Bitcoin: The End of Money as We Know It Page #3

of their own currency

than they had in gold.

The bond between precious

metals and paper currency

was cracking.

- This is a 1966 50 cent piece.

It was the last coin

in regular circulation

in Australia to contain silver.

It contains 80% silver,

so in 1966, this was 50 cents.

Nowadays it's 8

dollars, roughly,

in silver alone.

- [Voiceover] By 1966,

foreign nations had had enough

of the U.S. collecting

gold and printing cash.

And they had more value

in dollars than the U.S.

had bullion in its vaults.

They demanded gold in return

for their paper dollars.

Arguments about the

value of the dollar

versus their currency ensued.

In 1971, President Nixon

settled the matter.

He severed United States'

currency from the gold standard.

- I directed Secretary Conelly

to suspend temporarily

the convertibility

of the dollar into gold

or other reserve assets

except in amounts and

conditions determined

to be in the interest

of monetary stability

and the best interest

of the United States.

- [Voiceover] Never again

could anyone legally demand

U.S. Government gold in

exchange for paper dollars.

For better or worse, the

dollar was now backed solely

by the full faith and credit

of the United States Government.

The wealthiest nation

the world had ever known

would bet its future on

a single word, trust.

- People have this

mythology of money

that is based on

very little fact.

And one of the nice

things about Bitcoin

is that it forces people

to start to ask questions

about the fundamentals of money.

- A Bitcoin is an attempt

to adopt the advanced

computerized system

that we have, the internet,

to resurrecting to what

money used to be all about.

(upbeat instrumental music)

- I think our dollar policies

our monetary policies

our fiscal policies

have absolutely created

a nation of debtors.

Not just personal debt,

not just corporate debt

but government debt,

you have to look

at those all together

as one big thing.

What is the wealth

of the nation?

Well, the wealth of the

nation is a gigantic hole

of money that we owe to

the rest of the world,

that is never going

to be paid back.

- [Voiceover] Today the

United States pays more

than 400 billion

dollars in interest

to its creditors, every year.

When a government

spends more money

than it collects in taxes,

it simply borrows more

or it creates more.

At one time, every

piece of paper money

was backed by gold.

Remember, for every

20 dollar bill,

there was $20 worth of

gold in a government vault.

Not anymore.

Today, governments

create currency

by first creating bonds

or treasury-bills.

These bonds are

sold in the market,

generating funds for the

government that issued them.

Large banks buy U.S.

bonds to flip them,

selling them to the Federal

Reserve at a profit.

This is the magic money machine.

You see, the Fed is

America's central bank.

But it doesn't have any money,

no cash on its balance sheets.

When a bank buys a

bond and takes it

to the Federal Reserve,

the Fed simply says

"thank you Mr. Banker,

"here's the principal

and some profit."

(ching, ching)

New money isn't exchanged,

it simply appears on

the bank's accounts.

Magic.

For 100 years and counting,

the precise mechanisms

of these bond purchases

have remained a secret.

Here's where it gets

really interesting.

The Federal Reserve is

not a Government agency.

It's a private entity

and its shareholders

are banks which earn a dividend.

As much as 80 billion

dollars per year, total,

are paid out to some

of the very same banks

that sell the Government

debt to the Fed.

Which banks?

Don't even bother asking.

That's also a secret.

In other words, the magic money

machine answers to no one.

The Fed also sets the bar

for how much interest you pay

for a car, home,

or business loan.

- The Federal Reserve has

been given the impossible task

of trying to run the credit

and monetary system

as though we are

the Soviet Union.

It's the central planner

for the key aspect

of capitalism which is how money

and credit is allocated.

The Federal Reserve, on balance,

does not help the economy.

On balance, it

hurts the economy.

And it's bound to make mistakes

even with the best

of intentions.

- [Voiceover] The Fed is also

supposed to boost employment

with low interest rates.

Encouraging people and

businesses to buy more goods

and services.

- Governments getting

involved in money

is a good thing, and

it's also a bad thing.

It's a good thing because money

is the arteries of the economy,

the blood supply of the economy.

Markets are subject to

bouts of euphoria and despair.

And it makes sense

for governments

to back currency and

to manipulate it.

Moving the money

supply up and down

s the most powerful

way to sedate

that boom and bust cycle.

- [Voiceover] Manipulating

the supply of money

has short term and

long term consequences.

(instrumental music)

Central banks aim to

create new money carefully,

strategically and

very, very slowly.

Releasing more money

into the economy

cause prices to rise,

ideally by 2% every year.

That's supposed to

foster economic growth.

But, 2% inflation

means the buying power

of one cash dollar

in your pocket today,

will be 98 cents next year.

And less nearly

every year to come.

- Since 1913, when the

Federal Reserve took over

the United States dollar,

we've seen that the United

States dollar has decreased

in value 98%.

Inflation is a far higher tax

because on your income

you pay it just once.

If inflation is 2%,

you're paying a 2% tax

on your net worth

every single year.

Your net worth that

you held in currency.

- [Voiceover] So,

what does that mean?

If you earned a dollar in 1913,

you could buy 16

loaves of bread.

Today, a dollar

barely buys you one.

That's not a quaint notion of

how cheap things used to be.

It's proof that the

value of your cash

is slowly withering away.

That one dollar

invested at 2% in 1913

would now be worth 7

dollars and 24 cents.

More than a 600% return

versus a near-total loss.

- The U.S. dollar has gone

from being worth one dollar

to now being worth

about 4 cents,

so that's 96% of

its original value.

That's a direct result

of government control.

- [Voiceover] Governments

don't create money

from thin air all alone.

You play a key role in

the magic money machine.

- It's not really the central

banks that are the problem.

They are part of the problem.

But the real problem is

that we've given the power

to create money

to the same banks

that caused the

financial crisis.

- [Voiceover] We put our

paychecks and savings

into a bank account and

draw from it as we need it.

The banks are the custodians

of our money, right?

Wrong!

It is now the

property of the bank,

on their balance sheets.

They can do just about

anything they want with it,

for example create new money.

Here's how, your bank

account shows 100 dollars,

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