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

World-renowned economist Richard Werner on where money comes from: banks just create it out of thin air, and keep a pile for themselves. Paid partnerships with: Pique: Go to https://piquelife.com/tucker to get up to 20% off for life when you start your first month Policygenius: Head to at https://Policygenius.com/Tucker to see how much you could save Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

  Now for a quick message from Anthropic, the team behind Claude, the AI built for businesses. Customers count on their bank and banks count on their most important systems. Now those systems count on Claude and nine of the Fortune 10 companies use it for critical work. See why leading companies trust Claude at claude.ai/span.

• 0:25Tucker Carlson?

  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 it over to you to tell the whole story. So it's 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 banking system in Japan in Japanese. It's not published in English, it's only published in Japanese in Japan. And that book about the central bank of Japan and explaining why the countries in this protracted recession becomes number one in Japan, which is kind of amazing, even

• 1:09Tucker Carlson?

  in Japan, beating Harry Potter. 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.

• 1:50Speaker 02

  Right. Well, it's a bit of a detective story. I was, you know, working 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 Princess of the Yen. Princess of the Yen. And yeah, it's not so easily available, but I can mention that later.

• 2:16Speaker 02

  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, had studied economics at the LSE, 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 world famous experts could not explain. And for some reason, I decided, okay, I want to solve all these puzzles. When really digging into it, 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, I'll give up, you

• 3:01Speaker 02

  have to change your topic, you, you know, there's no, there's no solution to this 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 a concrete puzzle. I was just doing an internship at Deutsche Bank 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 they sort of point out, ah, well, okay, that was a bubble. So in this bull market of Japanese, you know, stock market 1989, and there were, there

• 3:45Speaker 02

  were some problems with the official story. And actually, they led to, they led me to conclude also that the stock market, it 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, that's what I then concluded. So in 91, I was one of the first to very loudly and clearly state, as a discussion paper I published at Oxford, having come back, that

• 4:14Speaker 02

  We should be very cautious about Japan. The international strategists were saying, oh, the Bank of Japan is lowering interest rates, it's stimulating the economy. Stock market has come down, but 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 answers to some of these puzzles, that Japanese banks were likely to go bankrupt. And you have to remember that in those days, 1990, 91, the top 20 banks in the world were Japanese. And the 21st century was going to be the Japanese century. Japan was in the 80s, buying up everything left, right and center.

• 4:58Speaker 02

  Japanese capital flows flooding the world, buying Rockefeller Center, Petal Beach Golf Course, Hawaii, California, investments in Britain, you name it. 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 concluded in 91 in this discussion paper. And of course, it took a lot of investors by surprise what happened in the following years, when to me, it was very clear that this had to happen. Although there were policy responses that could prevent the worst, which I then also proposed.

• 5:40Speaker 02

  So I proposed a new monetary policy concept that I called quantitative easing, which has been used and abused and distorted and has been quite popular with central banks. We will come to that. So, but back to your question. So 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.

• 6:13Speaker 02

  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 experts. I was only a student, you know, this is my first piece of research. I'd just graduated as an undergraduate from the London School of Economics, but I had

• 6:56Speaker 02

  been thrust into these sort of positions and opportunity, and yeah, I took the challenge. And the response was, "Give up." You know, you can't find an answer. But I also then spent a lot of time with practitioners and actually investors that were investing abroad and looked at the, 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 1889, Japanese land prices had reached such stratospheric proportions that if you

• 7:41Speaker 02

  took the central Tokyo, particularly of course the big cities, but the central Tokyo land price to value something like the Imperial Palace Garden, which is a public park, 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've got to laugh, I mean, or cry. I mean, this is ridiculous. This is totally ridiculous.

• 8:21Speaker 02

  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 landowner 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 it was going around, and, you know, in those days, it's pre-internet, so I had

• 9:04Speaker 02

  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 and 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 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

• 9:49Speaker 02

  I was the first foreign research fellow at the Japanese government's Development Bank, 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 was like almost a state secret, but...

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• 12:25Speaker 04

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• 13:19Speaker 02

  Anyway, so, 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.

• 13:35Speaker 02

  You know, I mean, they treat foreigners very well anyway in Japan, but I was their first Shimomura fellow, the first foreigner and I was invited to all their events and all the clubs and circles of learning baseball, which for Europeans is kind of unusual activity with the other 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 Nomura Research Institute. I knew some people there and they were saying, nah, that's you can't find an answer to this. And no, so give up was the story.

• 14:18Speaker 02

  And well, I needed a miraculous intervention and actually, you know, I, I got my miracle. And I got the, the, I got the solution. If we have time, I can come back to that and explain how this happened, but let me just give the answer first. So I, I, I knew the solution.

• 14:45Speaker 02

  Now, actually, before then, there was somebody saying, oh, there is a solution. There's a, there's an American scholar who'd come to Japan. His name is Professor Jeffrey Sachs. And his, I think PhD student- In that seat about four days ago. Oh, excellent. Oh, I sent him the paper actually recently, saying, hey, do you remember this? You know? And so people were telling me in Japan, oh, this, this American and his collaborator, I think Peter Boone, they had written about this topic and they had to actually post the same hypothesis. There's a link between land prices and capital flows. So, they were at MEATI, the Ministry of International Trade and Industry, slightly renamed

• 15:30Speaker 02

  it now, it was a famous ministry, 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 it, oh, yeah, yeah, yeah, we had Professor Sachs. Okay, and that 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, and capital flows. What?

• 16:16Speaker 02

  So, you know, at that point, I was really in trouble and I needed divine intervention. 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 Sachs and Peter Boone were arguing was that, you see, how, if you're a Japanese landowner, 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. So let's do it. They were arguing, well, they would have to sell the land. Now, who's gonna buy Japanese land?

• 17:01Speaker 02

  And it was true that foreigners were not buying Japanese land. It's totally overpriced. No foreigner would buy Japanese land. So only other Japanese would buy it. Ah, but that means the money stays in Japan. And that means there's no link. So 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, essentially almost all the big puzzles. And there's many in macroeconomics. Macroeconomics has not been successful for 200 years, as noticed. Exactly. It's been a failure for 200 years, no progress. And that's actually official.

• 17:44Speaker 02

  There was a, there's a study in the, um, um, what's it called? 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 mentioned 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 in economics.

• 18:29Speaker 02

  Banking had been frozen out of economics for a long time. 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, of any town, they will tell you, you know, what's important in the economy? They will mention banks. 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 version of a bank. Exactly. Well, the reason is that the, the economists follow this theory that banks are just financial intermediaries. They're just, you know, gather deposits here, do their analysis, credit, uh, you know, analysis, you know, the risk assessment and, and all that. And then they allocate.

• 19:15Speaker 02

  The funds and invest.

• 19:16Tucker Carlson?

  Right, they just take a percentage, they're a pass.

• 19:18Speaker 02

  So, so they're intermediaries?

• 19:20Tucker Carlson?

  Yes.

• 19:20Speaker 02

  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 is slightly older, that was dominant until the 1960s. So-called fractional reserve theory, and you, you may have heard this fractional reserve banking, what is that? Well, this theory says, 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. And that's where students' ears should have bricked up, money creation? They even talk about a money multiplier?

• 20:05Speaker 02

  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.

• 20:16Tucker Carlson?

  Oh.

• 20:16Speaker 02

  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 kooky people and, you know, cranks. Keynes said in his General Theory, or it was the Treatise on Money, you know, these are the cranks who talk about the banks creating money.

• 20:57Tucker Carlson?

  I think the average person believes the right, the ability to create money is reserved for governments alone.

• 21:03Speaker 02

  That's absolutely correct. In fact, I did a survey with my students in Frankfurt in 2011. My, my audience was getting larger when I was teaching at Goodyear University Frankfurt. I was only sort of for a few years substitute professor, optional courses. So first one was only 50 students, but next one was already 150. In the end, it was 450. Everyone was 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 send them out, you know, because if 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 one of the questions asked was just this question.

• 21:45Speaker 02

  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. The government, the central bank, the financial markets, the banks, and so on. You know, give a few options or savings, you know, people through their savings, which is another economic theory. So, and the answer was, just as you said, and you know, you spoke the facts. Eighty-four percent 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.

• 22:30Speaker 02

  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.

• 22:51Tucker Carlson?

  Empiricism in economics? I didn't know that that happened.

• 22:55Speaker 02

  Exactly.

• 22:56Tucker Carlson?

  Ran experiments and replicated them? I thought that was.

• 22:58Speaker 02

  Exactly.

• 22:59Tucker Carlson?

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• 23:40Tucker Carlson?

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• 24:16Speaker 00

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• 25:10Speaker 02

  More. Well, you know, you can do empirical tests. The replication is debated, whether you can always replicate it. 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 two 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, their, you know, how are they accounting for this and what transactions are taking place when I take out my loan?

• 25:56Speaker 02

  You know, the intermediation theory says the deposits get lent out. The fractional 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, it's transferred away from anywhere 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 ex nihilum, out of nothing. Yeah. So when it did the empirical test, the conclusion was the financial intermediation

• 26:41Speaker 02

  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 Elsevier publications called, and it's open so, 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 just... 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 has been created and added to the money supply, and that's how the system works.

• 27:25Speaker 02

  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 a hundred 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, I'm sure yourself also, you know, want to ask some experts, let's go to MIT professor of economics, what's going on? Lehman Brothers gone bust, banks are going bust, 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? Yes, certainly. Well, why can't you answer?

• 28:08Speaker 02

  Well, we have no banks in our models, so of course I can't talk about banks. That would be the incorrect answer. Of course, they didn't give that answer. No. 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?

• 28:23Tucker Carlson?

  I'm not an economist, I'm interested, but I did not know until you just told me that banks play no role in economic models.

• 28:30Speaker 02

  No, they're not in there. So when the 2008 crisis happened, the central banks were using the so-called DSGE 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 is built on really pretty crazy assumptions that are true, perhaps on some remote planet in some very far away solar system, certainly not in ours, and certainly nothing to do with planet Earth.

• 29:08Tucker Carlson?

  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 includes banks.

• 29:25Speaker 02

  That's right, 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 banks, but they don't change anything. The money just goes through one to 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 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, every TV show, investor, the experts.

• 30:06Tucker Carlson?

  Every president, by the way.

• 30:07Speaker 02

  It's literally, it's a daily thing, it's mentioned, and it's, yeah, everyone's supposed to, it's a 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, how many thousand times by all these people? Well, can I ask you, what's your guess? How many empirical, data-based, 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?

• 30:39Tucker Carlson?

  I would assume none, because I've never met anyone who doubts it. It's like gravity, we just know it.

• 30:44Speaker 02

  Oh, you don't even need to test it.

• 30:45Tucker Carlson?

  Well, first off, we know it's true, it's obvious. I thought that until right now.

• 30:50Speaker 02

  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 it is true. And if we did check whether it's true, we'd find it's not true.

• 31:02Tucker Carlson?

  But we wouldn't believe, we wouldn't believe the results because we know it's true.

• 31:07Tucker Carlson?

  You can't disprove it.

• 31:08Speaker 02

  Yeah. Well, in fact, this is, you've described now the methodology of the dominant mainstream economics, which is the hypothetico axiomatic deductive methodology, where you just, you pose an axiom 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,

• 31:52Speaker 02

  then define what assumptions do I need to pose this model? What axiom do I need to present this? And then the key step, present in reverse order. Ladies and gentlemen, let's just forsake of argument, assume these and these things. So, look at this, the model is telling us, you know, interest rates, lower rates lead to higher growth and higher rates lead to low 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.

• 32:15Tucker Carlson?

  What you're saying is, I mean, I believe that there are a lot of people who just never thought that option three, your description of banks, the bank credit creation, could be, you know, a 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.

• 32:35Speaker 02

  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's called Lost Century in Economics, about these past 100 years.

• 32:47Tucker Carlson?

  They must hate you. Your fellow economists, sorry, sorry to interrupt.

• 32:51Speaker 02

  And I do go through the literature and the sort of history of economic thought. And there's some very curious things happening. For example, there's John Maynard Keynes, 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.

• 33:14Speaker 02

  Now, when you look at his writings with 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.

• 33:54Speaker 02

  Well, six years later, in his important book Treatise 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 deposit it. And that is then lent out by the banks. There's no money creation at all.

• 34:33Tucker Carlson?

  So in other words, he progressed away.

• 34:36Speaker 02

  Regressed, exactly.

• 34:37Tucker Carlson?

  Regressed, thank you. So with each successive theory, he obscured the role of the banks ever more.

• 34:44Speaker 02

  Now, interestingly, his financial wealth increased proportionately. And by the last stage.

• 34:52Tucker Carlson?

  People have stayed this long in the conversation. This is really interesting and you're a great explainer, by the way. It's almost like you can't, are you really an economist? You explain it so. Here's a depressing but true statistic. Nearly half of American adults say they would suffer financial hardship within six 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 recommend PolicyGenius to get it. PolicyGenius's plans offer life insurance policies starting at just $276 a year for a million dollars in coverage. It feels complex to buy life insurance. They make it really easy.

• 35:36Tucker Carlson?

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• 36:18Speaker 00

  This podcast is supported by Anthropic, the public benefit corporation behind Claude. Everyone's got a hard question about AI. Anthropic was built to surface those questions and share what it finds along the way because there's hope in hard questions. Ask yours at claude.ai/spotify and keep thinking. That's claude.ai/spotify.

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• 37:14Speaker 02

  Slash Tucker. Well, you see, in the last few years of his life, he had been, I mean, most people 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 similar with some other economists. I'll give you two more examples, actually, three more examples. Economists you will have heard of. One is Professor Ben Bernanke. Yes, I have heard of him.

• 37:57Speaker 02

  Now, he was, you know, he was a good macroeconomist. Was it Princeton and Yale? Anyway, and he used to, you know, he does 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 one of the saddest periods of US and world history. You know, the Fed was created on the pretext, on the main argument, because there's lots of doubters who didn't want the Fed. It's very un-American, was the general view. And they were very sneaky to actually get the Fed and get the law passed.

• 38:39Speaker 02

  They, they used some of the rules and how you can schedule a vote. And they went for the most obscure procedure, which is easy to overlook, that there's actually a vote. And 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's 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, is doing well.

• 39:21Speaker 02

  It's 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, you know, reserves or if needed, if they want cash, you know, they the central bank provides the cash, 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,

• 40:06Speaker 02

  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.

• 40:50Speaker 02

  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 farmers, these 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 they'd be off, off the hook from their, the 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.

• 41:22Tucker Carlson?

  Wait, you lose your deposit but keep your debt?

• 41:24Speaker 02

  Yes, that's the.

• 41:26Tucker Carlson?

  How does that work?

• 41:27Speaker 02

  That's a Federal Reserve policy. Of course, the Fed could have, you know, done it very differently and Where was President Roosevelt in this, the man of the people? Well, the banking systems, and 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 where all the decisions are made. You have the the Washington Board of the Fed, but you know, that's a political shop. The actual central bank operations are all in New York, 100% privately owned, you know. So, and that, you know, what happened in the 1930s is therefore these farmers became

• 42:10Speaker 02

  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 Wrath by Yes, I have. John Steinbeck. And, you know, these are better descriptions of economic reality than the economics textbooks where they tell you banks are financially intermediary. So 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

• 42:54Speaker 02

  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 Can Banks Individually Create Money Out of Nothing?

• 43:36Speaker 02

  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, it's also open access. Great question. Which is exactly the question you asked, and it's very sensible. And that gets, it gets very curious. It has to do with accounting. And, but I really wanted to get to 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 this major non-bank financial institutions. Private credit, yeah. And then companies can give you credit and, you know,

• 44:20Speaker 02

  insurers give sometimes loans and, you know. So why can't they do the same as the bank? And in order to, to find the answer, I realized one needs to break up this, 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, is the bank balance sheet lengthens. You get the loan as an asset. That's the same for everyone, no matter whether you're a 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,

• 45:05Speaker 02

  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 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's slightly different name. But it means that if you have client money.

• 45:49Speaker 02

  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 know, 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 of the records, you can fiddle the records.

• 46:31Tucker Carlson?

  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 drug gangs destroying parts of the United States, the parts that Washington ignores, to sell drugs, laundering money and building a black market network inside this country's most beautiful but least served areas. We've got a brand new documentary on this. It's called High Crimes: The Chinese Mafia Takeover of Rural America. It's available now on TuckerCarlson.com. It's excellent. The purchase of churches and schools to aid the operation, the jerry rigging of power

• 47:15Tucker Carlson?

  boxes to steal electricity, foreign pesticides collusion with the Mexican cartels. 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 TuckerCarlson.com to watch now. We think you'll love it.

• 47:34Speaker 00

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• 48:01Speaker 02

  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 gonna 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,

• 48:19Speaker 02

  the loan contract, here's how it works. You're the borrower, I'm the bank. You want a loan, mortgage, anything?

• 48:29Speaker 02

  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.

• 48:46Speaker 02

  And actually, I should say this. Economists classify banks as, they always say this, when they mention banks, banks are 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?

• 49:31Speaker 02

  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.

• 49:38Tucker Carlson?

  Yes.

• 49:39Speaker 02

  And that is the legal status. It's just like the tables are turned. So banks don't take deposits, we lend to them. And the deposit, the 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, it can sell it. Well, exactly, it 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.

• 50:22Speaker 02

  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, accounts payable liability from the loan contract, presented or misrepresented as another type of liability called client deposit. That's how money is created.

• 51:06Speaker 02

  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 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 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. So 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.

• 51:49Speaker 02

  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.

• 52:16Speaker 02

  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 it'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 a 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?

• 52:58Speaker 02

  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 crises. This can be done. But we're not getting it. No. Why? Yeah, why? And I'll, I'll explain the mechanism. So there's three scenarios.

• 53:40Speaker 02

  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

• 54:06Speaker 02

  Unproductive 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.

• 54:29Tucker Carlson?

  Right.

• 54:29Speaker 02

  So it's not in there, and that's...

• 54:31Tucker Carlson?

  Real estate's not... Real estate itself is not a productive asset.

• 54:35Speaker 02

  Exactly. Well, 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 real estate 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...

• 54:53Tucker Carlson?

  Exactly.

• 54:54Speaker 02

  That's much larger, and that's not in GDP. So when banks lend for asset purchases, like real estate purchases, 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,

• 55:38Speaker 02

  and they're pumping it into the real estate market through their real estate lending.

• 55:42Tucker Carlson?

  What's going to happen is what's happening in the United States, where real estate becomes unaffordable.

• 55:47Speaker 02

  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...

• 56:07Speaker 02

  The banks continue to create more credit for others to join the game and 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 that's, of course, that has many consequences.

• 56:38Tucker Carlson?

  So, 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 relative to its abundance. You're saying that actually prices are determined by banks?

• 57:02Speaker 02

  Yes, and actually it's more than that, because your question implies, 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, it's all about prices, the economy, equilibrium, markets, demand, supply, prices, 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. Rationed markets is determined by the short side principle, whichever quantity of demand or supply is smaller, that's the common denominator, that determines outcomes, it's quantities. And what's the most important quantity in the whole system?

• 57:47Speaker 02

  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 far. 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 five years of banks doing that, they then, for some reason, maybe the 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%.

• 58:27Speaker 02

  And you've pushed up asset prices by 300, 400 percent. If from the peak they fall by, say, 20 percent, the banking system is bust. And that's why we have banking crises. 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're bust very often. We have these recurring banking crises. But there's also ways to get out of it. 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.

• 59:10Speaker 02

  So that bank, these bank loans don't even contribute to national income. 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, 2021, 22.

• 59:51Speaker 02

  I had the data, data from the Fed was out already in 2020. So I was one of the first to warn very accurately. This is in May 2020 on my Twitter, sending out messages. Well, based on this data, it was shocking data. 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, you know, oil prices, gas prices and all that 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 an oil shock.

• 1:00:30Tucker Carlson?

  It was the Yom Kippur 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.

• 1:00:39Speaker 02

  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 three to $12? That was in January 1974. When did this, there were two bouts of inflation in the seventies, in 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?

• 1:01:12Tucker Carlson?

  That's not causative fact.

• 1:01:13Speaker 02

  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 a tangent, but it's, it's another amazing story because, 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 euphemistic way of putting it, before America defaulted on its international obligations. August 1971.

• 1:01:57Speaker 02

  We had the Bretton Woods 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.

• 1:02:40Speaker 02

  And by the late 60s, in France, because France wasn't part of NATO, it was not an occupied country. The French were speaking up. Germany was being, keeping quiet. And Japan was keeping quiet, you know, they've got. They both had 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 absolutely 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 reaction, well, certainly it's not a problem. It's all above board, very transparent. We will, okay, how much, how much you want to switch?

• 1:03:25Speaker 02

  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, well, you know, this is your gold now. Of course we'll, 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 pompidou, there's child of 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.

• 1:04:05Speaker 02

  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.

• 1:04:18Tucker Carlson?

  No, no.

• 1:04:20Speaker 02

  And it was kept low profile, but it was beginning to become a story. And if others followed, so then August 1971, President Richard Nixon.

• 1:04:28Tucker Carlson?

  Did the French get the gold?

• 1:04:30Speaker 02

  They got some gold. Yeah, this is, this really happened. This did happen. They sent their ships. They walked to the Federal Reserve and from their dock in Manhattan. They got the gold. I guess they had some trolleys because it's really heavy, that stuff.

• 1:04:43Speaker 02

  And they wheeled it back to their ship. But not long after

• 1:04:49Speaker 02

  the Treasury, the Fed and the Treasury advised President Nixon, look, you better make an announcement. What announcement? Well, that 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 he say, we're, we're, oh, I love this. We're temporarily suspending the convertibility of the dollar into gold. Temporarily, of course, you know, it's now what 51 years.

• 1:05:19Tucker Carlson?

  Fifty four.

• 1:05:20Speaker 02

  Fifty four years, yes. Crazy.

• 1:05:23Tucker Carlson?

  Amazing.

• 1:05:29Tucker Carlson?

  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?

• 1:05:42Speaker 02

  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.

• 1:05:53Tucker Carlson?

  How do you do that if you can't print something worthless and call it valuable?

• 1:05:59Speaker 02

  If it's, you're right.

• 1:06:00Tucker Carlson?

  It's tied to a commodity whose price is set by people you can't control.

• 1:06:04Speaker 02

  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, and in my books, you know, I've, I've got this story in there. Princes of the yen also. 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.

• 1:06:28Speaker 02

  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 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 have the government and gold is money? Well, you're trying 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 and D

• 1:07:07Speaker 02

  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 in what, you know, alchemy, what was early chemistry. But yeah, but it never succeeded. So BASF is actually a sort of product over time of the alchemy? Of alchemy. Of course, that's why in Germany you had so much knowledge and, you know, in chemistry. It was the, yeah, alchemy. I mean... Did it work? Was alchemy ever successful? In a, well, not directly. In a sense, it was successful because the alchemist concluded

• 1:07:51Speaker 02

  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 pointless. It's too expensive. So it's, you know, better buy some gold or dig for some gold. So also, Newton, who's a famous physicist from England, he was very interested in alchemy and he wrote a lot on alchemy. And then the Bank of England was created and Newton was very interested in that.

• 1:08:21Speaker 02

  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.

• 1:08:38Speaker 02

  Because banks create money out of nothing, but 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 their transaction to carry gold around.

• 1:09:03Speaker 02

  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. And it's 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.

• 1:09:47Speaker 02

  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, somewhere in Hampshire in England, and we're neighbors and we agree, 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.

• 1:10:31Speaker 02

  Like I'm risking my life going to get the gold, bring it here. And then you bring it back to the goldsmith. Might as well leave it in the goldsmith and I give you my deposit receipt. And that's what happened. So 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, realized what's happening. Oh, nobody's coming to pick up the gold. That's kind of convenient. And because, and this already explains the secrecy that suddenly then engulfed the whole thing, because people also realized, well, the goldsmiths have the money, they have the gold. And if you suddenly you get into trouble, or you lose your job, you need money. Where do you go? Well, the goldsmiths have

• 1:11:14Speaker 02

  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 at interest. Of course. That's Christian, you know, Christianity, Christian rules, you know, the Bible was against interest, and interest was everywhere forbidden. So the goldsmiths 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 realized

• 1:11:58Speaker 02

  we can lend out this gold that everyone is depositing with, some of it, particularly the one that's like bullion in a standardized size and whatever, we can lend out, nobody will realize. And we keep it secret. Everyone's 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 created, because it's pretending not to charge interest, you know, discount bonds, where you have no coupon, you come 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, that is the interest, really. But anyway, so all these tricks came about because

• 1:12:40Speaker 02

  of the prohibition of interest. But the goldsmiths then realized next, well, hang on, maybe we don't even need to lend the gold.

• 1:12:51Speaker 02

  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 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 out interest. You know, so they were sworn to secrecy. And one goldsmith, probably the first one to have this idea, said, but hang on, guys, I've got an idea. We don't need to lend out gold. I'll show you. So the next, there's always this guy coming every Monday morning. Okay, so let's wait. He's coming probably in 20 minutes. They 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.

• 1:13:36Speaker 02

  All right, today I've decided I'll lend it to you. Here's the standard contract, you know, all the small print, the interest. Your daughters will be sold as slavery if you can't repay. You know, it's just 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 grams of gold. Here it is. I will, you know, you sign there, I'll sign and I'll lend it to you. But I want you to deposit the gold immediately with me.

• 1:14:07Speaker 02

  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. Ah. 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.

• 1:14:52Speaker 02

  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.

• 1:15:21Tucker Carlson?

  That's an amazing story.

• 1:15:24Speaker 02

  And that was your question there, you know, how did this come about? This is how it came about.

• 1:15:28Tucker Carlson?

  So how did central banking come about? What is the, in layman's terms, difference between a bank and a central bank?

• 1:15:34Speaker 02

  It's just, it's the bank of the other banks. And that's how they came about. It's 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. 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, 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.

• 1:16:17Speaker 02

  And of course, to own a central bank is kind of useful, isn't it? Kind of profitable.

• 1:16:22Tucker Carlson?

  Wow. How do, let me ask you a very dumb question.

• 1:16:26Speaker 02

  Oh, by the way.

• 1:16:27Tucker Carlson?

  Yes.

• 1:16:28Speaker 02

  Actually, Tucker, I always tell my students, there's no such thing as a silly question. And you have to do me the 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 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.

• 1:16:57Tucker Carlson?

  No one wants to ask what a derivative is?

• 1:17:00Speaker 02

  Well, they don't want to admit that actually they don't understand. Yeah, for example, these, you know, credit derivative sliced and diced mortgages, credit strategy. So anyway, so there's no silly question.

• 1:17:10Tucker Carlson?

  Well, I'm actually a little bit more ignorant than I realized that I was before our conversation. How does a bank get, so Rich, you said 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?

• 1:17:29Tucker Carlson?

  How does a banker get rich?

• 1:17:31Speaker 02

  Well, I mean, the money creation 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 it's extremely profitable. So in principle, banks get their return from 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.

• 1:18:15Speaker 02

  So it's actually easy for them to earn this money. 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, banking crisis. But the, the, the regular banking crises are mainly when banks create credit for asset purchases and that's what creates these boom bust cycles. In the UK, bank credit, 85% of bank credit is for asset purchases. And so you get these asset boom bust cycles, banking crises in regular intervals. In some other countries, I haven't mentioned the third scenario now. So bank credit for asset purchases, no good, it's not sustainable, it's not productive.

• 1:18:59Speaker 02

  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.

• 1:19:23Speaker 02

  For productive business investment, for the investment in the production of goods and services, implementing new technologies, 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 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.

• 1:20:08Speaker 02

  They don't achieve the goal of preventing banking crises. For that, we can scrap all these rules. We just need one rule that banks should only be allowed to create credit if it contributes 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,

• 1:20:53Speaker 02

  neoclassical 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, deregulate, liberalize, 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. So how many countries have decisively moved

• 1:21:37Speaker 02

  from developing country status to develop country status as a result of these policies? Well, there isn't one, none. What about Haiti? Well, is that industrialized? No. No, that's so. What I thought you're gonna 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, 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 developed country status, namely, in, in that sequence, Japan, Korea, Singapore, Taiwan,

• 1:22:21Speaker 02

  and China. Now with China, if you want to quibble, 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 the, is the best example of how this was, was achieved. They all achieved in the same way. Japan was the first, and 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.

• 1:22:58Speaker 02

  Well, China is the best example, because they, most of the time in the post-war era, they didn't follow this model. Under Mao, it was Soviet Stalinist planned economy.

• 1:23:10Speaker 02

  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 to and fro, but then a new leader came to power, Deng Xiaoping, in November 1978. Deng. And.

• 1:23:33Speaker 02

  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. I had to be careful, obviously, because there was still hardcore Mao is 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, it 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

• 1:24:15Speaker 02

  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. Proverbs made up of four characters. So seek truth from facts. That's the empirical methodology, not ideology, which dominates economics. So it was pretty radical for China. It remains revolutionary for Western economics, where they still have ideology dominating it. Essentially, their Western type of Mao's little red book is still dominating things

• 1:24:58Speaker 02

  in economics, whereas the Chinese decided, okay, we've done that cultural revolution greatly forward, which was greatly backward. I mean, this all seems to be happening now in Europe, you know, all this ideology and deindustrialization, 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.

• 1:25:25Speaker 02

  And what did he do? He went to Japan, already before he was appointed. But in the same year, 1978, he travelled to Japan with his experts. And he knew, I think, because a lot of, when I was in Japan for 12 years, and when I was a student initially, you realise the large majority, the biggest majority of foreigners in Japan is Chinese. There's many Chinese, and among the students, so many Chinese students. So they know Japan well. This generation and generation that have studied in Japan, speak Japanese very fluently, 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 Japanese people, who are very kind to foreigners.

• 1:26:09Speaker 02

  I mean, kind to everyone, but very friendly and kind people. They have this additional charming feature that they want to tell you the truth. But culturally, in Japan, there's this interesting thing. And 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 recognised. And so what happened to me a lot of the 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,

• 1:26:54Speaker 02

  "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 "tatemai", which means the facade, the front, the outside, the outer appearance. And the true truth is "hone", the real intrinsic truth. And this happened many times because Japanese people want to tell you the truth. And because it's recognised 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 o'clock...

• 1:27:36Speaker 02

  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 Deng's up being new about that and I checked the records, they did have some banquets, some dinners with sake and multi-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, Second World War, and it was not just making peace. It was literally, he was saying, thank you for receiving me. I have come to you to seek the elixir of high economic growth.

• 1:28:21Speaker 02

  He was alluding to this legend that both the Chinese people know and the Japanese people know, namely that there's this legend that was an ancient scholar, one of the sages with a long beard and the flowing gowns from China, going to Japan, seeking the elixir of life, which is a bit like the, you know, philosopher's 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 elixir 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 that culture, that the writing, you know, there's so much is from China, that actually there is a close relationship, you know? Yes.

• 1:29:04Speaker 02

  And I think both peoples actually quite appreciate each other. It's usually, I must say, you know, it's like foreign policy neocons from the US who want these countries to be apart. It's like Germany and Russia must be apart, but anyway. Um, so, um, and he told him that, you know what, how the Japanese reacted? When he said, I've come to you 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 dinner. But we do know what he did after that. And I can imagine the conversation.

• 1:29:46Speaker 02

  Probably the first question, and these were all senior people from the Ministry of Finance, Bank of Japan, bank leaders. 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 five, 600 million people, already a multiple of Japan, 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.

• 1:30:24Tucker Carlson?

  You haven't even finished your explanation of the meeting between Deng Xiaoping and the Japanese leadership. And you, you just, here's what I think you're saying, or about to say, that the problem, 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 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.

• 1:31:01Tucker Carlson?

  And if you don't have that, you have 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.

• 1:31:15Speaker 02

  No, no, no.

• 1:31:16Tucker Carlson?

  Is that what you're saying? Am I following this?

• 1:31:18Speaker 02

  Yes, yes. No, you're not just following. Yeah, that's exactly the next point. In fact, I did a study on the US with my collaborator, former PhD student of mine, because America still has just about the largest number of banks in the world, although the number used to be a multiple.

• 1:31:36Tucker Carlson?

  Yes.

• 1:31:37Speaker 02

  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 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, 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?

• 1:32:22Speaker 02

  They're the biggest employer. Small and medium sized enterprises employ sixty five, seventy percent of everyone in every country in the world. In some countries, it's seventy, eighty percent 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. Ninety nine point nine percent 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, ninety nine percent of the companies are small and medium sized enterprises.

• 1:33:05Speaker 02

  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 cases, the UK, five big banks dominate, you know, the, the banking system, eighty five percent of deposits with five banks, the big five, then because they want to do big deals, they don't lend to small firms. Small firms don't get money.

• 1:33:33Tucker Carlson?

  And that means only big cities survive.

• 1:33:36Speaker 02

  Yes, everything becomes concentrated. Now, Germany-

• 1:33:38Tucker Carlson?

  But it's reflected in demographic trends, it's reflected-

• 1:33:42Speaker 02

  Exactly.

• 1:33:42Tucker Carlson?

  -in wealth allocation.

• 1:33:43Speaker 02

  Exactly.

• 1:33:44Tucker Carlson?

  So, cause this is a trend, like when I was born, nineteen sixty nine, like there was a lot of wealth in Grand Rapids, Michigan, there was a lot of wealth in Des Moines, Iowa, there was Portland, Oregon, I mean, there were, it was more diffuse.

• 1:33:57Speaker 02

  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 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 it's official, like the ECB. We think Europe is overbanked, there's too many banks. And the ECB is the youngest major central banks, only founded around 2000. And it's already managed to kill 6,000 banks in Europe. Wow, well done. So it's very sad. Now, Germany in Europe used to be the country with by far the largest number of banks.

• 1:34:41Speaker 02

  And still is the one with the largest number of banks. But in the last 20 years, under ECB pressure through their policies of reducing banks' profit margins, 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.

• 1:35:26Speaker 02

  And that was the system in Germany. But it's been under threat. But it also, you know, while Germany was doing well until a few years ago, 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 you can look internationally where these hidden champions, champion because they have top 1, 2, 3 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

• 1:36:11Speaker 02

  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 number's already dropped a lot in the, in the last, particularly under the ECB, last 20 years.

• 1:36:32Speaker 02

  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.

• 1:36:44Tucker Carlson?

  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.

• 1:37:05Speaker 02

  And therefore a smaller number of beneficiaries of the system.

• 1:37:08Tucker Carlson?

  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.

• 1:37:22Speaker 02

  Exactly. That's exactly it. And of course, this is also what immediately Densel being realized for speaking to the Japanese, because they told him, well, it's all about banking. Banks create great 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. Asset inflation, consumption, that creates.

• 1:37:55Tucker Carlson?

  You're blowing my mind. So, I mean, again, I've spent my whole life imagining that the Ms.

• 1:38:02Speaker 02

  Well, that's what they want you to believe.

• 1:38:03Tucker Carlson?

  M1, M2 and all that, that the Federal Reserve was, you know, the source of the money supply, just the Fed, but it's all banks.

• 1:38:12Speaker 02

  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. And, you know, those who control these central banks is a small number of insiders, you know, historically, you know, probably some big banking dynasties and so on. And of course, they exert the power, 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, unsustainable. Acid purchases create the boom bust cycles. That's what my my book, Princes of the End, shows that the Bank of Japan created the acid bubble of the nineteen eighties on purpose. And I could even show that it was intentional.

• 1:38:55Speaker 02

  And it's it's demonstrated in in several dimensions of proof. Both eyewitness accounts, the data, um, the anecdotal evidence. Um, you know, it's all there.

• 1:39:09Speaker 02

  Um, essentially, 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 to be a twenty 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. They had to be destroyed, just like the German economy and others in the past. Who wanted it destroyed and why?

• 1:39:41Speaker 02

  Well, you know, if you if you go back to um Japan's relationships with other countries in the world in the in the sixties and seventies, particularly seventies, and then early eighties, 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 impediments initiative, this, that and the other. No, no, this is unfair. 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 stronger economy. Are you sure?

• 1:40:22Speaker 02

  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, 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

• 1:41:08Speaker 02

  big owners and banks didn't have any ownership in this. And the Asian crisis and Japan, I mean, crisis, Korean crisis was a way to force it open. And then the West could buy it up very cheaply.

• 1:41:20Tucker Carlson?

  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.

• 1:41:30Speaker 02

  Yes, the US and particularly the Fed. Yeah, absolutely. 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 or that anything in my book was incorrect.

• 1:41:41Tucker Carlson?

  So you write this book, published only in Japanese, at least.

• 1:41:46Speaker 02

  Yes.

• 1:41:48Tucker Carlson?

  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?

• 1:41:58Speaker 02

  Yes, what happened next.

• 1:41:59Tucker Carlson?

  And why haven't I read this book? And why is it not on our bestseller list?

• 1:42:02Speaker 02

  Well, yeah.

• 1:42:06Speaker 02

  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 monthly columns. I was writing for years, every month in the Japanese Economist, the Japanese Newsweek. I was on their television. There's some.

• 1:42:25Tucker Carlson?

  In Japanese?

• 1:42:25Speaker 02

  Yeah, it's all in Japanese. There were some big live shows.

• 1:42:28Tucker Carlson?

  Your Japanese is good enough to do, to explain economics on TV.

• 1:42:32Speaker 02

  Much along, he's a much on set to me to give him this show.

• 1:42:36Tucker Carlson?

  I wonder how many of our viewers will know what you're saying. That's impressive.

• 1:42:41Speaker 02

  And so, but it was all in Japanese, you know, so it was, you know, in the media. There was some way you could see there's some pressure being applied, some high profile, live Sunday 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 them, it was our biggest advertiser and told us Richard Werner can't be on this show. So you mean a company like Toyota, Canon or something? Yeah, I can't say the name, but a company like that.

• 1:43:25Speaker 02

  Well, hang on, they have nothing against me, 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, 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 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. That's the chain of command, you know? And so then I was canceled in that show or some magazine editions even. There was one, it was one of the top weekly magazines. I was interviewed in that, you know, it's very proper and formal. They came with several photographers and recorded.

• 1:44:08Speaker 02

  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. So I called them, I was like, uh, thanks for sending this, but where's the article? Where's the interview?

• 1:44:35Speaker 02

  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, that's pretty controlled. I now realize 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 Reuters journalist. Wow, 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.

• 1:45:19Speaker 02

  So I was quite curious, so, and I expected, you know, he wants to interview me on the book. And then he's, oh, no, no, it's, uh, no, sorry, it's, this is, uh, it's about your book, but it's a personal matter. Really personal matter? Yes, I am calling, it's a private matter. I want, I want you to, to help my wife.

• 1:45:40Speaker 02

  Right, well, 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, I helped with it, the publisher, we sat together, we, you know, we're really, uh, word smithing every sentence to make sure it's got the right New Yorks. 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.

• 1:46:24Speaker 02

  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 interests. 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, I don't want them to get in trouble, even after, even though it's twenty, twenty-four years ago, but

• 1:46:44Speaker 02

  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 this, but who could use one of the major, was considered government institutions as a translation bureau.

• 1:47:22Speaker 02

  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 he comes, 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 asked me on my analysis. And so, you know, um, we met and, and first thing he says, Richard, great book you wrote in Japan. Princess of the yen? Well, hang on, you, you don't read Japanese? No, of course not, no, I don't, but, you know, the translation is circulating in Washington.

• 1:48:02Speaker 02

  And then, you know, 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 Werner. We have a request from the US State Department. It's like, okay. There is a senior person from the State Department who wants to arrange a meeting with you. 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.

• 1:48:43Speaker 02

  So I thought, okay, let's meet in a public place as opposed to a dark alley. And sure enough, when we met, the main message was, you know, the CIA is watching you. That was the message. That was the main message. It was 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.

• 1:49:13Tucker Carlson?

  They weren't trying to learn from you, they were trying to tell you something.

• 1:49:16Speaker 02

  No, no. Actually, somebody suggested, when I told them 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 finish another story I started, you know, I told you about Keynes moving away from the truth.

• 1:49:41Tucker Carlson?

  Wait, I just 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?

• 1:49:51Speaker 02

  Yeah, yeah. Well, I 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, 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, to Ben Bernanke and colleagues. 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

• 1:50:36Speaker 02

  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 heading it at the time, 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. It will be a bust. But because it's America, it's going to be a global financial crisis. That was in my book. It's published in the original Japanese in 2001. Now, this, this, I then found one publisher that has a, I don't want to mention

• 1:51:20Speaker 02

  their name, it's a very good name. And they have international offices, global, excellent pop reputation, and their US operation is quite independent, has editorial independence. And I meant to, I sent the, the whole manuscript to the CEO of the, you know, their US side, and they have excellent distribution in the US.

• 1:51:46Speaker 02

  And then I went to New York and I called him and said, I happen to go through New York. Can we meet? Of course. We met in the Four Seasons. The first thing he said when 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 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 journalists working at the New York Times, but probably also rather, you know, in the Mockingbird style, perhaps working for some of the agencies.

• 1:52:30Speaker 02

  They did some some sort of activism against my book because I wanted a book launch on the Japanese book for the foreigners and foreign journalists in Japan at the Foreign Correspondence Club. And the head of the Foreign Correspondence 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 he was just laughing it off, you know, nobody can stop me. I have total editorial independence and this is a brilliant book. He was bestseller in Japan. You're kidding me? Of course, we'll publish this. So two weeks later, I was back in Tokyo. Email from this guy. Dear Richard, it's great to meet you in New York. I love your book.

• 1:53:15Speaker 02

  Unfortunately, we can't publish it. He'd all, I guess he also got a visit from, from the the CIA people. Was it ever published in the US? Yeah. 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 then I thought, okay, what, what, 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 paper in Japan for the Development Bank of Japan, solving the puzzle of capital flows.

• 1:54:01Speaker 02

  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 and it takes years with these academic journals published in nineteen ninety four. Land prices in the Japanese asset bubble and and and and capital flows. And so that I'd 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 flows, but I realized with this I can explain almost everything. I can explain explain Japanese GDP growth and that worked.

• 1:54:42Speaker 02

  I can explain, you know, the ups and downs of of the business cycle. I'm now expecting a credit crunch and a banking crisis. So because I linked it into a macro model, there is one very simple macro model that links money in the economy, which is quite famous throughout modern economics in the last three, four hundred years, actually, so called the so called quantity equation, M V equals P Y. P Y is prices times for some reason they use Y for real GDP, real income. Because the I had been used for investment by Keynes already, then they 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.

• 1:55:27Speaker 02

  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 monetarism failed in the eighties 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 which of course, since the eighties 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, money going into asset markets. And I did that and it worked. Well, how could I?

• 1:56:11Speaker 02

  Do that Milton Friedman himself at one stage 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 disaggregate. Credit for the real economy, credit for asset purchases. And that's what I did. So I call it the quantity theory of disaggregated credit. It's really the general quantity theory because it turns out the ancient M V equals P Y is a special case. I've got the general case, which is credit as money and divided 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 on my work. This was the economics editor at the time.

• 1:56:56Speaker 02

  And because this is pre-internet, now anyone who wants to read this, I I did actually, it was in the public domain. I'd give I presented this at various conferences, Economic Royal Society Economic Conference and in Asia Pacific Conference. Anyway, but people had to write to me. Who wrote to me? It was the Bank of England, Rothschilds, J P Morgan. And all the Fed. Now they were like, there was a fax, there was a phone call at Oxford, where it was an Institute of Economic Statistics. And it was like urgent, everyone's telling you the Fed, the senior people from the Fed, they need the paper. We needed yesterday. So, okay, and I I sent it to all of them.

• 1:57:38Speaker 02

  I never heard back from anyone, but they were all clearly curious about it because, you know, the in the write up. 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 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 can't remember.

• 1:58:09Speaker 02

  Anyway, so there was this write-up, 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, institutional investor survey, Greenwich survey, a top three economist on Japan, because my forecast worked. If you look, if you use

• 1:58:53Speaker 02

  credit creation, it works, you know, you can forecast what's happening, what's going to happen. And, but, so they sent, 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 presenting, and, you know, you get some really tough questions. It's a good way to, 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, and of course, you go to places where there's monies, or 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

• 1:59:38Speaker 02

  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, bi-annual meeting of the IMF and the World Bank is, is outside Washington, it's somewhere in the world, and it 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 know, all the top guys, you know, finance ministers, central bank governors, everyone there.

• 2:00:21Speaker 02

  And at one moment, 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 Werner. I believe you've read some of my research. Of course, you'd expect, this is four years later. You'd expect him to say, your research? Like, what was that about? Tell me more, which is sort of what I was expecting. You know what he said? Richard Werner, 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.

• 2:01:04Speaker 02

  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.

• 2:01:21Speaker 02

  It's a charmer. Hang on, he'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. 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 Werner, credit creation, the key words. So, you know, when and how and how often has he used credit creation in his?

• 2:02:01Speaker 02

  And he, you know, he was central bank 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.

• 2:02:25Speaker 02

  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.

• 2:02:38Speaker 02

  But he was playing ball. This is a taboo. He's never used it. And I thought, ah, that can't be. There must be something. I kept searching. And then I discovered there's a book edited by Ayan 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 asset bubble of the 1920s in the US and then the Great Depression in the 1930s, which was the Fed's job.

• 2:03:19Speaker 02

  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 basically told never to talk about this again. And the same is true. Now, back to Ben Bernanke. 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.

• 2:04:02Speaker 02

  Until 1993, this is already after my first paper was out, and I think the Fed decided we need a counter argument now.

• 2:04:11Speaker 02

  And there was this paper by Bernanke 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 a way. 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. Mea culpa, 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.

• 2:04:53Speaker 02

  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 the 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.

• 2:05:36Speaker 02

  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. So I published this in the Nikkei, Nihon Keisetshimbo, the main newspaper, financial newspaper, daily, highly respected, big article, 2nd of September, 1995. Headline, "We Can Have a Recovery and High Growth Through Quantitative Easing", which was my proposal. And 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 could do. And so, you know, simplistically calling it just QE1 is the first thing. QE2, second type, and then the third measure.

• 2:06:21Speaker 02

  QE1 is for the central bank. When you have a bust banking system with all these non-performing loans, the central bank can just buy them up, of course, at face value, as if they were still 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.

• 2:07:04Speaker 02

  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. Then 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'll give you two examples. August 1914. The United Kingdom of Great Britain and Ireland

• 2:07:49Speaker 02

  declared war on Germany and her allies, which meant Austro-Hungarian Empire, Ottoman Empire. Okay, so that's how the First World War started. Britain declared war, just like with the Second World War. 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, sorry, 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.

• 2:08:31Speaker 02

  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, and these are major countries, Germany, Ottoman, Austria-Hungary, they're now considered enemy country, all the paper held by British banks were deemed non-performing.

• 2:09:05Tucker Carlson?

  Ah.

• 2:09:05Speaker 02

  Because irredeemable enemy.

• 2:09:06Tucker Carlson?

  Worse, how do you get the money?

• 2:09:07Speaker 02

  Exactly. So, and it was large enough for the banks to be bust, because capital is not high in banking, 10% or less. So you quickly reach that point where your equity is wiped out and you 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 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.

• 2:09:51Speaker 02

  But anyway, that was the key thing. Second example, and so, yeah, the problem is gone, no banking crisis.

• 2:09:57Tucker Carlson?

  May I ask you, since you brought 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 by the banks? Like, what do the banks think? But you've described the banks as the single greatest control mechanism of human behavior in a society, I think.

• 2:10:17Speaker 02

  Particularly the central banks, because they have the...

• 2:10:19Tucker Carlson?

  The bigger the bank, the more the power, but their power extends beyond just like their relations with other banks. Their power determines a lot of what happens in your country.

• 2:10:27Speaker 02

  Yeah.

• 2:10:28Tucker Carlson?

  And they're not under the control of voters, right? So it's an extra-democratic 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?

• 2:10:41Speaker 02

  Well, central banking and warfare are very closely linked. The, as I said, I mean, the, the modern major bank, the first modern major bank and central bank was the Bank of England, of course. And in the very act, law, Act of Parliament, the law founding it, it says, this institution and mechanism, because they, they didn't want resistance, they don't mention Bank of England. What we're doing here is establishing a 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

• 2:11:23Speaker 02

  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- In its founding documents, 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 and there was a rush to establish it for 1914? The year the First World War started. Exactly. Destroyed Europe. And again, it was done with subterfuge. I mean, you know, the gathering everyone- Yes. On the 23rd of December, 1913, when nobody was there. And then also introducing income tax. That's also at the Bank of England, it was established together in the same act, calling

• 2:12:08Speaker 02

  for establishing new taxes. Why? Because when, when you have these central banks, privately owned central banks established, it's 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, and we'll lend you the money." 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 in 1914. You couldn't have one without the other.

• 2:12:53Speaker 02

  Well, whenever a central bank is created, they introduce new taxes, one way or another. Yes. Were the-

• 2:13:02Tucker Carlson?

  The central bank of the United States, the Fed, was created during, right before the war. I mean,

• 2:13:09Speaker 02

  Yes.

• 2:13:10Tucker Carlson?

  Right before the war, a few months before the war. What was the role of the central banks during that war? The most important war in the last thousand years?

• 2:13:18Speaker 02

  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 die in 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 Reichsbank, which was 100% privately owned? Was somebody called Max Warburg,

• 2:14:03Speaker 02

  or Max Warburg, you might say in English? And who was at the pinnacle? In fact, was a founder of the Federal Reserve? And who was the key person there? It was somebody called Paul Warburg, Paul Warburg, his brother. But of course, the soldiers have to kill each other. And these two countries are at war.

• 2:14:24Tucker Carlson?

  Wait, 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?

• 2:14:33Speaker 02

  Yes, now, after qualified, they weren't the formal governors, but they were the key people.

• 2:14:38Tucker Carlson?

  Did anyone notice this?

• 2:14:40Speaker 02

  Well, some people did, I mean.

• 2:14:43Tucker Carlson?

  Probably encouraged not to notice that.

• 2:14:44Speaker 02

  With Paul Warburg, 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, it wasn't. I mean, if you were looking for some details, you'd quickly find this.

• 2:15:04Tucker Carlson?

  How did the brothers do during the war? Were they destroyed? Were their fortunes taken away?

• 2:15:08Speaker 02

  Oh, no, no, no, of course. Max Warburg stayed in power at the Reichsbank. He was the one who who signed off on Hitler's proposed head of the central bank even in 1930s. It was also Max Warburg still.

• 2:15:27Speaker 02

  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 Warburg family, but you know, I mean, there's other families and there's many families, there's JP Morgan, you know, and there are various backgrounds and, and you know, ethnic backgrounds and whatever. But the principle is, we do have. 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 Reichsbank was 100% privately owned. And, you know, when I mentioned Keynes, 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.

• 2:16:11Speaker 02

  So now I just want to give you the other example 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% bust. 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, forced munition loans to, you know, the military

• 2:16:53Speaker 02

  industry, most of which was also bankrupt or was not even in Japan any longer, because the country of Japan shrank a lot, right, after 45. The whole of Manchuria no longer under Japanese influence. Taiwan and Korea were intrinsic parts of Japan until 1945 for half a century. Philippines, Vietnam. Of course, these were added, you know, during the Second World War, but, you know, Korea and Taiwan were already for 50 years were part of Japan. 1905. Exactly. So, so these banks were bust because all these loans had no value.

• 2:17:32Speaker 02

  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 incendiary 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? You don't need to have one. The central bank buys the non-performing assets at face value and the problem is solved. And that's what they did. So you can't tell me the Bank of Japan didn't know what to do. That's QE1. Now, I was quite convinced that even if, in, you know, say, I propose 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

• 2:18:17Speaker 02

  assets Richard Werner always talking about. I was quite clear that they would rise to 25% of all bank assets as 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 estimate. So I was convinced that even if the Bank of Japan 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 immediately increase lending. So I came up with this proposal on how the central bank can force banks to increase

• 2:18:58Speaker 02

  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 investors. I wrote, well, the central bank needs just to buy real estate in Tokyo because all this is going to turn into non-performing assets, dud loans, and 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.

• 2:19:36Speaker 02

  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 he'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 center, 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?

• 2:20:21Speaker 02

  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 six 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.

• 2:21:03Speaker 02

  Spain credit creation negative, huge recession, vast youth unemployment, 50% youth unemployment. Dying population. Yes, and, and the whole. The human cost of this is intense. The human cost, and, 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, because there's, even when the central bank is not playing ball, the ECB was clearly trying to create this problem, it was not trying to help, there's something the government can do, there's a third form 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

• 2:21:47Speaker 02

  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. Great question. Don't issue bonds. What is the interest rate borrowing from banks in your country? Oh, it's only 4%.

• 2:22:09Tucker Carlson?

  Yeah.

• 2:22:10Speaker 02

  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 wasn't possible. It was legal. I checked with an expert on ECB law. It's perfectly legal. They could have done it. That's where the political power comes in. They were 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.

• 2:22:53Speaker 02

  So what happened actually in March 2020 was the Federal Reserve implemented QE2. And I should also add, in 2008, so actually, Bernanke, 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 or performing assets from non-banks. That works. But the Bank of Japan didn't do that. But Bernanke did in 2008. That's why the US recovered first from the global financial crisis, even though it started in the US.

• 2:23:37Speaker 02

  It's because he borrowed my proposal of purchasing the non-performing assets from banks. He didn't credit me when he gave.

• 2:23:46Tucker Carlson?

  Known in this country as a bank bailout.

• 2:23:47Speaker 02

  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 tackle the moral hazard problem. Those who mess up have to pay up.

• 2:24:01Tucker Carlson?

  Which is one of the main problems in the United States. So the last area I want to get, I mean, I could go on forever. This is like you've totally overturned my primitive understanding of economics. Thank you.

• 2:24:13Speaker 02

  You're welcome.

• 2:24:14Tucker Carlson?

  What, given your, your record of prescience in assessing, you know, where economies are going, you look at the United States, what's your 10-year projection for the US?

• 2:24:27Speaker 02

  Well, it depends on so many factors. Actually, before we come to that, can I just tie together some loose ends we have? I will. Very, very brief. So on Greenspan, the reason why I talk about Benan King Greenspan is because we were saying, "Princes of the yen, the publishers turning down the book. It wasn't published in English." And you see, I'd concluded at the time, "How did I get this published by a, you know, good US publisher? It's probably that chapter where I write about Alan Greenspan, my encounter with Credit Creation, he said the words." So he knows Credit Creation, ah, his chapter. 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 a secret."

• 2:25:12Speaker 02

  So it's going to be a global financial crisis. That was my prediction. It's probably that chapter. So I took it out.

• 2:25:20Speaker 02

  It's the last chapter. Sent 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." Got it back, so I've now republished it with QuantumPublishers.com, including the long-lost last chapter. So it's back in there and one can get it. That was on that one. On Deng Xiaoping, so once he found out the secret, the elixir of high economic growth, he went back to China, and what did he do?

• 2:26:06Speaker 02

  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 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 branches each,

• 2:26:50Speaker 02

  with 30 loan offices 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 offices, it's 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 Xiaoping was smart enough to realize, okay, this is a no-brainer, we'll have these banks. And economic growth took off.

• 2:27:34Speaker 02

  China delivered double-digit economic growth for four decades. You know, when you have 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 are showing. We can have it in the US, we can have it in any European country, we can have it in any developing country.

• 2:28:03Tucker Carlson?

  A lot of our credit creation has gone to asset purchases.

• 2:28:07Speaker 02

  Exactly.

• 2:28:08Tucker Carlson?

  And boy, does it show.

• 2:28:09Speaker 02

  Exactly.

• 2:28:10Tucker Carlson?

  Um, it's, whether it's counted as inflation or not, it is inflationary. I mean, things are more expensive.

• 2:28:16Speaker 02

  Well, asset inflation, and then derivative from that, you get all sorts of other prices going up.

• 2:28:22Tucker Carlson?

  So, um... Given that, like, where does the US stand right now?

• 2:28:26Speaker 02

  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?

• 2:28:41Tucker Carlson?

  You'd think.

• 2:28:42Speaker 02

  But, 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 in the ear.

• 2:28:54Tucker Carlson?

  Which steps are not allowed in one?

• 2:28:56Speaker 02

  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.

• 2:29:08Tucker Carlson?

  Dramatically.

• 2:29:09Speaker 02

  Yeah. 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.

• 2:29:45Tucker Carlson?

  No.

• 2:29:45Speaker 02

  Give it to a small firm, oh, there'll be three, four new jobs, you know?

• 2:29:48Tucker Carlson?

  Exactly.

• 2:29:49Speaker 02

  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.

• 2:30:03Tucker Carlson?

  No.

• 2:30:03Speaker 02

  And so it is actually a war against the middle class that's happening.

• 2:30:06Tucker Carlson?

  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.

• 2:30:14Speaker 02

  Exactly.

• 2:30:15Tucker Carlson?

  A country that's rich and poor, very easily controlled. That's the Latin American model.

• 2:30:21Speaker 02

  Exactly. And sadly, that seems to be where we're heading. So with this background, back to your question.

• 2:30:27Speaker 02

  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 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

• 2:31:09Speaker 02

  protecting environment. I love nature. I think you love nature and we want to protect the 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. 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.

• 2:31:53Speaker 02

  Matters neither created nor destroyed. Exactly. So what is this economic, well, this economic growth and where does it come from? Well, it's a statistical illusion created by statisticians. 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, when it used to be GNP, so GNP 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 statisticians to measure this.

• 2:32:37Speaker 02

  And that's what national income accounting was created for.

• 2:32:41Tucker Carlson?

  Really?

• 2:32:41Speaker 02

  Yes, exactly.

• 2:32:42Tucker Carlson?

  To assess the creditworthiness of the borrowers?

• 2:32:44Speaker 02

  It's the ability to service national debt.

• 2:32:47Tucker Carlson?

  Wow.

• 2:32:47Speaker 02

  And that explains the other puzzle. And actually, again, tying together loose end here. You know, I told you 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 called reconsidering monetary policy and then something interest rates and growth.

• 2:33:22Speaker 02

  And we know what we found. It's together with a very good statistician from Korea. And it's, you know, it's state of the art econometrics. You've got to do this properly because and it took years to get this published. Because everyone hated this. Because 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.

• 2:33:49Tucker Carlson?

  Yes, of course.

• 2:33:50Speaker 02

  Low rates, high growth.

• 2:33:52Tucker Carlson?

  And no one questions that.

• 2:33:54Speaker 02

  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 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

• 2:34:23Speaker 02

  the hone, 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 around.

• 2:34:34Speaker 02

  That's the true story. And now, actually, what we also found is, and 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 don't lead GDP, okay? And it's roughly always the same. And I'm 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 was watching the inflation for 21, 22. You know, a huge bond market crash because rates will have to come up with such high nominal GDP growth due to inflation. But why is it that bond yields usually very nicely track, in the US, very nicely track GDP growth? Why?

• 2:35:19Speaker 02

  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 same as the economic growth rate. Because that is the income generation. Right. If you charge too much, it becomes a debt trap. Exactly. 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.

• 2:36:03Speaker 02

  So that explains it, you see? So, to address the debt trap for a second? Well, when interest rates are higher than 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.

• 2:36:26Tucker Carlson?

  Right, and it compounds.

• 2:36:27Speaker 02

  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, made up equilibrium stuff, there's no equilibrium. That's heresy, by the way, to suggest there's no equilibrium, but it's just ordinary.

• 2:36:53Tucker Carlson?

  You need a food taster.

• 2:36:56Speaker 02

  And so they're told, well, you need to deregulate, liberalize, privatize. You want growth? Well, you need savings, sorry. Oh, you don't have enough savings? Well, you need to get, you need to borrow foreign savings. The World Bank is willing to lend you some, the IMF will lend you some.

• 2:37:12Tucker Carlson?

  They're claiming that the loans they're delivering from the West are the product of Western savings.

• 2:37:16Speaker 02

  Yes, exactly, exactly.

• 2:37:19Tucker Carlson?

  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.

• 2:37:26Speaker 02

  Yeah, yeah, yeah, yeah.

• 2:37:27Tucker Carlson?

  I mean, there is a sense in which they turn the culpability, the moral responsibility, onto the victims of the scam. It's your fault.

• 2:37:36Speaker 02

  Exactly, exactly. And so these countries have been encouraged to borrow from abroad, when it's a scam, because who are the foreign lenders getting the money from? They created out of nothing, the foreign banks created out of nothing, which is something.

• 2:37:50Tucker Carlson?

  But the argument is, the, you know, the, we virtuous people have just saved a lot of money.

• 2:37:55Speaker 02

  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 it's a developing country, let's say South Africa, and they're 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?

• 2:38:40Speaker 02

  It creates it out of nothing, credit creation through the banks. Now the South African Finance Ministry says, well, actually, we want to use this money in South Africa, so Barclays, send over the money.

• 2:38:53Speaker 02

  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. Uh, 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 create South African rand. 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,

• 2:39:37Speaker 02

  which is something South African banks could have done without the round trip abroad, which indicts the country. And usually you debt for equity swap, or you can't pay your debt, well, we own you now. We own your assets. That's exactly right. And that's been the trick. So it's been a terrible system to keep growth low, prevent countries from developing, and even 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 and is 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,

• 2:40:19Speaker 02

  but we must address the financial system, the banking system. And the best system is when you decentralize the power. As Lord Acton 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.

• 2:41:05Speaker 02

  Because there's only one state-owned sovereign bank in the United States, in North Dakota. As a result, because that basically protects the local chartered banks. It's, so they're not so dependent on the Federal Reserve or on the FDIC. 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 merge. And the biggest club they have, they're wielding now to get rid of the small banks, is actually the introduction of central bank digital currencies.

• 2:41:49Speaker 02

  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 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 old fashioned. 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, so what's the problem? What's actually new?

• 2:42:28Speaker 02

  You know, we've been using BDC, bank digital currency, for half a century, almost, yeah. So that's not new. What is new about CBDC was 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 bank is supposed to be specialized to stand behind the banks, back them up when needed, but not replace the banks.

• 2:43:02Speaker 02

  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. And 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 any bank. Giving a blood transfusion to a corpse. Well, yeah, it was exactly, it was afterwards. So CBDC is the central bank's opening accounts for the general public at the central bank, which means that you just need to create

• 2:43:43Speaker 02

  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, 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 at the

• 2:44:25Speaker 02

  ECB, they are killing banks and they want to now introduce CBDCs, which means they want to move to central planning. And the same, you know, as any country in the US, at the moment, the Fed is saying, fortunately, no, 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 sure 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 their actions? No, you can't audit them. You can't really know what they're doing. And they think just giving a speech in Parliament or some committee where being questioned, you know, that's good enough, that's accountability. No, it's like you wanted to have 2% inflation, now we have 10% inflation, shouldn't you lose your job?

• 2:45:10Speaker 02

  Oh, no, that never happens. I don't think it's ever happened. Exactly. So, so we need to oppose the introduction of CBDCs. And of course, it's not just that, what I mentioned, it's much worse because it's a programmable control tool.

• 2:45:28Speaker 02

  And the programmability is really scary.

• 2:45:31Tucker Carlson?

  Instant compliance or start of death.

• 2:45:33Speaker 02

  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 X, Y, Z? Oh, sorry, you know, your carbon footprint has been used up or whatever the excuse may be, you're outside the 15 minute city.

• 2:45:55Tucker Carlson?

  Or you criticize the central banks.

• 2:45:56Speaker 02

  Or you've been a critic criticizing central banks, very sinister.

• 2:46:01Tucker Carlson?

  So 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. I mean, you're thinking about it in a very different way. It sounds to me like a much more accurate way. What, where do people go to learn more on this topic?

• 2:46:25Speaker 02

  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 is my Substack, which is rwerner.substack.com.

• 2:46:41Speaker 02

  And there's a small monthly fee of, I think, $9 or something like that. And otherwise get my book, Princes of the Yen. Also I have a Princes 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.

• 2:47:04Speaker 02

  And otherwise I'm sort of growing my YouTube channel, Werner Economics.

• 2:47:10Tucker Carlson?

  How many languages do you speak?

• 2:47:12Speaker 02

  Well, fluently and able to give lectures and presentations is three only, so German, English and Japanese.

• 2:47:18Tucker Carlson?

  Just three, yeah.

• 2:47:20Speaker 02

  I've, I can partly get by in French and I did Latin in school and my Chinese is very passive and only, you know, the writing from Japanese, the Chinese characters which you use in Japanese.

• 2:47:36Tucker Carlson?

  But you can write in Japanese.

• 2:47:38Speaker 02

  Yes, yes, yeah, although it's time consuming, you know, but yeah.

• 2:47:44Tucker Carlson?

  Interesting.

• 2:47:44Speaker 02

  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.

• 2:47:58Tucker Carlson?

  Professor, I can't thank you enough for this. I hope you'll come back.

• 2:48:01Speaker 02

  I'd love to. Thank you very much. Thanks for having me.

• 2:48:03Tucker Carlson?

  Thank you very much.