Richard Werner Exposes the Evils of the Fed & the Link Between Banking, War, and the CIA

uh you're one of the best known economists in  the world, most significant, but you have a. story that I think that I didn't know and let  me just summarize what I understand of it and. then I'm just going to turn over to you to  tell the whole story. So, it's um the 1990s, you're living in Japan, a consultant to  the Bank of Japan, you speak Japanese, and in 2001, you publish a book about the uh  banking system in Japan um in Japanese. It's. not published in English. was only published  in Japanese and Japan. And that book about the.

central bank of Japan and and explaining why  the country is in this protracted recession. becomes number one in Japan. Um, which is kind of  amazing even in Japan beating Harry Potter. Um, and then your life changes completely. I  think this is one of the more significant. stories that I hadn't heard. So, if you don't  mind, if you could take it from there, explain. what the book was about, why people responded  to it as they did, and what happened next,

[Applause] [Music] [Applause] [Music]. Right. Well, it's a bit of a detective story. I  was uh you know working um on the book and doing.

the research for the book which really was the  greater part of the 1990s. There's a lot of work. that's gone into this. By the way, the name of the  book is Princes of the Yen. Princes of the Yen. Um. and yeah, it's not so easily available, but I can  mention that later. Um I was trying to solve some. puzzles. you know, I was I'd come to Japan. I'd  learned Japanese and I was, you know, economist. I' studied economics at the LSE. I was at Oxford  working on my graduate work and doctorate in.

economics. And Japan was actually really posing  some major puzzles that the world couldn't explain. and economics couldn't explain. All the the world  famous experts could not explain. And for some. reason, I decided, okay, I want to solve all  these puzzles. Um, when really digging into it, uh, it transpired that maybe I've bitten off a  bit more than I can chew, all the experts were.

shaking their heads and telling me, you know,  oh, give up. You have to change your topic. You, you know, there's no there's no solution  to this and and you will never find out. So, one of the puzzles was Yeah, I was about to  ask what was the puzzle? Well, there's several, but one was uh a concrete puzzle. I was just doing  an internship at Deutsche Bank uh in Tokyo at the. peak of this fantastic stock market bubble. Well,  it wasn't called a bubble at the time. You know,

there's at the time they were just saying this is  Japanese productivity and you know, this is all. it's going to go up more and more and more. You  know, it's only afterwards when um they sort of. point out, oh well, okay, that was a bubble. So  in this bull market of Japanese uh you know the. stock market 1989 and there were there were some  problems with the official story um and actually. they led to they led me to conclude also that the  stock market was a bubble and it's going to crash.

and it's going to take the banking system with  it. That's what I then once I found the answers. uh that's what I then concluded. So 91 I was uh  one of the first to very loudly and clearly state. is a discussion paper I published at Oxford having  come back that um we should be very cautious about. Japan the international strategists were saying  oh the bank of Japan is ra is lowering interest. rates is stimulating the economy stock market  has come down but you know growth is 6 7% and.

the market has become cheap buy Japanese stocks  that's what they were always saying buy Japanese. stocks. I concluded in '91 based on this research  that's you know answers to some of these puzzles. that Japanese banks were likely to go bankrupt.  And you see you have to remember that in those. days in 19 1991 the top 20 banks in the world were  Japanese. Okay. And the 21st century was going to. be the Japanese century. Japan was you know in the  80s buying up everything left, right, and center.

capital flows flooding the world buying  Rockefeller Center, Petals Beach, golf course, Hawaii, California, investments in Britain, you  know, you name it. Um, and here I was saying no, Japanese banks are likely to go bankrupt  and Japan is likely to move into the biggest. recession since the Great Depression. That's what  I conclude in ' 91 in this discussion paper. And. um and of course it it took a lot of investors by  surprise what happened in the following years when.

to me it was very clear um that this had to happen  although there were policy responses that could. prevent the worst which I then also proposed. So  I proposed a new monetary policy concept that I. called quantitative easing uh which has been used  and and abused and distorted and has been quite. popular with central banks but we'll come to that.  So but back to your question so what what were.

the puzzles in the late 80s which led me to all  these other things? Well one was Japanese capital. flows. They were extraordinary. The scale was  unprecedented in modern history but also not just. the scale was so massive. It just was against all  the economic theories. Now the main theories about. capital flows concern again interest rates and  interest rate differentials and Japanese money was.

flowing in the opposite direction. Then Japanese  investors were also losing money because the yen. was rising. So it was actually a losing trade to  then invest abroad and so no economic model could. explain it and that was the task I set myself.  So then I was going around talking to all um. experts. I was only a student you know I was this  is my first piece of research. I just graduated. as an undergraduate from the London School of  Economics, but I had been thrust into these sort.

of uh positions and and opportunity and yeah, I I  took the challenge and the response was give up. You know, there's you can't find an answer. But I  also then spent a lot of time with practitioners. and in actually investors that were investing  abroad and and looked at the um you know the. institutional investors, life insurance companies  and major international investors and then I was. searching for a link to the other phenomenon  which was pretty crazy and economists couldn't.

explain and that was land prices in Japan. So  in ' 89, Japanese land prices had reached such. stratospheric proportions that if you took the  central Tokyo was particularly of course the big. cities, but the central Tokyo uh land price to  value something like the Imperial Palace Garden, which is a public park. I mean, it's nice, it's  large, but it's not, you know, on the scale of.

things, not that large. So if you valued that  at standard central Tokyo market prices and then. exchange rates, it would be the same market value  as all the real estate in the entire state of. California, including Los Angeles, San Francisco,  you name it. And that is the correct response. You got to laugh, I mean, or cry. I mean, this  is ridiculous. This is totally ridiculous. Now, my idea was that, okay, there's got to be a link.  We've got these two crazy phenomena. One is these.

absolutely nonsensical land prices in Japan.  And the other one is Japanese capital flows, just Japanese money seemingly fleeing the country,  buying up the world. Well, if I was a land owner. and you know, these are the land prices. I would  say, well, let's quickly buy some land outside. Japan. Oh yes. Or something else, anything  outside Japan before people realize that the. land price is overpriced, the yen is overpriced,  you know, and so on. Right. So in a sense the.

intuition was there there had to be a link and I  was convinced of that and so I was going around. in you know in those days it's pre- internet  so I had to literally you know how do you do. academic research pre- internet you had to go to  the library get all the journals indices on topics. your topic indices keywords and then physically  go through various journals and journals and you. know 20 years ago 30 years ago so I spent months  doing that I was looking for some kind of economic.

model or paper that linked capital flows in real  estate because you know I thought well there is a. link and there wasn't there wasn't and I wasn't  looking just on Japan it could be any country. right I mean you should be able to use the same  analytical framework then for from another country. but there wasn't I couldn't find anything so  the time the clock was ticking and actually I. was a bit in trouble because at the time I was the  first uh foreign research fellow at the Japanese.

government's uh development bank, the development  bank of Japan. I was the first Shimomura fellow. If you're interested, we can talk about this Mr.  Shimomura because he's a bit of another secret. You know, they didn't tell me like, okay, why is  there a prize for him and who was he? It's like. almost a state secret. But boy, there's a lot of  lying and some of the worst deception surrounds. your health. How come Washington never talks about  the poison in your food supply? What about what's. in your drugs? You have a right to know what goes  into your mouth. And the more you know, the more.

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Anyway, so um and they give me six months and I'd  sort of rashly chosen this topic as my research. topic and I'll write a paper on that and that was  my job and they treated me so well. Um, you know, I mean, they treat foreigners very well anywhere  in Japan, but I was I was the first Shima fellow, the first foreigner, and I was invited to all  their events and all the clubs and circles, learning baseball, which for European is kind  of unusual activity with the other uh staff and,

you know, Japanese calligraphy. They give me this  huge apartment in central Tokyo, which is part of. this Shimomura Fellowship. And I felt like a bit  of a fraud because I can't deliver my part of. this deal because there seems no solution. All  the experts, there was one capital flow expert. in Tokyo at the Namura Research Institute. I  knew some people there and they were saying, "No, that's you can't find an answer to this."  And no, so give up was the story. And well,

I needed a miraculous intervention. And  actually, you know, I um I got my miracle. um and I got the the um I got the solution. If we  have time, I can come back to that and explain how. this happened. But let me just um give the answer  first. So I I I knew the solution. Um now actually. before then there was somebody saying, "Oh, there  is a solution. Um there's a uh there's an American.

scholar who'd come to Japan. His name is Professor  Jeffrey Saxs. Um and his his I think PhD in that. seat about 4 days ago. Oh, excellent. Right. Oh, I  sent him the paper actually recently saying, "Hey, do you remember this?" you know um and so people  were telling me in Japan oh there's this American. uh and his collaborator I think Peter Boon they  had written about this topic and they had actually.

posed the same hypothesis that there's a link  between uh land prices and capital flows so go. they were at mei the ministry of international  trade and industry slightly renamed it now uh. was famous ministry uh supporting the economy and  trade and go there you know it's pre- internet so. they will have the physical discussion paper that  they produced on this topic. So I went there asked. around and oh yeah yeah yeah we had professor  saxs okay and there was the paper so I went. back to my research institute at the development  bank and same idea which is fine because I was.

just a young researcher just slightly modify  that and I'm okay you know I don't need to. discover the rediscover the wheel or come up  with a great insight but then I came to that. sort of main part and conclusion and therefore  we conclude there is no link between real estate. you know land market and uh and and capital  flows what so you know at that point I was really. in trouble and I needed divine intervention um  because you know humanly it was impossible to make.

this link and all the experts were saying there's  no link but there was a link and when I understood. that I knew exactly what data to get now what what  professor Saxs and and Peter Boon were arguing was. um that you see how if you're a Japanese  land owner, you own this super expensive. real estate and now you you figure out it's  probably better if I buy half of California,

let's say, which they did. Um so let's do it. They  were arguing, well, they would have to sell the. land now. Who's going to buy Japanese land? And it  was true that foreigners were not buying Japanese. land. It was totally overpriced. No foreigner  would buy Japanese land. So only other Japanese. would buy it. Oh, but that means the money stays  in Japan and that means there's no link. That was. their argument. You see, but I realized that's  not how it works. Because I'd spoken to a lot of.

practitioners, that's not how it works. And the  solution is and it's the solution to many other. puzzles in economics to essentially almost all the  big puzzles and there's many in macroeconomics. Macroeconomics is has not been successful for 200  years. I've noticed exactly it's been a failure. for 200 years. No progress. That's actually  official. There was a there's a study in the. um um what's it called? um journal of economic  perspectives which is you know it's quite a highly.

ranked journal in 2019 by two Stanford University  professors about progress in economics and they. they mention that oh sadly we haven't had any  progress in macroeconomics for at least a century. okay um so um and why is that so the solution to  all this and why economics has made no progress is. bank credit. Now, bank credit and actually you  should say fully bank credit creation. This is.

a concept that's been a taboo or a secret uh  in economics. Banking has been frozen out of. economics for a long time. Uh there's no banks in  economic models and theories. And that's of course. also why they don't work because in reality, if  you ask some ordinary people in in the business. district of a of any town, they will tell you  you know what's important in the economy, they. will mention banks. Um yes but ask an economist  an academic research economist and they will not.

mention banks. Well ask any person who do you owe  money to the bank some of the bank. Exactly. Well. the reason is that the the economists follow  this theory that banks are just financial. intermediaries. They just you know gather deposits  here do their analysis credit uh you know analysis. analysis you know risk assessment and and all that  and then they allocate the funds and invest. Okay. They just take a percentage. They're a pass. So,  so they're intermediaries. Yes. But that's wrong.

That's not what they are. That's it's one theory  of banking and it's still the one that's still. dominant. All the textbooks and the leading  journals, they still use that. But actually, if you look into it, you realize there's three  theories of banking. A second theory slightly. older that was dominant until the 1960s, so-called  fractional reserve theory. And you you may have. heard this fractional reserve uh banking. What  is that? Well, this theory says and this part is. similar. Each bank is a financial intermediary. It  just collects deposits and then does the analysis,

lends out the money. But in aggregate as  banks interact, there's money creation. Oh, and that's where students should have picked  up money creation. They even talk about a money. multiplier. What? That's the second theory. Now  there's a third theory and that one had been made. out to be a wacky conspiracy theory. Oh, but it is  the one that was more or less quite widely known.

until about a century ago. And that's the credit  creation theory of banking. And this one says. banks are not financial intermediaries. Banks are  special. They have a unique power that no other. player in the economy has and that is the power  to create money. And actually that theory had been. called all sorts of names like oh this is cookie  people and you know cranks can said in his general.

theory or was the treaties on money you know these  are the cranks who talk about the banks creating. money. I think the average person believes the  right the ability to create money is reserved for. governments alone. That's absolutely correct. In  fact, I did a survey with my students in Frankfurt. in 2011. My my uh audience was getting larger  when I was teaching at good university Frankfurt. It was only sort of for a few years substitute  professor uh optional courses. So first one was.

only 50 students but next one was already 150.  In the end it was 450. everyone is there also. from politics and law and so I thought oh this is  a great audience listen guys let's let's use these. numbers let's do a survey so I sent them out you  know because you've got so many people then if if. everyone does 10 questionnaires you know you're  talking big numbers so we did a survey of central. Frankfurt and the one of the questions asked  was just this question who do you think creates. and allocates the majority of the money supply in  the economy and to make it easier here's multiple.

choice answers uh the government, the central  bank, um the financial markets, uh the banks, um and so on, you know, give a few options or  or savings, you know, um people through their. savings, you know, which is another economic  theory. And the answer was just as you said. and you know you spoke the facts. 84% responded  either the government or the central bank are.

the ones that create and allocate the majority of  the money supply because that's common sense. You. know it's something very important that clearly  affects everything and everyone. It should be. in the hands of the government. It's what people  feel. But it's not true. That's not how it works. And so what is the answer? Well, of these three  theories of banking, which one is correct? Well, what's the scientific thing to do is to do an  empirical test? That's what a scientist would. do. Well, it turns out I was the first to do an  empirical test of the three theories of banking.

Empiricism and economics. I didn't know that  that happened. Exactly. You ran experiments and. replicated them. I thought that was exactly Here's  a depressing but true statistic. Nearly half of. American adults say they would suffer financial  hardship within 6 months if they lost their. primary income earner. That's a telling sign that  people are living on the edge. Many of them the. economy is fragile. That's true for millions and  millions of people. What do you do about it? Well, life insurance is one of the best ways to  protect yourself from potential hardship. We.

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handle the questions. They handle the paperwork.  They advocate for you throughout the process. So, if you don't have life insurance because it seems  too complex, they are the answer. Your family's. future could be guaranteed to a great extent with  Policy Genius. Go to policygenius.com/tucker to. compare free life insurance quotes from top  companies. See how much you could save and. to what extent you could protect your family.  policygenius.com/tucker. [Music] Well, you know, you can do empirical test. The replication  is debated whether you can always replicate,

but certainly you can test. you can do tests and  we can certainly control for certain things and. that's what I did and I thought it's crazy that  you know you had for over a century this debate. between these three theories but nobody had  actually done the scientific thing let's find. out let's just test with the data and observation  which of the theories is in line with the data and. which is rejected by the data now to do this I had  I needed a bank that would cooperate and my plan. was well I'm going to take out a bank loan and  we're going to watch inside the box inside the.

banking's accounting the bank's accounting system  uh their um you know how are they accounting for. this and what transactions are taking place  when I take up my loan you know the the the. intermediation theory says deposits get lent out  the fraction reserve theory says that the bank. needs to have excess reserves at the central bank  and that's then used for the new loan yes and the. credit creation theory you know what it says it  says when you get a loan no money is transferred. to your is transferred away from anyone somewhere  else and you just credited new money out of.

nothing that is not transferred away anywhere  inside or outside the bank which seems you know. quite sort of extreme like magic in fact one uses  the convention is to use Latin for this the money. is created x nhi law out of nothing um so when it  did the empirical test uh the conclusion was the. financial intermediation theory is rejected and  the fractional reserve theory is rejected banks.

create money out of nothing. By the way, you can  look it up. It's the most downloaded paper of all. elia publications called and it's open s open  access. So, can banks individually create money. out of nothing? Any bank. Not just to be clear,  not just central banks. Any bank. In fact, that's. the whole point. We're talking about normal banks.  With central banks, it wouldn't be a surprise. But. the bank of Omaha can Yes. Any bank creates money.  When you take out a loan, the money that you're.

given as the borrower didn't previously exist. It  is net new purchasing power that is being created. and added to the money supply. And that's how the  system works. Now, to understand how the system. works is a precondition for having good economic  analysis and good policy recommendations. And that. explains for for for over 100 years macroeconomics  has made no progress. They have no banks in there. They have no bank credit creation in there.  you know when the 2008 crisis happened and the. journalists and I'm sure yourself also um you know  want to ask some experts let's go to MIT professor.

of economics what's going on Lehman Brothers  gone bast banks are going bast bank of America. in trouble what's happening the honest answer of  all the professors of economics would have been. well I'm sorry I can't answer that question why  not you're the expert aren't you at MIT aren't you. an economist you know suddenly well why can't you  answer well We have no banks in our models. So, of course, I can't talk about banks. That would be  a correct answer. Of course, they didn't give that.

answer. They're fudging it. They're pretending  because they don't want the public to know. No. one ever admits ignorance. But may I ask how how  I'm I'm not an economist. I'm interested, but I. I did not know until you just told me that banks  play no role in economic models. No, they're not. in there. So, when the 2008 crisis happened, the  central banks were using the so-called DSG models. This is a huge complicated sounding name, dynamic  stochastic general equilibrium models, which. sounds very sophisticated. There's some like super  bright rocket scientists in there with complex.

models. Well, the whole thing is nonsense from  start to finish. And it doesn't include any banks. whatsoever. And it's built on really pretty crazy  assumptions that are true perhaps on some remote. planet in some very far away um solar system.  Certainly not in ours and certainly nothing to. do with planet Earth. I just think as a non-expert  the idea that banks would play no role would not.

be included in an economic model, a macroeconomic  model seems insane because the experience of every. person living in the world um includes banks.  That's right. That's right. And the trick was. to argue well we don't need them because you see  they're just an intermediary. They're not really. important. So yes, they exist and we all know  there's anything just go through one in here. out there. There's no there's no reason to include  them. Oh, we include the bond market. Oh, and we.

include interest rates. So that's all we need. By  the way, that's the second big um myth I busted in. economics. You know, this idea that interest  rates drive the economy and they're the key. variable. And of course even today I mean every  central banker every market commentator TV show. investor president it's literally it's a daily  thing it's mentioned um and it's yeah everyone's. supposed to is this presupposed knowledge that  if we lower rates this will stimulate the economy.

if we raise rates this will slow the economy and  it's been said in the last 50 years I don't know. how many thousand times by all these people  well can I ask you what's your guess how many. empirical databased fact-based studies exist that  demonstrate this that actually demonstrate that. you know look here's the data yes we lower rates  it leads to higher growth we raise rates it slows. growth I would assume none because I've never met  anyone who doubts it like gravity we just don't.

you don't even need to test it of course now we  know it's true obvious right now yeah it's so true. this is called an axiom by the way an axiom is  something that is so true we never have to check. whether that is true and and If we and if we did  check whether it's true, we'd find it's not true. But we wouldn't believe we wouldn't believe the  results because we know it's true. Yeah. Doesn't. m you can't disprove it. Yeah. Well, in fact, this  is you've you've described now the the methodology. that of the dominant mainstream economics which  is the hypothetical aiomatic deductive methodology.

where you just you you pose an axum that you know  to be true. So you don't have to check whether. it is true and if you did check it's not true, it  would be the result. And then you add assumptions. which you admit are simplifications, heroic  assumptions which are yes we know they're not. true but it doesn't matter and then you build  your model on it and that's the approach they. use. Now this approach is particularly useful  if you have a predetermined conclusion you'd.

like to come to because then you can actually  start out with your preferred conclusion work. backwards then define what assumptions do I need  to pose this model what aum do I need to present. this and then the key step present in reverse  order ladies and gentlemen let's just for sake of. argument assume these in this oh look at this the  model is telling us you know interest rates lower. rates lead to higher growth and higher rates lead  to lower growth we don't need to look at banking. it's totally uninteresting Don't don't go there.  Move on. Nothing to see here. What you're saying.

is um I mean I believe that there were a lot of  people who just never thought that option three, your description of banks, the bank credit  creation could be, you know, meaningful factor. They just never thought of it. But there had  to have been a lot of people who realized this. before the 1990s. So if it's not publicly known,  it sounds like it was hidden. Absolutely. Oh, certainly. Well, actually, so I've got two papers  on this. One is the can banks individually create. money out of nothing. The other one is called lost  century in economics about these past 100 years.

They must hate you. Your fellow economist sorry  to must hate you. And I do go through the the. literature and the sort of history of economic  thought and there's some very curious things. happening. So for example there's John Maynard  Kanes and and many people would say well he's. certainly the most famous economist of the 20th  century certainly the one that who's quoted a. lot cited a lot and had some policy influence and  so on. Now when you look at his writings with the.

the topic of credit creation bank credit creation  his development is kind of curious. So when he was. young he discovered it. There's a book by him from  1924 in which he the book was on something else. but he stumbled on this and he writes I mean I'm  paraphrasing something like and you know look up. my papers then you'll see the exact quote but he  was writing like oh the banks actually adding to.

the money supply through their activities. That's  a very important fact that changes everything. I. will return to this later you know that sort  of thing. It's something that will have to. be examined further. That's very important. Well,  six years later in his important book, Treaties on. Money, two volumes, he had moved from the credit  creation theory that he clearly had discovered. in 1924 to the fractional reserve theory. He was  saying, "Oh, banks are just intermediaries, but. yes, in the system, the interaction is creating  some money." Six years later, he published the.

famous general theory. And in that general theory,  he'd moved on to the financial intermediation. theory. Now it is again the savers who need to  save money and then deposited and that is then. lent out by the banks. There's no money creation  at all. So in other words, he progressed away. regressed. Exactly. Regressed. Thank you. So with  each successive theory, he obscured the role of. the banks ever more. Now, interestingly, um, his  financial wealth increased, uh, proportionately,

uh, and by the last stage, people have stayed this  long in the convers. This is a really interesting, and you're a great explainer, by the way. It's  almost like you came Are you really an economist? You explain it. So, well, here's a story you  probably haven't heard a lot about. The Chinese. mafia is exploiting rural America to create a  drug empire. This is not available on cable news. The network's not telling you about this,  but it's totally real. Communist affiliated.

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steal electricity, foreign pesticides, collusion  with the Mexican cartels. It's it's unbelievable. By the way, one of the drug houses is like walking  distance from my house. I didn't know that. It's a. layered and fascinating story. Head to tucker  carlson.com to watch now. We think you'll love it. Well, you see, in in the the last few  years of his life, he had been I mean, most people don't don't know this, but he had  been appointed director of the Bank of England.

And you have to realize the Bank of England  was 100% privately owned. And to be a director, you had to be a significant shareholder.  And that is billionaire level nowadays. So, he was doing pretty well moving away from  the truth step by step. But you see it's it's. uh it's similar with some other economists. I'll  give you two more examples actually three more. examples economist you will have heard of. One  is professor Ben Bernani. Yes I have heard of.

him. Now he was he was you know he was a good  macroeconomist. Was it at Princeton and and. Yale? Um um anyway and he used to you know he did  his research. He started out research on the Great. Depression where he was beginning to realize, oh,  banks were a factor. I mean, he didn't write this, but actually 10,000 banks were busted. I mean,  it's it's one of the saddest periods of US and. world history. You know, the Fed was created  on the pretext on the the main argument because.

there's lots of doubters who didn't want the  Fed. It's very unAmerican was the general view. They were very sneaky to actually get the fed  fed and get the law passed. They they used some. of the rules and how you can schedule a vote and  they me they went for the most obscure procedure. which is easy to overlook that there's actually  a vote and the vote was on the the vote was on. the 23rd of December and most congressmen actually  weren't even aware but in any case they're already.

gone for Christmas. Yes. And so it was just the  hardcore group of insiders and they voted the. creation of the Fed. That's how it was done. But  in terms of arguments in favor of establishing. the Fed, the main argument is the lender of last  resort function. And it's true that if you have a. fantastic bank, very solid, strong, conservative,  it's doing well, is helping many small businesses, good bank. If a very convincing nasty rumor  is circulated and let's say it's effective and.

people believe the rumor and they just run for  their deposits, they all pull out the deposits, that good bank will be in trouble. That is true.  Of course, there's policies against that that you. could do. But the argument was well the best is  to have a central bank because they can provide. endless liquidity through money printing which is  you know internal money bank you know reserves or. if needed if they want cash you know they pro the  central bank provides the cash uh paper notes and.

therefore this good bank will not go bust and  that is sort of convincing but when it came to. that beginning of the great depression what did  the Fed do it let more than 10,000 banks go bust. in the most in the nastiest way. These were banks  that were small lending to local businesses to. the farmers in particular and they let them go  bust. Now in the 1920s there was mechanization.

of agriculture you know tractors and so on. So  there's expensive equipment and the banks were. giving the loans the farmers were taking the  loans. Now, these banks were bust. Well, they. were taken over and by big banks, bigger banks  and banks that were part of the Fed cartel. But. to lose 10,000 banks is just such a setback for  the economy. Unbelievable. Now, you'd think, oh, good for the farmers, you know, at least they're  out of these loans. No. When number one, when the.

banks went bust, there was no deposit insurance.  these families, these pharmacy, small businesses, they all lost and their personal savings, all that  money they had in the bank was gone. That wasn't. refunded. Okay. Number two, you think it they'd  be off off the hook from their their loans? No. The banks were then taken over, bought cheaply,  and they still had to repay the loans, but they. had nothing left, and they were destitute. Wait,  you lose your deposit, but keep your debt. Yes,

that's How does that work? That's a Federal  Reserve policy. Of course, the Fed could have, you know, done it very differently. And so  Roosevelt in this, the man of the people, well, the the banking systems once you set up a  central bank that's not controlled by the people, then you know, you're in the hands of the  the central bank. The Federal Reserve Bank. of New York is 100% privately owned, and that is  really the center um where all the decisions are. made. You've have the the the Washington board of  the Fed, but you know, that's a political shop.

um the actual central bank operations are all  in New York 100% privately owned you know so. um and that you know what happened in the 1930s is  therefore these farmers became destitute the land. was the collateral for the loans they couldn't  repay they lost their land they lost their their. livelihoods some lucky ones became day laborer on  the farms that they previously owned the unlucky. ones starved there was starvation in the United  States of America of honest farmers and it's.

really such a I mean read the grapes of Roth by  yes I have John Steinbeck um you know these are. better descriptions of economic reality than  the economics textbooks where they tell you. banks are financial intermediaries so we we don't  need to talk about banks that's that's for sure. So the central banks when push comes to shove they  pursue the agenda of concentrating the banking. system and reducing the number of banks which  increases the power of the central banks. But.

we were talking about this the three theories of  credit creation and and so conclusion there was I. did the empirical test. Banks create money. They  are therefore the most powerful economic player. in the system because they're special. They have  a license to print money and the majority of the. money supply is created by banks and knowing that  changes the analysis entirely. Where does that. power come from? How are they granted that power?  Why can't I create money out of nothing? Oh,

we should work together. You know, I wrote a paper  with that title. Why can't I create money out of. nothing? Well, so when I when I published uh can  banks individually create money out of nothing, I published at the same time another paper which  is entitled how do banks create money and why can. other firms not do the same? Google it is also  open access which is exactly the question you'd. ask and it's very sensible and that gets it gets  very curious. Um it has to do with accounting and.

but I I want really wanted to get to the the  bottom of this accounting if you look at the. accounting the difference is you know when a  loan is granted and of course we can take a. loan from a non-bank I mean there's there's major  non-bank financial institutions and then companies. can give you credit and you know insurers give  sometimes loans and you know so why can't they.

do the same as the bank And in order to to uh find  the answer, I realized one needs to break up this. uh the accounting process into further steps  because it's clear if you compare the accounting. the bank balance sheet when they when the bank  lends the bank balance sheet lengthens. You get. um the loan as an asset. That's the same for  everyone no matter whether you're bank or. not. And on the liability side, the borrower is  credited with the money. Now that's true only for.

banks and non-banks when they pay out a loan that  they give you, they have to draw down something, some money holding on the asset side so  the balance sheet doesn't lengthen. So I. wanted to find out, okay, what is the thing  that allows banks to do it this way? Yes. And it is what in in England which is the the home  of banking. You know the first modern bank is the.

bank of England. And in the 17th century all the  banking rules and the laws concerning banking. came essentially about in England. And in England  this is therefore most apparent. They call it the. client money rule. And there's an equivalent in  the US. In every country there slightly different. name but it means that if you have client money  then this money has to be kept off your books. You have to hold it in custody like a custodian  and you have to put it in practice with a bank.

and say well that's the client account. That's not  my money. You I'm not claiming this. That would be. fraudulent. Right? You have to be careful.  You know it can be a criminal offense. So, everyone has to separate client money from their  own funds and except banks. They're exempted from. the client money rule. And that means when we put  our money with a bank, it's on the bank balance. sheet. And the bank is the keeper of the books.  And if you're the keeper of the books, keeper.

the records, you can fiddle the records. You  know, if you put money of a client into a bank, you can't tell the bank, oh, can you please just  be a bit creative with the accounting? It's not. going to happen, right? But if you yourself,  you know, you're the keeper of the record, you can be slightly creative. So, what  the bank does is the loan contract. Here's. how it works. You're the borrower. I'm the  bank. You want a loan, mortgage, anything.

And the important thing is the contract  that you have to sign, you know, in your own blood. You have to sign it. The loan  contract, the agreement, the credit agreement, mortgage, whatever it may be. I mean, they're  all more or less the same type of instrument. And actually, I should say this, economists  classify banks as, they always say this when. they mention banks, banks are um financial  intermediaries. They're deposit taking.

institutions that lend money, but because they're  intermediaries only, we don't need to look at. this. And then, you know, they they take deposits  and they lend money. Well, if you look at the. legal, you know, situation, it's clear that this  is not true. Banks don't take deposits and banks. don't lend money. And there's rulings in English  courts. What is actually a bank deposit? Well,

that is to confuse people. At law, there's no such  thing as a bank deposit. It's simply a loan. Well, hang on. A deposit is a loan. Yes. It's a loan we  give to the bank. We give credit to the bank when. we do what is called deposit our money. Yes. And  that is the legal status. This is like the tables. are turned. So banks don't take deposits. We lend  to them. And the deposit, a bank deposit at law. actually is not privileged. But surely banks  lend money. No, banks are in the business of.

purchasing securities. And when you sign that loan  contract, that's an IOU, a debt instrument that. you've issued and the bank will buy it. That's  what's happening now. And you can sell it. Well, exactly. You can sell it. And also, you will  point out, oh, hang on, fine. These are details. This says I will get money. I'm borrowing money,  so please give me the money. I don't care about. the details. And the banker will say, they're  careful. They will say, you'll find this in your. account with us. They may carelessly say we've  transferred it to your account which is incorrect.

because no transfer happens. Your account will be  credited because the accounts payable liability. arising from the loan contract is represented  or misrepresented by the bank as another type. of liability called customer deposit. And that is  the trick you can only do when you're the keeper. of the records. And that's only banks that can do  that. Others have to keep it off their books and. they can't do this trick of switching the type  of liability from you know um accounts payable.

liability from the loan contract present that um  or misrepresented as um another type of liability. called client deposit that's how money is created  so the conclusion is when you borrow money the. bank just writes the number in your account and  that's what I could empirically confirm because at. the bank that I finally they found which was happy  to do this and let me look inside their books and. their transactions and their system and we had all  the bankers there so we literally were watching.

what everyone is doing. The BBC was filming this  by the way. They haven't used the the the actual. footage yet but they were there. How long has it  been? This was in 2014. We should we should turn. this into a proper documentary. They've had it  for 11 years and haven't aired it. Yes. No. Well, they're close to the city of London Corporation,  which is the banker's state, a sovereign state. inside the United Kingdom or outside the United  Kingdom. You can even say, because the king is. not allowed to enter without permission, so it's  not part of his sovereign territory. And I guess.

maybe it wasn't considered convenient to air this  documentary, but it's it's on the record with the. BBC. So, we when I did this empirical test,  which is published in a peer-reviewed journal, so this is what happens. The banks create the  money and others can't do it because the banking. license gives you this power to invent money. And  so that's why it's very important to actually have. the right type of banks in your country. Now  what type of banks would we want? And here's.

an important principle I need to explain. It's  very it's very important who a bank is lending. to and for what purpose. And that is because it's  money creation. If it was just an intermediary, it wouldn't be so important because it's zero  sum game. You now have money but somebody else. is less plus minus zero. Not a big impact. If you  use it more efficiently, maybe a small impact but. basically not a big impact. But if it's money  creation, there will be an impact on all of us. Therefore, it's really a public privilege that the  banks have to create money. And the question is.

how should that be used? Now, hopefully it's used,  you know, in favor of the people. And it can be, you know, bank credit can be a marvelous engine of  enormous economic growth, prosperity, and in fact, abundance. And that's one message I want to get  across. We can have high sustainable economic. growth, which is very stable and smooth, but  very high, creating a lot of wealth for the.

majority of us, prosperity without inflation and  without crisis. This can be done, but we're not. getting it. No. Why? Why? Yeah. Why? And I'll  I'll explain the mechanism. So there's three. scenarios. When a bank creates credit, there's  three possibilities. What has been happening. since the 1980s in most industrialized countries,  most western countries, is that banks encouraged.

by the regulators, by the way, the BIS in Basel,  bank regulation, international bank regulation, the Basel framework, they've been encouraging that  the banks lend for unproductive um asset purchases. for the purchase of ownership rights mostly in  real estate but it could also be financial assets. any type of asset now that doesn't contribute to  national income it doesn't contribute to GDP and. if you look at the definition of GDP it's not in  there because hang on you're buying this asset.

somebody else is selling it well that doesn't add  value GDP is a value added concept so it's not in. there and that's Real estate is not real estate  itself is not a productive asset. Exactly. Well, the you know the transfer of the ownership in  real estate, you know, that doesn't affect that. shouldn't affect GDP and that's why it's not  in GDP. Of course, the the real estate uh agent. business is a business and that is part of GDP,  but that's you know that's just a fraction when. we're talking about the actual full transaction  of that's much larger and that's not in GDP. So.

when banks lend for asset purchases like real  estate purchases um financial asset purchases. because it's money creation it has an impact now  what impact is that let's look at Japan 1980s the. banks were doing what they were lending massively  to people to buy property real estate if they were. just financial intermediaries it wouldn't be  a big deal but it's money creation so actually.

the banks are creating a lot of money and they're  pumping it into the real estate market. And now. you don't have to have studied economics to tell  me what's going to happen with real estate prices. When all the banks are creating new money and  they're pumping it into the real estate market. through their real estate lending, what's going  to happen is what's happening in the United States. where real estate becomes unaffordable. It's too  Exactly. You It's, you know, it's just it's not. rocket science. Real estate prices are pushed up.  This is true for all assets. So when banks lend a.

lot for financial assets, these the prices, the  values of these financial assets will be pushed. up. But it's a Ponzi scheme because it works  only as long as the banks continue to create more. credit for others to join the game and buy buy  these assets. And the moment the music stops, the. banks don't increase credit for asset purchases,  then asset prices won't rise anymore. Because with.

this, I found when I discovered this, I found the  causal factor behind the land price rises. And. I tested it and it's true. It's the real estate  lending explains the real estate price movement. very nicely. And and that's of course that's has  many consequences. So I big picture I think what. you're please correct me but I think what you're  saying is that most of us assume prices are set by. markets which is a product of supply and demand.  A lot of people want something it becomes a lot. more valuable um relative to its its abundance.  You're saying that actually prices are determined.

by banks. Yes. And actually it's more than that  because your question implies you you're still you. know we're all influenced by what's mainstream and  your question is about prices and then of course. the price of money the interest rate and that  is what we're being taught. Think about prices. is all about prices. The economy equilibrium  markets demand supply prices quantities are.

much more important and that's because there's no  equilibrium. That's one of these other ridiculous. assumptions. They just assume equilibrium. There's  never been any evidence of any equilibrium. So markets are rationed. Ration markets are  determined by the short side principle. Whichever. quantity of demand and supply smaller, that's  the common denominator that determines outcomes. It's quantities. And what's the most important  quantity in the whole system? The quantity of. money. And where does it come from? Created by  banks. And then it's important what is the money.

being used for. So when so I told you one of the  three scenarios so found when banks create credit. for asset purchases you get asset inflation  that by the way will always lead to a banking. crisis when it's large enough because once then  say after 5 years of banks doing that they then. for some reason maybe there's central bank other  external shock they stop increasing credit for. asset purchases these asset prices collapse but  they're the collateral for the loans and because.

Bank equity is very small 10%. And you've pushed  up asset prices by 300 400%. If from the peak they. fall by say 20%. The banking system is bust and  that's why we have banking crisis. And that's of. course also what happened in Japan in the '90s.  Once you analyze this and you understand credit. creation, what banks really do they create money,  they create this Ponzi scheme. Then it's very easy. to forecast, okay, the banking system is bust. And  they, you know, they they're bust often. We have. these recurring banking crises. But there's also  ways to get out of it. I'll I'll come to that.

But just before I want to tell you the other two  scenarios. So when banks create credit for GDP. transactions for the real economy, it will affect  GDP growth because asset prices asset transactions. are not part of GDP. So that bank these bank loans  don't even contribute to national income. Uh you. know the real estate lending and asset lending.  But when banks lend to the economy to the real. economy, we have two possibilities. Number one,  if banks lend for consumption, consumer loans,

what happens is these consumers now have suddenly  purchasing power and of course they're taking out. the loan to spend. That's why it's called  a consumer loan. So we get more consumer. spending. But have we increased the quantity of  goods and services in the system? No. So this. creates inflation. So bank credit for consumption  is inflationary and that's what we had of course. uh 202122 I had the data data from the Fed was  out uh already in 2020 so I was one of the first.

to warn very accurately this was in in May 2020  on my Twitter sending out messages well based. on this data it was shocking data um we have to  expect significant inflation 18 months down the. road which is exactly what happened nothing to  do with the war in Ukraine. Nothing whatsoever. Nothing to do with uh you know oil prices, gas  prices and all that. Uh supply shock. By the way,

when you go back to the 70s, it's the same.  They told us, "Oh, that was an oil shock. The. inflation that was shock war of 1973 that OPEC  shut down production." I mean, that's that's the. story. I mean, I vaguely I remember adults talking  about it, but look, I know and and all the media. coverage is very consistent on this, but the facts  already don't add up because when did the oil. price quadruple from 3 to 12? That was in January  1974. When did this there were two bouts of.

inflation in the '7s, you know, early and late of  the decade. So, in this first bout of inflation, when did inflation peak? Well, in Germany in  June 1973, June 1973, when did oil prices go. up? In January 74, something wrong with that  story. That's not cause or effect. In fact, when you look at bank credit creation and central  bank policies, quantity of credit policies, they created it from 71 onwards, 71,72, ballooning  credit creation in the US, in Germany, in Japan.

And it's a fascinating story because and we're  sort of going off on the tangent, but it's it's. another amazing story because um and it's a very  relevant one because what happened was I mean. this this goes back to before President Nixon  detached the dollar from gold, which is a very. um euphemistic way of putting it. Before America  defaulted on its international obligations, August.

1971, we had the Bretonwood system from 1944 where  the dollar was linked to gold and all the central. banks participating could at any time switch  US dollars, dollar balances in their accounts. with the Fed into gold. That was the system. Of  course, you weren't sort of encouraged to do it, but it was possible. Now all the currencies were  in a fixed exchange rate to the US dollar and.

the US as some people had warned were beginning to  take advantage of the system. The Fed was creating. a lot of dollars. The banking system was creating  a lot of dollars. They were exported at the fixed. exchange rate. You were printing dollars and  buying up the world. And by the late60s in France, because France wasn't part of NATO, it was not an  occupied country. Uh the French were speaking up. Germany was being keeping quiet. Yeah. And Japan  was keeping quiet. You know, they've got the US US.

military bases in their countries. But the French  were speaking up for all of us. And they said, "Well, hang on. You're just printing dollars and  buying up French companies and French real estate. Are you slightly abusing the system? Is this how  it's meant to be?" And and it just continued. So. then the French literally sent well, first they  said to the Fed, "Okay, we're going to change. these dollars into gold." And initially fed ration  oh well certainly it's not a problem you know it's. all above board very transparent we will okay  how much how much you want to switch just say.

the number okay this much fine we will now switch  it with this gold from our gold reserves into. your account with us your account in other words  it's just another bank transaction okay you know. this is your gold now of course we we'll keep  it it's very safe with us you know we'll keep. it in custody so step number two was then when  the French decided, you know, there's Pompy, there's Shelter Gold. They decided, well, hang on,  we better get the gold because kind of it doesn't.

really change much if they just switch the name,  the label of the account who's holding the gold, you know. So, and they literally sent their Navy  battleships to Manhattan. They docked in Manhattan. and they, you know, captain and his sailors walked  to the to the Federal Reserve Bank of New York and. they took out the gold. Now this they couldn't  allow the Americans couldn't allow to happen. too often. No. No. And it was kept low profile but  you know it was beginning to become a story and if.

others followed. So then August 1971 President  Richard the French get the gold. They got some. gold. Yeah. This is this really happened. This did  happen. They sent their ships. They walked to the. Federal Reserve in from their dock in Manhattan.  They got the gold. I guess they had some trolley. cuz it's really heavy that stuff. and they wield  it back to their ship. Um, but not long after. u the Treasury, the Fed and the Treasury advised  President Nixon, look, you you better make an.

announcement. What announcement? Well, that uh  we have to protect the dollar from speculators. That's what he announced. We're we're going to  strengthen the dollar by protecting it against. speculation by severing the Now, how did you  say we're we're temp Oh, I love this. We're. temporarily suspending the convertability of the  dollar into gold temporarily. Of course, you know, it's now what 51 years of 54 54 years. Yes. Crazy.  Amazing. Um, did did the introduction, speaking of.

gold, of fiat currency into the West, did it make  all of this possible? Like could a bank create. money if it wasn't fiat money? Banks have always  created money. If you go back into the history of. banking, it's always been about money creation.  That is the secret of banking. And that's also. why it's been kept secret until my paper proving  it. But how do you do that if you can't print.

something worthless and call it valuable if  it's tied to a commodity whose price is set by. people you can't control? Yeah. But that's just  marketing. that is just, you know, to build the. credibility. It's a it's a marketing tool. I mean,  it goes back to in in my books, you know, I' I've. got this story in there, Princes of the Yen. Also,  uh it goes back to what happened several times. throughout history. And a good example is when  it happened again in England in the 16th and 17th.

century. Um I mean in China from the 10th century  they had paper money which is a smart system. especially because the government was creating  the money as western people the public thinks is. happening with us but it's not right. So what what  was the difference? So well the Chinese had paper. money in Europe the rulers the governments the  princes and principalities thought gold is money. So what do you do when you're the government and  gold is money? Well you try to create some gold.

Well, certainly in Europe and particularly in  Germany where there were 355 principalities as. part of the Holy Roman Empire of German Nation,  each one of them had a court alchemist given a lot. of R&D money to create gold, turn any other base  metal or mercury whatever into gold which is why. of course in Germany in Germany became leading in  chemistry because of that massive overinvestment. uh in what you know alchemy what was early  chemistry but yeah but But it never succeeded.

So BASF is actually a sort of product over time  of the of alchemy of course. That's why in Germany. you had so much knowledge and and you know in in  chemistry it was the yeah alchemy um I mean did. it work? Was there was alchemy ever successful  in a in a well not directly in a sense it was. successful because the alchemist concluded mercury  can be turned into gold. And we know with nuclear.

physics this is true. It's just so expensive.  Today we can do it, but it's just pointless. It's too expensive. So just, you know, better  buy some gold to dig for some gold. So also um. Newton who's famous physicist from England, he was  very interested in alchemy and he wrote a lot on. alchemy. Um and then the bank of England was was  created and Newton was very interested in that. Um. because basically the bank of England was alchemy  at work. You're creating money out of nothing but.

not through the actual you know physical alchemy  process. It is the credit creation alchemy. because banks create money out of nothing. But  it's it's a trick. So what happened is this. when gold is money and people think we need gold  for transactions. One thing was the governments. investing in you know creating gold but you know  that was of limited success. Now the reality is.

though that people don't want for that transaction  to carry gold around because it's dangerous. I. mean even today if you go around New York City  Manhattan you don't really want to walk around. with too much visible gold hanging around you. You  know it's kind of in London you wouldn't want to. do it. And that's 21st century. So imagine, you  know, 15th, 16th century, 17th century, you don't. really want to do that. Bandits on the roads. No,  not a good idea. So what do you do? Well, you put.

your money, your gold where it's safe. Turns  out there's some professions that were working. with gold. And therefore, they had safe places.  They had their own little private security team, private army to to watch their safe with the gold.  And these are the goldsmiths. You know, they make. gold jewelry for the the king and the aristocrats  and the rich people. And so people started to. deposit their gold with the goldsmith. Obviously  you need evidence like what if something happens. to the goldsmith and his son taking over the  business denies that that's your gold. So clearly.

you need some receipt. Okay. So that was the  convention. They got a little fee for safeguarding. the gold. Fine. Everyone's happy. But the next  step is this. Let's say I'm, you know, in the. province, um, somewhere in Hampshire in England,  and we're neighbors, and we agree I'm I'm buying. this plot of land from you, and we agree on the  price, and okay, how much gold? Fine. So, what are. we going to do next? Well, I've got the gold with  a goldsmith in London, you know. Okay, I I will go.

and get the gold. By the way, what are you going  to do with the gold? Because if you're not going. to keep it here, then it's kind of dangerous.  like I'm risking my life going to get the gold, bring it here, and then you bring it back to  the goldsmith. We might as well leave it in the. goldsmith and I give you my deposit receipt.  And that's what happened. So the the receipts. of deposited gold of deposited money became the  first paper money in Europe. Gold certificates. Yes. Exactly. That's how it works. Now, so the  goldsmiths of course realize what's happening. Oh,

nobody's coming to pick up the gold. That's kind  of convenient. And because and this this already. explains the secrecy that suddenly then engulfed  the whole thing because people also realize well. the goldsmiths have the money. They have the  gold and if you suddenly you get into trouble. or you lose your job you you need money. Where do  you go? Well the goldsmiths have money. So people. came there begging for money and asking for loans.  Here's where the secrecy comes in. Until around.

350 years ago in almost all European countries,  it was illegal to lend it interest. Of course, that's Christianity, Christian rules. You know,  the Bible was against interest and interest was. everywhere forbidden. So the goldsmith would say,  "Oh, well, yeah, maybe I can lend you some money, but we have to keep this very secret because, you  know, of course I'm going to charge you interest.". Yeah, I'll pay interest. Yeah. Yeah, we'll keep  it secret. And this is what happened. Now, so.

the goldsmiths realize we can lend out this gold  that everyone is depositing with us. some of it, particularly the one that's like bullion in  a standardized size and whatever, uh, we can. lend out, nobody will realize, uh, and we keep  it secret. Everyone is sworn to secrecy because, you know, we're doing something illegal here with  the interest. We're charging interest. That's, by the way, how the bond market was was created  because it's pretending not to charge interest.

Um, you know, discount bonds, um, where you  have no coupon. You come and and you want to. borrow money. Okay, I'll give you I'll give you  90 and you pay back 100, you know, which is the. bond calculation of the uh that is the interest  really. But anyway, so all these tricks came about. because of the prohibition um of of interest. But  the goldsmiths then realized next, well, hang on, maybe we we don't even need to lend the gold. And  of course like every guild any trade association.

that we're meeting regularly they're talking shop  and you know how do we deal this with this issue. of course we don't want to lend out too much  gold we might get into trouble also we need. to collaborate if some goldsmith suddenly needs  more gold we have to help each other otherwise. everything will come up and we'll all get arrested  for lending at interest you know so they were. sworn to secrecy and one goldsmith probably the  first one to have this idea said hang on guys. I've got an idea we don't need to lend out gold  I'll show you. So next there's always this guy.

coming every Monday morning. Okay. So let's wait.  He's coming probably in 20 minutes. Always want. to borrow money. I've turned him down. I'll lend  him money to show you. So he comes around. Oh, please. Oh, you know, dear goldsmith, I need  to borrow this money. All right. Today I'm. I've decided I'll lend lend it to you. Here's the  standard contract. You know, all the small print, the interest. Uh your daughters will be sold  in slavery if you can't repay. You know, it's a standard practice and all that. Small  print. Don't worry about it. Yeah, I know. Okay, it's fine. Just one more thing before I give you  the gold. Okay, we said 300 g of gold. Here it is.

I will, you know, you sign there. I sign and I I  lend it to you. But I want you to deposit the gold. immediately with me. Well, I need the gold. I need  the money. Yeah, but you get the deposit receipt. and Oh, yes, of course. Yeah, that's all I need. I  need the receipt. Get it? So what happened was the. goldsmith loan contract signed and the goldsmith  buying that loan contract that's an asset on the.

balance sheet hands out the 300 grams of gold.  Now you see it now you don't. You've deposited. it. Here's your deposit receipt. It's all very  transparent. And with double entry accounting. which was created for banking to hide the truth  of banking. It looks all very transparent because. you can't see the money creation at first sight  in double entry accounting. So why is all it's. all correct? He the borrower deposited the money.  Didn't you see it just deposited it? Ah but it is.

still fraudulent. It's fraud. And you can prove  this because did this person the borrower when. they walked to the goldsmith, did they have  gold with them? No. But they're leaving the. goldsmith with a document that confirms they've  deposited gold. Well, how did that happen? And. also secondly, if you measure the amount of gold  at the goldsmith, did that increase? No. So that's. fraud. Now that's also modern banking. That's  how it came about historically. That's that's.

an amazing and that was your your question there.  You know, how did this come about? This is how it. came about. So how um did central banking come  about? What is the in layman's terms difference. between a bank and a central bank? It's just it's  the bank of the other banks. Um and they that's. how they came about. But it's the the bigger banks  and the bigger bank owners getting together. Well, really we should have for stability and if there's  a crisis we should have our own sort of maybe. government sanctioned or somehow being given the  halo of the government um we should have this bank.

of banks because then we have no more problem.  Bob's your uncle you know if you get into trouble. well that bank with government authority can then  also create money but it's different. and it has. the government authority and then we'll never go  bust. And that's how central banks were created. and they were all created originally privately  owned. And of course to own a central bank is. kind of useful, isn't it? Kind of profitable.  How do um let me ask a very dumb question. Oh,

by the way, yes, actually Tucker, I always tell my  student there's no such thing as a silly question. And you have to do me a favor for the sake of the  audience. pretend you know nothing about economics. because you must ask very simple questions because  you see in finance in particular there's this this. um macho idea never to admit you said it earlier  the experts never admit ignorance so they will. never ask like when they don't understand  something and that's how in financial markets.

you get some very major mistakes because what a  derivative is what they don't want to admit that. actually they don't understand yeah for example  these you know credit derivative sliced and dice. uh mortgages, credit strategy. So anyway,  so there's no no silly question. Well, I'm actually a little bit more ignorant than I  realized that I was before our conversation. Um, how does a bank get so rich? You said it's it's  just the course of things that when you are a.

part owner of a central bank, you're going to wind  up extremely rich. How how does a banker get rich? Um well I mean the the money creation uh creates  money for the bank through the return on the. equity. So that's in a way it's a traditional way.  It's just that it's because of this privilege that. you're creating money that it's much easier  than other companies to have that return and. particularly if you're a that's for a normal bank  but if you're a central bank then it's almost.

unavoidable that that it's extremely profitable.  So in principle, banks get their return from the. the difference between the interest they pay  on deposits and the interest they earn on their. lending. But the key thing is that for the actual  lending, they're not really giving up intrinsic. resources because they're creating new money. So  it's actually easy for them to earn this fake. But. but it is, you know, it's there's technicalities  and you have to do it properly. It doesn't mean.

you know you can be careless and sometimes when  they are careless it blows up and we have banking. problems you know and banking crisis but the the  the regular banking crisis are mainly when banks. create credit for asset purchases and that's  what creates these boom bust cycles in the UK. bank credit I mean 85% of bank credit is for  asset purchases and so you get these acid boom. bust cycles banking crisis in regular intervals  in some other countries uh I haven't mentioned. the third scenario No. So, bank credit for asset  purchases, no good. It's not uh sustainable. It's.

not productive. Credit creation for consumption  is it's for the real economy, but it's for. consumption. Therefore, it's inflationary. It's  also no good. It's not sustainable. The third. possibility is the redeeming feature of banking.  And that's why we can turn banking into a very. positive, very powerful positive force for  creating prosperity and abundance. Namely, when banks create credit for productive business  in uh investment for the investment in the.

production of goods and services, implementing  new technologies, uh implementing new ideas, it's actually the driving factor for growth and  prosperity. when banking supports entrepreneurs. that implement new things and that's when you  get very high economic growth without inflation. without asset inflation and so really what we  should do is bank credit creation should be mainly.

only for business investment but this this is not  what regulators do regulators now have not just. hundreds they have thousands of rules for banks  and banking is the most regulated industry on the. planet most of them are useless they don't achieve  the goal of preventing ing banking crisis. For. that, we we we can scrap all these rules. We just  need one rule that banks should only be allowed to. create credit if it contributes to um to national  income through business investment. If banks focus.

on that, you get very steep economic growth. That  is by the way the solution to the puzzle of how. some countries have had the most amazing economic  growth taking off like a rocket. You know this is. another measure of success of macroeconomics  is how many countries you know we've had this. macroeconomics development economics for 100 200  years mainstream economics coming from English. classical economics neocclassical is more or  less the same and the IMF and the world bank.

have implemented this now globally since you  know since 1945 developing countries forced. to more or less carrot and stick you know to  implement these policies that are considered. orthodox deregulated liberalized privatize  and allow foreign investment to come in and. you know follow the orthodoxy then interest rate  policies. So how many countries using this IMF. World Bank approach to economic development have  actually succeeded and have developed? You know,

we've had 80 years of that. So it's, you know,  it's enough time to actually say, okay, let's. take stock. It's a longitudinal study. Yeah. Yeah.  So how many countries have decisively moved from. developing country status to developed country  status as a result of these policies? Well, there isn't one. None. What about Haiti? Well, is  that an industrialized? No. Um, no. That's so what. I thought you going to say. What about China  for example, India? What about Well, you see,

we do have some countries that have developed the  ones you can count them on on on five fingers of. one hand. the countries that in the 20th century  and perhaps early 21st century included have moved. decisively from developing country to develop  country status namely and in that sequence Japan, Korea, Singapore, Taiwan and China. Now with China  if you want to quibble some because it's such a.

huge country some parts of it have not yet made  that transition but you know key parts of China. have actually and and so I think we can include  China in this list. In fact China is is the best. example of how this was was achieved. They all  achieved in the same way. Japan was the first in. the Japanese model which is also what I found in  my long research on Japan and which is described. in detail in the book princes of the yen. You  know what is this high growth system? It's a magic.

system for having high growth and prosperity.  Well, China is the best example because they most. of the time in the postwar era they didn't follow  this model under Mao. It was Soviet Stalinist. planned economy. Um and of course also looking  at banks, how many banks did they have? One. The. central bank, the people's bank of China. Okay.  Now after Mao died there's some two and fro but.

then a new leader came to power Deng Xiaoing in  November 1978 Deng and he was a smart guy and he. gave a speech very early on it's the first speech  where he was you know rising to power and he said. that I mean I'm paraphrasing essentially he said  let's forget about all this ideological stuff he. had to be careful obviously because there were  still hardcore mauis it's probably in the room, but let's not talk about ideology. Why don't we  focus on what delivers growth and prosperity?

Essentially, what he's saying, you know, it's a  famous expression. It's like doesn't matter the. cut the color of the cat, whether it's a red cat  or a or a black cat is what he should have said. As long as it catches the mice, it's a good cat.  Yes. And he was talking about the economy. You. know, it doesn't matter what we call the system  as long as it delivers and achieves what we want, which is high growth, prosperity, which of course  strengthens China. So, everyone wants that. Let's. do it. That's what he was saying. Now, and he was  switching from ideology to practical empirical.

work. And he had there's another expression, learn  truth from facts. You know, where you get these. four Chinese characters. Yes. Uh proverbs made up  of four characters. So um seek truth from facts. That's the empirical methodology not ideology  which dominates economics. So it was pretty. uh radical for China. It remains revolutionary for  western economics where they still have ideology.

dominating it. Essentially their western uh type  of ma's little red book is still dominating things. in economics. Where's the Chinese decided?  Okay, we we've done that cultural revolution, a great leap forward, which was a great leap  backward. I mean, this all seems to be happening. now in Europe, you know, all this ideology and  de-industrialization, which is what they tried. and didn't really work. Wasn't really good. So,  let's look at empirical facts, what works. Now, he had a neighboring country that was performing  really well, Japan. And what did he do? He went.

to Japan already before he was appointed but in  the same year 1978 he traveled to Japan with his. experts and he knew I think his because a lot of  when I was I was in Japan for 12 years and um when. I was a student initially you realize the large  majority the biggest majority of um foreigners. in Japan is Chinese there's many Chinese and  the chi the you know among the students so many. Chinese students so they know Japan well there's  generations generation they've studied in Japan.

speak Japanese very fluently, have really know  everything about it. So he came with his experts. and I'm sure they knew one charming feature which  I also discovered of the of the Japanese people. who are very kind to foreigners. I mean kind  to everyone but you know very friendly and kind. people um they have this additional charming  feature that they want to tell you the truth. But culturally in Japan, there's this interesting  thing and you when you go to Japan and you read.

some book about Japanese culture, what are the  difference? Usually it's mentioned, oh, in Japan. there's two truths. Two truths. What is that? Yes.  The official truth and the real truth. Yeah. Well, that's true everywhere, isn't it? But in Japan,  it's culturally recognized. And so what happened. to me a lot of time when I was in formal meetings  during the day trying to ask questions about. you know how does this work with this foreign  investment real estate transaction bank credit. they would give me answers and several times on  the way out one of the group speaking to me would.

say Richard that was of course the official story  well let's meet for dinner I'll tell you the real. story you know the official story is called tatay  which means the facade the front the outside the. outer appearance and the true uh truth is is hon  the the real intrinsic truth and this happened. many times because Japanese people want to tell  you the truth and because it's recognized that. what you hear in official meetings government  announcements or even business meetings during.

the day that's you know that's just the official  narrative but it's not true there's a gap and. that's by the way also why they have to work such  long hours because there's a rule that after 6:00. it's off the record and you can speak the truth in  informal setting for dinner and so on. So there's. an honest part of the day. Yes. But in fact that's  so important as you can imagine. That's why they. work so long. You know they have to because that's  finally I would show up at 5:30 just to like get. it out of the way. So I'm sure Denging knew about  that and I I checked the records. They did have.

some banquetss some dinners with sake and Mai  flowing and that's when they tell you the truth. And he did ask the question. He said I have  come you know here's the Chinese leader coming. to Japan. These countries were at war. the second  second world war and it was it was not just making. peace it was literally he was saying thank you  for for receiving me I have come to you to seek. the elixir of high economic growth he was alluding  to this legend that both the Chinese people know.

and the Japanese people know namely that there's  this legend there was an ancient scholar one of. the sages with a long beard and the flowing gowns  from China going to Japan seeking the elixia of. life which is a bit like the you know philosopher  stone the alchemy you know which you know is. probably the link to money creation but anyway  and it's a famous story now he didn't find the. elixy of life in Japan but you know this Chinese  scholar seeking it so he was alluding to that.

when he used that expression everyone knows and  you know of course the Japanese know that their. culture that the writing you know there so much is  from China actually there is a close relationship. you know and I think both people's actually quite  appreciate each other. It's usually, I must say, you know, it's it's like foreign policy neocons  from the US who want these countries to be a part. It's like Germany and Russia must be a part.  But anyway, um so um and he told him that you.

know what the how the Japanese reacted when he  said I've come to you to to to ask you what is. the secret of high economic growth, the elixir  of high growth. they told him. Now, what did. they tell him? Well, it's not recorded. You know,  there's no transcript of this of this dinner. Um, but we do know what he did after that. And  I can imagine the conversation probably the. first question and these were all senior people  from the Ministry of Finance, Bank of Japan, uh, bank leaders. Um I can imagine they will  have asked okay so how many banks do you have.

in China with your I don't know at the time maybe  5 600 million people already a multiple of Japan. um and of course now beyond a billion  but so how many banks do you have oh one. you think with one bank deciding the creation  allocation of money you can get prosperity for. everyone think again you need to have many many  banks you need small local banks. You haven't.

even finished your explanation of the meeting  between Dunghing and the Japanese leadership. And you you've just here's what I think you're  saying or about to say that the pro one of the. problems with China's economy was that one  bank could never efficiently allocate credit, which is the driver of the economy. You've made  that case, I think, really um powerfully. And. so you said what you really need are smaller banks  because they can more precisely allocate credit to.

different parts of the country that have different  needs. And um and if you don't have that, you have like stagnation and inefficiency and like  death. And that kind of describes what's happening. in the United States. I'm sorry to ask you to  pause. That's that is that what you're saying? Am I following this? Yes. No, you're you're not  just following. Yeah, that's exactly the next. point. Um, in fact, I did a study on the US with  my collaborator, former PhD student of mine. Um,

because America still has just about the largest  number of banks in the world. Um, although the the. number used to be a multiple. Yes, the Fed killed  10,000 banks in the 30s. It killed 10,000 banks, almost 15,000 banks in the post-war era. Central  banks want to consolidate and reduce the number of. banks but the more banks the better uh for an  economy for the country for the middle class. What we found in the study is we looked at what  is the link between the uh the size of the bank.

and the size of the borrower and then you know  um and what we found I mean it's it makes common. sense but it wasn't really demonstrated properly  in the in the uh in the research by others yet. It's a simple fact in banking. Big banks want  to do big deals with big customers. Makes sense. That's how they earn big money. Who lends to small  firms? Only small banks. Now, why are small firms. important? They are the biggest employer. Small  and medium-sized enterprises employ 65 70% of.

everyone in every country in the world. In some  countries, it's 70 80% of employment. you know, in when you study finance and I'm teaching  finance in some at several universities, you know, um basically um they focus on companies that issue  stocks and shares. Well, that's such a minority. 99.9% of companies don't issue and publicly trade  stocks. They're not listed in the stock exchange.

They are small firms. Where do they get money  from? small firms you know 99% of the companies. are small and medium-sized enterprises they get  their money from I mean internal money friends and. family yes but external money is only from banks  now which banks if you have an economy that's. mostly dominated by large banks extreme case is  the UK five big banks dominate you know the the.

banking system 85% of deposits with five banks the  big five then because because they want to do big. deals. They don't lend to small firms. Small firms  don't get money. Then that means only big cities. survive. Yes. Everything becomes concentrated now  Germany. But it's reflected in demographic trends. It's reflected in wealth allocation. Exactly. So  because this is a trend like when I was born 1969. like there was a lot of wealth in Grand Rapids,  Michigan. There was a lot of wealth in De Moines. Iowa. There was Portland, Oregon. I mean there  were it was more diffuse because there were more.

banks more local banks everything is affected even  fertility because if everyone you know has to move. to the big cities where property is more expensive  smaller apartments small dwellings you know can't. have another child you know so many things in  in society are actually affected directly by. this trend and this trend has been driven very  hard by the central banks they want to reduce. the number of banks sometimes is official like the  ECB we think Europe is overbanked There's too many.

banks and the ECB is is the youngest major central  banks only founded around 2,000 and it's already. managed to kill 6,000 banks in Europe. Wow. Well  done. Uh so it's very sad. Now Germany in Europe. used to be the country with by far the largest  number of banks and still is the one with the. largest number of banks. But in the last 20 years  under ECB pressure through their uh policies of. reducing banks profit margins uh you know zero  interest negative interest rate policy and then.

this overregulation made life so hard for small  banks. They had no choice but to merge. That was. the goal and that was achieved. So the number  of small banks goes down and that means banks. lend less for productive business investment. The  best way to make sure that banks create credit for. the best of these three scenarios, you know, to  make sure they don't lend for real estate or for. consumption, but mainly for productive business  investment is to have many many small banks that.

lend locally to small firms and that was the  system in Germany. But it's been under threat. Um but it also you know while Germany was doing  well until a few years ago um Germany produced the. largest number of hidden champions. Do you know  what these are? These are special small firms. that that's why hidden because basically we don't  know the names of all these small firms. They may. be dominant in their market niche but you know  they're so small we don't know the names and.

uh you can look internationally where are these  hidden champions champion because they have top. 123 market share gold silver bronze like a  champion in the Olympics that's where this. concept comes from and if you look internationally  Germany had by far the largest number of hidden. champions of any country in the world much more  than China Japan even the US and it's because. of this extremely decentralized banking system  with all these thousands of small local community.

banks. But by now the numbers already dropped a  lot in the in the last particularly under the ECB. last 20 years. Um but that explains why Germany in  the past did very well but that's now being eroded. and it's the same in the US. The US has been in  the past a very strong economy because there were. so many small banks, local banks, community. So  let's put it in political terms. I'm starting I'm. not a genius. This is taking me a while to figure  this out, but it does seem like there's a direct. connection between the way credit is allocated  and by whom and your political system. So,

a totalitarian system has a smaller number of  institutions providing credit because they can. control the country more and therefore a smaller  number of beneficiaries of the system. Exactly. Exactly. So the fewer sources of bank credit  you have, the more centralized your society is, the more control there is in a smaller number  of hands, the less democratic your country is. Exactly. That's exactly it. And of course, this  is also what immediately Denging realized speaking.

to the Japanese because they told him, well, it's  all about banking. Banks create credit and credit. is needed for growth because what is growth?  Growth means more transactions this year than. last year. That means more money is changing hands  for transactions this year than last year. That's. in our system only possible if there's been more  credit because that is the money supply expansion. And of course then it depends what where's the  credit going. Is it going for asset purchases? That's no good. Acid inflation consumption that  creates because you're blowing my mind. So,

I mean, again, I've spent my whole life imagining  that the M's, you know, that's what they want. you to be, M1, M2, and all that, um, that the  Federal Reserve was, you know, the source of. the money supply, just the the f the Fed, but  it's all banks. Of course, it's true that the. central banks are powerful, but they're powerful  through their control of the banking system, and they have power over the banks. Um and you  know those who control these central banks is is.

a small number of insiders you know historically  you know probably some big banking dynasties and. so on. Um and of course they exert the power they  they reduce the power of everyone else all these. other banks and the central banks can manipulate  banks for example to lend more for unproductive. um unsustainable asset purchases create the boom  bust cycles. That's what my my book, Princes of. the Yen, shows that the Bank of Japan created the  acid bubble of the 1980s on purpose. And I could.

even show that it was intentional. And it's it's  demonstrated in in several dimensions of proof, both eyewitness accounts, the data, um the um  anecdotal evidence um you know, it's all there. Um essentially, they've the Bank of Japan has  admitted that was the goal. Why would they want to. do that? In order to have what follows a massive  long recession. I didn't expect it to be a 20-year. recession. I mean, that's pretty brutal and  and crazy. Um, but that's what they wanted. Why.

did they want in order to blow up the successful  system? Japan was far too successful. It had to be. destroyed just like the German economy and others  in the past. Who wanted it destroyed and why? Well, you know, if you if you go back to um  Japan's relationships with other countries in. the world in the in the 60s and 70s, particularly  '7s and then early 80s, it became clear the one. country that was most unhappy about Japan was  the United States of America. They had one.

political initiative about after another to try  to force the Japanese to change their economic. system. Yeah. Slow down. Structural impediment  initiative. This that and the other. No, no, this is unfair. whether you must change all your  business practices. Now, officially in terms of. the economics, the argument was always we want  to help you become a a stronger economy. Are. you sure? Um and and you know that's it didn't  work politically. So the central bank was used.

essentially as a traitor to blow up the system.  It's the same in the Asian crisis. you know, with. the Asian crisis. Um, I was sent I was at the time  at the officially, um, at the Asian Development. Bank and I was sent as an official representative  to the government and central bank of Thailand. to analyze what's going on with this Asian crisis  and what are the right policies and it so quickly. emerged the same mechanism, the same goals as  in Japan. This was to destroy the success, blow.

up the system, create a crash, create a crisis  then and then also IMF forcing them to open up to. foreign investment and because there was so much  strong growth and prosperity but the western um. big um owners and banks didn't have any ownership  in this and the Asian crisis and Japan crisis, Korean crisis was a way to force it open and then  the west could buy it up very cheaply. So you. think that the Japanese recession was created well  by the Bank of Japan but with the encouragement.

of the West in order to slow down? Yes. The US and  particularly the Fed. Yeah. Absolutely. And that's. what I show in my book. There's there's no there's  no doubt about it and there's no no been no. contrary evidence um or that anything in my book  was incorrect. So, you write this book published. only in Japanese, at least at first, and it, as  I said at the outset, rockets to the top of the. bestseller list in Japan, beating Harry Potter,  which is amazing. And then what happens? Yes. What.

happened next? Well, why haven't I read this book?  And why is it not on our bestseller list? Well, yeah, it um what happened next was, of course,  in Japan, I was constantly being interviewed. I was in the by the daily press, by the weekly  magazines, by the monthly magazines. I was given. uh monthly columns. I was writing for years every  month in the Japanese economist and the Japanese. Newsweek. I was on their television. There's  some big Japanese. Yeah, it's all in Japanese.

There was some big live shows. Your Japanese is  good enough to do to explain economics on TV. I wonder how many of our viewers will know  what you're saying. Um, that's impressive. Um, and so but it was all in Japanese, you know,  so it was, you know, in the media there was. somewhere you could see there's some pressure  being applied some high-profile live Sunday. uh TV shows like cancelled on the day and then  the, you know, the senior executives inviting.

me around embarrassed to try to explain and you  know the Japanese love the truth so they would. they did tell me the truth. Well, sorry. You  know, we it wasn't we had no choice. You see, our advertisers, you know, the advertising  revenue is very important and it was one. of the it was our biggest advertiser and and  told us Richard Vera can't be on this show. So, you mean a company like Toyota Cannon or  something? Yeah. I can't say the name,

but a company like that. Well, hang on. They have  nothing against me. I have nothing against them. Why would they say that? Yeah, of course it's  not them. And they also said that they have. nothing against you, you know, and I'm, you know,  we're all really sorry about this, but you know, is their bank saying that that they have to say  this? But hang on, I don't I don't even criticize. the banks because I show that it was the central  Well, yeah. You see, the the bank had to say that. because the central bank asked to do so. So that's  the chain of command, you know. And so then I was.

cancelled in that show or some magazine editions  even. There was one, it was one of the top. um weekly magazines I was interviewed in that,  you know, it was very proper and formal. They. came with several uh photographers and recorded. I  checked the script, you know, they everything was. a big deal. And they even then sent me the actual  copy of the magazine, but there was no article of. me. It was like last minute. They even forgot to  take me off the distribution list. Um so I called.

Thanks for sending this, but where's  the article? Where's the interview? And they explained, well, we yeah, we had to kill  it because of pressure. So, um, so that happened. on the one hand, but you know, still, I mean, I  would say more than half of the time I, you know, my interviews got through. I thought at the time,  well, it's pretty controlled. I now realized with. hindsight that was pretty open because once I  went to the UK it was like fully controlled and.

you know I did not have this media access anymore  but it was only in Japanese. So one day I got a. call from a a Reuters journalist from Reuters this  and this name British guy on the phone apparently. and and he mentions my book. Oh so I thought oh  that's impressive because it's all in Japanese. and usually you know the foreign journalists they  don't speak Japanese so I was quite curious. So, and I expected, you know, he wants to interview  me on the book and then he said, "Oh, no, no, it's.

um No, sorry. It's this is a it's about your book,  but it's a personal matter." Really? Personal. matter? Yes. I I'm calling it's a private matter.  Um I want I want you to to help my wife. Right. Well, I'm I'm confused. Can you explain? Well, you  see, her job is to translate your book. Well, hang. on. This book has been translated. It's a great  translation. and I helped with it. The publisher, we sat together. We, you know, we're really uh uh  word smithing every sentence to make sure it's got.

the right New York. I wrote it in English. Yes.  But it's it's a it's a very good translation. What do you mean her job is to translate my  book? Yes. Her job is to translate it back into. English. She's given a very tight deadline.  And you know, if you give us the manuscript, the original English, then she's done with her  job. Excuse me, what? You know, I own all the. language rights. I've sent it to some American  publishers. I'm still waiting for the result.

This is like a pirated translation. I'm sorry.  I mean, I'd love to help you and your wife, but I can't do this against my own interest. So, I  had to decline. Now, he did say where she worked, and it was one of the major I don't want to  say it. I don't want them to get in trouble. even after even though it's 20 24 years ago.  But it was one of the major places in Japan. uh that are more considered um official where  you where you also think well hang on why do.

they need to read need to read this in English  because the Japanese people are quite happy if. something is in Japanese they will only read the  Japanese you know you've got a choice nobody will. say okay I'll read the English so it was clear  there's somebody outside Japan who wants to read. but who could use one of the major was considered  government institutions as a translation bureau. Well, the puzzle was solved a few months later  when somebody came to visit me from America.

uh from Washington head of one of the think tanks  and economy. I'd met him before he knows me, you know, he's doing Japan. He wanted to a lot  of people came through to see me on Japan and. ask me on my analysis. And so, you know, um,  we met and and first thing he says, "Richard, great book you wrote in Japan, Princes of the  Yen." Well, hang on, you don't read Japanese. No,

of course not. No, I don't. But, you know,  the translation is circulating in Washington. And and then um and then you know uh a  few months later I got the call from the. US embassy. It was you know clearly a Japanese  lady working there. Very polite as you'd expect. Professor WA um we have a request from  the US State Department. It's like okay.

um there is a there's a senior person  from the state department who wants to. arrange a meeting with you. Uh, well,  I guess that's in Washington. I have. no plans to go to Washington at the moment.  Sorry. No, he's coming to Tokyo to see you. So, I thought, okay, let's um meet in a  public place as opposed to a dog alley. Um, and sure enough, um, when we met, the main  message was, you know, the CIA is watching you.

That was the message. That was the main message.  It's like there was no there's no quizzing or. trying to manipulate me or get me out, you  know. It's just the CIA is watching now what. you're doing. They weren't trying to learn from  you. They were trying to tell you something. No, no. Actually, somebody suggested when I told him  the story that that also was my opportunity to.

ask for something like, you know, be president  of one of the Federal Reserve banks in the US as. part of the deal to stop talking about credit  creation. Actually, it reminds me I need to. uh finish another story I started. You know, I  told you about canes moving away from the truth. I. want to pause and savor this for a moment. So you  publish this book in Japan in Japanese explaining. the Japanese recession and within a few months  you get a visit from the CIA. Yeah. Yeah. Well,

I' I'd spilled the beans on what is the most  powerful mechanism for both economic growth. and prosperity or arranging for the boom bust  cycles. And of course, this is something that's. been happening across the globe in the last 200  years uh quite a lot. And I was mentioning names. and I did okay I need to tell you to finish that  before we come back to the uh to Ben Bernani and. and colleagues. Um I after that visit all the US  publishers sent back their polite letters turning.

down my book. I mean imagine this is a book  that was the number one bestseller in Japan. It did have a chapter in it on the US. There was  a link I had a chapter on Asia, the Asian crisis. same story and I had a chapter on my encounter  with Alan Greenspan and based on that encounter. and some analysis I concluded and that was in that  chapter that actually the Federal Reserve is on. track and Alan Greenspan was still um hitting it  at the time um was on track to create the biggest.

asset bubble in history and they will do likely  the same as in Japan and it will be a crisis. is. uh it will be a bust but because it's America  it's going to be a global financial crisis. that was in my book in the it's published in the  original Japanese in 2001 um now there's I then. found one publisher that has a I don't want  to mention their name it's a very good name. um and they have international offices global uh  excellent pop reputation and their US um operation.

is quite independent has editorial independence  and I met to I I sent the the whole manuscript to. the CEO of of the you know their US side and they  have excellent distribution in the US and then I. I I went to New York and I called him and said  I happen to go through New York can we meet of. course um we met um in the Four Seasons the first  thing he said when he he saw me is Richard thanks.

for sending me your book I read your book it's the  best business book I've ever read. That's what he. said. Of course, we'll publish it. So, that's  how the lunch started. And I thought, well, this is good. This is starting good. I better  immunize him a little bit on the what's going. to happen next. People will approach him and I  experienced this in Japan. They will say that. this is a dangerous book. That phrase was used  some particular journalist working at the New York.

Times, but probably also rather, you know, in the  mockingb bird style, perhaps working for some of. the agencies. um they did some um some sort of uh  activism against my book because I wanted a a book. launch on the Japanese book for the foreigners and  the foreign journalists in Japan at the foreign. correspondents club and the head of the foreign  correspondent told me that these US journalists. were really trying to block that anyway. So  I told him, you know, they will say this is. dangerous and and he was just laughing it off. You  know, nobody can stop me. I have total editorial.

uh independence and this is a brilliant book.  It was bestselling Japan. Are you kidding me? Of course we'll publish this. So two weeks later  I was back in Tokyo. Email from this guy. Um dear. Richard, it's great to meet you in New York. I  love your book. Unfortunately, we can't publish. it. He I guess he also got a visit from from  the the CIA. Was it ever published in the US?

Yes. So then I was I was getting to be honest a  little bit frustrated because I wanted the message. out and it was already more than a year that I  couldn't find a publisher for a book that's a. bestseller. So I thought okay what what to what  is it that in the US they're particularly upset. about and I concluded it must be that chapter  with Alan Greenspan and I need to now tell you. the background of that and what happened when  I met Alan Greenspan. You see my first article.

after you know after I published this uh paper  in in Japan for the development bank of Japan. solving the puzzle of capital flows was credit  creation was the answer and you know it's still. the only paper to explain Japanese capital flows  with credit creation for asset purchases explains. capital flows and also this huge outflow and the  collapse it's published then it takes years with. these academic journals published in 1994 land  prices in the Japanese asset bubble and and and. um and um and capital flows and so um that I had  sent to the economist at the time because I'd also.

I'd taken the next step because I realized this is  so powerful. I can explain capital but I realized. with this I can explain almost everything. I can  explain Japanese GDP growth and that worked. I. can explain you know the ups and downs of of uh  the business cycle. uh I'm now expecting a credit. crunch and a banking crisis. So because I linked  it into a macro model, there is one um a very.

simple macro model that links money in the economy  which is quite famous throughout modern economics. in the last 3 400 years actually. so-called  the so-called quantity equation. MV equals PY. PY is prices times for some reason they use Y for  real GDP, real income because the I had been used. for investment by canes already then used Y for  income, real income times prices is nominal GDP. So really we're saying money M times a constant  velocity equals nominal GDP. That's what it says.

So there's a direct link between money supply  and GDP. But the relationship broke down because. velocity wasn't constant and it was all over the  place. And that's when monitoriism failed in the. 80s and people thought it's not working. But what  I realized was that that equation is wrong. It's. a special case. And because it's basically wrong  on two counts. Number one is it assumes that all. money creation is used for GDP transactions.  But what about credit creation? Money creation.

used for asset purchases. Yeah. It's just which  of course since the 80s has has ballooned and. that explains the velocity decline. You see that  explains it. So I realized we have to have two. equations. One is the money going into GDP the  real economy and money going into asset markets. And I did that and it worked. Well, how could I  do that? Milton Friedman himself at once said, "Oh, I wish we could divide money into its use."  Well, we can if we understand the money creation. process, which is credit creation, the credit data  you can disagregate. Credit for the real economy,

credit for asset purchase. And that's what I did.  So I call it the quantity theory of disagregated. credit. It's really the general quantity  theory because turns out the ancient MV=. PY is a special case. I've got the general case  which is credit as money and divide it into the. two flows. Money for the real economy, money for  asset prices. Anyway, so that's what I what I did. at the time. I sent this to the economist. They  wrote a brilliant write up, a whole page on my. uh on my work. This was the economics editor at  the time. And because this is pre- internet now.

anyone who wanted to read this I I it was in the  public domain I'd give presented this as various. conferences economic royal society economic  conference and an Asia-Pacific conference anyway. but people had to write to me who wrote to me it  was the bank of England um Ross Charles JP Morgan. and oh the Fed now they were like there was a  fax there was a phone call at at Oxford where.

I was in the Institute economic statistics and it  was like urgent. Everyone's telling the Fed, the. senior people from the Fed, they need the paper.  We need it yesterday. So, okay. And I I sent it. to all of them. Um I never heard back from anyone  but they were all clearly curious about because. you know the in the writeup um the key words  credit creation were mentioned and you know my. whole approach was mentioned and the author who's  a good economist Clive Crook you know he wrote you.

will hear more about this or perhaps he expected  it to spread faster he perhaps um underestimated. the resistance against the truth spilling out he  may be at some other me I think he's still writing. maybe for Forbes or I I I can't remember. Yeah.  Anyway, so um there was this writeup. I sent it. out and then the Fed had wanted to see it. So  later when I was actually also thanks to that. write up, I got job offers from various investment  banks to be their chief economist in Tokyo. I was.

interviewing with Goldman Sachs. Had an offer from  Swiss Bank Corporation to be head of research. And. then Jardine Fleming offered me that job as chief  economist which I thought that's not bad you know. for my young age of what was it 25 years old.  So I took that went to Tokyo because they gave. me the leeway to implement my credit creation  model and so I quickly rose to being one of the. top economists in the various surveys institution  investor survey grand survey a top three economist. on Japan because my forecast worked if you look if  you use credit creation it works you know you can.

forecast what's happening what's going to happen  um and um but so they sent and and you know these. these firms send you around the world you sing and  dance for the institutional investors you're on. the sell side um presenting and you know you get  some really tough questions. It's a good way to. um to get feedback and get critiques of your  theories and models. So they've been pretty much. you know tested against a lot of resistance. And  when I was um and of course you go to places where. there's money so New York Boston was also part of  the itinerary as you're going around the world.

But I managed to arrange an afternoon in  Washington and then I I went to see the. Fed and the senior economist at the time wanted  the paper. We had a good meeting and so I asked. him at the end so you know who was that senior  senior board member you had mentioned wanted to. read my paper. Oh that was Alan of course. Oh okay  Alan Greenspan. Great. So it made my day and then.

another two years later there was the annual you  know by annual meeting of the IMF and the World. Bank is is outside Washington. It's somewhere in  the world and happened to be in Hong Kong and my. investment bank the Asian headquarters was in  Hong Kong. So they had a big dinner with all. the big cheese people there and I managed to get  myself to come over from Tokyo and there was Alan. Greenspan usually crowds around him and you all  the top guys you know finance ministers central. bank governors everyone there and at moment  the crowds had receded okay my chance I'll go.

and talk to Alan Greenspan introduce myself and  I had prepared this chat up line which I then. immediately used may I excuse me may I introduce  myself my name is Richard Verer, I believe you've. read some of my research. Of course, you'd expect,  this is 4 years later, you'd expect him to say, uh, your research, like, what was that about? Tell  me more. Which is sort of what I was expecting. You know what he said? Richard Vera, credit  creation, the paper on Japan. Yeah, I read it.

twice in the economist and then the actual paper.  It's like four years later. And I'm like, "Uh, would you venture to comment  on my paper?" Next surprise, you know what he says? Can't  remember. Turns around and walks away. Hang on. It's just proven that he remembers  every single detail of this, but he clearly.

didn't want to talk to me. So, that was that was  kind of scary. And so when I got back to Tokyo, we had the system called Reuters 3000. Uh  you know, it's all sort of pre- internet or. very early stages. So I looked up Greenspan's  publications, his speeches, anything written, anything uttered by him because, you know,  he said it, Richard Vera, credit creation,

the key words. So you know when and how and how  often has he used credit creation in his and he. you know he was central bank um chairman of  the board of governors for what 18 years so. you know and you know he's been prolific in his  in his utterings and speeches and publications. you know how many times he's used credit  creation I did this keyword search zero never.

now of course I knew through this encounter  that he knew extremely well why this is so. important so powerful he knew this very well  that was very clear but he was playing ball. this is a taboo he's never used it and  I thought ah there can't be there must. be something I kept searching and  then I discovered there's a book. um edited by Ian Rand and he wrote a chapter  in it in 1967 when he was not yet at the Fed.

And it's about oh credit creation and how gold is  a much better way to run the system because once. you give central banks this much power they will  create too much credit. He basically when you read. it he criticized the Fed for creating the um the  asset bubble of the 1920s in the US and then the. great depression in the 1930s which was the Fed's  job. They did that and it wasn't an accident. And. of course, the Bank of Japan was doing the same  thing in Japan. So I realized, wow, this is how.

it works. He then was offered a job at the Fed,  but he was he was basically told never to talk. about this again. And the same is true. Now, back  to Ben Bernani. He started to work on credit when. he wrote about the Great Depression. And you know,  there's some papers, but he hadn't discovered the. credit creation aspect like banks create money  out of nothing. He'd never written about that. and but you know he's more and more writing like  oh we need to look more at credit and banks why.

do we drop out banks we need to understand what's  happening there this sort of thing you know that. was his work until 1993 this is already after my  first paper was out and I think the Fed decided. we need a a counterargument now and there was this  paper by Bernani with a headline credit creation. and the macroeconomy wow that's like wow this is  what I'm talking about so I read it and you know. what he says? Oh, credit creation is the financial  intermediation of banks gathering deposits and.

then lending them out. He's defined it away. There  was no credit creation. And then he also writes, oh, I used to write a lot about bank credit,  but it's not so important. Mayor Kulpa even. in a footnote, I was wrong writing about bank  credit. It's not so important. And where was this. thing published? Federal Reserve. Federal Reserve  publication. That's where his career started. and. his career then took off and he became chairman  of the board of governors of the Fed but he would. never talk about it. Now when he did use the  knowledge was when he copied my quantitative.

easing and I must mention this because of course  you know I said earlier once you create this asset. bubble you get a banking crisis but it doesn't  need to be a 20-year recession. It doesn't need. to be a 10-year recession as a result. It doesn't  even need to be a one-year recession. You can have. an immediate recovery and you can get rid of the  non-performing assets in the banking system just. like that at zero cost to society. So whenever  they say, "Oh, we need to use fiscal money. We.

need to have national debt now based on this bank  bailing out the banks and now we need austerity. All the ordinary people need to, you know, tighten  their belts now. This is all a lie. We don't need. any of that. It's just an accounting problem.  And the central bank has the tools to legally. just change the accounting such that there's no  more problem." Namely, and this is my original. proposal. I published this in the nik neon khimu  in the main um newspaper financial newspaper. daily uh highly respected big article uh 2nd of  September 1995 headline we can have a recovery and.

high growth through quantitative easing which was  my proposal I explained I explained bank credit. creation so the first thing is you know we have  to boost bank credit creation for the real economy. and here's how to do it and I have basically  there's three things the government can do. So you know simplistically calling it just QE1 is  the first thing QE2 second type and then the third. measure QE1 is for the central bank when you have  a bus banking system with all these non-performing.

loans the central bank just buy them up of course  at face value as if they were still val valued at. 100 at par and the banks clearly will be very  happy about this. Their balance sheet will be. very strong. They will be more liquid than ever  in their whole history. You've solved the banking. crisis. There's no more banking crisis. Now,  you could say, "Well, hang on. Aren't we just. shifting the problem to the central bank?" Well,  no, because the central bank doesn't have to mark. the market. You can just forget about these  holdings. But hang on. Isn't the central bank.

now creating money? Aren't we paying for this  through inflation and a weaker currency? No, because it doesn't create money because money  creation is when the banking system creates. credit and injects it into the non-banking system.  But this isn't a transaction within the banking. system between the banks and the central bank. The  central bank buying non-forming assets from banks. It doesn't create money at all. It just cleans up  the bank balance sheets at zero cost to society.

There's no need to use tax money. And why not do  that? Exactly. Well, whenever, now listen to this. Whenever the central banks don't want a banking  crisis to turn into a major thing and recession, that's when they do it. I give you two examples.  August 1914, the United Kingdom of Great Britain. and Ireland declared war on Germany and her  allies, which meant Austrohungarian Empire,

Ottoman Empire. Okay, so that's how the  first world war started. Britain declared. war just like with the second world war. Um the  trouble was on I think the next day the treasury, the bank of England and the government got  visitors from the British banks and they said. maybe clutching some balance sheets and documents  uh sorry uh you've declared war. We're bust. Well, how did that happen? The British banks were bust.  Not all of them but quite a lot of them. Well,

London was the number one financial center for  everything. So even for bills of trade, bills of. exchange and financial settlement between Ottoman  Empire and Hungary often it would go through. London. London was the place and and of course  often also pound denominated that was the most. liquid international currency you know and because  now all these countries these are major countries. Germany Ottoman uh AustriaHungary they're now  considered enemy country all the paper held by.

British banks were deemed non-performing because  irredeemable enemy first how do you get the money. exactly so and he was large enough for the banks  to be bust cuz capital is not high in banking 10%. or less. So you quickly reach that point where  your equ equity is wiped out and you're bust now. because Britain had just declared war on all  these countries. Was it a good moment to have.

a prolonged banking crisis, recession, economic  depression? No. So this was a situation where the. central bankers did not want this to turn into  a big thing. And so what did they do? My QE1, the Bank of England just bought those up at face  value. They had also another policy where the. treasury issued paper money actually because they  felt we need to somehow protect the credibility. So we'll we'll have this measure as well. So  people look at the treasury. They don't look. at the bank of England buying these assets at face  value. But anyway, that was the key thing. Second.

example and and so yeah the problem is gone. No  banking crisis. May I ask you since you brought. up the first world war and we're on the cusp of  a war right now potentially a global war. What is. the view of war uh by the banks? like what do the  banks think of it? You've described the banks as. the single greatest um control mechanism of human  behavior in a society. I think particularly the. central banks because they have the the bigger the  bank the more the power but their power extends. beyond just like their relations with other banks.  Their power like determines a lot of what happens.

in your country. Yeah. And they're not under  the control of voters, right? So it's a it's. an extrademocratic institution which happens  to be the most powerful which is like crazy. I'd love to know how that happened. But how do  they feel about war? Well, central banking and. warfare are very closely linked. the as I said I  mean the the the modern um major bank the first. modern major bank and central bank was the bank of  England of course and in the very um act law act.

of parliament the law founding it it says this  um institution and mechanism because they they. didn't want resistance they don't mention bank  of England what we're doing here is establishing. the bank they kept that secret we we're doing  a mechanism a new mechanism by these investors. to raise and lend a lot of money to the government  namely by establishing a company will be allowed.

to establish a company that's the bank of England  in order for what in order to wage war it was in. order to make war so they're closely linked and of  course if you look at it founding document it says. that in the in exactly the act of parliament  establishing the bank of England it said the. purpose is to make war do you know why the Federal  Reserve was established there and there was a rush. to establish for 1914 the year the first world war  started exactly destroyed Europe and again it was. done with subtifuge I mean you know the gathering  everyone yes on the 23rd of December 1913 uh when.

nobody was there uh and then also introducing  income tax that's also the bank of England. it was established together in the same act um  calling for establishing new taxes why because. when when you have these central banks privately  owned central banks established is basically. this trick where these entrepreneurs persuade the  government, oh you don't want to make, you know, you don't want to issue money issuing money,  we'll issue money for you. What that's what.

they're essentially saying without being so direct  about it, but that's what they want to persuade. governments to give up the power to create money  themselves. We'll do it for you uh and we'll lend. you the money. Um and henceforth, well, how do we  get our money back? Well, we love to lend to the. government because you can raise taxes and that's  why taxes were introduced. The federal income tax. didn't exist before the creation of the Fed. It's  also created nice. You couldn't have one without. the other. Well, whenever central bank is created,  they introduce new taxes one way or another. Yes.

And the central bank of the United States, the Fed  was created during right before the war. I mean, yes. right before the war, months before the war.  What was the role of the central banks during that. war? The most important war in the last thousand  years. Yeah. Well, it was it was really at the. pinnacle of the war economy. There's no doubt  about that. It's very clear. And the same is true,

of course, for the other side. And now from 1917,  the US and Germany were at war, which is very sad. a lot of Americans of German descent and Germans  didn't really want to be at war with Germany, but that's what happened. So, we've got these  two countries at war. Sad. The soldiers dying. the trenches and their economies organized as war  economies at the pinnacle of the war economies are. the central banks. So who were the key players  in the German central bank the rice bank which.

was 100% privately owned was somebody called Max  Vorg or Max Warberg you might say in English and. who was at the pinnacle in fact was a founder  um of the Federal Reserve and who was the key. person there was somebody called Powell Vbber Paul  Wberg his brother but of course the soldiers have. to kill each other and these Two countries are  wait. The head of the German central bank and.

the head of the American central bank were  run by brothers during a war between the US. and Germany. Yes. Now I have to qualify. They  weren't the formal governors but they were the. key people. Did anyone notice this? Well, some  people did. I mean probably encouraged. I mean. with with Paul Warberg it was obvious because  until 1911 he was a German citizen. He'd only. just come over for that purpose to set up the Fed  and he was speaking I mean half German basically.

when he spoke English. So you know um it wasn't  I mean if you were looking for some details you'd. quickly find this. How did the the brothers do  during the war? Were they destroyed? Were their. fortunes taken away? Oh no no no. Of course um Max  Warberg stayed in power at the at the rice bank. He was the one who who signed off on Hitler's  proposed head of the central bank even in the. 1930s. It was also Max Warberg still they were  those I can't believe brothers were at Absolutely.

Yeah. Yeah. those banks. Yes. And of course I  don't want to just you know pinpoint the Warberg. family but you know I mean there's other families  and there's many families. there's JP Morgan, you know, and they're of various backgrounds and  and you know, uh, ethnic backgrounds and whatever, but it the principle is we we do have um that it's  an inside game. Well, yeah, bankers particularly.

those that are close to central banks and maybe  are private owners of these central banks and. the rice bank was 100% privately owned and  you know when I mentioned Kanes, you know, when he became a director, he must have been  an owner of this privately owned central bank. because they have these rules. If you're a leading  person, well, you must be a leading shareholder. You know that's how it works. So now I just want  to give you the other example of of you know to. prove this point that you don't need to have a  crisis and a recession even when the banks are. bust because the second key example is 1945. Japan  even Japan so the bank of Japan knew very well how.

to get out of these problems because in 1945 it  was much worse. The banks were 100% busted. They. were lending to the government East Asian greater  prosperity bonds, basically war bonds of a country. just defeated. You know, you could trade them in  the flea market for almost nothing. And secondly, um forced munition uh loans to, you know, the  the the military industry. Um most of which.

was also bankrupt or was not even in Japan any  longer because the the country of Japan shrank. a lot right after 45. the whole of Manuria  no longer under Japanese influence. Taiwan. and Korea were intrinsic parts of Japan  until 1945 for half a century. You know, Philippines, Vietnam, of course, these were  added um you know during the Second World War, but you know, Korea and Taiwan were already for  50 years were part of Japan 1905. Um exactly. So,

um so these banks were bust because all these  loans had no value. It's like 100% non-performing. loans. What do you do? Is 1945 a good moment to  have a big banking crisis and long recession? No. Because they had bigger problems. You know, the  most cities were devastated by these incendurary. bombs and the carpet bombing of civilians also  like in Germany. So then you don't want a banking. crisis and recession. What do you do? Well, you  don't need to have one. This central bank buys the.

non-performing asset face value and the problem  is solved. And that's what they did. So you can't. tell me the bank of Tran didn't know what to do.  That's QE1. Now I was quite convinced that even. if in you know say uh I proposed this in 1995  even if at that time the bank of Japan were to. buy all these non-performing assets most people  at the time were still saying oh it's not so big. a problem these non-performing assets Richard  Verner always talking about I was quite clear. that they would rise to 25% of all bank assets  is non-performing because you just look in the.

80s what was you know the real estate lending how  much did it increase and you got the numbers and. that turned out to be a very correct uh estimate.  So I was convinced that even if the Bank of J just. wiped that clean by buying it up at face value,  you would still not get a recovery in bank credit, but you need that for an economic recovery  because the loan officers are shell shocked. to see what happened. And you know it's human  nature and even if you get bailed out, you're. not going to in immediately increase lending. So  I came up with this proposal on how the central.

bank can force banks to increase credit which you  know we can call QE2. So QE1 is the central bank. buys non-performing assets from banks. Okay. QE2  is the central bank buys performing assets from. non-banks. And I gave the example in my report at  the time for for investors. I wrote, "Well, the. central bank needs needs just to buy real estate  in Tokyo because all this is going to turn into.

non-erforming assets, Dud loans, and the the real  estate is the collateral. The central bank should. buy it up, the loans, the real estate, therefore  coming with it and turn it into parks because we. don't have enough park space in central Tokyo.  It's not such a green city as it could be. And. that is a very simple thing to do which improves  quality of life, but also it creates money. It. forces banks to create credit. Why is that? It's  because normally, let's say here's a property.

owner, they don't have an account with the central  bank. So, when the central bank buys their land, they will tell the central bank, well, please pay  me. Okay, what's your bank account number? Okay, they give the central bank his, you know, their  bank account number. What happens next on the. balance sheets is the central bank instructs the  bank to pay this client of the bank. And because. this is between the central bank and the bank,  this is unusual, right? Um the bank gets reserves. from the central bank on the asset side and it  must now credit the account of this customer with.

those deposits which is deposit creation. That  is the credit creation as we discussed earlier. That's how the central bank can always force banks  to push up bank credit. Now for and and then you. get a massive within 6 months you get a massive  economic recovery. There's just no way around that. because Japan was in deflation. The economy is  shrinking. Credit was shrinking, negative credit. growth. It was really bad for many many years. And  so this proposal would have solved the problem.

I I actually contacted in Greece later after  the European sovereign debt crisis and Greek. credit creation was negative. Same game always.  Uh Spain credit negative. Huge recession. um vast. youth unemployment 50% youth economy population  and the human cost of this is in the human cost. and the you know the young generation basically  their future wiped out you know no job prospect. so I I went to Greece to speak to the treasury and  um because there even when the central bank is not.

playing ball the ECB was clearly trying to create  this problem it was was not trying to help there's. something the government can do that's the third  form of of QE without the central bank treasury QE. which is again something we have to look at in the  US I think there'll be treasury QE as well this. is where you know if you look at the bond markets  with this crisis the bond yields jumped in Greece. you know double digit 50% 60% Spain approaching  7% which was quite crisis level Ireland double.

digit 20%. Why would they even issue bonds? And I  told all these question, don't issue bonds, what. is the interest rate borrowing from banks in your  country? Oh, it's only 4%. Yeah. Right. And when. you borrow from banks, unlike the bond market,  you're creating credit directly. But you're in. a shrinking economy. Credit creation is shrinking.  That's the solution. That's the third way you can. reflate the economy. Now, they all refused to  do it. Not because it's it wasn't possible. It.

was legal. I checked with a an expert on ECB law.  It's perfectly legal. They could have done it. Um. that's where the political power comes in. They  were um essentially scared into not trying these. policies. The Bank of Japan for years said, "Oh  no, we can't do this. QE1, QE2, we can't do it.". It's like, "No, no, no." Well, came 2020, March  2020, they all suddenly could do it. And that's. the next surprise. So what happened actually in  March 2020 was the Federal Reserve implemented QE2.

and I should also add in 2008 so actually Bernanki  you know he implemented my QE1 he made actually. a speech at that time in January 2009 saying well  I'm not doing the what the bank of Japan had done. because they used my expression QE but they were  faking it they were just buying performing assets. from banks which doesn't really do anything  you have to buy non-performing assets from. banks banks or performing assets from non-banks  that works exactly but he banks Japan didn't do.

that but Bernani did in 2008 that's why the US  recovered first from the global financial crisis. even though it started in the US it's because  he he borrowed my proposal of uh purchasing the. non-forming assets from banks he didn't credit  me when he gave this country is a bank bailout. yeah yes but who pays for it you see it shouldn't  be the taxpayer it should be those who messed up. That's the Federal Reserve. So, they should pay  for it. And they did. So, that was fair. That's.

to to to tackle the moral hazard problem. Those  who mess up have to pay up, which is uh one of. the main problems in the United States. So, the  last area I want to get I mean I we could go on. forever. This is like you've totally overturned  my primitive understanding of economics. Um thank. you. You welcome. what given your your record of  preence in assessing you know where economies are. going you look at the United States what's your  10-year projection for the US well it depends on.

so many factors um actually before we come to  that can I just tie together some loose ends. we have be very very brief so on greenspan the  reason why talking about banank because we were. saying princes of the yen the publishers turning  down the book. Uh it wasn't published in English. And you see I concluded at the time, how did I get  this published uh by a you know good US publisher?

It's probably that chapter where I write about  Alan Greenspan my encounter but credit creation. He said the words. So he knows credit creation  are his chapter. Um and I concluded he's doing. the same thing as the bank of Japan. That's why  he doesn't talk about it. It's secret. So it's. going to be a global financial crisis. That was my  prediction. It's probably that chapter. So I took. it out. H it's the last chapter. Send it to the  next publisher, an academic publisher that they.

also had some books on Asia. I thought they could  be interested. They immediately accepted it and. it was published without that chapter. Later that  publisher was bought up by a British publisher. I. wrote to them the new owner. I want my copyright  back. Oh yeah, of course. They thought it's just. some academic book. Okay, fine. I got it back. So,  I've now republished it with quantumpublishers.com. including the longlost last chapter. So, it's back  in there and one can get it. Um, that was on that.

one on on Deng Xiaoing. So, once he found out the  secret, the elixia of high economic growth, he. went back to China and what did he do? He founded  thousands of banks, small banks, local banks, regional banks, provincial banks, village banks,  savings banks, thousands. There's almost as many. now in China as in America. Almost 5,000 banks.  And economic growth took off. And of course, their.

job was to lend to small firms. And the the logic  is very clear. If you compare the Soviet system. that he had previously with one bank, that's maybe  let's say there's five people at the board making. the decision how much money to create and who  to give it to. Well, the Japanese must have. laughed at that and told him, "Look, why don't  you have 5,000 banks, which is what we have now, almost in China, 5,000 banks with 35 uh branches  each with 30 loan officers each branch lending.

to small firms, checking millions literally of  loan applicant, checking them, kicking the tires, does it make sense? Can this be repaid?" You know,  then you have more than 5 million decision makers. If you do the calculation, these loan officers  is more than 5 million deciding how to create. and allocate this money and who to give it to and  it will be used for productive purposes, business. investment. So which system is better? Those five  guys at the central bank trying to do this for 600.

million people or the 5 million loan officers and  of course I think Deng Xiaoing was smart enough. to realize, okay, this a no-brainer. We'll have  these banks and economic growth took off. China. delivered double-digit economic growth for four  decades. You know, when you have 15 15% growth, then every four and a half years you double  national income. And that tells you we can all. have prosperity. All we need is for bank credit  creation to be mainly used for productive business.

investment and can be done and has been done.  All the high growth economies have shown. We can. have it in the US. We can have it in any European  country. We can have it in any developing country. A lot of our credit creation has gone to asset  purchases. Exactly. And boy does it show. Exactly. Um it's a whether it's counted as inflation or  not, it is inflationary. I mean it just things. are more expensive. Well, asset inflation and  then derivative from that you get all sorts of. other prices going up. So um given that like where  does the US stand right now? Exactly. So Exactly.

And it's good to contrast this to what is possible  because the fact is every country in the world can. have high sustainable equitable economic growth  without crisis and without inflation. And wouldn't. any politician want to deliver that? You'd think,  but and and I think they would actually like to. deliver it, but they realize the steps to achieve  that are just not allowed. And they they quickly. reach the limits of their power and they get  whispered. Which are not allowed? Which steps.

are not allowed and why? well to create many  small banks. You know our research on the US. shows that even the small banks as they merge as  they do naturally as they do under central bank. pressure to merge and the number of banks goes  down as it has in the US dramatically. Yeah. Um thousands have disappeared already. But even  the small bank and so then banks stop lending to. the smallest firms as they get bigger they lend  only to the bigger firms and you already get less. economic growth. And secondly, even the smallest  banks as they merge, you know, they they reduce.

their lending to to the smallest companies. So  we constantly need to create new banks actually. just to stay at the same level of having money  going to the small firms and the small firms. are the productive job creators. You know, give  $500,000 to a large firm is not going to create. jobs. Give it to a small firm, oh, there'll be  three, four new jobs, you know. Exactly. and. and that's what people need to understand. So we  need a decentralized banking system but that also.

gives power purchasing power and prosperity to  the middle class to local communities and that's. what the central planners don't like. Yeah. And  so it is actually a war against the middle class. that's happening because it means autonomy. I  mean a country with a strong middle class is an. independent-minded country because you've got  self-reliant people in it. Exactly. a country. that's rich and poor, very easy to control. That's  the Latin American model. Um, exactly. And sadly, that seems to be where we're heading. So,  with this background, back to your question,

if you look at, you know, long-term historical  charts, it's very sad how economic growth has. been declining in the post-war era, in the US,  most European countries. Now we're being told, oh that's because of demography and you know aging  societies, climate change and exactly climate. change and the need in fact to lower growth  because of the limits of growth. I quickly want.

to address that point because you know there are  many people out there who seriously you know they. they have good intentions and they think well hang  on Richard's talking about trying to have higher. growth but isn't that a bad thing? Isn't growth  bad? Aren't we destroying the environment? Well, hang on. I am all for protecting environment. I  love nature. I think you love nature and and we. we want to protect environment. Yes. But economic  growth is not the problem. Absolutely not. It's. not the enemy of the environment of nature. No.  And the quickest way to explain why is to actually.

to analyze what is economic growth? Well, ask a  physicist who studies physics, what is economic. growth? And they'll say, well, I don't know  it in physics there is no growth. What are you. talking about? You see, it's nothing tangible and  therefore there is no limit to economic growth. In physics, there's no growth. You can only  transform energy from one state to another. Matter.

is neither created nor destroyed. Exactly. So what  is this economic? Well, it's economic growth. And. where does it come from? Well, it's a statistical  illusion created by statistitians. Now, I looked. into the history of this Sure enough, you hit on  the same, you know, you find the same answers. So, when did this start? The way we calculate national  income and GDP, I mean, it used to be GMPP. So, GMP and national income. What's the history  of that? Where did it start? You know, it started just before the creation of the Bank  of England. Why? Because the bankers were going to.

lend to England and they wanted to figure out what  is the ability to pay of these people in England. We need some statistitians to measure this  and that's what national income accounting. was created for and that also yes exactly to  assess the creditworthiness of the borrower. It's the ability to service national debt. Wow.  And that explains the other puzzle and actually. again tying uh together loose end here. You know  I told you that that when we talked about how the.

the interest theory is the main propaganda.  You know lower rates lead to higher growth, higher rates lead to lower growth. Well, and  I told you there's zero studies showing that. There's no empirical evidence whatsoever for  that. And so I did the first empirical study. on that. It's published again open access. You  can look it up. It's is called reconsidering. monetary policy and then something interest  rates and growth. And we know what we found.

is together with a very good statistician  from Korea. Um and it's it's you know it's. it's state-of-the-art econometrics. So, you've  got to do this properly cuz and it took years. to get this published cuz everyone hated this  cuz I'm What we found is that the relationship. between interest rates and economic growth is the  opposite of what they tell us. In two dimensions, it's the opposite. The correlation is supposed to  be inverse negative. Yes, of course. Low rates, high growth. And no one questions that. And the  causation is supposed to be from interest rates to.

growth. Yes, interest rates are supposed to affect  growth. Of course. Well, we found that both are. not true and it's the opposite. The correlation  is positive and the causation as far as statistics. can prove it. You know, Granger of Causality  statistical causality is from growth to interest. rates. So instead of the official story low rates  lead to high growth, the real true narrative is.

the hon the real truth as the Japanese would say  is high growth leads to high rates. Low growth. leads to low rates. It's the other way round.  That's the true story. And now actually what. we also found is I'd found this much earlier  already that long-term interest rate 10-year. government bond yields they follow GDP. I mean  sometimes coincidental of course but they they. don't lead GDP. Okay. And it's roughly always the  same. And they're always puzzled about that. Why.

is you know 10-year government bond yields usually  similar to nominal GDP growth which of course was. therefore also why I was forecasting when I saw  any inflation for 2122 you know a huge bond market. crash because rates will have to come up with  such high nominal GDP growth due to inflation. um but why is it that bond yields usually very  nicely track in the US very nicely track GDP. growth why and you see it's the same answer it's  because What is GDP? It was created by the bankers.

to gauge the ability to service national debt. So  think in those terms. Now you've created GDP to. figure out how much can they pay. Yeah. Then what  is the interest rate you're going to charge? Well, you want to charge the maximum without blowing  up the system which what is that? Well, it is the the same as the as the economic growth  rate because that is the income generation. If you. charge too much, it becomes a dead trap. Your debt  spirals out of control. And I'll mention that in a.

moment. And if you charge too little, that means  below growth, you're leaving money on the table, which they don't want to do. So that's explains  it. You see, so to to address the debt trap for a. second, well, when interest rates um are higher,  then the economic growth rate, which is your, you know, economic growth, national income growth  is the ability to service and repay the debt. But. if the debt rises faster, then you can never  get out of it, right? And it compounds. It will.

spiral out of that's what they did to developing  countries. That's the IMF World Bank system to. exploit developing countries because what the  IMF and World Bank have done over the last 80. years is tell them based on this economics which  is true and very scientific axiomatic deductive. madeup equilibrium stuff there's no equilibrium.  Um that's heresy by the way to suggest there's. no equilibrium but it's just ordinary you need a  food taster. Um, and so they they're told, "Well,

you need to deregulate, liberalize, privatize. Um,  you want growth. Well, you need savings. Sorry. Oh, you don't have enough savings." Well, you you  need to get you need to borrow foreign savings. The World Bank is willing to lend you some.  The IMF will They're claiming that the loans. they're delivering from the West are the product  of Western savings. Yes. Exactly. Exactly. And so, there's a moral cast to all of this. You certainly  see it here. just blaming fat working-class people.

at Walmart for all of America's problems. Yeah.  Yeah. Yeah. Yeah. I mean, they there is a sense. in which they turn the the culpability, the moral  responsibility onto the victims of the scam. Yeah. It's your fault. Exactly. Exactly. And and so  these countries have been encouraged to borrow. from abroad when it's it's a scam because who  are the foreign lenders getting the money from? They created out of nothing. The foreign banks  create out of nothing, which is something. But. the argument is the virt you know the we virtuous  people have just saved a lot of money. Well we.

know the savings rate is pretty low in the US if  not negative. So but yes still that's the argument. they use. So it's a trick because developing  countries can have their own banking system. based on many small local banks. They will have  growth and prosperity and you don't need foreign. money because actually foreign money never enters  the borrowing country. So it's always a trick. It's one of the rules of banking. You know let's  say there's a developing country. let's say South. Africa and they're they they they told oh we need  we need money we don't have enough savings we need.

the savings from abroad okay we'll take a loan  from Barclays in London for half a billion pounds. okay they tell us that's what we need okay well  where does Barclays get this half a billion pounds. worth of money from it creates it out of nothing  credit creation through the banks um now the South. African Finance Ministry says well actually we  want to use this money in South Africa Okay. So, Barclays, send over the money. Oh, you mean  you want South African rand? Uh, yeah. Yeah,

sure. Well, we can arrange for that. There'll be  some costs, you know, and FX and whatever fees, but we're happy to do it. So, what happens next  is Barclays calls around South African banks. One. of them may be a subsidiary of Barclays, it  doesn't matter, but South African authorized. licensed South African banks. You see why? because  they're the ones that have their accounts in South. African rand. Barclays can't create South African  rand. Um so and they will ask for a quote. We want.

to sell pound and buy South African rand. What  happens next? The South African bank will create. that money out of nothing which is something  South African banks could have done without the. round trip abroad which indebts the country and  usually debt for equity swap or you can't pay your. debt. Well, we own you now. We own your assets.  Exactly right. And that's been the trick. So, it's been a a terrible system to uh keep growth  low, prevent countries from developing. And even.

in industrialized countries, you know, we're  also victims here. It's not as if, oh, the the. rich countries are exploiting the poor. That's not  exactly true because we're also being exploited in. the rich countries and the middle class is being  exploited as being drained of of of wealth. We. could have prosperity and abundance. This is what  people need to realize. Everywhere in the world we. can have peace and abundance but we must address  the financial system, the banking system and the.

best system is when you decentralize the power as  Lord Actton said a long time ago in Britain power. corrupts and absolute power corrupts absolutely  when you are this powerful central planner central. banker power creates temptations and human nature  tells us and history tells us most people can't. handle this these temptations and that's when  you get the abuse and in the end it's all about. maximizing that power for the central uh central  forces and of course so what we need to do is.

create many small local banks also in the US in  every country in the world we should create state. banks state sovereign banks as they have in in  North Dakota because there's only one state-owned. um sovereign bank uh in the United States in in  North Dakota as a result because that basically. protects the local chartered banks. It's so it's  they're not so dependent on the Federal Reserve. or on on the FDIC and and therefore they can make  sure that these banks stay in business and thrive.

and therefore the economy and the small firms  will thrive and therefore job creation will. thrive. We need more of that particularly in this  day and age where the central planners want to do. the opposite. They don't want these many small  banks. they want to force them to to merge. And. the biggest club they have they're wielding now  to to get rid of the small banks is actually the. introduction of central bank digital currencies.  And since you ask about the next 10 years ahead, we have to talk about it because that's definitely  top of their agenda to introduce central bank.

digital currencies. Now, what is that? How does  that fit in? Well, first of all, again, it's it's. marketed in a very devious way. They're telling  us, "Oh, it's the digital aspect that's new. We. used to have cash, paper, that's oldfashioned.  Now we need digital central bank money." Well, hang on. We've been using digital money for many  decades, of course, and there's no problem really. It works. Yeah, maybe some fees could be lower,  but you know, for that we need more competition,

not less competition. So, um, so what's the  problem? What what's actually new? You know, we've been using BDC, bank digital currency, for  for half a century almost. Yeah. So that's not. new. What is new about CBDC? What's the C central  the centralization? It's about centralizing. things. Central banks are about to break this  old contract, this deal between the banks and the. central bank. The deal was central banks supposed  to be specialized to stand behind the banks,

back them up when needed, but not replace the  banks. And that's also why we need now state level. sovereign banks because they will stand behind  the banks in their state and the Federal Reserve. has failed in standing behind banks and doesn't  back banks. Even Silicon Valley Bank, you know, they only injected liquidity after it was bust  and changed ownership. Oh, that's kind of funny, isn't it? And the Fed Now system meant that more  money left the Silicon Valley bank in one day.

than ever before in history from from any bank.  Giving a blood transfusion to a corpse. Well, it yeah, it was it exactly it was afterwards. So,  um CBDC is the central banks opening accounts for. the general public at the central bank, which  means that you just need to create the next. banking crisis. And the central banks are very  good at doing that. And all the money will leave. the banks. The banking system will shut down and  it will all be in the central bank. And we have, hey presto, we've gone backwards. China moved from  the Soviet mono banking system to thousands of.

small local banks and thrived you know doubling  national income every four and a half years for. 40 years becoming the most powerful economic  power you know in such a short time actually. faster than Germany America before in history  uh and lifting more people out of poverty than. anywhere else before in history but we are moving  in the opposite direction our central planners in.

Europe in Brussels and and at the ECB they are  killing banks and they want to now introduce. CBDC's which means they want to move to central  planning and the same you know is any country in. the US at the moment the Fed is saying fortunately  no we we we're not going to do this but of course. they're studying it and they're preparing for  it so when the time is right you know I'm I'm. sure they they'll wheel it out because central  bankers they're human they're tempted by the. temptations of power they already have so much  power de facto no accountability I mean when. are central banks held to account for actions.  No, you can't audit them. You can't really know.

what they're doing. And they think just giving a  speech in in parliament or some committee where. being questioned, you know, that's good enough.  That's accountability. No, it's like you you. wanted to have 2% inflation. Now we have 10%  inflation. Uh shouldn't you lose your job? Oh, no. That never happens. I don't think it's ever  happened. Exactly. So, um so we need to oppose. the introduction of CBDC's. And of course it's  it's not just that what I mentioned it's much.

worse because it's a programmable control tool  of course and um the programmability is really. scary instant compliance and they have they have  said this you know central bankers have said this. that they can then write the rules and they have  the technology to enforce those rules and that's. what's going to happen with CBDC. So, it's not  really money. It's potential money. You have to. apply. May I please use it to buy XY Z? Oh, sorry.  You know, your carbon footprint has been used up. or whatever the excuse may be. You're outside  the 15 minutes or you criticize the central.

banks or you've been a critic criticizing central  banks. Very sinister. So, so la final question. If. people have made it this far into this remarkable  interview and want to learn more about this topic, so much has been written about central banking.  So little of it bears any resemblance to what. you just said. You're thinking about it in a  very different way. Sounds to me like a much. more accurate way. What uh where do people go  to to learn more on this topic? I think the.

best is to get also my very up-to-date shorter  reports and analyses on particular markets. just. now I finished one on the bond markets um  is my Substack which is rwer.substack.com. um and there's a small monthly fee of I think  $9 or something like that. Um and otherwise. get my book Princes of the Yen. Um also I have  a Prince of the Yen at quantumpublishers.com.

That's where you get it cheaply. It's on Amazon.  sometimes they have horrendous prices and it's. or in many countries not available strangely um  and otherwise I'm u sort of growing my YouTube. channel Wernner economics how many languages  do you speak well fluently and and able to. give lectures and presentations is uh is three  only so German English and Japanese three yeah. um I've I I can partly get by in in  French and I I did Latin in school.

My Chinese is is is very passive and only you  know the writing from Japanese the Chinese. characters which you use in Japanese um which  you can write in Japanese. Yes. Yes. Yeah. Although it's time consuming you know um but  yeah interesting. Well I love those Chinese. characters. There's lots of truth and information  in there because they're they're like messages. from 5,000 years ago. How people thought and how  they lived. It's all in the Chinese characters.

Professor, I can't thank you enough for this.  I hope you'll come back. I'd love to. Thank you. very much. Thanks for having me. Thank you very  much. [Music] So, it turns out that YouTube is. suppressing this show. On one level, that's not  surprising. That's what they do. But on another. level, it's shocking. With everything  that's going on in the world right now, all the change taking place in our economy  and our politics, with the wars we're on. the cusp of fighting right now, Google has  decided you should have less information.

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