I think it's important to understand that because of the enormous increase

in house prices, primarily in this country and in a lot of countries,

people's financial positions now

are very largely a function of the decision of how much debt

their parents or their grandparents chose to take.

Okay.

So I wanted to start with explaining the relationship between debt

and money, because we did a video a couple of months ago

called What Is Money, which a lot of people watched.

And in that video, I basically explained that

our modern monetary systems, the money system of the UK,

the US or Europe of basically the whole rich world at the moment

is a debt based money system, which means that money is debt.

And what I said at the beginning of that video was that

if we added up the total amount of money in the whole of society,

it would add up to zero.

And that is because we have a debt based money system,

which means that for every one person with £1 of money,

there has to be somebody somewhere with £1 of debt and it cancels out.

I think that can be a little bit confusing for some people.

When we think about it from the money perspective,

but now we can look at it from the debt perspective.

And I think that makes it a bit clearer because it should be easy to understand

that the total amount of debt in society is equal to zero.

And the way that you should be able to understand that is because we know

that it is impossible to be in debt

without being in debt to somebody.

So if we add up the total amount of debt, it will equal the total

amount of money owed to somebody.

The amount of money that everybody owes is equal

to the amount of money that everybody is owed.

And that is because

every debt has somebody who is in debt and somebody who is in credit.

And we're going to use that term ‘credit’ to refer to having money owed to you.

So if I borrow £100 from Simran, then I have £100 of debt.

I'm in debt.

And Simran has £100 of credit.

He is in credit because I owe him money.

So this is the

first thing that debt adds up to zero.

And it's obvious when you think about it because you know that if you owe money,

then you owe that money to somebody.

Is it possible to owe money to nobody?

But I think as much as it's obvious when you think about it very often in

our conversation about debt, it becomes clear that we don't really think about it.

Because, for example, we know in the last three years

that the UK government debt has increased by £700 billion.

This very clear, we can check that.

We know that the US government debt has increased by £8 trillion,

sorry, $8 trillion, and yet we very frequently act

as if that money has disappeared and not gone anywhere.

And that is impossible. That's not how money works.

That's not how debt works.

If the UK Government has gone £700 billion into debt,

we know that somebody must have accumulated

£700 billion of money because that is how debt works

and that is how money works is always a perfectly balanced system.

If somebody is in debt,

somebody has money, If somebody has money, somebody is in debt.

We have a debt based monetary system debt is money.

Money is debt the total amount of debt adds up to zero.

And I think this is super interesting

because in a sense, as soon as you understand this,

you understand our current economic crisis much better,

which is that, yes, it is true, our government has gone £700 billion

into debt, into more debt than it was already in.

The US government has gone $8 trillion more into debt.

But those debts are to somebody and the money that the government

has spent to go into that debt has gone to somebody.

If we were to find those people who have that money, we will see that

they have gotten enormously richer, if we were to tax it back

the government debt would decrease.

I think it's often when we think of debt, we think of it as sort of wasted resources

resources that have disappeared

We say the government has spent that £700 billion, it's gone.

That's not how debt works.

If the government goes into debt, somebody goes into credit

and we can match these things exactly.

We know with certainty that it will match up.

And I think when you think about this, it's actually

quite amazing because the total amount of debt in society

is so enormous that it's almost difficult to believe

that that money is owed to someone and somebody has that credit.

And the other side of that, because the government

debt alone in the UK is £50,000 for every UK adult.

It's enormous.

Five zero, £50,000, which means that the average amount of money

held in the form of government bonds must be £50,000 per adult.

And it sort of blows the mind who has that, that that's just government debt.

All of the mortgages, your mortgage, your friends mortgages,

your parents mortgages, your children's mortgages.

Every single mortgage is owed to somebody.

And I think that there's sometimes a slightly misleading understanding

that these this debt is just appears and is owed to nobody.

But in reality, all mortgages are owed to somebody.

And even though your mortgage is owed to the bank,

banks are in most cases just intermediaries.

Ultimately, they are lending you money that comes from the depositors

or from their investors.

So all of this money, all of your mortgage money,

all of the government debt, all of the student debt, which is massive,

especially in America, is all owed to somebody, credit card debt.

And I think when you consider just how much debt there is,

it becomes almost hard to accept.

I remember the first time this sort of thought occurred to me

that, you know, all of this debt is owned by somebody

and the people who own that debt, they often own it in the form of money.

So let's let's talk about what

it looks like to the owners of the debt, the people who are in credit.

It looks like holding bonds in an investment account.

It looks like holding bonds in your pension.

It looks like holding money in your bank account.

So if you

if you have money in your bank account, you probably think you just have money.

But what actually happens is the bank lends that money out.

And essentially that money in your bank account is somebody else's debt, is money

which has been lent to somebody and you are a money lender.

You are someone who is in credit and you are on the other side.

So I think it's

it's worth

realizing that all of this money is owed to somebody and somebody has

all this money just simply because the amount of debt is so enormous.

And I think we often sort of just internally assume

that debt just is to nobody the debts, the aliens.

We're in debt. Everybody's in debt.

That's impossible.

Society as a whole has to have a total debt of zero.

And the reason why it seems impossible is because ordinary

people tend to be on a debt side, the debtor side of the coin.

So you have your share of the government debt, you have a mortgage,

but not many people have enormous piles of cash in the bank or enormous investment

accounts of bonds, and that is because of the inequality in society.

So bonds and credit

tend to be overwhelmingly held by rich people.

Now we will get some people commenting, and it is,

of course, true that if you have a pension

or if you have a large bank account, you are in credit.

You are one of the people who has the credit.

But if you look at the overall distribution

of credit of money owed to people is overwhelmingly owned

largely by the richest people in society of course, there will be some owned by,

for example, pensions and things like that.

Another comment we get is that we owe all of this money to China

or to foreigners.

And it is, of course true that the UK as a whole does have a debt to China.

It also has a debt to Japan, but most of

the debt is own is owed internally

and there's a situation happening where

increasingly financial assets are owned by a kind of international super elite

and they own

the debt of many, many countries, which means that there are very wealthy

people to whom money is owed by British people on the British government.

But there are also very well wealthy British people

who will have the credit of foreign governments and foreign people.

So don't allow yourself to be sort of lured into this trick.

Of all the money is all owed overseas

because overseas people also owed money to British, wealthy people.

The reality is more a situation

of ordinary people and ordinary governments are in debt to

a kind of international, super rich elite of which many are British

and many are American, because America and Britain

and Western Europe are rich countries and they are creditors.

The money is largely owed to wealthy people.

In the rich world.

And of course, what is important to understand

is that every year, every month, every day, the people who are in debt,

which is you, if you are a taxpayer, which is your government,

which is you, if you have a mortgage, pay money to the people who own credit.

So every single day, a big chunk of your taxes

goes to the wealthy debt holders

and a big part of your your mortgage payments

go to those people as well.

Now, the next thing I want to explain

is a little bit tricky, but I think it's important to understand the function

that debt plays in our economy, which is that debt is a form of ownership.

It and I think the best way to understand this is to consider

the way in which corporations finance themselves.

So we tend to know about shareholders, which is if corporations need money,

they sell shares, they get money from the shareholders,

and the shareholders give the money to the company that it needs.

But in actuality, corporations

choose largely between two ways of raising funds,

which is selling shares to shareholders and selling bonds, which is essentially

borrowing money from wealthy people who want to lend money.

And in many cases they take more than 50% of their funding

from people who lend the money to them, to creditors.

So when you are running a corporation, you have a choice between

how do you raise funds from stockholders or from bondholders?

Who are the people who lend the money?

And when you think about it like this, you realise that

stockholders and bondholders are really not that different.

They are both people that give money to a corporation

and then take a share of the profits of the corporation.

The way in which the profits are shared is different.

So the company first has to pay interest to the bondholders.

Then if there's any money left, it pays the rest of the profits

to the shareholders.

But in a sense, it's not that different.

If you are a bond holder or stockholder, you give money to the company

and they give you a share of their profits going forward.

So we consider often in our mind

the stockholders to be the owners of the company,

but in a very real way, stockholders and bondholders are not that different.

And it's the same if you own a house.

So obviously, if you buy a house, you think you own the house.

But if you buy a house using a huge amount of debt,

then really your situation is in many ways similar to when you were still renting.

Right. You know, of course, there are differences.

You can choose what to put on the walls and things like this.

But if you're renting a house,

you live in the house and you have to pay a chunk of money

every month to the owner of the house to live in the house.

If you're owning with a mortgage, you live in the house and you have to pay

a chunk of money to the moneylender every month to live in the house.

So I think it's important to understand that really

debt is

a form of owning assets.

It's it's not that dissimilar to simply owning the asset and renting it.

And in both cases, you'll see if you stop making the payments.

So if a corporation stops making the payments to the debt holders,

what will happen is legally the debt holders will be given

possession of the company because there is a form of ownership.

And if you stop paying your mortgage, what will happen is your mortgage

lender will take legal possession of your house

because debt is a form of ownership and I think it's

it's important to understand that

that basic fact really that that debt is a form of ownership.

And if you own an asset with a large amount of debt,

essentially what is happening is a wealthy person

who has the money to lend you is buying the asset through you.

And of course, debt is not the same as ownership, right?

If you own the property with debt, you you take the price risk on the property.

If the price goes up, you make that money.

If the price goes down, you lose that money.

Also, you have the the legal risk.

So we have a situation in this country where a lot of people bought property

and then found that they had to upgrade the cladding on their property

and the owner had to take the loss on that.

So if you own

with debt, then you take

price risk, you take legal risk and you also have to manage the property.

But in a very real sense, you if you have to pay to use that thing,

be that through owning it or through having debt, you do not own that property.

So debt is a form of ownership and it is a way of rich people

buying assets and not having to worry about the price

going down, not having to worry about management,

not having to worry about about legal risk.

Really, if you think about it from the perspective

of the wealthy lender, it's kind of he's kind of running a business.

He's saying, look,

I have two ways of getting property.

Either I buy it and I read it to you,

but then I take the risk of the price falling.

I take the risk of damage, I take legal risk, or I'll lend you the money.

And I probably won't make

so much money on it because interest tends to be cheaper than rent,

but you have to take the risk of price falling.

You have to take the risk of any damage or legal problems and you have to manage

the property. So really

and I said this

many times, but I think it's interesting to understand that is a form of ownership

is a way of wealthy people owning assets

and having you manage them.

So in a way,

this way of owning assets through debt is quite good for the rich, right?

Because I don't have to worry about if the price goes down.

I don't have to worry about managing it every day.

I don't have to worry about any legal risks.

You manage it for me and you still pay me the interest every month.

I don't have to do anything.

It's pretty fantastic way of owning assets.

And yet

people overwhelmingly prefer

to own their property, even through a massive amount of debt than renting.

Why is that

So there are a couple obvious reasons why people prefer to own with debt

rather than to rent, such as

You know, you can make your own changes, you can, you know,

paint the walls, these kind of things.

But let's try and focus on only financial reasons.

Why is it that people prefer owning property

even with a huge amount of debt to renting property?

The primary reason, in my opinion, why people prefer that

is because in the last 30 years,

property prices have gone massively up.

And as

I said when I spoke about debt as a form of ownership,

when you own with that, you take the price risk.

So if prices go down, you lose money.

If prices go up, you make money.

And in the last two years, prices have gone up massively.

So buying assets with debt has been

a really, really good financial investment for people in the last 30-40 years.

And for that reason, I think we've kind of internalised this idea that

taking on debt to buy assets is good because prices always go up.

And I think

an interesting thing is happening here, which is that

basically

people who

I think it's important to understand that because of the enormous increase

in house prices, primarily in this country and in a lot of countries,

people's financial positions now

are very largely a function of the decision of how much debt

their parents or their grandparents chose to take.

So if my parents

had chosen to take on four mortgages or five mortgages,

they would be much, much richer

now than if they did what they actually did do,

which is to only take one mortgage on a small house.

And we've created this quite interesting set of financial outcomes

where we've really, really rewarded people who took

quite risky economic actions, which is to take on huge amounts of debt

and to buy huge amounts of assets and take huge amounts of price risk.

But they have made money because prices have gone up.

And I think those people often think that they've made money

because they are very effective property investors.

But it's probably worth realising that in the last 20,

30 years it's not just property that has gone up in price.

Basically every asset has gone up in price and in most cases

the stock market has outperformed the property market.

It depends what country you look, but in most cases that is true.

We've also seen massive increases in land prices.

Luxury art, luxury cars.

So what really happened in the last 30 years is

anybody who bought a

tonne of assets will have made money.

It's not actually about property prices rising.

It's more about asset prices rising in general.

And this brings me to my final point, which is the reason that people

who have taken a lot of debt have made a lot of money in the last 34

years is not really because asset prices have done well,

but it's because money has been devalued.

And since money is debt and debt is money debt has been devalued as well.

So anybody who took a huge amount of debt and then saw the prices of everything go

up, essentially have made money

on the fact that they took debt and debt has been devalued.

So people who think they made money in the property market,

they would have made just as much money if they borrowed

money and bought stocks or borrowed money and bought land.

So what they really made money on, when you look at it,

is they made money on their mortgages.

So we have we've created a country of people who thought they made money,

probably speculating, but really they made money betting on interest rates.

Essentially, they made money betting that money would be devalued.

They made money

essentially shorting

the value of money because they borrowed money and then they

they sold the money and then the value of the debt went down.

So I think it's quite interesting in a way that

we've created this financial incentive structure

that really rewards people for taking debt,

even though they take on a huge amount of debt

is not particularly sensible thing to do.

So you know I'm I'm going

to put a video out after this one about why money's being devalued.

I think it's very true that money continues to be devalued in our society.

That means debt will be devalued.

That means people who have taken large amounts of debt will continue to do well.

But it's important to understand that it's a phenomenally risky

way to make money, and increasingly it's only accessible to rich people.

You know, if you're

if you're a poor person, you can't get a mortgage,

you can't buy a house, you can't do this thing of taking on debt

and buying assets, which which has made a lot of people rich,

Okay, so that's debt.

Basically, debt is the opposite of of money

as debt has accumulated, money must have accumulate.

And this is not really well understood in the media.

You know,

a lot of sort of stupid things

have been said like during the COVID crisis

when the government was going massively in debt, the media was saying,

you know, we're going to have an economic boom

because people are accumulating money, people are accumulating savings.

Other people would say

once people spend their savings, that the economy will go back to normal.

But once you understand that debt is money, savings are debt,

you would understand that

if the government goes massively into debt like it did into COVID,

somebody has to accumulate money and it's impossible for society

to get rid of that money unless the government pays down that debt.

So I really want to understand the symmetry here between debt and money.

Money and debt. It's the same thing.

And I think what that allows us to see is the COVID experience

in a different light,

which is when the government goes into debt, somebody has to benefit.

And if the government is now in a situation,

it can't pay for basic services, That is because somebody has benefited.

And that's why

I continually harp on in this channel about who has the £700 billion.

It would be enough

that £700 billion to give £14,000 to every single person in the country.

So when the government goes £700 billion into debt and you don't get £14,000,

it's effectively the same as the government

taking £14,000 from you and giving it to the rich.

Okay, so that's it.

Debt is money.

Money is debt the government has gone into debt.

The rich have accumulated huge amount of money

that has led to a massive increase in inequality.

The last final point

I would like to add is that debt is not the only form of wealth.

There exists real wealth, property,

land, natural resources, factories, productive machinery.

And who owns these things is important as well.

So debt is extremely unequally distributed.

But I think sometimes people focus on the debt system

and the monetary system as the only source of our problems,

but we also have phenomenally unequal distribution of real resources.

And yeah, that all needs to be fixed if we want to deal with the cost of living

crisis because inequality has increased

and you are seeing that fall in living standards for ordinary people.

Okay, thank you.

So it's start again.

Once you understand that there is a form of ownership, you also realize that

that kind of obscures true ownership. So,

for example, the government wants to keep people owning properties,

but it's difficult for people to afford properties

because people are getting poorer and poorer.

The only way that they will fix that is they will put ordinary families

more and more into debt.

So you see they'll have more 100%

mortgages, might even be 110% mortgages, longer term mortgages,

much bigger mortgages.

So you still own the property, but you have way more debt.

And then people feel happy because they own the property, but they're in debt.

They're much more in debt. See?

So in a sense debt, debt is confusing because people don't.

It means that you can lose your home without realising you've lost your home.

Because you still are the technical owner of the home

But now you're ****ing half a million pounds in debt, right?

Or maybe £1,000,000 in debt.

If house prices got more, you know, in 20-30 years, the average British family

will be £2 million in debt on the House, but they'll still own the home.

You know, I mean,

*???*

You know, and really interesting is if you look at the situation of the government.

Right.

So the government still owns the hospitals and it still owns the schools.

But if you look at the total amount of government debt,

it is now bigger than the total value of all government assets.

So in a sense, does the government really own the hospitals & the schools?

It has to pay so much interest on the debt that it's raised to own them.

See what I'm saying.

So you need to really,

really what you need to consider is your net wealth, total assets minus debt.

And if you're keeping your assets, but your debt is going up

and up and up, in a sense, what's happening is

that is the rich kind of employing you as middle management to manage your own

house, which they really own.

So I'm saying and now increasingly

a big chunk of your taxes is going to pay government interest.

You know, if the government didn't own the schools but it didn't have a debt,

you'd have to pay rent for the government to rent the schools.

It's the same thing.

It's the same thing.

So so debt debt obscures true ownership and sometimes confused confuses

people about the real situation, about who owns things.

And what you are going to see now going forward is the government is more in debt.

Ordinary people are more in debt because house prices are higher.

But you still own your so don't worry, you own it,

but just pay us all of your money to be allowed to own it.

You see, I'm saying so

in a sense, owning with debt is very, very similar to renting.

Very similar to renting.

But of course, house prices always go up.

So you're going to be fine.