:49:13,070
and so are bound by all the rules

545
00:49:14,120 --> 00:49:16,351
that also apply to commercial banks.

546
00:49:25,480 --> 00:49:27,836
It also has a very great deal to do with

547
00:49:28,200 --> 00:49:31,591
what's called consumer sentiment.

548
00:49:32,000 --> 00:49:33,275
How ready is the customer,

549
00:49:33,680 --> 00:49:36,036
whether or not he has
sufficient resources,

550
00:49:36,440 --> 00:49:40,673
how ready is the customer to
invest funds in a product

551
00:49:41,080 --> 00:49:44,437
and to pay more for it

552
00:49:44,800 --> 00:49:47,998
than we spent making it.

553
00:49:48,360 --> 00:49:51,034
And the money supply must also increase,
mustn't it?

554
00:49:51,480 --> 00:49:54,075
The money supply increases...

555
00:49:55,840 --> 00:49:57,354
The money supply does increase,

556
00:49:57,760 --> 00:50:00,832
as national economies grow.

557
00:50:02,640 --> 00:50:04,871
The money supply
automatically grows then.

558
00:50:05,440 --> 00:50:08,160
And the national economies grow
because more is invested.

559
00:50:08,480 --> 00:50:10,278
Innovated and invested.

560
00:50:10,600 --> 00:50:13,240
And you need new money again for that.
- Yes.

561
00:50:24,440 --> 00:50:28,434
Money supply grows as economy grows.

562
00:50:37,040 --> 00:50:41,557
Economy grows as money supply grows.

563
00:50:54,880 --> 00:50:58,510
So if the conditions that allow
companies to make profits

564
00:50:59,000 --> 00:51:01,435
necessarily go in paradoxical circles,

565
00:51:01,880 --> 00:51:04,031
why do companies have to
make profits at all?

566
00:51:04,360 --> 00:51:06,079
OK, look, people like you

567
00:51:07,880 --> 00:51:09,712
who don't understand the first thing

568
00:51:10,040 --> 00:51:12,396
about business economies
and the economy.

569
00:51:12,880 --> 00:51:15,839
When you ask me a question like that,
it's like asking

570
00:51:16,240 --> 00:51:18,391
why a rock falls downwards

571
00:51:18,720 --> 00:51:20,518
and not upwards.

572
00:51:20,840 --> 00:51:22,593
Well, for most of human history,

573
00:51:23,000 --> 00:51:25,196
by that definition, rocks fell upwards,

574
00:51:25,480 --> 00:51:27,392
as there was no profit-based economy.

575
00:51:27,840 --> 00:51:29,513
Just a minute, let me explain

576
00:51:29,920 --> 00:51:32,151
why this question is offensive.

577
00:51:32,560 --> 00:51:33,835
OK, I can't wait.

578
00:51:34,320 --> 00:51:37,392
What most people don't get is this:

579
00:51:37,920 --> 00:51:42,039
Repayments of loans don't appear in
profit and loss accounts.

580
00:51:42,880 --> 00:51:46,396
If you say now, I have a profit and loss
account and at the bottom it says

581
00:51:46,720 --> 00:51:48,359
I have precisely zero Euros profit,

582
00:51:48,720 --> 00:51:51,838
then you have no surplus money
to repay your loans.

583
00:51:52,200 --> 00:51:55,557
So companies have to make profits,
to repay their debts?

584
00:51:55,920 --> 00:51:57,320
Exactly.

585
00:51:58,040 --> 00:52:01,033
So now, looking at the whole economy:

586
00:52:01,440 --> 00:52:03,557
can everyone make a profit at once?

587
00:52:04,720 --> 00:52:06,279
Yes, why not?

588
00:52:06,920 --> 00:52:09,640
The money supply would have to
increase... - No.

589
00:52:10,040 --> 00:52:13,397
If everyone makes a profit, earn more on
their invested capital.

590
00:52:13,920 --> 00:52:16,754
I don't understand, why are you on
about the money supply?

591
00:52:17,120 --> 00:52:19,077
You can't put in an amount X

592
00:52:19,440 --> 00:52:22,751
and expect to take out an
amount X plus 0.03%.

593
00:52:23,080 --> 00:52:25,515
Look, you're talking to the
wrong person here,

594
00:52:25,840 --> 00:52:28,355
I don't care about this at all,

595
00:52:28,720 --> 00:52:32,236
because money supply management in
China, the US and other countries...

596
00:52:32,560 --> 00:52:34,392
Write a doctoral thesis,

597
00:52:34,760 --> 00:52:37,719
and it would change nothing at all.
- Oh, I see.

598
00:53:03,160 --> 00:53:05,755
I do think this is an interesting issue.

599
00:53:06,160 --> 00:53:07,719
I studied economic theory

600
00:53:08,080 --> 00:53:10,197
no one learns how the
monetary system works.

601
00:53:10,600 --> 00:53:13,513
Not only do they not learn,
they learn it wrong.

602
00:53:13,880 --> 00:53:16,998
Because most economists just don't have
anything to do with it.

603
00:53:17,400 --> 00:53:19,551
We held an event at university,

604
00:53:20,000 --> 00:53:21,957
long time ago, at Leipzig,

605
00:53:22,320 --> 00:53:25,518
and the subject was money and we
invited macroeconomists,

606
00:53:25,920 --> 00:53:28,435
People who were analysing the
economy as a whole.

607
00:53:28,880 --> 00:53:30,599
And they said: 'That's not my subject,

608
00:53:31,000 --> 00:53:33,310
we can't talk about that.'
I think that says a lot.

609
00:53:33,720 --> 00:53:36,952
The problem is, I had a meeting

610
00:53:37,280 --> 00:53:40,318
with a professor who was also talking
about monetary theory,

611
00:53:40,760 --> 00:53:43,070
and then the equilibrium models

612
00:53:43,440 --> 00:53:45,557
that they endlessly teach
at universities

613
00:53:45,920 --> 00:53:48,151
and when I pointed out to him

614
00:53:48,440 --> 00:53:51,035
that the basic assumption on
which all these systems

615
00:53:51,360 --> 00:53:53,238
and models depend is false,

616
00:53:53,600 --> 00:53:57,037
he said: 'Yes, you're right, but I'm not
interested in the real world.'

617
00:53:58,320 --> 00:54:01,870
Honest, at least. - Verbatim! Yes, I
think I wrong-footed him,

618
00:54:02,240 --> 00:54:05,278
for him to admit that he's not
interested in the real world,

619
00:54:05,640 --> 00:54:07,393
but that is symptomatic.

620
00:54:07,800 --> 00:54:11,874
The worst thing I think
is that they know,

621
00:54:12,240 --> 00:54:13,993
they know that these models

622
00:54:14,320 --> 00:54:17,711
they drum into their students' heads

623
00:54:18,120 --> 00:54:19,395
don't work in reality.

624
00:54:19,840 --> 00:54:21,433
Yes, and Norbert Häring also said

625
00:54:21,840 --> 00:54:24,275
economic science serves the
disguise of power.

626
00:54:24,680 --> 00:54:26,751
And I think there's something in that.

627
00:55:12,280 --> 00:55:13,680
Hello Ms Losmann,

628
00:55:14,000 --> 00:55:16,993
just to be clear, I've switched to
my private account,

629
00:55:17,400 --> 00:55:20,438
because this is purely my
personal opinion.

630
00:55:20,880 --> 00:55:24,396
I must therefore not be quoted
without further agreement.

631
00:55:26,080 --> 00:55:27,639
Concerning your question:

632
00:55:28,240 --> 00:55:30,675
increasing profits and
increasing economic growth

633
00:55:31,040 --> 00:55:33,555
require a continuous expansion in debt.

634
00:55:34,400 --> 00:55:36,437
This is the notorious
'elephant in the room'

635
00:55:36,840 --> 00:55:38,399
about which nobody talks.

636
00:55:41,440 --> 00:55:44,638
The key player in
capitalism is the debtor,

637
00:55:45,080 --> 00:55:48,630
who makes others' profits and
asset growth possible.

638
00:55:51,400 --> 00:55:55,599
How does profit come about? Where does
money for profits come from?

639
00:56:21,480 --> 00:56:24,996
The key player is the debtor.

640
00:56:33,680 --> 00:56:36,036
Who assumes the debts?

641
00:56:36,440 --> 00:56:40,150
I'll go through the state of play again,
to keep us up to speed.

642
00:56:40,440 --> 00:56:45,037
Dag now only has 300€ left,

643
00:56:45,920 --> 00:56:48,355
he's been paying rent the whole time

644
00:56:48,800 --> 00:56:53,511
and has no income source because
nobody's building anymore.

645
00:56:53,840 --> 00:56:57,834
So jobs are scarce because
there's no investment.

646
00:56:58,240 --> 00:57:01,790
But we saw at the beginning, when
private enterprise was investing,

647
00:57:02,160 --> 00:57:03,753
he was earning well and had assets

648
00:57:04,120 --> 00:57:06,874
and those assets were based on
private enterprise debts,

649
00:57:07,200 --> 00:57:09,954
you were all investing because you
were expecting profit.

650
00:57:10,320 --> 00:57:12,630
And as private enterprise invests less,

651
00:57:13,000 --> 00:57:16,994
from a certain phase in the economy when
the market's saturated,

652
00:57:17,400 --> 00:57:20,040
wages fall or jobs are lost

653
00:57:20,400 --> 00:57:22,960
and then the state has to
come in and invest

654
00:57:23,320 --> 00:57:25,789
financing jobs in certain areas

655
00:57:26,200 --> 00:57:28,396
or increasing or creating
welfare systems,

656
00:57:28,920 --> 00:57:30,718
through which money then flows

657
00:57:31,080 --> 00:57:33,595
to those no longer financed by
private enterprise,

658
00:57:34,000 --> 00:57:36,799
but this money flows via
the welfare system

659
00:57:37,120 --> 00:57:39,157
ultimately into the pockets of owners,

660
00:57:39,560 --> 00:57:41,631
property owners and others,

661
00:57:42,000 --> 00:57:46,358
who are thus able to keep making income
that they couldn't otherwise make.

662
00:57:46,680 --> 00:57:49,718
Otherwise he'd really be
sleeping under a bridge

663
00:57:50,120 --> 00:57:51,759
not paying any more rent.

664
00:57:52,120 --> 00:57:55,272
But because he's paying rent,
financed by the state,

665
00:57:55,680 --> 00:57:58,354
he's enabling income for
private individuals.

666
00:57:58,760 --> 00:58:00,433
So some private profits

667
00:58:00,880 --> 00:58:02,951
are financed by government debt.

668
00:58:03,440 --> 00:58:07,878
Seen in this light, by my definition,
the state is a source of profit.

669
00:58:13,680 --> 00:58:16,559
debt - e.g. government debt

670
00:58:25,040 --> 00:58:28,750
Right, so let me officially welcome you

671
00:58:29,120 --> 00:58:32,352
to the presentation of the eighth

672
00:58:32,880 --> 00:58:36,760
Global Wealth Report, which
we have compiled.

673
00:58:38,000 --> 00:58:41,038
Trends this year have again
been very positive,

674
00:58:41,560 --> 00:58:43,438
with gross monetary assets

675
00:58:43,880 --> 00:58:48,193
rising by 7.1% globally.

676
00:58:48,600 --> 00:58:50,353
The industrialized nations

677
00:58:50,720 --> 00:58:53,633
have again accelerated their
asset growth somewhat,

678
00:58:54,000 --> 00:58:57,516
but less so than the emerging economies.

679
00:58:58,240 --> 00:59:00,391
Now comes something else
quite interesting.

680
00:59:00,800 --> 00:59:03,634
Global trends in debt,

681
00:59:04,040 --> 00:59:06,600
I mean preparedness to take on debt,

682
00:59:07,000 --> 00:59:08,559
has again increased markedly.

683
00:59:09,000 --> 00:59:11,310
We still aren't seeing
anything excessive

684
00:59:11,720 --> 00:59:13,951
at least not on a global scale,

685
00:59:14,360 --> 00:59:16,272
but I think we can say that

686
00:59:16,840 --> 00:59:19,719
a debt cycle has turned.

687
00:59:20,160 --> 00:59:22,550
Do you see a connection
between government debt

688
00:59:23,000 --> 00:59:24,639
and the increase of private assets,

689
00:59:25,080 --> 00:59:27,800
I mean, when I think of

690
00:59:29,120 --> 00:59:31,954
Australia, New Zealand, Japan and
many other countries,

691
00:59:32,280 --> 00:59:34,033
I seem to see a correlation

692
00:59:34,400 --> 00:59:36,995
between levels of government debt
and private wealth.

693
00:59:37,400 --> 00:59:39,232
That's a very complex issue.

694
00:59:39,760 --> 00:59:41,956
The ability to build up monetary assets

695
00:59:42,360 --> 00:59:44,511
naturally depends on government policy

696
00:59:44,880 --> 00:59:48,760
and for sure in Germany there
are some restrictions,

697
00:59:49,160 --> 00:59:51,720
in the sense that the burden of tax

698
00:59:52,080 --> 00:59:56,359
and social security contributions
is very, very high.

699
00:59:56,920 --> 00:59:58,354
You're talking about tax relief,

700
00:59:58,760 --> 01:00:00,797
but I mean overall economic balance.

701
01:00:01,120 --> 01:00:02,713
In the total global balance,

702
01:00:03,040 --> 01:00:05,794
the total of all debit must equal
the total of all credit.

703
01:00:06,200 --> 01:00:09,159
That means that, if one
sector of the economy

704
01:00:09,560 --> 01:00:11,392
shows real net monetary assets,

705
01:00:11,760 --> 01:00:15,231
then there must be net
liabilities somewhere.

706
01:00:16,000 --> 01:00:20,552
All countries where large private
wealth has been amassed,

707
01:00:20,920 --> 01:00:22,513
also have high public debts.

708
01:00:27,480 --> 01:00:29,790
Yes, it's a difficult situation

709
01:00:30,240 --> 01:00:33,677
to manage, that's true.

710
01:00:34,120 --> 01:00:37,079
A buildup of assets is always mirrored

711
01:00:37,400 --> 01:00:39,869
in a buildup of debts

712
01:00:40,720 --> 01:00:42,712
in other sectors of the economy,

713
01:00:43,120 --> 01:00:44,315
that's entirely correct.

714
01:00:45,800 --> 01:00:49,077
In some Asian countries, for example,

715
01:00:49,440 --> 01:00:52,319
private households' increasing assets

716
01:00:52,720 --> 01:00:56,270
are reflected in an explosion
of business debt.

717
01:00:56,800 --> 01:01:01,511
In many European countries,
rising monetary assets

718
01:01:02,000 --> 01:01:05,960
are above all, or reflect
increasing public debt.

719
01:01:06,280 --> 01:01:07,953
The state makes more debts

720
01:01:08,280 --> 01:01:11,990
as private households build assets.

721
01:01:24,000 --> 01:01:26,595
And how does this process work, when
states take on debt,

722
01:01:27,000 --> 01:01:29,151
how does it happen,
technically speaking?

723
01:01:29,600 --> 01:01:33,150
States issue, or create new
government bonds

724
01:01:33,560 --> 01:01:36,359
and sell these to what are
called accredited banks.

725
01:01:36,720 --> 01:01:40,680
To buy the bonds, these banks in
turn create new money.

726
01:01:41,920 --> 01:01:44,276
So every new issue of government bonds

727
01:01:44,600 --> 01:01:47,957
increases the money supply, and that's
desirable, deliberate.

728
01:01:50,080 --> 01:01:52,197
The state only intervenes as debtor

729
01:01:52,560 --> 01:01:54,870
because private
households or enterprises

730
01:01:55,200 --> 01:01:57,999
are not taking out enough loans, but

731
01:01:58,360 --> 01:02:01,000
are accumulating money as
private assets.

732
01:02:01,800 --> 01:02:03,871
To prevent the money supply shrinking,

733
01:02:04,280 --> 01:02:06,840
the state injects money with new debt.

734
01:02:07,800 --> 01:02:10,269
So what then happens to the
government IOUs,

735
01:02:10,640 --> 01:02:12,711
I mean the new government bonds?

736
01:02:13,200 --> 01:02:15,431
Well, the banks sell the
government bonds on

737
01:02:15,880 --> 01:02:17,519
as securities on the capital market,

738
01:02:17,920 --> 01:02:20,116
so public debt becomes an investment

739
01:02:20,440 --> 01:02:21,999
for accumulated assets.

740
01:02:26,920 --> 01:02:28,877
PIMCO Investment company -

741
01:02:29,440 --> 01:02:33,593
largest active fund manager of
corporate and government bonds

742
01:03:32,880 --> 01:03:34,234
Dear Ms Losmann,

743
01:03:34,640 --> 01:03:39,032
You may film in the room
before the conference.

744
01:03:39,480 --> 01:03:43,952
However, we cannot now agree to filming
during the conference itself.

745
01:03:45,720 --> 01:03:47,234
You may by all means, however

746
01:03:47,600 --> 01:03:51,071
film the gentlemen from outside our
transparent conference room.

747
01:04:14,720 --> 01:04:17,519
Furthermore, our Head of
Portfolio Management,

748
01:04:17,920 --> 01:04:20,879
Andrew Bosomworth, is
available for an interview.

749
01:04:24,480 --> 01:04:27,075
So the basic building blocks
of capital markets

750
01:04:27,640 --> 01:04:30,109
are shares and bonds.

751
01:04:30,680 --> 01:04:33,514
Pimco mainly manages bonds.

752
01:04:36,040 --> 01:04:38,555
Large companies and state actors

753
01:04:39,000 --> 01:04:41,879
have access to the capital markets.

754
01:04:42,200 --> 01:04:45,671
That means they as borrowers
can obtain money here

755
01:04:46,040 --> 01:04:50,751
through the capital markets, in
the form of bonds.

756
01:04:53,680 --> 01:04:56,149
And we at Pimco study

757
01:04:56,560 --> 01:04:59,951
the economic viability, financial
soundness and profitability,

758
01:05:00,440 --> 01:05:04,514
what are the potential returns
on particular bonds.

759
01:05:06,040 --> 01:05:08,111
And decide on that basis,

760
01:05:08,440 --> 01:05:10,955
and a bond is bought or sold.

761
01:05:12,640 --> 01:05:16,554
Now, you want your money
back plus a return,

762
01:05:17,480 --> 01:05:19,676
what makes that possible?

763
01:05:20,080 --> 01:05:21,355
In the whole economy?

764
01:05:21,720 --> 01:05:23,996
From our point of view as investor,

765
01:05:24,360 --> 01:05:26,556
economic growth is important,

766
01:05:27,080 --> 01:05:30,278
because borrowers' ability

767
01:05:30,680 --> 01:05:33,639
to repay their debts is related
to economic growth.

768
01:05:43,320 --> 01:05:47,553
And if a state has growth
and tax revenues,

769
01:05:48,000 --> 01:05:51,118
it's better placed to repay
government bonds,

770
01:05:51,600 --> 01:05:56,152
meaning debts plus interest,
when they mature.

771
01:05:58,080 --> 01:06:00,231
How large are the assets
you manage here?

772
01:06:00,640 --> 01:06:02,757
And roughly how high are the returns

773
01:06:03,080 --> 01:06:05,436
you achieve with those assets?

774
01:06:06,200 --> 01:06:08,669
The total asset volume we manage

775
01:06:09,080 --> 01:06:12,198
is USD 1.5 billion,

776
01:06:12,760 --> 01:06:14,592
so in Euros

777
01:06:15,000 --> 01:06:17,640
just under 1.5 billion.

778
01:06:18,400 --> 01:06:19,959
Sorry, not billion...

779
01:06:21,440 --> 01:06:22,430
trillion.

780
01:06:28,640 --> 01:06:33,032
Total managed assets: USD 1.88
trillion (as of August 2019)

781
01:06:36,200 --> 01:06:40,353
sample calculation: at a
return of 5% per annum

782
01:06:44,880 --> 01:06:47,679
So government debt has a twofold effect,
doesn't it?

783
01:06:48,120 --> 01:06:50,999
First, it increases the money supply

784
01:06:51,400 --> 01:06:53,631
so the private economy can
keep making a profit,

785
01:06:54,000 --> 01:06:55,832
I mean take more money than it spends.

786
01:06:56,320 --> 01:06:58,960
Secondly, those saved profits
can be reinvested

787
01:06:59,280 --> 01:07:01,078
in government bonds,

788
01:07:01,480 --> 01:07:03,551
generating more returns.

789
01:07:04,440 --> 01:07:06,750
Yes, that's a fair summary.

790
01:07:07,400 --> 01:07:10,199
And now with European countries
already having high debts,

791
01:07:10,600 --> 01:07:11,875
some overindebted,

792
01:07:12,240 --> 01:07:14,277
the European Central Bank
steps in anyway

793
01:07:14,640 --> 01:07:17,599
to do this, acting as
debtor of last resort.

794
01:07:18,480 --> 01:07:21,040
There simply has to be enough
money in circulation,

795
01:07:21,440 --> 01:07:23,716
but that gets harder, the
bigger the sums are

796
01:07:24,120 --> 01:07:26,874
that are going out again as
returns on assets.

797
01:07:59,840 --> 01:08:01,035
Then there's distribution:

798
01:08:01,440 --> 01:08:03,716
if money goes not to who needs things,

799
01:08:04,080 --> 01:08:06,720
but to those whose needs are met,

800
01:08:07,120 --> 01:08:08,554
it may not circulate at all.

801
01:08:08,920 --> 01:08:11,116
But economics tends not to see that.

802
01:08:11,440 --> 01:08:13,796
Economics sees the overall situation

803
01:08:14,160 --> 01:08:16,277
and that misses something, you're right,

804
01:08:16,640 --> 01:08:19,951
and sadly the distribution problem
is rarely discussed

805
01:08:20,440 --> 01:08:22,557
because of the envy debate.

806
01:08:23,320 --> 01:08:25,596
They always call it the envy debate.

807
01:08:26,000 --> 01:08:29,357
And when people say
households aren't in debt,

808
01:08:29,680 --> 01:08:32,798
they have accumulated assets,
net assets,

809
01:08:33,320 --> 01:08:37,360
they're ignoring the fact that
most of these net assets

810
01:08:37,720 --> 01:08:40,599
belong only to a small
fraction of households

811
01:08:41,000 --> 01:08:44,596
and many of them very much are in debt.

812
01:08:45,080 --> 01:08:46,673
And that's a big problem,

813
01:08:47,000 --> 01:08:50,038
because statistics often uses
the arithmetic mean.

814
01:08:50,440 --> 01:08:53,035
'The mean is the burial
shroud of statistics',

815
01:08:53,440 --> 01:08:55,113
Right.
- Flattens everything.

816
01:08:55,440 --> 01:08:56,760
But we love using the mean,

817
01:08:57,160 --> 01:08:58,992
because it seems so insightful at first,

818
01:08:59,400 --> 01:09:00,880
and actually...
- The average.

819
01:09:01,240 --> 01:09:03,800
The average, taking an average,

820
01:09:04,160 --> 01:09:06,959
but the unequal distribution doesn't
show up in that at all.

821
01:09:07,280 --> 01:09:10,398
Correct.
- And it gets worse and worse,

822
01:09:10,800 --> 01:09:12,678
the more unequal the distribution is.

823
01:09:13,040 --> 01:09:15,111
So you have to see the extremes,

824
01:09:15,560 --> 01:09:17,950
the poorest and the richest, to know.

825
01:09:21,840 --> 01:09:25,151
Who is profiting from this? Who is
creaming off these profits,

826
01:09:25,560 --> 01:09:28,758
well, it's usually just the
top 10 percent.

827
01:10:29,200 --> 01:10:32,272
But assets arise that aren't
just sitting there,

828
01:10:32,600 --> 01:10:34,956
but also have economic and
political influence,

829
01:10:35,320 --> 01:10:37,994
so it isn't an accounting trick to say

830
01:10:38,320 --> 01:10:41,791
percentage-wise the assets of the
rich grow more slowly,

831
01:10:42,160 --> 01:10:43,992
but over the long term,

832
01:10:44,360 --> 01:10:47,956
50 years ahead, that
doesn't alter the fact

833
01:10:48,560 --> 01:10:50,153
that the rich

834
01:10:50,560 --> 01:10:52,756
are much richer and getting ever richer.

835
01:10:54,800 --> 01:10:56,314
That's true. Yes.

836
01:10:56,800 --> 01:11:00,191
Small growth rates on large assets

837
01:11:00,600 --> 01:11:02,751
bring considerable growth

838
01:11:03,120 --> 01:11:05,794
many times bigger than large growth
rates on small assets.

839
01:11:06,160 --> 01:11:09,676
That's true of asset growth within
countries, and also between countries:

840
01:11:10,000 --> 01:11:12,515
the absolute differences increase.

841
01:11:20,600 --> 01:11:23,752
If private assets are growing like that,
growing ever more,

842
01:11:24,160 --> 01:11:26,959
what does that mean for the other
side of the coin, debt?

843
01:11:27,280 --> 01:11:29,749
So if states take on debt

844
01:11:30,120 --> 01:11:31,952
or businesses to invest

845
01:11:32,240 --> 01:11:34,675
or households to build houses,

846
01:11:35,000 --> 01:11:37,231
that debt creates

847
01:11:38,000 --> 01:11:40,993
more economic activity and more growth.

848
01:11:41,640 --> 01:11:43,120
On the face of it, that's good,

849
01:11:43,440 --> 01:11:46,160
which is why central banks

850
01:11:46,440 --> 01:11:48,079
try to stimulate this kind of debt

851
01:11:48,400 --> 01:11:52,519
somehow in their policies.

852
01:11:52,920 --> 01:11:55,560
But it can come back and bite you.

853
01:11:58,280 --> 01:12:00,840
The financial backers might rethink,
might say:

854
01:12:01,160 --> 01:12:02,992
Well, what growth do they need,

855
01:12:03,640 --> 01:12:07,236
and then calculate scenarios, that tend
not to work out all that favourably

856
01:12:07,600 --> 01:12:10,274
and then at some point the
financial markets

857
01:12:10,600 --> 01:12:13,798
and capital markets will lose
confidence in these economies.

858
01:12:15,120 --> 01:12:18,033
Then there'll be no more credit
- on the contrary,

859
01:12:18,400 --> 01:12:20,392
because overindebted countries

860
01:12:20,800 --> 01:12:23,190
are cut off completely
from the credit tap

861
01:12:24,120 --> 01:12:27,591
and it all goes to rack and
ruin very quickly.

862
01:12:50,040 --> 01:12:52,874
So on the one hand, private
wealth can grow

863
01:12:53,280 --> 01:12:54,760
because states take on debt

864
01:12:55,160 --> 01:12:58,198
and on the other, capital providers
cut off money to states

865
01:12:58,480 --> 01:13:00,153
if they take on too much debt.

866
01:13:00,440 --> 01:13:02,272
How can this make sense?

867
01:13:02,600 --> 01:13:06,230
Well, because it's long been believed

868
01:13:06,640 --> 01:13:09,951
that states should borrow on the
so-called capital market.

869
01:13:10,880 --> 01:13:14,715
But that makes states depend on
private capital providers,

870
01:13:15,040 --> 01:13:18,033
and effectively obliges them to
promote economic growth

871
01:13:18,440 --> 01:13:21,956
to raise their tax revenues or
privatise public assets

872
01:13:22,360 --> 01:13:23,953
if their debts get too high.

873
01:13:25,400 --> 01:13:27,631
That brings us to where we are today:

874
01:13:28,120 --> 01:13:31,158
many projects can no longer be funded

875
01:13:31,480 --> 01:13:33,551
simply because they don't
offer the returns

876
01:13:33,920 --> 01:13:35,877
private capital providers expect.

877
01:13:37,200 --> 01:13:40,398
This might affect the fight
against high unemployment,

878
01:13:40,840 --> 01:13:44,436
or make funding education, social care,
infrastructure,

879
01:13:45,160 --> 01:13:46,389
not least the shift

880
01:13:46,720 --> 01:13:49,315
towards an ecologically
sustainable economy

881
01:13:49,880 --> 01:13:52,395
impossible to fund because
not profitable.

882
01:13:53,600 --> 01:13:56,593
So democratic governments can no
longer decide freely

883
01:13:57,000 --> 01:13:58,116
what to finance,

884
01:13:58,480 --> 01:14:00,836
they can only present their
budgets with proposals

885
01:14:01,160 --> 01:14:02,958
for what they'd like to finance

886
01:14:03,320 --> 01:14:05,994
for the private capital
providers to approve.

887
01:14:07,320 --> 01:14:10,358
This creates a very urgent
political issue:

888
01:14:11,000 --> 01:14:14,198
shouldn't we, as a democratic society,
decide for ourselves

889
01:14:14,480 --> 01:14:16,119
what expenditure we find sensible

890
01:14:16,440 --> 01:14:19,717
and then have the state create
the money for that?

891
01:14:20,640 --> 01:14:23,838
Why should we as states not have
the same privilege

892
01:14:24,160 --> 01:14:26,117
as profit-orientated private banks?

893
01:14:27,680 --> 01:14:31,151
Wouldn't public debt just keep rising?

894
01:14:31,640 --> 01:14:35,190
Well, if we assume that private wealth
just keeps on growing,

895
01:14:35,600 --> 01:14:38,513
we need profits and for
that we need debts.

896
01:14:38,920 --> 01:14:41,958
And someone has to take on those debts.

897
01:14:42,280 --> 01:14:45,876
If it's not the state, because capital
providers prefer to break even,

898
01:14:46,200 --> 01:14:48,840
so state spending falls,

899
01:14:49,280 --> 01:14:53,240
then private households have to step
in and assume the debt,

900
01:14:54,320 --> 01:14:58,200
e.g. paying for children's schooling
that's no longer state-funded,

901
01:14:58,680 --> 01:15:02,356
or higher rents because public
housing is privatised.

902
01:15:03,480 --> 01:15:07,076
Wouldn't it be better for us, the state,
to take on these debts directly,

903
01:15:07,440 --> 01:15:10,592
and make ourselves independent of
the capital providers?

904
01:15:24,400 --> 01:15:26,278
But where does it all go from here?

905
01:15:26,640 --> 01:15:29,439
If more profit and economic growth

906
01:15:29,880 --> 01:15:32,076
come only at the price of more debt?

907
01:15:33,040 --> 01:15:35,157
Why can't we just stop growing?

908
01:15:45,400 --> 01:15:47,392
The dilemma is, there's
only investment -

909
01:15:47,800 --> 01:15:51,714
economic activity only happens - if
whoever has money to put in

910
01:15:52,480 --> 01:15:53,880
expects returns.

911
01:15:54,200 --> 01:15:57,876
So they hope to take out more
than they put in.

912
01:15:58,240 --> 01:15:59,390
For me, the dilemma is

913
01:15:59,760 --> 01:16:01,877
that this idea of

914
01:16:02,240 --> 01:16:06,712
'profit is the essential driver
of economic activity'

915
01:16:07,560 --> 01:16:10,632
has become so fixed in our heads that
we take it for granted.

916
01:16:11,040 --> 01:16:13,077
Now there was a short period in history

917
01:16:13,400 --> 01:16:15,232
when real profit could be made,

918
01:16:15,600 --> 01:16:19,310
because there were two monetary systems,
but now it's only possible

919
01:16:19,880 --> 01:16:21,872
through the chain-letter system,

920
01:16:23,120 --> 01:16:25,316
where someone has to have the debt -

921
01:16:25,680 --> 01:16:26,750
to take out a loan

922
01:16:27,120 --> 01:16:30,352
without expecting to repay it, so that
others can accumulate assets.

923
01:16:30,680 --> 01:16:33,878
This sustains the illusion of perpetual
exploitation of nature

924
01:16:34,280 --> 01:16:37,591
and transformation of nature... you can
still feel that today.

925
01:16:38,000 --> 01:16:40,879
So it's 'this creates value',

926
01:16:41,200 --> 01:16:43,112
they always says 'this creates value',

927
01:16:43,440 --> 01:16:46,831
I'm making use of something, we have a
lot more glasses today,

928
01:16:47,160 --> 01:16:50,119
not needing them all, using up
more and more nature,

929
01:16:50,480 --> 01:16:53,632
in buildings, more and more concrete,
we're even short of sand,

930
01:16:54,000 --> 01:16:55,354
one of the most abundant

931
01:16:55,680 --> 01:16:58,957
natural resources and we're short of it,

932
01:16:59,280 --> 01:17:03,069
using more and more so we feel
we're getting richer

933
01:17:03,400 --> 01:17:06,711
but that misses how we're impoverished
by the loss of nature.

934
01:17:07,080 --> 01:17:10,312
So we still have that illusion even
today, in my opinion.

935
01:17:10,720 --> 01:17:13,713
And that's the link between capitalism
and ecocrisis. - Exactly.

936
01:18:00,760 --> 01:18:04,390
At the heart of capitalism is
continuous increase of capital.

937
01:18:05,640 --> 01:18:09,429
More and more capital needs a
growing money supply.

938
01:18:09,880 --> 01:18:12,952
Which requires constant new
investment opportunities.

939
01:18:18,920 --> 01:18:21,310
And here is the fundamental problem.

940
01:18:21,720 --> 01:18:26,397
Only profit-oriented projects attract
investment and reinvestment.

941
01:18:27,720 --> 01:18:30,792
Simple example: You want to buy
a patch of woodland.

942
01:18:31,560 --> 01:18:35,793
If you just want to leave it alone, you
won't get any financing.

943
01:18:37,200 --> 01:18:40,716
You can only get financing if you're
going to develop it.

944
01:18:41,160 --> 01:18:44,790
At the very least, cut some of it down
and turn the timber into money.

945
01:18:45,240 --> 01:18:49,075
And as long as there are still forests,
this logic of profit seems OK.

946
01:18:50,440 --> 01:18:53,717
But at some point, alas, it
reaches its limit.

947
01:18:57,440 --> 01:19:00,000
At the moment, it's a kind of race.

948
01:19:00,560 --> 01:19:02,074
What's going to collapse first?

949
01:19:02,400 --> 01:19:05,632
Our ecosystem - the Earth
- or capitalism,

950
01:19:06,000 --> 01:19:10,358
which has generated unprecedented
tension between assets and debts.

951
01:19:37,200 --> 01:19:40,511
So you say in the end, debt will be so
high that it can't go on.

952
01:19:40,880 --> 01:19:44,032
Could you perhaps describe where we are,
in which phase,

953
01:19:44,440 --> 01:19:46,830
and what will happen when
it can't go on?

954
01:19:48,600 --> 01:19:50,273
If we compare

955
01:19:51,080 --> 01:19:53,959
these economic cycles with
a football match,

956
01:19:54,240 --> 01:19:57,199
then I think we're definitely
in the second half.

957
01:19:58,040 --> 01:19:59,679
Not the last quarter yet,

958
01:20:00,000 --> 01:20:01,320
but...

959
01:20:02,880 --> 01:20:04,872
debt levels,

960
01:20:05,360 --> 01:20:08,319
in public and private sectors,

961
01:20:08,640 --> 01:20:13,237
have risen in many countries
in recent decades.

962
01:20:13,760 --> 01:20:14,830
And...

963
01:20:17,400 --> 01:20:20,074
how long it can go on,

964
01:20:20,440 --> 01:20:22,830
ultimately depends on economic growth.

965
01:20:23,440 --> 01:20:24,635
If we don't have any,

966
01:20:25,280 --> 01:20:29,069
like in the 1930s,

967
01:20:30,000 --> 01:20:34,677
that could cause too many failures.

968
01:20:35,440 --> 01:20:36,999
Isn't that circular reasoning?

969
01:20:37,360 --> 01:20:40,990
Can there be any economic
growth without new debt?

970
01:20:42,840 --> 01:20:46,675
Or, to put it another way: aren't
today's profits tomorrow's debts?

971
01:20:52,160 --> 01:20:53,071
The...

972
01:20:56,400 --> 01:20:57,311
Yes.

973
01:21:05,000 --> 01:21:09,074
Today's profits are tomorrow's debts.

974
01:21:21,560 --> 01:21:25,315
Today's debts are tomorrow's profits.

975
01:21:25,640 --> 01:21:28,712
Anyone who really looks knows
it's not working.

976
01:21:29,200 --> 01:21:31,396
It's held together by a belief system.

977
01:21:33,280 --> 01:21:36,956
People are stuck in the system wishing
for it somehow to work.

978
01:21:37,800 --> 01:21:40,793
It doesn't need to be logical,
just to keep working.

979
01:21:51,640 --> 01:21:53,154
So I'm a physicist

980
01:21:53,480 --> 01:21:57,520
and for me it started with the question:
'infinite growth on a finite planet?'

981
01:21:57,880 --> 01:22:00,759
An impossibility. Bound to
cause problems.

982
01:22:12,680 --> 01:22:14,797
Actually we want an ecological economy,

983
01:22:15,160 --> 01:22:18,790
so actually, consumption should if
possible tend to decline.

984
01:22:19,160 --> 01:22:23,791
But a fall in demand, in consumption,
would bring crisis in today's system.

985
01:22:28,760 --> 01:22:30,991
What we have is simply an
unstable system.

986
01:22:31,400 --> 01:22:35,440
Where the state has to intervene to stop
the whole thing capsizing.

987
01:22:37,040 --> 01:22:39,714
But if you know that the system is
inherently unstable,

988
01:22:40,080 --> 01:22:44,711
intervening like that is just like
ventilating a patient you know is dead.

989
01:22:45,040 --> 01:22:47,999
And so we ask ourselves, 'How long
can this continue?'

990
01:22:48,400 --> 01:22:51,359
And above all at the cost of rising
inequality of distribution.

991
01:22:54,360 --> 01:22:56,397
We might ask ourselves why
it's like this.

992
01:22:56,760 --> 01:22:59,594
But we lack understanding
and alternatives.

993
01:23:00,240 --> 01:23:03,756
As you say. How long can it go on? We
have to think of alternatives.

994
01:23:23,400 --> 01:23:28,111
Do you really want to close the program?
Close program - Stay in program

995
01:23:41,040 --> 01:23:45,193
Research: Alternatives