All language subtitles for Oeconomia 2020

Making this film was harder
than I thought.

It started with simple curiosity.

Since the financial crisis,

I've tried to understand how our
economic system works.

economic growth -
concentration of wealth - debt

But the numbers alone surprise me.

Over recent decades, economic output

has increased many times over,
as has debt.

And inequality in wealth
distribution has grown steadily.

So the gulf between rich and poor is
widening all the time.

So is there a connection
between economic output,

debt and private wealth?

What are the rules of this system?

Can I help set it up?

It's pretty much done.

We'll play with one dice.

When one of you builds a house,

that doesn't mean that the
bank earns money,

it means that the other economic
participants get it,

because they are effectively the
ones building the house.

The house owner

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

So we're ready to start

and so we can be sure

of following through from boom to crisis

this is a short version,
building one house each

so we reach saturation point.

In Monopoly, money's just
'there' given out to all

but here it seems the money only comes
when we build, is that right?

Because we're brought up with
the piggy-bank model,

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

you get some coins, put them
in your piggy-bank

and you can only invest, buy
a toy or whatever,

when the piggy-bank is full.

But here, you invest - then
the money appears.

Money only exists when there's
economic activity

I think that's a really important point.

During my research, some are
interested in my questions

but others are reserved and suspicious.

Interviewees wanting to
remain anonymous,

filming permission withdrawn

or filming micromanaged.

I start keeping detailed notes of my
telephone conversations.

The calls in the film are
spoken by actors,

sometimes on the basis of
transcripts from memory.

Hello, this is Carmen Losmann.

I'm doing research for a documentary,

investigating the links between
economic growth, debt

and the concentration of wealth.

Is there an engine driving
these phenomena?

How does the whole thing interrelate?

To answer that,

you have to descend into the
engine room of capitalism

and find out how money creation,

the capitalist production
of money works.

The banks play an important part,

because they have a special privilege:

they can create money that has
not yet been earned

and by doing that they set a
vast dynamic in motion.

Press department, Anja Müller, hello.

Hello, can we use your bank to show

how money is produced?
- Aha.

OK, right, well, you've
wrong-footed me there.

And actually I think 'producing money',
that's trivializing it a bit.

I mean,

it's not like a machine, moving
something right to left.

It's not visible at all, as such.

So you as a bank don't produce money?

I can't say that we, I mean, money
production as such,

I mean, we're not printing
money in the cellar.

How is money created?

Good, if there are no more questions,

let's proceed to the vote.

Brigitt Kienzler.
- Yes.

Sebastian Lehrmann.
- Yes.

Thomas Bittracher.
- Yes.

Max Rohwee.
- Yes.

Philipp von Homajer.
- Yes.

I also vote yes.

So the credit application is
unanimously approved.

Thank you very much.

We'll move on to the
second application...

Dear Ms Losmann,

we would gladly simulate a credit
committee meeting for you.

We also offer to simulate

a credit discussion between
our bank manager

and a genuine customer for the camera.

Please.
- Thank you.

Nice we can have this talk today.

You made a telephone enquiry
about your financing

and we were able to discuss some
key data on the phone.

Getting to know our credit customers
personally is also important to us.

You said the apartment...

400,000 francs.

...had a purchase price of
400,000 francs.

Yes, but I've had another look

and I've decided that I need at least
to renovate the kitchen.

Yes.
- And a few other minor renovations

and I think I'd need another
25,000 francs for that.

For us as a bank, it's crucial
in allowing credit

that we are able to verify that you,

as debtor, will be able to
repay the credit,

which in practical terms means that
you can pay the interest

out of your income

as well as meeting the loan
repayment terms.

So it's important

that we understand your finances

and an excellent basis for this
is your tax return,

which you've provided here, and which

on the one hand shows us your income

and on the other

also documents your assets.

money creation

We now come to the loan payout,

which is a vital moment: the
money leaving the bank.

The display shows us our bank system.

I enter the account number here,

the loan amount, which is
310,000 francs.

And I add the text comment

"credit disbursement".

That's the debit side of the entry,

which I now save.

Now we move on to the credit side.

Here I have to give the
loan amount again,

the 310,000

and the account number on
the credit side,

that's the receiving
account of Ms Franzen.

153384301.

When the book entry is made, the
credit account increases

and on the other side the receiving
account of the customer increases,

so we get a balance sheet expansion

and so we have created money.

I click to save

and thus the money creation is done.

debit - credit

In making this credit payout,

we have not had to take money

from deposit customers' accounts,

to credit it to the credit customer.

We have entered a sum of money
in the balance sheet

that did not exist before

thereby increasing our
balance sheet total

and this balance sheet expansion
has created new money

through the credit disbursement.

I was a faithful employee

of these institutions -

public like the IMF,

and later private investment banks

and I really never bothered my head
about how money worked.

It never really came up in
our studies either.

Money was just there, it was like any
other investment object.

Then along came the financial crisis and
suddenly things were happening

that people couldn't explain.

So then, at a somewhat advanced
age you might say,

I tried going back to basics again

and asking myself fundamental questions:

How does a bank work?

So the first obvious
question you have to ask

that the usual theories never answer is:

how does money come into the world?

Everyone behaved as if
things were the same

as they were under the Gold Standard,

with a gold miner prospecting,
finding the stuff in a stream

and it becomes a gold coin,
and goes to the bank

which issues a trust receipt,
which is then a banknote

but it issues more banknotes

than it receives real gold coins
because it assumes

that its gold depositors are
not all going to want

to see their gold at once, and that's
fractional-reserve banking.

That's what everyone learned,
including me

and we thought that's how
the world worked.

But it's really only a very
limited explanation

for how money is created in a
gold-based system.

What really happens is:

banks use lending

to produce book money-demand deposits.

So when you, as a customer,
go to your bank,

and apply for a credit,

and the loan officer

approves it, says you're creditworthy,

sign here.

The bank then goes off

and just writes the amount as a
credit in your giro account.

They don't need to
collect deposits first

in order to issue the credit.

And they do this again and again...

listen to them carefully, these people,
bankers,

again and again they say a bank's job is

to collect deposits and
issue them as credits,

professional people say this.

And it's not true.

The bank doesn't need money
to issue a credit,

it produces money by issuing the credit.

And the link between
entrepreneurial activity

and our monetary system

comes from this issuing of credit.

Our money, bank money,

is created by issuing credit.

For that, we need businesses
taking out loans

or households that borrow.

But if they say no, I'm not going to,

I'm already in so much debt,

money production stalls.

So it was after the financial crisis.

The central banks have been
desperately trying

to get things moving again,

so more loans would be issued.

So to keep the system going,

to keep the economic system and
economic growth going,

new loans must constantly be issued
so money is created.

Economy grows as credits are issued.

And what I'm asking myself,

you've said that money is
produced by private banks

when they issue credit.

As I see it, the bank will
only give money

to people who credibly demonstrate

that they're going to make a profit.

That's the idea, the business model.

So now this is my question: To what
extent does this create

an inherent, systemic growth compulsion,

because in effect banks only issue loans

when an economic situation
promises growth,

because that's the way to make profits?

Well, yes, they will, that's right,

but I mean no one is forced
to take out a loan.

Dear Ms Losmann,

my current employer does not want to
appear in this film.

All my remarks are therefore
personal opinions

and do not represent the official
position of my firm.

Economy grows as credits are issued.

Credits are issued as economy grows.

So up to now I've understood
that credits are issued

when the economy is growing.

And economic growth means

that more goods and services are
sold this year than last,

but that in turn requires more money,

so that these goods and
services can be bought.

And producing this greater
quantity of money

requires more credits.

So the monster is eating its own tail,
isn't it?

It is paradoxical in a way.

It only works for as long as it works,

as long as the chain reaction
of economic growth

and new credit continues.

And the European Central Bank has a
huge influence on this,

especially in the years after
the financial crisis.

It tries to ensure through
its monetary policy

that the chain doesn't break down.

Carmen Losmann, hello.
- Hello Ms Losmann,

I'm here with my colleague from
the media department.

And so we'd just like to hear once again

how you envisage Mr Praet's
role in this film,

and what subjects you're
expecting him to talk about.

Well, my interview
questions tell you that:

about the monetary policy of the ECB,

and the effects of that
policy on the economy.

May I just jump in here, hello,
nice to talk to you.

So the interview will not
last for two hours,

he hasn't that kind of time.

What we need is a clear understanding

of your purpose in this interview.

Well, the acceptance I received

did say that two hours was OK,

and I designed my questions accordingly.

If two hours is now no good,

I need to adapt my questions,

but I still don't quite know

how long you're proposing
for the interview,

under the new conditions.

Well he's set aside 45
minutes in his diary

and minus a few minutes for arriving,
leaving and so on,

I'd be looking at half an hour,
realistically.

Dear Ms Losmann,

unfortunately filming a real
meeting is not possible.

However, we would be happy to
simulate a meeting for you.

book money = 90% of our
total money supply

After the financial crisis,
private banks

stopped issuing enough credit,
jeopardising the money supply.

So the ECB intervened, launching its

'Quantitative Easing' programme,
which means

the central bank buying assets
from major players

in the capital markets, mainly
government bonds,

using new money.

The ECB itself is creating this money,
up to 80 billion a month, by the way,

in the hope that this new
money will spur demand

and so stimulate new economic growth.

So why did the private banks
stop issuing credits?

No one knew after the financial crisis

where growth and profits
would come from.

The best thing for you here
would be to throw a one.

So, may I?

We've already talked about how money
appears in this system,

so the bank issues credit to me,

and in return I basically
promise to pay it back

and that brings money into the world.
- Yes.

So, that's the starting point.

Now I'm obliged

to take part in the system
through my value-creation,

and in principle to get money from all
other participants in the system

so that I can repay my credit.

Different in Monopoly,

because these banknotes just exist.

and it feels like all the bank
does is dole them out.

So the money in circulation is fixed -
many people think it really is -

and it's in circulation and gets used.

But that's not our system. Our
system is more like this,

as Samirah has tried to show, of course
a very simplified model,

but the money is really only
created when we build

and it disappears on repayment.

Without new debt,

we suddenly run out of money.
- Yes.

So if no one takes on new debt,
we run out of money,

but where does that money go?

Our modern money in capitalism is
not itself a commodity,

like seashells

or cigarettes or whatever else
is used for barter.

Money consists of credit and debt
at the same time.

If you pay back your individual credit,

the credit is still there,

say with the trades person

whom you've paid to renovate your house,

but at the same time you've taken money

out of the system elsewhere, earned
income, for example,

to repay or liquidate your debts.

And this liquidation reduces your
bank's balance sheet

and so reduces our whole money supply.

Does that make sense?

When loans are repaid,

new loans have to be issued immediately.

So enough money stays in circulation.

That, in turn, requires constant new
investment opportunities

promising profit

so that new loans will be
issued for them.

So new business ideas, new
business models,

new value chains,

new products, new services,

new markets...

The next trillion dollars

will be earned through data.

Everyone starting to think
in business models,

throughout the hierarchy,
not just management,

that's very, very difficult to get
into people's heads.

Dear Ms Losmann,

thank you for your interview questions

on the subject 'growth
market digitalization.'

After lengthy deliberation,
we have decided

not to continue our
participation in your project.

With regret, we must therefore cancel
the interview with Dr. Jan Mrosik.

We need 2-3 percent growth,

if the tree stops growing, it dies.
And the same goes for us.

No growth from innovation -

nothing moves.

Why is growth important to
us as investors?

Well, growth pays the
dividends on shares

and growth pays the coupon rates,

on bonds, which companies
issue to invest.

OK, but when industrial
production increases,

that only creates more products,
more output,

so how do the actual profits happen,
the money for profits?

Where does money for profits come from?

Hello Ms Losmann,

thank you for your interest in
how value gains occur.

A simulated 'performance discussion'

with one of our clients

would address appreciation of
the assets concerned

and include analysis of value drivers.

Please!

Thank you.

So, Mr Schuster, great to have you
here in our new offices,

nice to see you again.

We've talked on the phone several
times in recent months,

but it's been a while since the last
performance discussion.

I've invited you for a
performance discussion.

As you know, in a performance discussion

we look back at the past,

we shed light on the present

and then we try to use the data we have

to peer into the future

and develop an investment strategy.

In 2016, we had a positive
performance of 6.7%

on invested assets of
around 300.000 Euros

making a profit of 20.000 Euros
plus a few hundred.

What is particularly pleasing,

when I look at these figures and the
performance contributions.

is that the performance was
positive in every segment.

I can see of course, Emerging Markets
were the biggest driver

of this positive
development with over 10%.

Why is that?

Well, the Emerging Markets.

Growth in the Emerging Markets
is still much higher

than in developed countries

and that's really the main driver

that leads us to say

that our Emerging Markets commitment
was a very good thing.

On just a quick calculation,
today we have a...

...a situation that we...

Worst case,

our performance would be around 7%

and best case, about 15%.

That all sounds right to me.
- Thank you.

The economic condition we need

for added value to be generated or
my asset value to grow

is growth.

We define growth

as worldwide production
steadily increasing

and where we see effective growth in the
sense of an enlarging market

is obviously in the Emerging Markets.

If you think about

India or Indonesia

with a lot of people getting money

that they can spend or want to
spend on consumer goods,

buying a phone or a car

or a fridge or just a
bigger place to live.

Obviously that's a huge
amount of potential

and the Emerging Markets' shares of
course profit from that,

because they can turn over more
in their home market.

But there are also a lot of
companies in Germany

like engineering firms, who are
supplying products

that get bought by enterprises
in those countries,

to make their own
production more efficient

or just produce more.

Companies' profits increase because

they sell more products.

Because they sell more products,

but don't, relatively speaking,
produce more spending.

So to sell products you need
someone with the money

to buy them.
- Exactly right.

So where does the money come from?
From companies borrowing,

to buy materials, pay wages and salaries

putting money in circulation.
- Right.

Say a company takes out a loan
for a certain amount

let's say 500 Euros for
simplicity's sake,

that's now in circulation.

But the company wants to earn 600 Euros,
so make 100 profit.

Where does the money come from

in the economy as a whole so
companies can make profits?

That's a good question.

Because that's the precondition

for assets to grow, isn't it?
- Yes.

So I can imagine... it's a
complex question

and I lack to some extent the
technical background

to explain it well

in terms of value creation, but...

let me think about this.

Can we defer that question to later?

Yes, of course,

I'll move on to another
question that I've also...

It's a good question, but insanely
complicated to answer.

Where does money for profits come from?

It's an extremely interesting point that

we feel that money comes from work.

I go to work and I get money,

as if it's my work that's somehow
creating the money.

We used to, well, I didn't, but

a caveman would go to the woods,

gather nuts and berries, hunt animals

and that was his income,

from 'work' in quotes.

And we still think that's
how it works today,

but it doesn't.

In fact, your income

only exists because we've built houses.

That means you're actually
dependent on us investing

making things, building houses,
for your job to exist.

Work as much as you want,

nothing will happen if we aren't
willing to invest.

And we only invest if we think
we'll make a profit.

And the profit outlook depends on the
growth of the money supply.

Exactly.
- There's the drama.

Profit outlook depends on
growth of money supply.

Our game's money supply has
been shrinking,

but in the economy as a whole it
has to grow permanently

and we can see in reality it's grown
continuously since 1948.

Hello Ms Losmann, please
submit your questions

for the interview with our BMW
Chief Financial Officer

in writing in advance.

Our strategic goal, especially in our
core segment, automotive,

is a margin of 8-10%.

We have not achieved that.

The margin is what's left

after subtracting
expenditure from revenue.

So on revenue of 100 Euros,

we want to earn 8-10 Euros.

And as I said,

we did not achieve that
strategic goal in 2018.

But even so,

compared to our competitors,

our 7.2% is a very, very good result.

Every company wants to make profits.

And I ask myself, OK, but where do those
7.2% profits come from,

that the corporate sector
wants to earn extra?

I know not everyone makes 7.2%...

We fight for customers, and the
customer finances the company,

by buying the product, that's the
logic you mean, isn't it?

Well, yes, but also, where does the
customer actually get this money?

The bottom line is,

the corporate sector wants
to make profits,

to get more money out of
circulation than it puts in

so looking at the whole
economy I ask myself:

who takes on the debt for that?

Who takes the...

OK, let me try from the
other perspective...

Is this the question 'where does
economic growth come from?'

Profits come to economic growth,
so basically yes.

Ask it again, so I can
repeat the question.

Where do profits come from, how does
economic growth happen?

Economic growth...

Companies contribute very significantly

to economic growth.

It's like a, I could
describe it as a kind,

like a kind of circulation.

Particularly in a
technology-driven industry

like the automotive industry,

economic growth is driven

in the first place by innovation.

We invest in research and development

and produce, develop and produce thereby

products that fortunately
customers like very much,

and so are prepared to pay more
for those products,

than we spent making them.

I'd be interested to know how
important the money supply

and its expansion are in your
profit forecasts.

Do you look at factors like that?

Yes, we do look very very closely
at factors like that.

You can roughly say

that every second vehicle
we sell worldwide

is refinanced by the customer

through BMW Financial Services.

So is it fair to say that through
your credit system,

vehicle financing, you're also creating
the money for your own profits?

Well, the financial services
division is also profitable...

I'm talking about in the context
of the whole economy,

meaning: when you issue a vehicle loan

that is a new credit -

you're helping expand the money supply.

Which also helps your
profit expectations.

It helps profit expectations because

we sell a certain share of our vehicles

on a credit basis

50% penetration

and

that's... we are a part of

the financial banking system

and so are bound by all the rules

that also apply to commercial banks.

It also has a very great deal to do with

what's called consumer sentiment.

How ready is the customer,

whether or not he has
sufficient resources,

how ready is the customer to
invest funds in a product

and to pay more for it

than we spent making it.

And the money supply must also increase,
mustn't it?

The money supply increases...

The money supply does increase,

as national economies grow.

The money supply
automatically grows then.

And the national economies grow
because more is invested.

Innovated and invested.

And you need new money again for that.
- Yes.

Money supply grows as economy grows.

Economy grows as money supply grows.

So if the conditions that allow
companies to make profits

necessarily go in paradoxical circles,

why do companies have to
make profits at all?

OK, look, people like you

who don't understand the first thing

about business economies
and the economy.

When you ask me a question like that,
it's like asking

why a rock falls downwards

and not upwards.

Well, for most of human history,

by that definition, rocks fell upwards,

as there was no profit-based economy.

Just a minute, let me explain

why this question is offensive.

OK, I can't wait.

What most people don't get is this:

Repayments of loans don't appear in
profit and loss accounts.

If you say now, I have a profit and loss
account and at the bottom it says

I have precisely zero Euros profit,

then you have no surplus money
to repay your loans.

So companies have to make profits,
to repay their debts?

Exactly.

So now, looking at the whole economy:

can everyone make a profit at once?

Yes, why not?

The money supply would have to
increase... - No.

If everyone makes a profit, earn more on
their invested capital.

I don't understand, why are you on
about the money supply?

You can't put in an amount X

and expect to take out an
amount X plus 0.03%.

Look, you're talking to the
wrong person here,

I don't care about this at all,

because money supply management in
China, the US and other countries...

Write a doctoral thesis,

and it would change nothing at all.
- Oh, I see.

I do think this is an interesting issue.

I studied economic theory

no one learns how the
monetary system works.

Not only do they not learn,
they learn it wrong.

Because most economists just don't have
anything to do with it.

We held an event at university,

long time ago, at Leipzig,

and the subject was money and we
invited macroeconomists,

People who were analysing the
economy as a whole.

And they said: 'That's not my subject,

we can't talk about that.'
I think that says a lot.

The problem is, I had a meeting

with a professor who was also talking
about monetary theory,

and then the equilibrium models

that they endlessly teach
at universities

and when I pointed out to him

that the basic assumption on
which all these systems

and models depend is false,

he said: 'Yes, you're right, but I'm not
interested in the real world.'

Honest, at least. - Verbatim! Yes, I
think I wrong-footed him,

for him to admit that he's not
interested in the real world,

but that is symptomatic.

The worst thing I think
is that they know,

they know that these models

they drum into their students' heads

don't work in reality.

Yes, and Norbert Häring also said

economic science serves the
disguise of power.

And I think there's something in that.

Hello Ms Losmann,

just to be clear, I've switched to
my private account,

because this is purely my
personal opinion.

I must therefore not be quoted
without further agreement.

Concerning your question:

increasing profits and
increasing economic growth

require a continuous expansion in debt.

This is the notorious
'elephant in the room'

about which nobody talks.

The key player in
capitalism is the debtor,

who makes others' profits and
asset growth possible.

How does profit come about? Where does
money for profits come from?

The key player is the debtor.

Who assumes the debts?

I'll go through the state of play again,
to keep us up to speed.

Dag now only has 300€ left,

he's been paying rent the whole time

and has no income source because
nobody's building anymore.

So jobs are scarce because
there's no investment.

But we saw at the beginning, when
private enterprise was investing,

he was earning well and had assets

and those assets were based on
private enterprise debts,

you were all investing because you
were expecting profit.

And as private enterprise invests less,

from a certain phase in the economy when
the market's saturated,

wages fall or jobs are lost

and then the state has to
come in and invest

financing jobs in certain areas

or increasing or creating
welfare systems,

through which money then flows

to those no longer financed by
private enterprise,

but this money flows via
the welfare system

ultimately into the pockets of owners,

property owners and others,

who are thus able to keep making income
that they couldn't otherwise make.

Otherwise he'd really be
sleeping under a bridge

not paying any more rent.

But because he's paying rent,
financed by the state,

he's enabling income for
private individuals.

So some private profits

are financed by government debt.

Seen in this light, by my definition,
the state is a source of profit.

debt - e.g. government debt

Right, so let me officially welcome you

to the presentation of the eighth

Global Wealth Report, which
we have compiled.

Trends this year have again
been very positive,

with gross monetary assets

rising by 7.1% globally.

The industrialized nations

have again accelerated their
asset growth somewhat,

but less so than the emerging economies.

Now comes something else
quite interesting.

Global trends in debt,

I mean preparedness to take on debt,

has again increased markedly.

We still aren't seeing
anything excessive

at least not on a global scale,

but I think we can say that

a debt cycle has turned.

Do you see a connection
between government debt

and the increase of private assets,

I mean, when I think of

Australia, New Zealand, Japan and
many other countries,

I seem to see a correlation

between levels of government debt
and private wealth.

That's a very complex issue.

The ability to build up monetary assets

naturally depends on government policy

and for sure in Germany there
are some restrictions,

in the sense that the burden of tax

and social security contributions
is very, very high.

You're talking about tax relief,

but I mean overall economic balance.

In the total global balance,

the total of all debit must equal
the total of all credit.

That means that, if one
sector of the economy

shows real net monetary assets,

then there must be net
liabilities somewhere.

All countries where large private
wealth has been amassed,

also have high public debts.

Yes, it's a difficult situation

to manage, that's true.

A buildup of assets is always mirrored

in a buildup of debts

in other sectors of the economy,

that's entirely correct.

In some Asian countries, for example,

private households' increasing assets

are reflected in an explosion
of business debt.

In many European countries,
rising monetary assets

are above all, or reflect
increasing public debt.

The state makes more debts

as private households build assets.

And how does this process work, when
states take on debt,

how does it happen,
technically speaking?

States issue, or create new
government bonds

and sell these to what are
called accredited banks.

To buy the bonds, these banks in
turn create new money.

So every new issue of government bonds

increases the money supply, and that's
desirable, deliberate.

The state only intervenes as debtor

because private
households or enterprises

are not taking out enough loans, but

are accumulating money as
private assets.

To prevent the money supply shrinking,

the state injects money with new debt.

So what then happens to the
government IOUs,

I mean the new government bonds?

Well, the banks sell the
government bonds on

as securities on the capital market,

so public debt becomes an investment

for accumulated assets.

PIMCO Investment company -

largest active fund manager of
corporate and government bonds

Dear Ms Losmann,

You may film in the room
before the conference.

However, we cannot now agree to filming
during the conference itself.

You may by all means, however

film the gentlemen from outside our
transparent conference room.

Furthermore, our Head of
Portfolio Management,

Andrew Bosomworth, is
available for an interview.

So the basic building blocks
of capital markets

are shares and bonds.

Pimco mainly manages bonds.

Large companies and state actors

have access to the capital markets.

That means they as borrowers
can obtain money here

through the capital markets, in
the form of bonds.

And we at Pimco study

the economic viability, financial
soundness and profitability,

what are the potential returns
on particular bonds.

And decide on that basis,

and a bond is bought or sold.

Now, you want your money
back plus a return,

what makes that possible?

In the whole economy?

From our point of view as investor,

economic growth is important,

because borrowers' ability

to repay their debts is related
to economic growth.

And if a state has growth
and tax revenues,

it's better placed to repay
government bonds,

meaning debts plus interest,
when they mature.

How large are the assets
you manage here?

And roughly how high are the returns

you achieve with those assets?

The total asset volume we manage

is USD 1.5 billion,

so in Euros

just under 1.5 billion.

Sorry, not billion...

trillion.

Total managed assets: USD 1.88
trillion (as of August 2019)

sample calculation: at a
return of 5% per annum

So government debt has a twofold effect,
doesn't it?

First, it increases the money supply

so the private economy can
keep making a profit,

I mean take more money than it spends.

Secondly, those saved profits
can be reinvested

in government bonds,

generating more returns.

Yes, that's a fair summary.

And now with European countries
already having high debts,

some overindebted,

the European Central Bank
steps in anyway

to do this, acting as
debtor of last resort.

There simply has to be enough
money in circulation,

but that gets harder, the
bigger the sums are

that are going out again as
returns on assets.

Then there's distribution:

if money goes not to who needs things,

but to those whose needs are met,

it may not circulate at all.

But economics tends not to see that.

Economics sees the overall situation

and that misses something, you're right,

and sadly the distribution problem
is rarely discussed

because of the envy debate.

They always call it the envy debate.

And when people say
households aren't in debt,

they have accumulated assets,
net assets,

they're ignoring the fact that
most of these net assets

belong only to a small
fraction of households

and many of them very much are in debt.

And that's a big problem,

because statistics often uses
the arithmetic mean.

'The mean is the burial
shroud of statistics',

Right.
- Flattens everything.

But we love using the mean,

because it seems so insightful at first,

and actually...
- The average.

The average, taking an average,

but the unequal distribution doesn't
show up in that at all.

Correct.
- And it gets worse and worse,

the more unequal the distribution is.

So you have to see the extremes,

the poorest and the richest, to know.

Who is profiting from this? Who is
creaming off these profits,

well, it's usually just the
top 10 percent.

But assets arise that aren't
just sitting there,

but also have economic and
political influence,

so it isn't an accounting trick to say

percentage-wise the assets of the
rich grow more slowly,

but over the long term,

50 years ahead, that
doesn't alter the fact

that the rich

are much richer and getting ever richer.

That's true. Yes.

Small growth rates on large assets

bring considerable growth

many times bigger than large growth
rates on small assets.

That's true of asset growth within
countries, and also between countries:

the absolute differences increase.

If private assets are growing like that,
growing ever more,

what does that mean for the other
side of the coin, debt?

So if states take on debt

or businesses to invest

or households to build houses,

that debt creates

more economic activity and more growth.

On the face of it, that's good,

which is why central banks

try to stimulate this kind of debt

somehow in their policies.

But it can come back and bite you.

The financial backers might rethink,
might say:

Well, what growth do they need,

and then calculate scenarios, that tend
not to work out all that favourably

and then at some point the
financial markets

and capital markets will lose
confidence in these economies.

Then there'll be no more credit
- on the contrary,

because overindebted countries

are cut off completely
from the credit tap

and it all goes to rack and
ruin very quickly.

So on the one hand, private
wealth can grow

because states take on debt

and on the other, capital providers
cut off money to states

if they take on too much debt.

How can this make sense?

Well, because it's long been believed

that states should borrow on the
so-called capital market.

But that makes states depend on
private capital providers,

and effectively obliges them to
promote economic growth

to raise their tax revenues or
privatise public assets

if their debts get too high.

That brings us to where we are today:

many projects can no longer be funded

simply because they don't
offer the returns

private capital providers expect.

This might affect the fight
against high unemployment,

or make funding education, social care,
infrastructure,

not least the shift

towards an ecologically
sustainable economy

impossible to fund because
not profitable.

So democratic governments can no
longer decide freely

what to finance,

they can only present their
budgets with proposals

for what they'd like to finance

for the private capital
providers to approve.

This creates a very urgent
political issue:

shouldn't we, as a democratic society,
decide for ourselves

what expenditure we find sensible

and then have the state create
the money for that?

Why should we as states not have
the same privilege

as profit-orientated private banks?

Wouldn't public debt just keep rising?

Well, if we assume that private wealth
just keeps on growing,

we need profits and for
that we need debts.

And someone has to take on those debts.

If it's not the state, because capital
providers prefer to break even,

so state spending falls,

then private households have to step
in and assume the debt,

e.g. paying for children's schooling
that's no longer state-funded,

or higher rents because public
housing is privatised.

Wouldn't it be better for us, the state,
to take on these debts directly,

and make ourselves independent of
the capital providers?

But where does it all go from here?

If more profit and economic growth

come only at the price of more debt?

Why can't we just stop growing?

The dilemma is, there's
only investment -

economic activity only happens - if
whoever has money to put in

expects returns.

So they hope to take out more
than they put in.

For me, the dilemma is

that this idea of

'profit is the essential driver
of economic activity'

has become so fixed in our heads that
we take it for granted.

Now there was a short period in history

when real profit could be made,

because there were two monetary systems,
but now it's only possible

through the chain-letter system,

where someone has to have the debt -

to take out a loan

without expecting to repay it, so that
others can accumulate assets.

This sustains the illusion of perpetual
exploitation of nature

and transformation of nature... you can
still feel that today.

So it's 'this creates value',

they always says 'this creates value',

I'm making use of something, we have a
lot more glasses today,

not needing them all, using up
more and more nature,

in buildings, more and more concrete,
we're even short of sand,

one of the most abundant

natural resources and we're short of it,

using more and more so we feel
we're getting richer

but that misses how we're impoverished
by the loss of nature.

So we still have that illusion even
today, in my opinion.

And that's the link between capitalism
and ecocrisis. - Exactly.

At the heart of capitalism is
continuous increase of capital.

More and more capital needs a
growing money supply.

Which requires constant new
investment opportunities.

And here is the fundamental problem.

Only profit-oriented projects attract
investment and reinvestment.

Simple example: You want to buy
a patch of woodland.

If you just want to leave it alone, you
won't get any financing.

You can only get financing if you're
going to develop it.

At the very least, cut some of it down
and turn the timber into money.

And as long as there are still forests,
this logic of profit seems OK.

But at some point, alas, it
reaches its limit.

At the moment, it's a kind of race.

What's going to collapse first?

Our ecosystem - the Earth
- or capitalism,

which has generated unprecedented
tension between assets and debts.

So you say in the end, debt will be so
high that it can't go on.

Could you perhaps describe where we are,
in which phase,

and what will happen when
it can't go on?

If we compare

these economic cycles with
a football match,

then I think we're definitely
in the second half.

Not the last quarter yet,

but...

debt levels,

in public and private sectors,

have risen in many countries
in recent decades.

And...

how long it can go on,

ultimately depends on economic growth.

If we don't have any,

like in the 1930s,

that could cause too many failures.

Isn't that circular reasoning?

Can there be any economic
growth without new debt?

Or, to put it another way: aren't
today's profits tomorrow's debts?

The...

Yes.

Today's profits are tomorrow's debts.

Today's debts are tomorrow's profits.

Anyone who really looks knows
it's not working.

It's held together by a belief system.

People are stuck in the system wishing
for it somehow to work.

It doesn't need to be logical,
just to keep working.

So I'm a physicist

and for me it started with the question:
'infinite growth on a finite planet?'

An impossibility. Bound to
cause problems.

Actually we want an ecological economy,

so actually, consumption should if
possible tend to decline.

But a fall in demand, in consumption,
would bring crisis in today's system.

What we have is simply an
unstable system.

Where the state has to intervene to stop
the whole thing capsizing.

But if you know that the system is
inherently unstable,

intervening like that is just like
ventilating a patient you know is dead.

And so we ask ourselves, 'How long
can this continue?'

And above all at the cost of rising
inequality of distribution.

We might ask ourselves why
it's like this.

But we lack understanding
and alternatives.

As you say. How long can it go on? We
have to think of alternatives.

Do you really want to close the program?
Close program - Stay in program

Research: Alternatives