1 00:00:00,080 --> 00:00:04,880 Speaker 1: The United States government's Treasury Department spent the final six 2 00:00:05,000 --> 00:00:10,320 Speaker 1: months of twenty twenty three stockpiling hundreds of billions of 3 00:00:10,480 --> 00:00:14,880 Speaker 1: dollars into an account called the Treasury General Account, which 4 00:00:14,960 --> 00:00:19,079 Speaker 1: now sits at seven hundred and thirty billion dollars. So 5 00:00:19,200 --> 00:00:22,400 Speaker 1: what is this account and what exactly are they planning 6 00:00:22,480 --> 00:00:25,759 Speaker 1: on using this massive stockpile of cash for? Well, to 7 00:00:25,800 --> 00:00:29,080 Speaker 1: answer that, we actually have to answer a more curious question, 8 00:00:29,160 --> 00:00:32,280 Speaker 1: which is why did the government not used to use 9 00:00:32,320 --> 00:00:36,080 Speaker 1: this account? Prior to the financial crisis. Well, up until 10 00:00:36,120 --> 00:00:39,479 Speaker 1: two thousand and eight, the US government kept its cash 11 00:00:39,640 --> 00:00:43,520 Speaker 1: inside the banking system, which meant that it had bank 12 00:00:43,520 --> 00:00:46,159 Speaker 1: accounts at regular banks the same way that you and 13 00:00:46,200 --> 00:00:48,640 Speaker 1: I did. This meant when the government would take money 14 00:00:48,760 --> 00:00:51,559 Speaker 1: in taxes or they would borrow money, it would go 15 00:00:51,720 --> 00:00:55,160 Speaker 1: inside their bank accounts, which were held at regular banks. 16 00:00:55,280 --> 00:00:57,160 Speaker 1: And then, just like you and I, when they would 17 00:00:57,160 --> 00:00:59,840 Speaker 1: spend money, that money would be debited out of their 18 00:01:00,080 --> 00:01:02,800 Speaker 1: bank accounts and it would be transferred to whoever they 19 00:01:02,840 --> 00:01:06,320 Speaker 1: are spending the money on, whether that be a pharmaceutical 20 00:01:06,360 --> 00:01:10,039 Speaker 1: company or a social Security paycheck or politician's pockets. But 21 00:01:10,200 --> 00:01:13,560 Speaker 1: everything changed in two thousand and eight because for the 22 00:01:13,600 --> 00:01:17,720 Speaker 1: first time in United States history, the Federal Reserve engaged 23 00:01:17,760 --> 00:01:22,119 Speaker 1: in something called debt monetization. Now they called this QWI 24 00:01:22,319 --> 00:01:25,400 Speaker 1: or quantitative easing, but that's just a euphemism. The actual 25 00:01:25,400 --> 00:01:29,320 Speaker 1: practice is debt monetization. Debt monetization is the practice by 26 00:01:29,360 --> 00:01:33,000 Speaker 1: which the central bank prints money and lends it to 27 00:01:33,120 --> 00:01:36,600 Speaker 1: the central government. It's called debt monetization because you're taking 28 00:01:36,680 --> 00:01:39,280 Speaker 1: debt from the central government and you're turning it into 29 00:01:39,440 --> 00:01:43,399 Speaker 1: money because the central bank is buying it with freshly 30 00:01:43,440 --> 00:01:47,440 Speaker 1: printed cash. Technically, this process goes through the banking system. 31 00:01:47,600 --> 00:01:50,280 Speaker 1: The FED doesn't buy this debt directly from the government 32 00:01:50,360 --> 00:01:53,240 Speaker 1: because that's illegal, but you still get the same effect. 33 00:01:53,320 --> 00:01:56,240 Speaker 1: This is why the Federal Reserve's balance sheet was always 34 00:01:56,400 --> 00:02:00,280 Speaker 1: under one trillion dollars until they started the first round 35 00:02:00,280 --> 00:02:02,520 Speaker 1: of quantitative easing when they started buying a bunch of 36 00:02:02,560 --> 00:02:05,720 Speaker 1: government debt and mortgage backed securities starting in two thousand 37 00:02:05,760 --> 00:02:08,120 Speaker 1: and eight. This eventually took their balance sheet up above 38 00:02:08,280 --> 00:02:12,040 Speaker 1: four trillion dollars by twenty fifteen. Now, debt monetization or 39 00:02:12,160 --> 00:02:15,640 Speaker 1: quantitative easing has some effects on the banking system that 40 00:02:15,960 --> 00:02:19,000 Speaker 1: they needed to make some changes in order to handle. 41 00:02:19,120 --> 00:02:24,079 Speaker 1: You see, before this started happening, anytime the US government 42 00:02:24,320 --> 00:02:28,040 Speaker 1: spent money, whether they took that from taxes or they 43 00:02:28,120 --> 00:02:31,519 Speaker 1: borrowed it, it was simply a dollar transfer. They borrow 44 00:02:31,560 --> 00:02:33,960 Speaker 1: a dollar from a bank and they spend it on 45 00:02:34,040 --> 00:02:37,080 Speaker 1: a Social Security paycheck, or they take a dollar from 46 00:02:37,200 --> 00:02:40,000 Speaker 1: your paycheck in taxes and they spend it on a 47 00:02:40,000 --> 00:02:44,520 Speaker 1: military contractor so let's deal with the taxes first. Clearly, 48 00:02:44,680 --> 00:02:47,760 Speaker 1: with taxing the money that is a direct dollar trans 49 00:02:47,840 --> 00:02:51,560 Speaker 1: for no dollars are being created or destroyed in that process. 50 00:02:51,560 --> 00:02:54,680 Speaker 1: They're taking a dollar from your paycheck and they're depositing 51 00:02:54,680 --> 00:02:58,240 Speaker 1: it into somebody else's account. That has a net zero 52 00:02:58,360 --> 00:03:02,440 Speaker 1: effect on the banking system because one bank will lose 53 00:03:02,639 --> 00:03:05,120 Speaker 1: a deposit, which is a liability for a bank, and 54 00:03:05,160 --> 00:03:08,320 Speaker 1: another bank will gain a deposit, which is again a 55 00:03:08,360 --> 00:03:11,120 Speaker 1: liability for a bank. Because when you make a deposit 56 00:03:11,240 --> 00:03:14,920 Speaker 1: at the bank, you are owed that dollar back. It 57 00:03:14,960 --> 00:03:16,960 Speaker 1: is debt to the bank. You are a creditor. So 58 00:03:17,080 --> 00:03:20,000 Speaker 1: the bank needs to take that dollar go do something 59 00:03:20,040 --> 00:03:22,200 Speaker 1: with it in order to make money. Otherwise they're just 60 00:03:22,400 --> 00:03:25,360 Speaker 1: losing money holding on to your dollars for you. So 61 00:03:25,440 --> 00:03:27,679 Speaker 1: what they do is they go buy assets, which is 62 00:03:27,720 --> 00:03:30,640 Speaker 1: typically creating loans, and that gives them an asset to 63 00:03:30,680 --> 00:03:35,000 Speaker 1: offset their liability or an asset some collateral to offset 64 00:03:35,000 --> 00:03:37,240 Speaker 1: the dollar that they owe back to you. So, prior 65 00:03:37,280 --> 00:03:41,000 Speaker 1: to the financial crisis, anytime the US government spent money 66 00:03:41,040 --> 00:03:43,600 Speaker 1: by taxing it, it was just a net transfer of 67 00:03:43,640 --> 00:03:46,000 Speaker 1: dollars and there is no net effect to the banking 68 00:03:46,040 --> 00:03:49,200 Speaker 1: system overall. With borrowing, the process can be a little 69 00:03:49,200 --> 00:03:53,040 Speaker 1: different because when loans are made, you actually can have 70 00:03:53,160 --> 00:03:55,760 Speaker 1: an increase in the total number of dollars. This is 71 00:03:55,800 --> 00:03:59,920 Speaker 1: why the money supply has always increased. Because loans are 72 00:04:00,040 --> 00:04:03,520 Speaker 1: continually being made in a fiat monetary system that is 73 00:04:03,560 --> 00:04:07,559 Speaker 1: not backed by anything like gold, Dollars are lent into existence. 74 00:04:07,760 --> 00:04:10,800 Speaker 1: This is done through fractional reserve banking. Because every time 75 00:04:10,880 --> 00:04:13,600 Speaker 1: you deposit a dollar, like I said before, that bank 76 00:04:13,640 --> 00:04:15,400 Speaker 1: is going to take that dollar. They're going to go 77 00:04:15,440 --> 00:04:18,279 Speaker 1: do something with it, which is typically making a loan. 78 00:04:18,440 --> 00:04:20,600 Speaker 1: But remember when they make a loan, let's say it's 79 00:04:20,640 --> 00:04:23,760 Speaker 1: for a mortgage, that dollar gets transferred into somebody else's 80 00:04:23,800 --> 00:04:26,679 Speaker 1: bank account as a deposit, and then that bank takes 81 00:04:26,680 --> 00:04:28,920 Speaker 1: that same dollar and lends it out again. But when 82 00:04:28,920 --> 00:04:31,840 Speaker 1: you go to check your bank balance. You still have 83 00:04:32,000 --> 00:04:34,159 Speaker 1: that dollar showing in your bank balance, and you can 84 00:04:34,240 --> 00:04:36,279 Speaker 1: get it out at any time. So while that dollar 85 00:04:36,360 --> 00:04:38,640 Speaker 1: has been loaned from one bank to another, and to 86 00:04:38,720 --> 00:04:41,240 Speaker 1: another and to another, it is still showing up as 87 00:04:41,279 --> 00:04:44,679 Speaker 1: an accessible dollar in every single person's bank account along 88 00:04:44,720 --> 00:04:46,640 Speaker 1: the way. This is why when debt is paid off, 89 00:04:46,680 --> 00:04:50,320 Speaker 1: it reverses that process and destroys that money that was 90 00:04:50,400 --> 00:04:54,240 Speaker 1: lent into existence. So prior to the financial crisis, when 91 00:04:54,279 --> 00:04:58,120 Speaker 1: the US government would borrow money in order to spend it, 92 00:04:58,120 --> 00:05:01,120 Speaker 1: it was typically money that was getting lent into existence 93 00:05:01,279 --> 00:05:03,960 Speaker 1: by a bank. But again this didn't have any net 94 00:05:04,160 --> 00:05:07,719 Speaker 1: negative result for the banking system because you were seeing 95 00:05:07,800 --> 00:05:10,680 Speaker 1: a liability a deposit created at the same time as 96 00:05:10,680 --> 00:05:13,880 Speaker 1: you were seeing an asset a US Treasury alone created. So, 97 00:05:14,000 --> 00:05:17,440 Speaker 1: prior to the financial crisis, anytime the US government spent 98 00:05:17,560 --> 00:05:20,760 Speaker 1: any money, they would do so by taxing, taking money 99 00:05:20,760 --> 00:05:23,599 Speaker 1: from taxes, and spending it, which was just a transfer 100 00:05:23,640 --> 00:05:27,240 Speaker 1: of liabilities in the system for banks, or they were 101 00:05:27,320 --> 00:05:30,520 Speaker 1: borrowing money and then spending that which was creating a 102 00:05:30,560 --> 00:05:33,200 Speaker 1: new liability, but it was also creating a new asset 103 00:05:33,320 --> 00:05:35,880 Speaker 1: for those banks. The banking system was very comfortable with 104 00:05:35,960 --> 00:05:39,720 Speaker 1: handling this. But again everything changed in two thousand and eight, 105 00:05:39,760 --> 00:05:42,240 Speaker 1: and this is why the Treasury General Account started to 106 00:05:42,240 --> 00:05:44,000 Speaker 1: get used. In two thousand and eight, right at the 107 00:05:44,040 --> 00:05:47,720 Speaker 1: exact time as the Fed's balance sheet started to explode, 108 00:05:47,760 --> 00:05:51,200 Speaker 1: because for the first time, the Federal Reserve was buying 109 00:05:51,360 --> 00:05:55,000 Speaker 1: those assets, those US treasuries themselves, which meant there were 110 00:05:55,080 --> 00:05:58,960 Speaker 1: fewer US treasuries available to the financial system, while at 111 00:05:58,960 --> 00:06:02,320 Speaker 1: the same time, there were more dollar deposits, again because 112 00:06:02,360 --> 00:06:05,800 Speaker 1: the Federal Reserve has to print those new dollars in 113 00:06:05,960 --> 00:06:09,160 Speaker 1: order to buy those assets, so they were taking treasuries 114 00:06:09,200 --> 00:06:12,640 Speaker 1: out of the system and inserting new dollars into the system. 115 00:06:12,760 --> 00:06:16,600 Speaker 1: The Federal Reserve and the Treasury were both concerned that 116 00:06:16,680 --> 00:06:20,279 Speaker 1: this new way of doing things with quantitative easing, where 117 00:06:20,279 --> 00:06:23,440 Speaker 1: there were more dollars coming in but less assets and 118 00:06:23,480 --> 00:06:26,359 Speaker 1: less collateral available for banks. They were concerned that this 119 00:06:26,400 --> 00:06:30,160 Speaker 1: would lead to liquidity issues collateral issues, and they didn't 120 00:06:30,160 --> 00:06:32,560 Speaker 1: want to put extra stress on the banks, that was 121 00:06:32,600 --> 00:06:35,360 Speaker 1: the whole point of doing the bailouts in the first place. 122 00:06:35,480 --> 00:06:39,800 Speaker 1: So the Treasury General Account absorbed the United States government's 123 00:06:39,880 --> 00:06:43,600 Speaker 1: full accounts and it basically became the entire checking account 124 00:06:43,720 --> 00:06:46,920 Speaker 1: for the US government held directly at the Federal Reserve. 125 00:06:47,000 --> 00:06:49,960 Speaker 1: Remember I said before that the United States government used 126 00:06:49,960 --> 00:06:52,599 Speaker 1: to have its accounts in the banking system. As of 127 00:06:52,640 --> 00:06:55,440 Speaker 1: two thousand and eight, that's no longer the case. The 128 00:06:55,480 --> 00:06:59,520 Speaker 1: federal government has their account directly with the Federal Reserve. 129 00:06:59,560 --> 00:07:02,960 Speaker 1: That is exactly what this account is, the Treasury General account. 130 00:07:02,960 --> 00:07:06,160 Speaker 1: It is the government's checking account. Now, when they take 131 00:07:06,240 --> 00:07:09,640 Speaker 1: money in taxes or borrow money, that cash goes into 132 00:07:09,760 --> 00:07:12,720 Speaker 1: the Treasury General account, and then when they spend money, 133 00:07:12,760 --> 00:07:15,680 Speaker 1: it leaves the Treasury General account. This is not an 134 00:07:15,680 --> 00:07:18,720 Speaker 1: account held at a bank, so there's no need for 135 00:07:18,760 --> 00:07:22,080 Speaker 1: them to worry or wonder about assets and liabilities and 136 00:07:22,120 --> 00:07:24,760 Speaker 1: the banking system be able to handle those liabilities and 137 00:07:24,800 --> 00:07:27,720 Speaker 1: needing to get collateral. This is simply an entry on 138 00:07:27,760 --> 00:07:30,480 Speaker 1: the ledger held at the Federal Reserve, just ones and 139 00:07:30,640 --> 00:07:33,760 Speaker 1: zeros on a spreadsheet. As a result, the federal government 140 00:07:33,920 --> 00:07:38,000 Speaker 1: was now able to borrow in tax and spend without 141 00:07:38,040 --> 00:07:40,680 Speaker 1: having to worry about if they were saving too much 142 00:07:40,720 --> 00:07:42,680 Speaker 1: at a time or spending too much at a time 143 00:07:42,920 --> 00:07:46,600 Speaker 1: and causing undue stress and swings in the banking system. 144 00:07:46,680 --> 00:07:50,200 Speaker 1: And from two thousand and eight through twenty nineteen, the 145 00:07:50,520 --> 00:07:55,640 Speaker 1: usage of the Treasury General Account grew and became more volatile. 146 00:07:55,680 --> 00:07:57,920 Speaker 1: From the years two thousand and nine through the years 147 00:07:57,960 --> 00:08:02,640 Speaker 1: about twenty fourteen, the account stayed with an average balance 148 00:08:02,720 --> 00:08:06,720 Speaker 1: of around one hundred billion dollars. Following twenty fifteen, you 149 00:08:06,840 --> 00:08:09,800 Speaker 1: started to see bigger spikes, with the account getting up 150 00:08:09,840 --> 00:08:13,600 Speaker 1: above four hundred billion dollars and then getting drained back 151 00:08:13,720 --> 00:08:17,360 Speaker 1: down to again around the thirty to forty fifty billion 152 00:08:17,400 --> 00:08:19,400 Speaker 1: dollar mark. There are a couple of reasons why the 153 00:08:19,520 --> 00:08:22,360 Speaker 1: usage of this account began to grow and the volatility 154 00:08:22,400 --> 00:08:24,920 Speaker 1: in this account began to grow, and we don't have 155 00:08:24,960 --> 00:08:27,280 Speaker 1: to get into all the details during this video, but 156 00:08:27,400 --> 00:08:30,200 Speaker 1: part of it came down to the Federal Reserve trying 157 00:08:30,240 --> 00:08:35,200 Speaker 1: to undo that quantitative easing from before. Starting in twenty fifteen, 158 00:08:35,280 --> 00:08:39,160 Speaker 1: the quantitative easing stopped with their balance sheet flatlining, and 159 00:08:39,200 --> 00:08:41,959 Speaker 1: then starting in twenty eighteen, it actually started to decrease 160 00:08:42,000 --> 00:08:44,440 Speaker 1: with the first round of quantitative tightening where they were 161 00:08:44,440 --> 00:08:46,480 Speaker 1: trying to let their balance sheet decline. They were also 162 00:08:46,520 --> 00:08:49,960 Speaker 1: making changes to interest rates. There were also political and 163 00:08:50,000 --> 00:08:54,600 Speaker 1: administration changes which changed the way that borrowing and spending happened, 164 00:08:54,640 --> 00:08:57,640 Speaker 1: and all this led to more volatility with the Treasury 165 00:08:57,679 --> 00:09:01,440 Speaker 1: General Account and larger peak balance, but none of that 166 00:09:01,679 --> 00:09:04,320 Speaker 1: came close to what we saw began to happen with 167 00:09:04,360 --> 00:09:07,520 Speaker 1: this account starting in twenty twenty. Moving into twenty twenty, 168 00:09:07,600 --> 00:09:11,200 Speaker 1: we saw this account explode to a peak of one 169 00:09:11,200 --> 00:09:14,880 Speaker 1: point eight trillion dollars. Now that seems crazy, but if 170 00:09:14,880 --> 00:09:17,640 Speaker 1: we remember that the Treasury General Account is simply the 171 00:09:17,800 --> 00:09:20,200 Speaker 1: checking account for the US government, we remember that at 172 00:09:20,200 --> 00:09:23,720 Speaker 1: that point, the US government borrowed a bunch of cash 173 00:09:24,040 --> 00:09:25,920 Speaker 1: so that they could start to spend it on all 174 00:09:25,960 --> 00:09:29,079 Speaker 1: of the COVID relief stuff, all the paycheck protection plans, 175 00:09:29,120 --> 00:09:31,920 Speaker 1: and the stimulus payments, and all the other hidden stuff 176 00:09:31,920 --> 00:09:33,920 Speaker 1: that they spent money on. But the borrowing had to 177 00:09:33,920 --> 00:09:36,440 Speaker 1: happen first, so the money came into the account and 178 00:09:36,520 --> 00:09:39,920 Speaker 1: then they started to spend it down. After the inauguration 179 00:09:40,240 --> 00:09:44,400 Speaker 1: of President Joe Biden, the new Treasury Secretary, Janet Yellen, 180 00:09:44,520 --> 00:09:47,280 Speaker 1: said that she didn't want this account to be that large, 181 00:09:47,600 --> 00:09:51,600 Speaker 1: and so they stopped borrowing more money and just spent 182 00:09:51,720 --> 00:09:54,200 Speaker 1: down the amount in the Treasury General Account. The plan 183 00:09:54,320 --> 00:09:56,360 Speaker 1: was to get the account down to about four hundred 184 00:09:56,400 --> 00:09:59,600 Speaker 1: billion dollars. Now, that plan hit a snag, and ever 185 00:09:59,679 --> 00:10:03,640 Speaker 1: since then, this plan has continued to hit snags every 186 00:10:03,679 --> 00:10:07,520 Speaker 1: time there are issues with the debt ceiling and government shutdowns. 187 00:10:07,679 --> 00:10:11,560 Speaker 1: That is why, despite this account reaching highs of close 188 00:10:11,600 --> 00:10:14,800 Speaker 1: to a trillion dollars again, it continues to be drawn 189 00:10:14,880 --> 00:10:17,720 Speaker 1: down all the way down, almost empty, back down to 190 00:10:17,800 --> 00:10:20,720 Speaker 1: its old levels of around forty billion dollars. Again, this 191 00:10:20,880 --> 00:10:22,960 Speaker 1: is the checking account for the US government, and so 192 00:10:23,000 --> 00:10:25,800 Speaker 1: when the government hits a snag and is not able 193 00:10:25,840 --> 00:10:30,360 Speaker 1: to politically borrow anymore, Yellen understands that they still have 194 00:10:30,480 --> 00:10:33,959 Speaker 1: to spend money, and so she has spent time building 195 00:10:34,000 --> 00:10:36,600 Speaker 1: this account up so that they can continue to spend 196 00:10:36,640 --> 00:10:40,680 Speaker 1: money while Congress figures out a solution to start borrowing again. 197 00:10:40,760 --> 00:10:43,480 Speaker 1: As of the end of twenty twenty three, the account 198 00:10:43,520 --> 00:10:46,840 Speaker 1: was back up to about seven hundred and thirty billion dollars, 199 00:10:47,000 --> 00:10:50,320 Speaker 1: which on the surface sounds like a staggering amount of cash. 200 00:10:50,360 --> 00:10:53,120 Speaker 1: But when we put this into perspective of how much 201 00:10:53,240 --> 00:10:56,480 Speaker 1: money the US government actually spends, we can see that 202 00:10:56,480 --> 00:10:58,800 Speaker 1: that is less than a quarter of spending for the 203 00:10:58,920 --> 00:11:02,960 Speaker 1: United States government, which has spent over one trillion dollars 204 00:11:03,080 --> 00:11:06,000 Speaker 1: in its first quarter of its fiscal year, which by 205 00:11:06,040 --> 00:11:08,920 Speaker 1: the way, is up seventeen percent from the same period 206 00:11:09,160 --> 00:11:12,800 Speaker 1: the prior year. When the US government is regularly and 207 00:11:13,080 --> 00:11:17,640 Speaker 1: easily spending six trillion dollars in a fiscal year, having 208 00:11:17,720 --> 00:11:21,640 Speaker 1: seven hundred billion dollars in its checking account is not 209 00:11:21,920 --> 00:11:25,960 Speaker 1: really consequential. However, what happens What is the effect on 210 00:11:26,040 --> 00:11:28,640 Speaker 1: markets and the economy when this account is filling up, 211 00:11:28,840 --> 00:11:30,680 Speaker 1: when it is full, when there's a lot of cash 212 00:11:30,679 --> 00:11:33,520 Speaker 1: in there, or even more importantly, when the account is 213 00:11:33,520 --> 00:11:36,360 Speaker 1: being spent down and that cash is being drank. When 214 00:11:36,360 --> 00:11:39,800 Speaker 1: the Treasury General account is being filled up, that simply 215 00:11:39,880 --> 00:11:42,520 Speaker 1: means that there is more money going in than there 216 00:11:42,559 --> 00:11:45,520 Speaker 1: is coming out. Right, as it is with any checking account. 217 00:11:45,559 --> 00:11:47,800 Speaker 1: For individuals like you and I, that means we are 218 00:11:47,920 --> 00:11:51,079 Speaker 1: spending less than we are receiving an income. If our 219 00:11:51,120 --> 00:11:54,240 Speaker 1: accounts are growing in value, obviously that's what's happening. And 220 00:11:54,320 --> 00:11:56,200 Speaker 1: it's the same thing for the US government. When the 221 00:11:56,200 --> 00:11:59,160 Speaker 1: Treasury General account is filling up, it simply means they 222 00:11:59,160 --> 00:12:03,280 Speaker 1: are taking more in taxes and borrowing more than they 223 00:12:03,320 --> 00:12:06,160 Speaker 1: are currently spending. Remember what I said earlier about this 224 00:12:06,240 --> 00:12:09,200 Speaker 1: account being held at the FED. It's not inside the 225 00:12:09,240 --> 00:12:12,040 Speaker 1: banking system anymore. This means that the result of the 226 00:12:12,040 --> 00:12:15,680 Speaker 1: account filling up is actually less liquidity available in the 227 00:12:15,720 --> 00:12:19,440 Speaker 1: banking system. You don't have banks able to take these deposits, 228 00:12:19,840 --> 00:12:23,720 Speaker 1: leverage them, loan them out, rehypothecate those deposits, and have 229 00:12:23,840 --> 00:12:26,720 Speaker 1: that contribute to a growing money supply. When the Treasury 230 00:12:26,760 --> 00:12:30,200 Speaker 1: General account is filling up, that actually means there's less 231 00:12:30,240 --> 00:12:34,120 Speaker 1: liquidity in the financial system. Banks have less access to cash. 232 00:12:34,280 --> 00:12:38,880 Speaker 1: Dollars are being withdrawn from circulation. Now, all else being equal, 233 00:12:39,000 --> 00:12:41,880 Speaker 1: this has the same effect on the economy as something 234 00:12:42,040 --> 00:12:46,040 Speaker 1: like raising interest rates or quantitative tightening. It is restrictive 235 00:12:46,160 --> 00:12:49,120 Speaker 1: from an economic standpoint, all else being equal, this pushes 236 00:12:49,280 --> 00:12:53,480 Speaker 1: down on asset prices and suppresses economic activity. Now on 237 00:12:53,520 --> 00:12:56,719 Speaker 1: the flip side, what happens when this account is moving down, Well, 238 00:12:56,800 --> 00:12:59,200 Speaker 1: when this account is moving down, it means the US 239 00:12:59,280 --> 00:13:02,280 Speaker 1: government is spending at a faster rate than they are 240 00:13:02,320 --> 00:13:05,840 Speaker 1: borrowing or taking in taxes. Because again, every dollar they 241 00:13:05,880 --> 00:13:08,280 Speaker 1: take in taxes and every dollar they borrow goes into 242 00:13:08,280 --> 00:13:10,520 Speaker 1: this account, and every dollar they spend comes out of 243 00:13:10,520 --> 00:13:12,680 Speaker 1: this account. So when the account value is moving down 244 00:13:13,000 --> 00:13:16,240 Speaker 1: simply means they're spending faster than they're taking income. If 245 00:13:16,240 --> 00:13:18,840 Speaker 1: you've noticed I say that the government takes income. I 246 00:13:18,960 --> 00:13:23,880 Speaker 1: use that word very intentionally because governments can't make money, 247 00:13:23,880 --> 00:13:26,240 Speaker 1: they can only take money. As I said before, the 248 00:13:26,280 --> 00:13:29,400 Speaker 1: Treasury General account is held outside the banking system, So 249 00:13:29,480 --> 00:13:32,280 Speaker 1: when this account is going down in value, it means 250 00:13:32,400 --> 00:13:36,120 Speaker 1: dollars are leaving this account and re entering the banking system, 251 00:13:36,200 --> 00:13:40,200 Speaker 1: re entering circulation. This means there's more money in circulation. 252 00:13:40,240 --> 00:13:44,120 Speaker 1: They're more dollars entering into banks, there is more liquidity. 253 00:13:44,200 --> 00:13:48,040 Speaker 1: This has the same effect as reducing interest rates or 254 00:13:48,400 --> 00:13:52,560 Speaker 1: quantitative easing. This increases liquidity and has the effect of 255 00:13:52,600 --> 00:13:57,400 Speaker 1: pushing up on asset prices, stimulating economic activity. Now, clearly, 256 00:13:57,520 --> 00:14:01,440 Speaker 1: this is not the only contributing thing to liquidity, to 257 00:14:01,520 --> 00:14:07,160 Speaker 1: whether the economy overall is facing restrictive headwinds or stimulative headwinds. 258 00:14:07,200 --> 00:14:09,480 Speaker 1: This is simply one out of men other things like 259 00:14:09,480 --> 00:14:12,559 Speaker 1: the fed's QE, the fed's raising or lowering interest rates, 260 00:14:12,640 --> 00:14:17,200 Speaker 1: bank's willingness to lend, or them contracting their lending. Individual's 261 00:14:17,280 --> 00:14:21,320 Speaker 1: own decisions on whether to spend more, borrow more, save more, 262 00:14:21,480 --> 00:14:24,480 Speaker 1: be more productive, produce more income. All of those factors 263 00:14:24,480 --> 00:14:27,840 Speaker 1: have massive effects. So everything we're talking about here, as 264 00:14:27,840 --> 00:14:31,640 Speaker 1: always with economics, is ceteris parabis, all else being equal. 265 00:14:31,720 --> 00:14:34,440 Speaker 1: This is simply the force that the Treasury General account 266 00:14:34,480 --> 00:14:36,920 Speaker 1: exerts on the economy, whether up or down, and it 267 00:14:36,920 --> 00:14:39,880 Speaker 1: may be fully offset by other forces, or it may 268 00:14:39,880 --> 00:14:42,400 Speaker 1: be doing the exact same thing just adding to those 269 00:14:42,440 --> 00:14:46,200 Speaker 1: other forces. But it is absolutely worth paying attention to 270 00:14:46,400 --> 00:14:47,920 Speaker 1: because while it's easy to take a look at a 271 00:14:48,040 --> 00:14:49,960 Speaker 1: chart and just see a line moving up and down, 272 00:14:50,000 --> 00:14:53,720 Speaker 1: it can be even easier to forget that these movements 273 00:14:53,800 --> 00:14:57,600 Speaker 1: can take a long time, sometimes months and quarters. So 274 00:14:57,640 --> 00:15:00,840 Speaker 1: we do get these swings, these four verses on the 275 00:15:00,880 --> 00:15:05,720 Speaker 1: economy that last for sometimes months, either providing extra liquidity 276 00:15:06,000 --> 00:15:10,280 Speaker 1: or withdrawing liquidity, making conditions more restrictive or more easy. 277 00:15:10,400 --> 00:15:12,880 Speaker 1: Over a long enough time horizon, it is true that 278 00:15:12,920 --> 00:15:16,160 Speaker 1: these forces balance out because just looking at the US 279 00:15:16,280 --> 00:15:20,160 Speaker 1: government's fiscal policy alone, the amount of money they're taking 280 00:15:20,200 --> 00:15:23,600 Speaker 1: in taxes, the amount of money they're borrowing, which creates 281 00:15:23,680 --> 00:15:26,960 Speaker 1: treasuries that are assets for banks, and then the amount 282 00:15:26,960 --> 00:15:29,480 Speaker 1: of money that it's spending. The effect on the financial 283 00:15:29,520 --> 00:15:32,320 Speaker 1: system alone is going to be netted out over time, 284 00:15:32,400 --> 00:15:34,600 Speaker 1: because over a long period of time, they're going to 285 00:15:34,640 --> 00:15:37,960 Speaker 1: have money coming in and money then eventually leaving. But 286 00:15:38,040 --> 00:15:41,840 Speaker 1: those time periods where the conditions switch from more easy 287 00:15:42,280 --> 00:15:45,600 Speaker 1: or more restrictive can last a while and can provide 288 00:15:45,600 --> 00:15:49,600 Speaker 1: headwinds or tailwinds to markets, especially if they happen in 289 00:15:49,680 --> 00:15:54,920 Speaker 1: conjunction with the other things like QE, interest rates, bank lending, 290 00:15:54,960 --> 00:15:57,000 Speaker 1: et cetera. And if you're wondering the best way to 291 00:15:57,080 --> 00:16:00,440 Speaker 1: protect your investments from the volatility and some times the 292 00:16:00,480 --> 00:16:03,680 Speaker 1: harsh crashes that these forces can impose on the markets, 293 00:16:03,920 --> 00:16:07,720 Speaker 1: you're not alone. That's why hundreds of investors have signed 294 00:16:07,800 --> 00:16:10,960 Speaker 1: up for Heresy Financial University, where I teach you how 295 00:16:11,000 --> 00:16:14,600 Speaker 1: to do exactly that, beat the averages consistently and protect 296 00:16:14,640 --> 00:16:17,160 Speaker 1: your portfolio against losses. Link to sign up is in 297 00:16:17,200 --> 00:16:19,880 Speaker 1: the description below. As always, thank you so much for watching. 298 00:16:20,120 --> 00:16:20,720 Speaker 1: Have a great day.