Hello!
Actually, I don’t really want to talk about money.
The previous speaker talked about dreams
and I like to dream, too.
I want to talk about being aware of the real situation,
because there’s no point in dreaming if we’re unaware of the reality.
And therefore I must speak a little about money as well.
Speaking of thoughts –
today I have an opportunity to talk about business and crises,
but when I was a schoolboy my thoughts were naïve, beautiful and honest,
and I thought teachers were smart.
I thought the physics teacher would know what’s gravitation and antimatter
and the biology teacher would know how life was created and what’s DNA.
The psychology teacher would know what is human psyche and the human mind,
that I’m greatly interested in.
And of course the economists, central banks and bankers
would know how economy works,
how crises are solved and what is best for us all.
And thanks to the previous speaker
I found out that politicians would know how to make the world a better place.
But as time went by, I began to understand
that this is really not the way things work.
For a certain part of my life I was involved with economy,
so today I’ll try to share some thoughts
on what I’ve learned about economy and what I think about it.
And what I think about the current crisis.
To put it briefly, I’m convinced that the current crisis
will be longer and deeper than people think and than we are led to believe.
Prime Minister Ansip said in the Estonian Daily Paper yesterday
that the crisis is over but unemployment continues to grow,
and I find this statement truly bizarre.
Here’s an example from Japan,
which for some reason hasn’t been mentioned in the newspapers.
20 years ago there was a crisis in Japan.
Basically for same reasons – a lot of money was lent out,
and seemingly it created a lot of wealth,
but they still reached an unavoidable crisis.
I have a question for you.
20 years ago when the Japanese economy was at its peak,
real estate prices were very high.
Naturally everyone was convinced
that in the best location at the city centre
the price of land could never drop.
The question is: after the crash in Tokyo, when the prices dropped,
how much did the price of land in the best location go down?
By how many percent?
All right, how many percent of the price was left, if initially...
Hello? I thought the sound disappeared.
- Thirty?
I’ll tell you. According to Wikipedia only 1% of the price remained.
When initially the price was 2 million dollars per square meter, then afterwards it was 20 000.
Later it was multiplied by 10 and reached 200 000.
My second example is also from Japan.
20 years ago when stock prices were the highest ever, the stock index was around 40 000 points.
20 years have passed.
What do you think, how much have the prices risen or fallen?
How much of that money is left?
Because bankers claim that in the long term stocks can only go up.
The answer is simple. This morning the index was around 9500 points,
which means that after 20 years only 25% of the money is left.
I don’t wish to draw any parallels with our pension funds and insurance funds
nor to talk about what awaits us in the future,
but I’m really very skeptical about this.
Let’s delve deeper into the subject of money.
Fortunately finance has a 2000-year-history that we can turn to
and which is not talked about, because the memory of ordinary people and society goes back about 15 years.
We’re already starting to forget the Estonian monetary reform,
which took place 20 years ago.
But let me tell you about the Roman Empire.
Between 10-260 AD there was a very stable economy.
Prices went up 0.4% a year, everything was fine,
the economy developed, people were happy and satisfied.
Thus the empire lasted for nearly a thousand years.
And then suddenly in 80 years the prices went up 20 times.
What happened?
The Emperor Nero realized that he didn’t have enough money,
so he devised a brilliant scheme.
He took all the silver coins in his treasury,
melted them down and put in 50% less silver.
Suddenly he was twice as rich.
He was able to build Coliseums and saunas and to have a blast.
And he decided it was a good idea, so he did it again, twice.
In the end the content of silver in the coins was reduced from 60% to 4%.
What was the result?
The financial system failed
and there was inflation, which developed into hyperinflation.
I don’t mean to say that this was the main reason for the collapse of the empire
but I think that it certainly gave it a push in that direction.
Politicians have implemented the same system throughout history.
They like it, because it’s great to create money out of thin air.
You can use it, and seemingly you become richer.
When I’m listening to what’s said now
about bank recovery plans and economic stimulus packages,
I’m always thinking: I wonder where’s that treasury? Where’s that money?
That money doesn’t really exist.
It’s created out of thin air at that very moment,
and money that’s created out of thin air, always ends up the same way.
But let’s go back to the past one more time.
Throughout history any government in power
has wished to expand and to be successful,
and so they tend to make war, and the problem with wars
is that they cannot be charged to the country’s taxpayers.
Ordinarily it’s paid for by using loans
and in the end it’s the citizens of that country who have to pay for it,
usually through the decrease of currency rates and inflation.
Let’s look back in time.
After World War I there was hyperinflation in Germany.
The prices went up by thousands and thousands percent.
It even happened that there was one taxi rate in the morning
and by the evening it had already increased.
Women went to meet their husbands outside factories, because people got paid daily,
and the money had to be spent right away, because you could only buy half as much the next day.
There’s a true story about someone who went shopping
taking a pile of money with him in a wheelbarrow,
and while he was choosing his groceries
he left the wheelbarrow out on the street,
but when he went out to collect the money in order to pay,
it turned out there’d been thieves around.
The money was all there, lying on the street.
But the wheelbarrow was stolen – because that was a real asset.
So, after World War I many people lost their money and savings.
Let’s move on.
There’s no point in talking about what happened after World War II,
because money and the systems changed completely.
In 1971 there was a huge change in world finance.
But let’s go back to ancient Rome for a moment.
In the year 55 BC Cicero made a speech saying that
in financial systems we should be guided by simple principles.
The budget has to be balanced, the money has to be backed,
a country must not take loans and the taxes must be low.
He also added that the arrogance of officials must be brought to an end.
All of these four principles correspond exactly to the rules set by Siim Kallas
when the Estonian kroon was created.
The Estonian kroon was pegged to the Deutsche Mark,
the budget was balanced and no loans were taken.
Right now people talk about pegging the Estonian kroon to the euro.
My question is: are we really aware of the situation?
The euro is not backed by anything, budgets are facing deficits,
taxes are rising and everyone’s looking for opportunities to get more money.
The financial system where the dollar was backed by gold collapsed in 1971.
At one point when the French minister of finance arrived
and wanted to exchange 3 billion dollars,
the Americans looked at their treasuries
and discovered that there was a bit of a shortage.
They made an interesting statement, written down in the annals:
„The assumption that the US dollar is backed is unfortunately inaccurate.”
I would like to add that
3 years ago the United States classified the amount of money emission.
Nobody knows how many dollars are in circulation, it’s not revealed.
Why? Well, I’m not going to answer that question.
Since 1953 the Americans haven’t allowed anyone to audit their reserve of gold.
Physically. They allow auditors to do it on paper.
The auditor may come, look at the papers, and read that there’s this much or that much.
But they don’t show anyone how much there really is.
Again, the question is: why?
And a comparison with the national grain reserve would be unjustified,
so I’m not making it.
What happened before 1971?
There was the Vietnam War which the Americans couldn’t afford.
A large amount of dollars was emitted to cover the costs.
What’s happening now? There are also wars.
According to different records the war in Iraq and Afghanistan
costs between 1.5 and 2 billion dollars a day.
Where does that money come from?
According to my estimate it comes through globalization,
from everyone’s pockets, through inflation, which awaits us all.
The next thing that’s not talked about, but what I’ve thought about –
it’s the dangers of electronic money.
Ever since Gutenberg invented the money press…
I’m sorry, the printing press…
the average lifespan of banknotes has been from 50 to 75 years.
Without exception.
Nobody has seen the collapse of electronic money yet,
but I can’t think of any reasons why it shouldn’t happen.
We must realize that the things we have on our bank account,
what we see on the Internet, are electrical impulses and not real money.
Besides, it covers 95% of the world’s money today.
5% of the money exists in the form of coins or banknotes.
I once spoke to a banker and asked him,
since I’m also involved in finance,
about the wonderful thing called the overnight loan.
In the evening the money is taken from your bank account
and at 10 a.m. it’s back, with a little extra.
Very nice. But what is it really?
In fact it’s lent out in the evening, following the sun’s movement.
It goes to America where all sorts of tricks are played with it,
the stock market is pumped up, the money is lent out to buy real estate, etc.
and from there it moves on to Japan and the rest of Asia.
In Asia the Chinese stocks are pumped up.
By the morning it’s neatly back.
But my question is – let’s imagine that in Tokyo, Japan,
where there’s a massive earthquake in every 100 years, I think the last one was 80 years ago,
suddenly there’s an earthquake and its epicenter is located underneath the bank
and the building collapses?
So, is it still certain that the money will be back on my account in the morning?
The banker was silent for 40 seconds and then he said he hadn’t thought about it.
Then I started to think about it myself.
In the Estonian Daily Paper there was an article
by Jeremy Rifkin, a noted futurologist.
He made up a report to the US Congress describing a situation,
where terrorists would buy a Scud rocket from the black market,
which costs only about 100 000 dollars,
and assemble a dirty bomb,
not an atomic bomb, but a dirty bomb
which creates a gamma impulse when it goes off,
and they wouldn’t set it off on the ground,
but in the atmosphere over New York.
As a result all the computer chips would stop working.
Naturally the bankers would say that all of the money is duplicated,
the information is duplicated and we get it all back and everything’s fine.
Yes, it is duplicated.
Until 1999 it was duplicated under the twin towers.
After that they moved it to New Jersey.
The computers’ backup copies are located in New Jersey and Panama.
I won’t even speculate on what might happen
if there was an explosion on a ship going through the Panama Canal.
So what I’m trying to say is – let’s be aware of the situation.
Let’s be aware that the thing in the bank is only a paper printout.
Now let me tell you my opinion about the current situation and the crisis,
and what I think will happen.
It doesn’t make any sense to me when people say that the crisis arrived unexpectedly,
because the crisis was in fact expected since 2001.
The crises are well-predictable
according to the 60-72 year Kondratieff cycles.
Alan Greenspan saw it coming,
lowered interest rates and thus postponed it a little.
And therefore the situation is worse
than it would have been in case of normal regulation.
So the stages were simple.
It started with a financial crisis – it seemed that we had run out of money.
Actually we hadn’t run out of money,
but the money had been lent out and it didn’t come back.
If you lend your money out and you don’t get it back,
then you’ve lost your money.
But then the bank recovery plans were created,
and again normal regulation wasn’t given a chance.
The banks were rescued and it seems that everything’s fine.
But there hasn’t been a substantial change,
everything’s the same as it was two years ago.
The lending takes place as usual.
I’ll give you a metaphor.
What’s the current situation like?
Imagine a group of people, who have partied all night,
they’ve been drinking and they feel really sick in the morning.
Everyone’s trying to figure out what to do.
Then suddenly someone has a thought: ‘Let’s get some more booze! We’ll feel better immediately!’
This is what I think the current situation is like.
The financial crisis has developed into an economic crisis
which is only just beginning.
The lack of money is reaching enterprises.
And since the banks were rescued by giving them more money,
now the same is being done in the economy.
In the USA money was given to car manufacturers,
in Germany there are car exchange programs
and politicians express some very bizarre ideas…
Well, their goal is always the same – to stay in power.
Government intervention and helping out businesses is an imaginary solution.
But it’s already happening and there will be more of it.
And undoubtedly there will be jubilations,
'Well done, the problem’s been fixed!'
But in reality it means…
The finance theory is very simple.
Every additional kroon, dollar or yen which is emitted
lessens the purchasing power of the rest of the kroons, dollars or yens.
Which means that the prices go up.
Which means inflation.
And in similar situations throughout history
inflation has always become hyperinflation.
Let’s recall the Russian ruble which collapsed. Or Ukraine.
Maybe someone remembers Mexico in 1995.
Or Argentina. Or recently Zimbabwe.
The process that took 3-4 years in Germany
will, according to economists, now last for 10-15 years.
Throughout history there has been only one way to solve hyperinflation.
That’s a monetary reform.
Right now I can see our financial system collapsing
and after that there will come a situation,
when things can be improved,
we can go back to common sense.
Because my opinion about the current situation is
that after 50 years people might look back at it
and see it as an era of madness.
Of course I’m hoping that it wouldn’t happen,
but unfortunately history proves that it will.
But still, let’s not get too worried.
It will get better after that, because it always has.
Let’s just make it through.
To conclude I’d like to say to you that we should in fact feel happy.
When we think about the people and the history of the world,
then 99% of the people who have lived on this planet
have been poorer than us
in the material, emotional and spiritual sense.
We should be extremely happy.
And so we are. Thank you. (Translated by Triin Sinissaar.)