[MUSIC PLAYING - PROTEST SONG]
NOMI PRINS: So the imagery in
that is sort of a walk through,
to an extent, the
parts of the world
that I was in in the putting
together of this book.
And those parts of the
world were also historical,
as well as geographical.
The last book I wrote, "All
the President's Bankers,"
was very much historical.
It went through the last century
and a bit of the relationship
of presidents in both
parties and the bankers,
and just what the actual
personal relationships were
and how they were interacting
before various types of world
events-- wars,
policies, and so forth.
And this was kind of
that, but from just the 10
years since the
financial crisis of 2008.
And then rather going back to
the history of one country,
I sort of expanded it to
what's happened globally
since the financial crisis.
And to get to the
punch line first--
because I also want
you to feel like you
can interrupt me
and ask questions.
I know I'm here to
speak to you, but you're
a very informed group.
And so I think that if
I say something that's
either troubling, or confusing,
or you want me to expand,
or whatever it might
be, just shout out,
because I think that that
will be a good thing.
But anyway, so I divide
my book into the regions
of the world that were
either involved, or affected,
or impacted by the
financial crisis and then
how they've acted
differently since then.
And I talk about collusion.
It's not about Russia.
It's not about politics--
well, everything is ultimately
about money and politics,
but that's not the
point of the book.
The point of the book is to look
at what the main central banks
in the world have done, in
an unprecedented way since
the financial crisis, to
artificially stimulate
the financial system-- the banks
and subsequently the markets--
in a way that's been
very historically epic
in terms of size,
but also in terms
of just their
unlimited capabilities,
in terms of the
amounts that they've
created, in terms of no
auditing, no information going
in and out as to where
that money actually goes.
And so what I did was, I didn't
have a chapter on the Federal
Reserve, which I'll
talk about a bit more
in a second, which is kind
of the central character.
If we look at central
banks as just characters
throughout the world, and
the individuals that run them
as just the characters that
are part of those scenes,
I took 2008 as the beginning of
each chapter and each region.
And I always started
there and then looked
at how that region was impacted.
So I go to Mexico, to
Brazil, to China, to Japan,
and throughout Europe.
And each time, I go back to the
beginning and say, OK, well,
this is the perspective
of what happened
between the Federal Reserve
of the United States
and this area.
And this is how the
fallout occurred.
Or this is how they
expanded, but not really.
And my general
theme is that having
had an unprecedented amount
of money being thrown
into the system, fabricated
or manufactured or conjured
by the central banks, has really
distorted the idea of value.
It's even distorted
the idea of how
companies who actually show
their profits and losses based
on actual cash, actual revenues
and so forth, that aren't
artificially stimulated
by money coming in
from an outside
source are operating
in a world in which there
are also ones that are.
And so in terms of just
the graph of that--
I wasn't, again, going to do
slides, because I tend to--
I can just write on this.
So the way that looks--
and if anyone wants
me to just mention
what a central bank is while
I'm making sure these write--
does everybody know
what a central bank is?
OK.
So basically, a central bank--
and the Fed, in particular,
here--
was usually designed to provide
emergency capital in the event
that the financial system
can't produce it for itself.
It's going to create
a bigger crisis
for the rest of the economy.
There needs to be a
particular reaction to, say,
a war, or interplanetary aliens
coming, or something like that.
And the reality is that they
have clauses in their mandates
that are emergency clauses
to be able to do this.
So it's all quite legal.
And I'm not advocating that
the collusion of central banks
is something that's illegal--
I do get asked that
question-- but it
is something that's,
to an extent,
deceitful because, by
having a large supply
of artificial money that
has no limitation in terms
of when and how it
can be fabricated,
as it has been the last 10
years, that distortion thing
does create a level of deceit.
So one of the
things that happened
since the financial crisis--
I'm bad at drawing, but I'm
just going to-- this is 2008,
and this is now.
And I have this on my Twitter,
this particular graph.
But I thought it was cool,
because it was three lines.
One was the Federal Reserve
and how much money and when
it dumped it into the system.
One is the Bank of Japan.
And one is the
European Central Bank.
Because the idea of
this collusion is that
the major-country central banks
have also adopted a cheap money
policy and a
quantitative easing,
or buying securities policy--
buying bonds, buying
ETFs, or buying stocks
if you're in Japan, buying
corporate bonds if you're
in Europe--
where they've been able to
fabricate money and decide
where, effectively,
they want to invest it.
But they go through a
financial system that
has an impact on the market.
So the Fed kind of
started this in 2008.
And they did some
sort of a taper,
in terms of-- this line
represents the amount of money
they conjured since the
2008 period to buy--
in the case of the
United States--
Treasury bonds,
government bonds,
and mortgage bonds from
the banking system.
And so this is 2015.
This isn't really--
it's a tiny line down.
Though they haven't
continued here,
they have a pretty high value--
$4.5 trillion of what I consider
to be subsidies for the banking
system in the market because
they're really coming out
of the electronic
activities of the Fed.
So this is the Fed line.
Colors don't mean
anything, by the way.
I'm just randomly
picking colors.
Then the European
Central Bank came in
and did something
similar, except that they
were kind of here.
And then they kind of did that.
So this is the
European Central Bank.
This is 2012 where--
my bad geometrics is such
that they kind of accelerated
their process of being
involved in quantitative easing
by a lot when there was a
credit crisis in Europe.
So the minute there wasn't
enough money in Europe--
they thought they had recovered,
they really hadn't, they
were still adopting the policy
of colluding with the Fed
to produce money in the system--
they accelerated.
And in this period
of time where the Fed
stopped putting as much in,
they accelerated even further.
So now they're around
that $5.5 trillion.
And then the Bank of Japan--
which was the bank that actually
created quantitative easing
to begin with-- they came
up in 2001 with this idea
that if they produced
money into the system,
because their banks were
basically undergoing
a collapse in the
beginning of the 2000s,
that they would have
a way to help them.
And they did produce money.
They did engage in
quantitative easing,
but it was really, really tiny.
So I talk about, in
my Japan chapter,
how Ben Bernanke, who
was the chair of the Fed
when all this kind of started,
goes in front of Congress
and talks about how
what we're doing
is not what the
Japanese are doing.
It's really different.
We're doing it for
other purposes.
But the reality is that
the mechanism's the same.
They're producing money in order
to increase the money supply,
in order to then
decide where it goes--
into the banking system,
into corporations
who then borrow it, which then
goes into the stock market
or other financial assets.
So the Bank of Japan
was kind of also here.
And then in about
2013, they did that.
So they're around $5
trillion right now.
And basically, the reason
they had an acceleration
in about 2013, 2014 is because,
from an economic perspective,
having watched all
of this happen,
the prime minister, the
head of Japan, Shinzo Abe,
decided that we should
be doing the same thing,
or doing more so
of that in Japan.
And so the head of the central
bank now in Japan, Kuroda--
this is Mario Draghi.
Currently, this now at the Fed,
through a different period.
It says Jerome
Powell, but there's
been three different Fed heads,
two different Japanese heads,
and two different European
heads over this time period.
They've all engaged
in the same process.
And as a result, there's about--
well, this is $15 trillion.
But when you aggregate
all of these numbers
and you aggregate
all this graph,
the level of money
that's continuing
to be conjured and dumped
into the system is going up.
So when you hear in the news
that the Fed is tapering,
that they're doing
this, and this somehow
is a reflection of
their experiment
in quantitative easing and
cheap money succeeding,
you have to understand-- and
this is the collusive efforts
involved-- that
collectively, the world is
increasing their amount
of quantitative easing.
It's just happening
in different countries
for different reasons.
And in the European
Central Bank realm,
it's being dumped into
corporates, for the most part.
And in Japan, it's a combination
of government bonds and stocks.
And in the US, it's
kind of stopped.
But it was a combination of
government bonds and mortgage
bonds.
So it was always going
into the place that
needed the most help, but
the, say, corporations
in Europe that needed that help
were receiving it basically
without giving very
much in return.
The European Central
Bank would decide, well,
we're going to give money
to this particular company
in Germany, versus these
particular companies in Greece.
And that was, in a lot of
ways, a political decision.
But the monetary
elements of that
enabled certain countries,
and certain companies,
and certain stocks
to go higher simply
because there was an
outside artificial source
to push things higher.
And so when I started going
around the world and examining
what the real actors were
doing throughout this period--
this is just kind of the
summary, and the summary,
again, looks like this,
from a half a trillion--
there's a picture that
starts to be developed.
And that's that the ones
that had the ability
to produce money did.
Their markets have risen
more substantially.
There has been more
speculation outside
of those markets
because, once they go up,
where else do you go?
Capital flows out.
It goes to Mexico.
It goes to Brazil and so forth.
But in those kinds of countries,
there is less of an ability,
and they didn't
choose, necessarily,
to get involved in
quantitative easing.
So there was an entire
political ramification
that doesn't really
get discussed,
behind just the value
of money and the amount
of quantitative easing that
these major central banks are
doing that actually has
changed the shape of the world.
So the first country I go to in
collusion is actually Mexico.
And the reason I did
that is because I
spent a lot of time working with
companies in Mexico and stuff.
But basically, the Mexican
government and the individuals
who were really
involved in the period
from 2008 to 2018
that were running
the central bank in Mexico
had real strong opinions
about what the Fed was doing.
And a lot of countries
had strong opinions
about what the Fed was
doing because, to an extent,
it's just not fair.
It's not really capitalism.
It's not really free markets.
It's kind of like a subsidy
for the financial system
that then has major
ramifications of creating
an artificial system.
And that can go terribly
wrong very quickly
if it gets taken away, which is
why it's not being taken away.
And there's
ramifications to that.
So what Mexico decided in
2008-- and their economy
was actually doing fine.
The crisis happens
north of the border.
In the beginning, they say,
well, it doesn't really
affect us.
It's a financial crisis.
It's contained in the banks.
The Fed's taking care of it.
But then it starts to become
apparent very, very quickly
that that's not the
case, that if there's
a recession in the
States, or if there's
a depression in the States,
or if the financing closes up
and there's no credit going
throughout the system,
it impacts everyone.
So the head of the central
bank of Mexico, a guy
named Guillermo Ortiz,
he went to Washington.
He was part of
the establishment.
He sort of floated in the
economic ideas of the Fed
governors and so forth.
He goes up to Washington, and
he says to Ben Bernanke, look,
we've seen this movie.
We know how it ends.
It doesn't end well.
We had the tequila
crisis in '94.
We restructured
our banking system.
Smaller banks got eaten up.
People got thrown out of jobs.
Companies closed.
It took us a really
long time to recover.
And more than just the
economic problems of recovery,
our people lost
confidence in the system.
And there, that manifested in
lots of crowds in the streets.
But the point was, if
you simply create money
to simply help the financial
system, to help the banks,
it's not really stable capital.
It's not really
ultimately going to work.
There will be bubbles.
There will be problems.
And Ben Bernanke
says, thanks, doesn't
cover Ortiz and
his memoirs at all,
even though this meeting was
covered by "The Wall Street
Journal."
It was public.
And he basically goes about in
manufacturing this emergency
quantitative easing amount,
and then has the whole world
join in.
Why does the whole
world join in?
Or why do the major
countries join in
to any quantitative
easing movement?
Because if you have
capital in the US--
and money is made
very cheap so it's
more liquid to the
financial system
so they can sort out
the stuff they did--
and rates are higher
elsewhere, in particular,
in the main countries
with which there is trade,
or with which the banks
have relationships,
then the money is
going to leave.
And so the only way to keep
the dollar strong enough
and keep the money in the US
is to export the same method
to the countries that have
the largest relationships.
So something like Mexico has to
also deal with its own economy.
So if it reduces
rates by too much,
that will cause
inflation in the economy,
because it has a more direct
impact on actual people
and on actual prices, because
it's a smaller economy
to begin with, and it's
reliant on other economies
for its trade by more so.
So Ortiz didn't want
to reduce rates,
like the Fed was
doing, very quickly.
And they couldn't produce
money electronically to buy
securities in Mexico-- they
didn't have the same capacity--
and so they didn't.
So he didn't.
He went about
criticizing the US.
As a result, he lost his job--
or he didn't get
reappointed to be the head
of the central bank of Mexico.
And the subsequent
appointee, a man
named Agustin Carstens, who
also was in the same group
as the people running the Fed,
Treasury Department, and so
forth, came in.
And he at first said, OK, I'll
do what the Fed's going to do.
I'll reduce rates.
I'll keep it sort of stable
between the border of Mexico
and the US.
I'll follow along.
He used to go public
about the fact
that this easing
was going to help
the real economy-- ultimately
will trickle out of the banking
system and out of
the markets, and it
will help real growth
and long-term growth
and wages and everything else.
And that's what he
said originally.
That's how he got that
job and had that job
for a while in this period.
But the reality was
they didn't do that.
And he started feeling
the political pressure
in Mexico of the fact that
Mexico wasn't really getting
any of this money
into their economy.
And it was very, very obvious.
And so he started criticizing
the Fed and everything else.
And he ultimately resigned
before the end of his term,
last year.
And he's now the
head of the Bank
of International
Settlements, which
is the central bank
of central banks
that does reporting on
all of these activities
and always used to support
the Fed, the IMF, the World
Bank, the ECB when it
came into being, as doing
the right thing by
their economies,
by employment versus inflation,
which is one of their mandates,
by helping their system.
And it was created, basically,
as a unified US-Europe entity
to begin with.
It's starting to
have real critiques.
And the fact that it is now
run by someone who bought,
then kind of sold, the
policy of the United States
and is now at the head
of that institution
really shows a shift in
general in the world in terms
of how it looks at what the
end game of this could be,
how risky it could be for
the rest of the world,
and is just simply questioning
how long this can go on.
So that's been one shift.
Another shift-- it's a longer
story; I won't get into it--
is in Brazil, because
that has so many
of its own pieces of corruption,
and scandals, and government
overthrows, and so forth.
But one of the people
who's currently
running for the
presidency of Brazil
is a man named
Henrique Meirelles.
I pronounced it "Meireyes,"
because for some reason,
my Portuguese is very bad.
I was corrected last night,
actually, in Berkeley,
about my pronunciation
of his name.
But he was someone who was head
of the central bank of Brazil
when this all started, when the
crisis all started happening.
And he and the president of
Brazil at the time, Lula,
who's now in jail,
was at first saying,
Brazil's not going
to be impacted
by the crisis, same way Mexico
said it wasn't going to be,
until they were very
shortly thereafter.
And he wanted to do
what the US was doing.
The party in power, who
became in power, the Workers'
Party, headed by a woman
named Dilma Rousseff,
said no, we want to
maintain help for Brazil.
He says, we want to do
what the US-- so he loses.
He doesn't get appointed to
be the central bank leader.
And he goes back into
the private sector.
He winds up being the
minister of finance when
her government was overthrown.
And so he's basically gone
from being a central banker,
to private sector, to being
a minister of finance.
And now he's running
for president.
In the meantime, Brazil,
during that period--
and this is just where politics
meets monetary policy--
has basically reduced
its rates from--
this is a completely
separate graph,
this doesn't count
on that graph--
reduced their rates
from 14.5% to 6.5%
in a very short period of time.
Mexico has raised its
rates from 3.5% to 7.5%
in the last few years as well.
So they've gone
independent of the Fed.
They've gone sort of
dependent on the Fed.
And that really manifests
into political relationships.
If you're an
investor, it actually
also manifests into figuring
out why this has happened,
because it's very unique
that, actually, Mexico
has higher rates than Brazil.
So there was a lot of shakeout,
as well, from a monetary policy
perspective, where
government bonds are trading,
where stocks are
trading, and who's
shifting in the power
relationships of central banks
and also the governments.
Now, central banks
are supposed to be
independent of governments.
That's how they are mandated.
So supposedly, the
Federal Reserve
is independent of whatever
the US government wants to do.
The Bank of Japan
is independent.
And I went through a
lot of documentation.
I had this team of
researchers around the world
who knew languages
that I didn't know.
And so we were looking at
real media publications
at the time, real documents
and research information that
was coming from these
central banks themselves.
And it was interesting,
because there
was a lot of both
criticism of what
was happening on the outside
and trying to figure out
if they should adopt
it on the inside, which
is part of where
there's a lot of tension
and still tension in the world.
But China, which is
the middle of the book,
is a place that has grown
in its "superpowerness",
from an economic perspective,
and also its relationships
with other countries.
And one of the reasons it
doesn't get talked about
is that it chose
to criticize, very
vocally, the monetary policy
of the United States because
of this whole creation
of money policy.
Now, it has created
money as well,
but it chooses to do it
outside of the main G7 groups.
And it does it for
different purposes.
And you probably
know this here--
it does it for building
infrastructure,
for paying for technology, and
R&D, and individuals, and also
for trade alliances with other
countries in that region,
with Mexico, with Brazil,
in order to establish itself
as a sort of more--
both from a trade perspective
and a monetary perspective--
superpower.
The reason that all started
to happen in 2008, 2009
is because the head of
the central bank in China,
at the People's Bank of
China, got very public
with his criticism of the Fed.
Ultimately, the Chinese
currency, the ren,
was accepted into the IMF's
special drawing rights
basket, which is
the representation
of the main currencies.
It had always been the
dollar and the euro--
which had before that
been the German mark
and the French franc--
and the Japanese yen
and the British pound.
And in this period of time,
the Chinese currency, the ren,
became part of this basket,
because even the IMF that
had been established to
really work on the reserve
currencies of the dollar
and the euro, mainly,
was beginning to criticize
whether all this money being
dumped in the system, when it is
retracted, or when rates rise,
or when something goes wrong
with all the debt that's
been created on the back
of it, causes problems
throughout the developing world,
causes problems within the US.
So they've been very
critical of late as well.
But China's been
able to utilize that
in order to really
become and create
more trade agreements, and
more currency arrangements,
and also develop their alliances
and their own companies
within China.
That's what they've been
doing with that money.
We really haven't been.
We've been-- just as a
sort of super power--
this money has
predominantly gone
into financial speculation,
into the markets.
It hasn't been dedicated
to building a railway,
or building a canal,
or anything like that,
or lending to other
countries in order
for them to be able to do
that, because they're partners
and that strengthens
them, and therefore
the trade relationship.
We've really gone off the
rails relative to that.
That's not to say China
doesn't have problems,
it's just to say that,
in this period of time,
money's been created here,
and in Europe, and in Japan,
and to a lesser extent in the
UK, for a different reason.
And that reason has been
more of a financial reason,
and not so much as a long-term
economic stability reason,
as it has in Asia.
I talked a little
bit about Europe
in the last chapter of the book.
But one of the things that's
come out of the ECB's policy--
aside from the fact that there
is criticism from certain
countries, like Germany against
the ECB-- because they're like,
our country's fine, we have
savers, we're developing,
we don't need this
whole easing thing,
we don't want to be concerned
about bubbles bursting--
is that the southern
part of Europe--
Greece, Italy,
Spain, and so forth--
haven't had the benefit
of the same amount
of money being put in.
So when there's a
lot of money that's
put in in one part
of the market,
and it's not divided,
or even selected,
or chosen to be put in
other parts of the market,
it creates inequalities, and
volatility, and instability.
So what we've seen in
the last few months,
in even our stock
market, is this beginning
of more volatility
coming into the market,
more defaults and
delinquencies coming
into some of the
corporate bonds that
were issued because
money was so cheap,
and therefore repaying
the debt was so low--
but the debt payments
will get higher, and also
money coming out
of the stock market
to make debt payments-- and
then separately, buybacks,
which keep the level
of the market up.
So you have these two
competing forces of capital
that are creating
more volatility now.
You have cheap money
still available.
You have a lot of buybacks--
some from companies that have
cash, and some from companies
that have received cash--
but nonetheless.
And then you also have cracks in
the system from both the rumors
that are in the market as to
whether or not this can stop.
Any time any of these
central bank leaders
talk about the possibility
of it stopping,
the markets tend to get
really, really upset.
And then the next
meeting, there's like, oh,
we didn't really mean it.
There isn't really inflation.
There isn't really growth.
We're going to stop--
which is what he does a lot.
I mean, they all do it.
But it's interesting, because
even the Japanese last week had
a meeting, the Bank of Japan.
And they came out
and they said, well,
we're going to probably have to
keep doing this, like, forever.
They used the term "unlimited."
Mario Draghi said
the same thing a week
and a half ago when the European
Central Bank came out and said,
yes, we're keeping
rates negative.
And we're also going to
continue our quantitative easing
program.
So these line up.
The Fed is kind of-- yes?
AUDIENCE: So I just
have a question.
Is there really an alternative
to printing all this money?
Because if you look at
the rate of debt creation
over the past 30,
almost 40 years,
debt growth has exceeded GDP
growth almost that entire time.
There are projections that
so many public pensions will
be insolvent, that there's
no mathematical way
to make that possible.
So is unlimited money
printing just the easiest way
to kind of softly
default on that,
rather than causing some
catastrophic collapse?
NOMI PRINS: Well, or having to
worry about a solution to it.
I mean, yes, debt has increased
over the last 30 or 40
years relative to GDP, but
it's accelerated by a lot.
It's increased because it's
had this sort of plaster over.
So if the financial
system, which kind of
started this in 2008 and
was on the brink of what
it said to be collapse,
there are different ways
that that could
have been addressed.
One way would have
been to let one
or two extra banks collapse.
And that really sounded
harsh at the time,
but throughout Wall Street,
banks have collapsed.
It's not like that
hadn't happened.
And the problem was there was
so much attention focused on
whether that was going to create
a massive depression going
forward that there was
no conversation, or very
limited conversation,
in Washington
as to doing something else.
You're, I'm sure, very mathy.
The reality-- I'll just go
back for one little explanation
of how I saw that--
was, at the time of the
2008 financial crisis,
which was predicated on mortgage
bonds, and all the derivatives
associated with them, and all
the credit and insurance that
was traded between
banks, and all that,
there was only
like $0.5 trillion
worth of upset
subprime mortgages
in the market at the time,
or $0.5 trillion, right?
There was $14 trillion
worth of toxic assets,
of assets that were reliant on
those subprime mortgages paying
their interest, and if
they didn't get paid,
would start to
deteriorate in value.
Banks lent to investors
around the world,
including pension funds,
or helped pension funds,
including municipalities,
corporations,
other financial
entities, 10 times that.
So $140 trillion,
effectively, was on offer,
going after $0.5 trillion
of subprime-related assets.
So that problem is what
caused an acceleration
of the production of
artificial capital
in order to solve
what was really
a major financial crisis.
It was.
But what could have
been done is you
could have just paid
off $0.5 trillion
worth of subprime mortgages.
And forget whether that's
an ideology of you're
paying people who didn't
deserve it, or banks.
It doesn't matter.
The economics of it would
have been far, far cheaper.
Instead, the decision
was made to plaster
over that and to start
this creation of 0%
money so that banks would have
the liquidity to start to--
whoever was still left
standing-- to repay each other,
so that companies
could repay some
of the money they
had borrowed, that
were still left standing,
that were involved in this.
And as a result, it has created
an extra level of capital
in the system that
makes debt accelerate.
And it also makes stock
levels go up artificially,
so that the next time there
is a crisis you're falling
from a much higher height.
So absolutely, they
want that not to happen,
which is why every single time a
Fed chair says there is growth,
there's inflation--
like, you can
trade this, I mean,
if you're just even looking
at this from an investment
perspective--
it's going to be followed
by some major hiccup
in the market, and then some
other central bank, or maybe
the same one, or someone
in their country,
saying well, no,
we didn't mean it.
The European Central Bank
was talking about growth
a minute ago, so was
the Bank of England.
They were going to
be raising rates.
All these rumors in the
market, it put the pound up.
And Brexit's fine.
It's all going to be worked out.
The Central Bank is
going to raise rates.
It's a sign of strength.
It's going to help our currency
into negotiations with Europe.
There's all these discussions,
and media narratives,
and politics going
on back and forth.
The reality is they
don't have the growth.
And the Central Bank head
last week said, by the way,
things aren't so great.
They can raise rates on
Thursday, they're not going to,
I think, because actually, the
numbers don't bear them out.
And also, it hurt the market.
And so yes, you are right.
Long answer to your question.
But the reality is they
want to keep this going.
They found a method to do it.
And that just means
that when things crack,
they crack from a much higher
height than they would have,
or even did during 2008.
AUDIENCE: So now we
have $4.5 trillion
in the market as money supply?
NOMI PRINS: Extra.
AUDIENCE: Extra.
Exactly.
And I was wondering,
how come inflation
hasn't happened, because all
of this money are in the banks?
NOMI PRINS: It's
such a good question.
And different people ask
that in different settings
for, I think, different reasons.
And I think that
inflation has not
risen on the average
generic way that inflation
is considered and calculated
because this money has inflated
markets.
This is inflation.
The level-- well, a third graph
would-- well this and the stock
market, so it's
dipped a little bit,
but it's sort of like that.
And you have QE1, QE2, QE3,
Europe, Japan, and so forth.
Ultimately, this $15
trillion, and $21 trillion
if you add in all the other
banks that are involved,
and the market level is
pretty much the same.
So there has been a tremendous
amount of inflation.
There's been inflation
in the money supply
that has gone into inflation
of financial assets.
It's gone into lining new debt.
It's gone into inflating
the value of stock,
because it's been an artificial
source of money that's
been used not just
for stock buybacks,
because that's kind of a
one-to-one relationship.
But all along the
way, it's been there
as a sort of security
blanket for banks
to be able to leverage more
companies, or leveraging more.
Right now, actually, on
average, companies in the S&P
are leveraged more
than they were
before the financial crisis.
So there's inflation, but it's
not inflation of real prices.
Where it had been for a
while, for example, in Mexico
where they were reducing rates,
it was inflating real prices,
because the relationship
of that central bank
and that monetary policy
was more closely connected
to the real economy.
And the fact that we don't have
inflation in these countries--
because we don't, officially,
but we have inflation
in financial assets-- is
a sign of how just sort
of off the rails this has gone.
AUDIENCE: And my second
question, quickly.
But also, we used to have
the gold standard, which
would basically be
something we could
peg the actual value
of the dollar to.
Today, we don't have that.
But we also have
petro dollars, which
are representing an asset or
resource that can be traded.
Is that also why the
dollar is so strong,
and we haven't lost the value
of the dollar in the market?
Or is that completely
unrelated to--
NOMI PRINS: It's not
entirely unrelated.
The concept of the gold standard
was something or has been
something-- not returning
to it exactly as it was
pre-'71, but returning to some
sort of component of gold--
say, in the Special
Drawing Rights basket.
So you have your five
currencies, and you have gold.
And there's sort of an average.
So you have something that's
a real asset or some sort
of manner of bringing back a
version of the gold standard
gets discussed.
But for example, when
the Chinese central bank
was criticizing this Fed
policy of just inflating
a sort of currency, but not
having anything real behind it
to back it, Ben
Bernanke actually
went on the defensive--
and I have this in
different parts of the book,
throughout the
years-- and started
talking about how we don't
want a gold standard.
Like, it wasn't even
brought up as a topic when
he started defending it,
or just throwing it away
as a potential.
And one of the reasons for
that is you can't create gold.
This is not to say that we
should be on a full gold
standard, or that it's actually
a practical development.
But having gold as a
portion of a currency basket
makes some sense because
it's just an anchor.
It's just something that's
actually physically there.
And it doesn't retain
the same kind of value
the more there's
other currencies
and there's more
speculation in the market
than it might have if
everything was going off
of real trade and
real hard asset.
But it had an
anchor level to it.
And the fact that it isn't
a part of the main system,
but it is something
that gets bought up
by some of the countries,
the emerging countries, that
are trying to trade with each
other their own currencies,
as well as to try to have more
of a portion of gold reserves
in the potential that they
create some sort of standard
amongst themselves, or something
outside of the dollar, outside
of the euro, is
certainly something
that has been re-initiated
in this whole process.
Where that goes and how
long it takes to get there,
I don't know.
I mean, there's
people out there that
say the dollar's going
to deflate tomorrow
and gold's going to go sky-high.
I think there's a trend to gold
being considered as something
that should anchor this.
But in other countries using
their currencies and trading
with each other, like China and
Russia, like Europe and Japan,
there's a lot of trade
agreements that have been
developed-- and I have a
lot of them in "Collusion"--
but that have been developed in
these years amongst countries
to try and offset some of the
potential risk of, really,
this policy--
not simply the dollar
geopolitically, but really
the policy of bolstering
a system that's
not really restructured
and that has the potential
to bring down an economy,
or multiple economies again.
One alternative that
comes up in questions
is cryptocurrencies,
and for similar reasons.
And what's interesting
is that though there's
a lot of volatility in
Bitcoin and other currencies--
and there's a lot of risk
in being involved in them.
There's speculating
in them, which
has its own risk attached.
But actually, if you're going
to use them on a regular basis,
that kind of volatility
could ruin anyone's business
on any given day, or pop it up.
And that's not the
kind of volatility,
in the real economy, that most
people can or should handle.
But the idea of having
alternatives, any alternatives
to this system is very
much an accelerated concept
because of how it's been
handled, because nothing has
really been reformed or fixed.
It's just been plastered
over by this artificial part
of the system.
So the head of the IMF,
Christine Lagarde, who--
again, IMF, the International
Monetary Fund, very much
a part of the system,
very much involved
in the whole dollar-European
currency system
from when it was created in
the wake of World War II.
And it was created to
basically subsidize
countries that were allies
of the US and Europe.
I mean, this is kind
of part of the point.
She currently has been
on multiple public arenas
talking about
alternative currencies,
and how cryptocurrency is
something that is happening,
and it's expanding, and
they need to be aware of it.
There are full SWAT teams
at the Federal Reserve now
that are doing that,
under the radar.
And you can get jobs at
the European Central Bank
right now that are listed
to be involved in developing
technology related to
cryptocurrency analysis
and so forth right now.
So they're definitely
all involved
from a different perspective.
But the idea of who
actually ultimately gets
the regulation of it, versus
the use of it, I think,
is still up for grabs.
Because if you had
cryptos created
by the same central banks that
are creating this currency,
then you don't necessarily
gain autonomy from this system
by doing that.
But if there are cryptos
that are regulated
by a portion of this so that
they're not as volatile for end
users, then they actually might
spread that much more quickly.
AUDIENCE: Just a follow-up
question to that.
Just as a dabbler
in cryptocurrency,
people always ask, but
what is it based on?
And the answer is,
well, not much,
but it does have a fixed supply.
I'm thinking of just
the original Bitcoin,
like 21 million coins.
Well, gold is a fixed supply.
So when I look at
those, I think--
one of the arguments is, well
sure, Bitcoin is volatile.
But if nobody's on
the gold standard,
it doesn't matter either.
It's kind of an odd,
magical thing to me,
of how people decide to buy into
agreeing to stick with a fixed
supply of anything.
When it comes to, I guess I
would say, a gain this big,
what would be the motive?
Would it just be looking
for something stable?
And what would bring this air
balloon back down, I guess?
NOMI PRINS: Yeah, well,
I think the idea--
and it's slightly different--
the language for crypto
is similar to the language
for gold.
And that's not an accident.
And the idea of
having a fixed supply
as part of what pegs it to
some form of anchor, right,
is not an accident either.
With respect to gold,
it doesn't mean that you
can't have speculation in gold.
And if you had a gold
standard, or a similar thing
to a gold standard, you
could still have speculation.
You could still have
stockpiles of gold.
You can still squeeze
the market, et cetera.
But the idea of anything
outside of the system
is that it is fixed.
And it does have a limitation.
And this process has been
particularly unlimited.
I mean, it's still going up.
And so even though
the Fed can talk
about tapering, or stopping to
buy at this particular moment,
or creating money, creating
dollars to basically continue
this process, the reality
is, if things go south,
there's no limitation on--
let's just create
another few trillion.
There was no limitation on
literally any of the process.
And so talking about
assets, hard assets
or cryptocurrencies, as a way
to just infuse a limitation
to the system
should, in theory, be
able to reduce the
volatility of the system.
Now, on any given
day, there's markets
moving for different reasons--
geopolitics, wars,
trade wars, whatever.
But in terms of the overall
backdrop of the system,
if you have something
that's real, that's
there as a peg or even a
proportion of all the currency
activity in the
world, the idea is
that it should
reduce the risk It's
like any portfolio in finance.
It's like if you have more--
the idea is, if
you're diversified
you reduce the risk.
Now in practice, you have
to watch what's going on.
But if you have a standard of
some sort outside the system
that's limited, that should
reduce the volatility,
ultimately, of the system.
And it should act
as a counterbalance
to the unlimitedness of
what these people are doing.
Because not only are
they not limited in terms
of how much money or
currency can be created,
they're not limited
in terms of what
they have to show in
terms of where it went,
or what happens if it goes away,
or what happens if anything
gets really negative.
There's no real
auditing going on.
There's no real checks and
balances to any of this.
Whereas, an outside hard asset
could be a check and balance.
AUDIENCE: [INAUDIBLE] add
it to the pool of currencies
that the-- what is
it-- the IMF uses?
NOMI PRINS: Yes.
AUDIENCE: Does that have
that same kind of effect
of stabilizing the volatility?
And what effect does
that have for China?
Is it a good thing for them?
Or is it problematic if
a bunch of their currency
gets created to deal with
some financial crisis?
NOMI PRINS: Right.
It's a good question.
It hasn't had, yet,
the kind of effect--
in terms of the
percentage of trade
that is done in Chinese currency
at this particular moment,
relative to the percentage
they have of the basket--
is still low.
So they basically
came into this basket
between the UK pound, the
Japanese yen, and then
the euro and the dollar.
So they kind of came in
between third and fourth place.
So Japan and China
kind of have a--
they mix and match
what place they're in,
in terms of third and fourth.
But they came in pretty high.
But the actual trade that
goes on internationally
in the Chinese ren still
remains pretty low,
just because it takes
time to catch up.
So they came in high because
of the size of their economy.
But in terms of the actual
trade that's going on,
that number is still
small, but going up.
And the reason for
that is they are
very active in creating trade
partnerships and currency
relationships that
involve the ren.
And in fact, the US
banks have opened--
just in the last few months
some of the major banks,
like JPMorgan Chase
and stuff, have
opened clearing banks, or
banks that can actually
take Chinese currency for the
purpose of getting involved
in the Chinese market.
So I think that's going to grow.
The second part of
your question again?
AUDIENCE: [INAUDIBLE]
NOMI PRINS: Yeah.
AUDIENCE: Like what purpose--
NOMI PRINS: Right.
AUDIENCE: --having their
currency in this basket serves.
NOMI PRINS: It gives
them a political seat
at the table, too, and
geopolitical seat at the table.
One of the reasons they
wanted to match their status
in the ladder of the world and
the entities that run things
from a monetary
standpoint is because it
helps their economic
superpower status.
It helps their relationships
with other countries
in their region and
throughout the world.
And so that's one of the
reasons it's beneficial to them.
It's sort of like, look, if
this is the basket that's
representing the world,
and we're actually
bigger than several of
these economies, then
why shouldn't we be in it?
Because once we're
in it, then we
can utilize that to develop
our presence elsewhere.
And what they've done
with some of the money
that they've been fabricating
as well is they've used it
specifically for that purpose--
of having better relationships
and alliances with
countries, saying,
you give us your workers,
and we'll build this bridge
and we'll finance it.
And so a lot of the money
that they've created
has actually gone
outside of China,
but for development projects.
And that's their way-- that's
their strategy of developing
a long-term economic presence
and a superpower presence,
by having--
like the beginning
video there, I'm
in Colombo, Sri Lanka in the
first scene of that video.
And in the middle of Colombo,
there's a huge tower.
And it's reminiscent
of the Shanghai
Tower, which is like the
second-tallest building
in the world.
And it was like a mini-version.
And when you go around, even
when you're studying this,
you're not following every
real estate development
in the world.
And so I'm in the
middle of Colombo.
I'm like, golly, that looks a
lot like the Shanghai Tower.
That's kind of cool.
And of course, it turns out
that the Chinese funded it.
They had their engineers
come over and do it.
It was a joint effort, also,
with people in Sri Lanka.
But basically, that's how
the presence develops.
It's like the boots on
the ground-- military.
It's like structures
on the ground.
AUDIENCE: So I guess
I'm still trying
to wrap my head around all
this, right, and still trying
to better understand
the check and balance.
So my understanding
is, when we're
looking at this, the reason
why we haven't seen any crash
or fall is because
all of the players
are recognizing each
other's currencies, right?
They're recognizing
that they're printing.
They're playing along.
And is this crash that
could possibly happen--
does that happen
when someone says,
no, we don't recognize the
money that you've been printing?
Or the money that you've
been trading back and forth
is not admissible anymore.
We're not going to take it.
And is that when
everything crashes?
Because otherwise,
it's just based on--
NOMI PRINS: Of what stops it.
AUDIENCE: --the
strength of an economy.
Yeah.
NOMI PRINS: Right,
and what stops it.
And that's the odd thing that's
been happening over the last 10
years.
All of this started out as an
emergency policy 10 years ago.
And obviously, the fact
that it still exists
is an indication that
whatever caused that emergency
hasn't really been fixed.
And if you pull the plug,
yes, it will be a problem.
So whether you pull
the plug on working
with someone else's
currency, which
these banks can't really--
they trade in each
other's currency.
They own each other's currency.
They hold bonds in each
other's currency-- particularly
the holding of the
dollar, because we
have the most amount
of debt relative
to the rest of their nations.
And so the problem
is, if they stop,
that's one way the
system could collapse.
If they stop because they
don't trust each other,
it's because this happens.
Again, it's because
you all of a sudden
have a bunch of banks
going under or having
a real crisis of some sort
that's related to a derivative.
It's related to derivatives
that are now partly created
from corporate bonds, that
used to be mortgage bonds.
And those corporate
bonds start to default,
so those derivatives
start to go under.
And the whole chain
starts to happen again.
And they're like,
well, wait a minute.
We really need to accelerate or
move away from these currencies
or from each other.
That is how these crises happen.
It's not like this
definitive statement.
Like Europe can't say, we're
never going to use the dollar.
Like, it's just not
going to happen.
But what they can do is they
can develop relationships
outside of the dollar so
that, if something like this
happens again--
and the chances are
it will start in the
United States again too,
because we have lent a lot of
money to a lot of countries.
We've done all the
complex structures.
We have more at risk.
And we're more codependent, in
general, related to the world
than other countries are--
then you could have that
fall start to happen.
So it's not like a decision--
we're not going to
trust your currency.
It's more like, we're not
going to trust the way
you deal with your system.
And what happened with
the developing countries
in the wake of the financial
crisis is there's--
and I talk about
this in the book--
there's a lot more meetings.
There's a lot more conferences
amongst themselves.
There's a lot more growth
in trade agreements outside
of the US, and not
necessarily using Japan.
And there's ones where
Japan is using Europe.
There's just a lot of
realignments going on.
And that's a way to say not so
much we won't use the dollar,
we won't use your
currency, but we
are cognizant that this is
still on kind of shaky ground.
And so the next time there
is a financial crisis,
hopefully, we have a
little bit more protection,
sort of alternatives.
Which may or may not--
it depends what happens.
It depends how big that is.
I mean, no one really
expected the market
to be cut by, like,
45% in 2008 from where
it was the year before.
I mean, that wasn't
an expectation.
And even now, when
I say this stuff,
like that the market's
going to potentially crash,
we're up at these
like heady heights,
most people don't
feel the same way.
But it could still happen.
AUDIENCE: Like a
continuation-- maybe
this is an obvious question.
But then couldn't everyone
just hit the reset button
and then build each
other back up again?
NOMI PRINS: Well, one of the
solutions or possible paths
that I talk about
in the last chapter
is this idea of canceling
out each other's debt
and doing it in such a way that
the countries that would be
most burdened by a collapse--
that were most
burdened by a collapse
that they did not
cause in 2008--
could be in a more
stable situation.
What's happened
with all of this is
that the countries
that were most
at the center of the
last financial crisis
and have the ability to
do more harm financially
are the ones that got
the most subsidies.
And so that just created
more inherent risk.
And again, this could
go on for a long time.
But it created
more inherent risk.
So that's one of the things
that could also happen.
AUDIENCE: So the word
"collusion," to me anyway,
has a negative connotation.
Is it fair to characterize
this collusion, in your view,
as something sinister?
Or do these people responsible
for these systems think
they're acting in a
very honorable way
by saving the
economy or whatever?
NOMI PRINS: Well, it's weird,
because I think most of them
believe that what they're doing
is ultimately going to help
the economy, even though the
evidence is that it hasn't.
The evidence is that wage
growth hasn't really increased.
Stock growth has increased, so
certain bonuses have increased,
but the evidence is that the
economies that supposedly were
fixed are really sputtering.
And the economies
that didn't receive
so much quantitative easing
are either doing better,
or they're still
caught up in what
might be the impact
of what happens here.
So it's hard to say.
But I think what
ultimately will happen,
though, is that at some
point these people--
they shift.
Some of them move out and
some new people come in.
Mario Draghi, at some
point, has to leave.
And probably-- or possibly,
but probably whoever takes
his place will come, say, from
Germany or from a country that
actually is against this
policy and actually would
prefer that less artificial
money is in the system.
And they have political
reasons for that.
Their economy's doing
better than some
of the other
economies in Europe,
so this had other ramifications.
And so a shifting in
the actual individuals
at the top of these
institutions could
create a shift in the policy.
But also, there's a
way to unwind this,
or at least to start to
unwind, that actually
is using this off-the-rails
solution in a good way.
For example, the Fed could take
$1 trillion, or $2 trillion,
or whatever, of
the $4.5 trillion
worth of money they
created and assets
they received in
return for doing that,
and create an
infrastructure bank,
or create a development bank,
or do something that's actually
really financing
the real economy
and also moving forward.
When I was in China, I took the
high-speed rail from Beijing
to Shanghai.
And I don't know if anyone has--
I mean, when you talk
"high," it's really fast.
Like, you cannot
see the countryside.
And it's quiet.
And I mean, it's
excellent technology.
I mean, obviously, it
costs what it costs,
but that's the kind
of development,
that's the kind of
infrastructure building--
developing the
technology in conjunction
with the real parts
of the economy
that real people
actually work on-- that's
more forward-stabilizing.
So you could actually take
a lot of the money that's
been created, and rather
than have it go into debt
and have it go into stock,
actually have it diverted.
Nobody's going to
be happy about that.
It might cause a correction.
But ultimately, it's a question
of long term versus short term.
AUDIENCE: Thank you, so much.
Nomi.
NOMI PRINS: Yeah.
No, thank you.
Thank you, guys.
[APPLAUSE]
