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The entire world is facing a debt driven disaster the scale of which has

never been seen before in human history. The situation is now so severe that

we're left with only two options:

default on our debt, or inflate it away. You can already hear people blaming the

free markets and even money itself

for our problems and to me this is just tragic because we don't have free

markets any more

and we certainly don't use real money, This is the real reason for our problems:

Our money itself has been corrupted.

It's not just an issue of economics, this affects your freedom.

When this crisis hits people will be screaming for the government to do

something,

when it was the government who caused the problems in the first place.

Many societies have faced this dilemma in the past and we can learn what the outcome

might be

simply by studying what they did and comparing it to what we're doing today.

So while I was in Germany I decided to stop by one of my favorite museums

and take you on a kind of crash course on the history of real money,

how it evolved, and the twin dangers that arise When Money Is Corrupted.

I'm here at the Bundesbank Money Museum

in Germany and this is one of the best museums

I have ever seen. Right at the very beginning

of the museum you walk in and it starts with barter, you know

originally the first form of currency was livestock...

the problem with livestock though like for instance this cow,

if I traded this cow to you for something and somebody else wants to

trade you something else that

has a much lower value you can't make change!

A system that relies on barter is very inefficient because you not only suffer

from the problems of divisibility

you also rely on the hope that you'll find someone who has a good or service

that you need

who wants something that you have at the same place

and at the same time. In economics this is called the Coincidence Of Wants.

Now add the fact that most goods have a shelf life before they perish

and you can see why barter systems held mankind back

for so long.

So what was it that solved the Coincidence Of Wants and propelled us

out of the Stone Age and into space? It was the invention of money.

Money is not evil, it is a magnificent tool that allows us to trade our

specialized skills

and to store our economic energy. Without it

we be struggling to feed ourselves each day and our

average life span would still be thirty. In episode one we learned that real money

has to fulfill certain properties

in order to function. But twenty six hundred years after its emergence

people still confuse money with currency... even the so-called

experts. So they've got here some of the

things about what money is, the first example here is

'Money is whatever goes' So, 'in earlier cultures commodities such as cattle

stones or medals were used as money. Buyers took the value

of the goods on trust when making their purchase.

Today too, money is a question

of confidence.' So, the

currency today isn't money today we're using currency...

that's the only reason it has any purchasing power whatsoever,

it's because yesterday your experience was that it

purchased something so you have faith that it's going to purchase something

tomorrow,

otherwise it has no value. 'Whatever form it takes

reliable money has two characteristics: It is genuine,

and it is stable. People can rely on its value.' Well

you know what fiat currency around the planet has maintained its value? They

all fall in value so right away you can see the difference, they're

talking about currency here

and when they say it's genuineÉI mean what is genuine?

A counterfeiter, somebody that's running their own printing press in their

basement

is making genuine notes as far as he's concernedÉthey're genuine

counterfeits!

These things that just come off a printing press well yeah, it's a genuine

lie from

a central bank or government that you've got something that's going to store

value for you because

it doesn't over long periods of time... it loses value.

'Gold banknotes and electronic money

(meaning electronic currency) may be stored,

divided up or transported. As its material value has declined

over time, its genuineness has

had to be beyond question.' Well this one says that it's got to maintain its value

and right here they're contradicting

the the next one. The one thing here,

gold is the only thing that they're talking about that has not

lost its value. 'In the past rare goods were used as money.

Today central banks must ensure that the supply of money

is restricted.' Well what are they doing all over the planet today?

They're lifting all restrictions on how much currency they are creating...

they're flooding the planet with currency. The next display shows the usual museum

pieces that are described as commodity money

cowry shells, representative axes, cocoa beans and the like.

While these worked better than barter none of them were actually money

because they all had a weakness, one or more properties of money that they

couldn't fulfill.

Therefore they are commodity CURRENCIES not MONEY.

Some of these were widely used right up until the beginning of the 20th century

and there's some stuff here that I haven't seen beforeÉ Here's something

very interesting,

this brick of tea, its value is

in the intrinsic, it's in the commodity that you're using, it's the tea.

But this one has a certain fungibility to it, each unit would have the

same

value and you can make change. You can snap these things apart

into units of six, it's portable it's not that heavy, this one fulfills quite a

few functions and money...

I would not imagine that is that durable, and probably doesn't wear that well.

And now we come to the emergence of real money. Here

we have little pieces of metal, just little pieces that have been broken off

bars or something that was cast, other little blobs of

metal. They were traded as a currency you know they had purchasing power they had

an intrinsic value

but they still weren't fungible which means interchangeable...

every one of them has a different value, you can see that

some of them have a higher silver content, some of them have a higher gold

content.

These are called electrum, a mixture of gold and silver,

naturally-occurring. What you notice is that this is from the 7th century BC

and then between the seventh and the sixth century were talking about

somewhere between 680 and 630 BC the emergence of

true money. Here we've got four coins,

the large one is a one-third stater coin,

and the other three are one-sixth stater coins.

Each unit is interchangeable, it's now a unit of account

you can take so many of these in trade for so many have loaves of bread

and you don't have to break out your little scale and weigh them any longer.

With the little chunks of metal you had to weigh

every transaction that was going on and you had to weigh whatever your payment was and

then take a guess as to what the purity was.

Here you have some standards that were set by mints and guaranteed by those

mints.

These are a unit of account, they're fungible, every one of them is

interchangeable,

their portable, they're durable, in your pocket

over long periods of time,

they're divisible you can make change. You can see there's a one-third stater

and one sixth staters. And they're a store in value over long periods of time.

These still have purchasing power today

2,600 years after they were made.

Another thing that I find really interesting is that

between maybe 680 BC in the year 300 BC

cultures all around the world, they all

gravitated toward gold and silver coinage as money.

The entire world sort of decided altogether

that gold and silver were money. Why? Because the free markets keep on

selecting gold and silver as money because of the properties that

they have.

So now we get to the room of real money. This is a vault door

and this is where they've got all the great examples of the real gold and

silver coins so come on in and join me.

So here we get to the first display, here's gold and silver, what they're using

to make money and here we have some very early representations of gold and silver

coins.

And, I love these displays, they start with coins in Lydia so these coins go

back to the very first minting

of true coinage. So here we have... starting the 6th century BC,

and then it goes up to the 3rd century and then

from the 5th to the 11th century and the 13th to the 15th century

and these displays just go on and on with the history of

real money, gold and silver. And here seventeenth and eighteenth century,

here we come to the 19th century and

now we're all the way up to the 20th century here.

And here we come to our first example government issued fiat

currency this is a from China this is from 1375

and what's interesting is I have a chart

that compares the value have the paper currency in China

compared to silver, and there was a hyper inflation of this currency

it wasn't backed by anything, it wasn't backed by taxes it wasn't backed by

anything. The Treasury

they could just print this and so this went into hyper-inflation

because the government was just running its budget by just doing deficit

spending by printing.

And then I'm gonna skip to sum of the colonial currency.

This is the United States and each one of these currencies

is printed by a different state, we've got Maryland

South Carolina, North Carolina, Connecticut,

New York, this one here is particularly interesting it's printed in the

fourteenth year

of the reign of King George the

third, it's dated March 25th

1776 so this is just a few months before the declaration of independence.

it says here 'Tis death to counterfeit'

This was printed just before

we started coming out with the continental dollar

which went into hyper-inflation because of pure deficit spending on the

Revolutionary War.

And so...this is the wall where

real money gets corrupted. This is where it all turns

to paper which sometimes is backed by something

but it can be a lie, they can print more

than they have of the stuff to back it.

As we learned in Episode 2 one of the first things the country does at the

outbreak of war is to suspend redemption rights

so that their currency is no longer redeemable in gold.

This is exactly what Germany did before World War one.

After losing the war they suffered through one of the worst hyper

inflations on record

when they were burdened with massive reparation payments to France and the

Allies.

These heavy penalties stifled the German economy and brought it to a standstill

leaving the country with the same two choices all indebted nations have faced

throughout history:

Default on their debt or inflate it away

Defaulting was not a viable option as they were completely impoverished,

weakened, and surrounded by armed forces ready to take their land.

Since the currency was no longer tied to gold it was decided to light up the

printing presses and inflate their way out,

paying the debts with new currency created out of thin air.

This had drastic consequences, check out some other this Weimar currency.

The display starts with one mark that actually purchased something,

but soon the notes rise to the thousands, then the millions,

then the billions, and finally the trillions.

It's mind-blowing. You'll notice that I'm laughing a little bit as we move through

the museum

but I'm not laughing at the people, I'm laughing at the stupidity of central

banks,

and of governments, and how we never seem to learn from history.

OK, and this is an example of

different currencies used during the hyper-inflation

and they call some of it inflation money and