January 5, 2024 • 16 mins
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The United States government's Treasury Department spent the final six
months of twenty twenty three stockpiling hundreds of billions of
dollars into an account called the Treasury General Account, which
now sits at seven hundred and thirty billion dollars. So
what is this account and what exactly are they planning
(00:22):
on using this massive stockpile of cash for? Well, to
answer that, we actually have to answer a more curious question,
which is why did the government not used to use
this account? Prior to the financial crisis. Well, up until
two thousand and eight, the US government kept its cash
inside the banking system, which meant that it had bank
(00:43):
accounts at regular banks the same way that you and
I did. This meant when the government would take money
in taxes or they would borrow money, it would go
inside their bank accounts, which were held at regular banks.
And then, just like you and I, when they would
spend money, that money would be debited out of their
bank accounts and it would be transferred to whoever they
are spending the money on, whether that be a pharmaceutical
(01:06):
company or a social Security paycheck or politician's pockets. But
everything changed in two thousand and eight because for the
first time in United States history, the Federal Reserve engaged
in something called debt monetization. Now they called this QWI
or quantitative easing, but that's just a euphemism. The actual
practice is debt monetization. Debt monetization is the practice by
(01:29):
which the central bank prints money and lends it to
the central government. It's called debt monetization because you're taking
debt from the central government and you're turning it into
money because the central bank is buying it with freshly
printed cash. Technically, this process goes through the banking system.
The FED doesn't buy this debt directly from the government
(01:50):
because that's illegal, but you still get the same effect.
This is why the Federal Reserve's balance sheet was always
under one trillion dollars until they started the first round
of quantitative easing when they started buying a bunch of
government debt and mortgage backed securities starting in two thousand
and eight. This eventually took their balance sheet up above
four trillion dollars by twenty fifteen. Now, debt monetization or
(02:12):
quantitative easing has some effects on the banking system that
they needed to make some changes in order to handle.
You see, before this started happening, anytime the US government
spent money, whether they took that from taxes or they
borrowed it, it was simply a dollar transfer. They borrow
a dollar from a bank and they spend it on
(02:34):
a Social Security paycheck, or they take a dollar from
your paycheck in taxes and they spend it on a
military contractor so let's deal with the taxes first. Clearly,
with taxing the money that is a direct dollar trans
for no dollars are being created or destroyed in that process.
They're taking a dollar from your paycheck and they're depositing
(02:54):
it into somebody else's account. That has a net zero
effect on the banking system because one bank will lose
a deposit, which is a liability for a bank, and
another bank will gain a deposit, which is again a
liability for a bank. Because when you make a deposit
at the bank, you are owed that dollar back. It
(03:14):
is debt to the bank. You are a creditor. So
the bank needs to take that dollar go do something
with it in order to make money. Otherwise they're just
losing money holding on to your dollars for you. So
what they do is they go buy assets, which is
typically creating loans, and that gives them an asset to
offset their liability or an asset some collateral to offset
(03:35):
the dollar that they owe back to you. So, prior
to the financial crisis, anytime the US government spent money
by taxing it, it was just a net transfer of
dollars and there is no net effect to the banking
system overall. With borrowing, the process can be a little
different because when loans are made, you actually can have
an increase in the total number of dollars. This is
(03:55):
why the money supply has always increased. Because loans are
continually being made in a fiat monetary system that is
not backed by anything like gold, Dollars are lent into existence.
This is done through fractional reserve banking. Because every time
you deposit a dollar, like I said before, that bank
is going to take that dollar. They're going to go
do something with it, which is typically making a loan.
(04:18):
But remember when they make a loan, let's say it's
for a mortgage, that dollar gets transferred into somebody else's
bank account as a deposit, and then that bank takes
that same dollar and lends it out again. But when
you go to check your bank balance. You still have
that dollar showing in your bank balance, and you can
get it out at any time. So while that dollar
has been loaned from one bank to another, and to
(04:38):
another and to another, it is still showing up as
an accessible dollar in every single person's bank account along
the way. This is why when debt is paid off,
it reverses that process and destroys that money that was
lent into existence. So prior to the financial crisis, when
the US government would borrow money in order to spend it,
it was typically money that was getting lent into existence
(05:01):
by a bank. But again this didn't have any net
negative result for the banking system because you were seeing
a liability a deposit created at the same time as
you were seeing an asset a US Treasury alone created. So,
prior to the financial crisis, anytime the US government spent
any money, they would do so by taxing, taking money
from taxes, and spending it, which was just a transfer
(05:23):
of liabilities in the system for banks, or they were
borrowing money and then spending that which was creating a
new liability, but it was also creating a new asset
for those banks. The banking system was very comfortable with
handling this. But again everything changed in two thousand and eight,
and this is why the Treasury General Account started to
get used. In two thousand and eight, right at the
(05:44):
exact time as the Fed's balance sheet started to explode,
because for the first time, the Federal Reserve was buying
those assets, those US treasuries themselves, which meant there were
fewer US treasuries available to the financial system, while at
the same time, there were more dollar deposits, again because
the Federal Reserve has to print those new dollars in
(06:05):
order to buy those assets, so they were taking treasuries
out of the system and inserting new dollars into the system.
The Federal Reserve and the Treasury were both concerned that
this new way of doing things with quantitative easing, where
there were more dollars coming in but less assets and
less collateral available for banks. They were concerned that this
(06:26):
would lead to liquidity issues collateral issues, and they didn't
want to put extra stress on the banks, that was
the whole point of doing the bailouts in the first place.
So the Treasury General Account absorbed the United States government's
full accounts and it basically became the entire checking account
for the US government held directly at the Federal Reserve.
(06:47):
Remember I said before that the United States government used
to have its accounts in the banking system. As of
two thousand and eight, that's no longer the case. The
federal government has their account directly with the Federal Reserve.
That is exactly what this account is, the Treasury General account.
It is the government's checking account. Now, when they take
money in taxes or borrow money, that cash goes into
(07:09):
the Treasury General account, and then when they spend money,
it leaves the Treasury General account. This is not an
account held at a bank, so there's no need for
them to worry or wonder about assets and liabilities and
the banking system be able to handle those liabilities and
needing to get collateral. This is simply an entry on
the ledger held at the Federal Reserve, just ones and
(07:30):
zeros on a spreadsheet. As a result, the federal government
was now able to borrow in tax and spend without
having to worry about if they were saving too much
at a time or spending too much at a time
and causing undue stress and swings in the banking system.
And from two thousand and eight through twenty nineteen, the
usage of the Treasury General Account grew and became more volatile.
(07:55):
From the years two thousand and nine through the years
about twenty fourteen, the account stayed with an average balance
of around one hundred billion dollars. Following twenty fifteen, you
started to see bigger spikes, with the account getting up
above four hundred billion dollars and then getting drained back
down to again around the thirty to forty fifty billion
(08:17):
dollar mark. There are a couple of reasons why the
usage of this account began to grow and the volatility
in this account began to grow, and we don't have
to get into all the details during this video, but
part of it came down to the Federal Reserve trying
to undo that quantitative easing from before. Starting in twenty fifteen,
the quantitative easing stopped with their balance sheet flatlining, and
(08:39):
then starting in twenty eighteen, it actually started to decrease
with the first round of quantitative tightening where they were
trying to let their balance sheet decline. They were also
making changes to interest rates. There were also political and
administration changes which changed the way that borrowing and spending happened,
and all this led to more volatility with the Treasury
General Account and larger peak balance, but none of that
(09:01):
came close to what we saw began to happen with
this account starting in twenty twenty. Moving into twenty twenty,
we saw this account explode to a peak of one
point eight trillion dollars. Now that seems crazy, but if
we remember that the Treasury General Account is simply the
checking account for the US government, we remember that at
that point, the US government borrowed a bunch of cash
(09:24):
so that they could start to spend it on all
of the COVID relief stuff, all the paycheck protection plans,
and the stimulus payments, and all the other hidden stuff
that they spent money on. But the borrowing had to
happen first, so the money came into the account and
then they started to spend it down. After the inauguration
of President Joe Biden, the new Treasury Secretary, Janet Yellen,
(09:44):
said that she didn't want this account to be that large,
and so they stopped borrowing more money and just spent
down the amount in the Treasury General Account. The plan
was to get the account down to about four hundred
billion dollars. Now, that plan hit a snag, and ever
since then, this plan has continued to hit snags every
time there are issues with the debt ceiling and government shutdowns.
(10:07):
That is why, despite this account reaching highs of close
to a trillion dollars again, it continues to be drawn
down all the way down, almost empty, back down to
its old levels of around forty billion dollars. Again, this
is the checking account for the US government, and so
when the government hits a snag and is not able
to politically borrow anymore, Yellen understands that they still have
(10:30):
to spend money, and so she has spent time building
this account up so that they can continue to spend
money while Congress figures out a solution to start borrowing again.
As of the end of twenty twenty three, the account
was back up to about seven hundred and thirty billion dollars,
which on the surface sounds like a staggering amount of cash.
But when we put this into perspective of how much
(10:53):
money the US government actually spends, we can see that
that is less than a quarter of spending for the
United States government, which has spent over one trillion dollars
in its first quarter of its fiscal year, which by
the way, is up seventeen percent from the same period
the prior year. When the US government is regularly and
easily spending six trillion dollars in a fiscal year, having
(11:17):
seven hundred billion dollars in its checking account is not
really consequential. However, what happens What is the effect on
markets and the economy when this account is filling up,
when it is full, when there's a lot of cash
in there, or even more importantly, when the account is
being spent down and that cash is being drank. When
the Treasury General account is being filled up, that simply
(11:39):
means that there is more money going in than there
is coming out. Right, as it is with any checking account.
For individuals like you and I, that means we are
spending less than we are receiving an income. If our
accounts are growing in value, obviously that's what's happening. And
it's the same thing for the US government. When the
Treasury General account is filling up, it simply means they
are taking more in taxes and borrowing more than they
(12:03):
are currently spending. Remember what I said earlier about this
account being held at the FED. It's not inside the
banking system anymore. This means that the result of the
account filling up is actually less liquidity available in the
banking system. You don't have banks able to take these deposits,
leverage them, loan them out, rehypothecate those deposits, and have
(12:23):
that contribute to a growing money supply. When the Treasury
General account is filling up, that actually means there's less
liquidity in the financial system. Banks have less access to cash.
Dollars are being withdrawn from circulation. Now, all else being equal,
this has the same effect on the economy as something
like raising interest rates or quantitative tightening. It is restrictive
(12:46):
from an economic standpoint, all else being equal, this pushes
down on asset prices and suppresses economic activity. Now on
the flip side, what happens when this account is moving down, Well,
when this account is moving down, it means the US
government is spending at a faster rate than they are
borrowing or taking in taxes. Because again, every dollar they
take in taxes and every dollar they borrow goes into
(13:08):
this account, and every dollar they spend comes out of
this account. So when the account value is moving down
simply means they're spending faster than they're taking income. If
you've noticed I say that the government takes income. I
use that word very intentionally because governments can't make money,
they can only take money. As I said before, the
Treasury General account is held outside the banking system, So
(13:29):
when this account is going down in value, it means
dollars are leaving this account and re entering the banking system,
re entering circulation. This means there's more money in circulation.
They're more dollars entering into banks, there is more liquidity.
This has the same effect as reducing interest rates or
quantitative easing. This increases liquidity and has the effect of
(13:52):
pushing up on asset prices, stimulating economic activity. Now, clearly,
this is not the only contributing thing to liquidity, to
whether the economy overall is facing restrictive headwinds or stimulative headwinds.
This is simply one out of men other things like
the fed's QE, the fed's raising or lowering interest rates,
(14:12):
bank's willingness to lend, or them contracting their lending. Individual's
own decisions on whether to spend more, borrow more, save more,
be more productive, produce more income. All of those factors
have massive effects. So everything we're talking about here, as
always with economics, is ceteris parabis, all else being equal.
This is simply the force that the Treasury General account
(14:34):
exerts on the economy, whether up or down, and it
may be fully offset by other forces, or it may
be doing the exact same thing just adding to those
other forces. But it is absolutely worth paying attention to
because while it's easy to take a look at a
chart and just see a line moving up and down,
it can be even easier to forget that these movements
can take a long time, sometimes months and quarters. So
(14:57):
we do get these swings, these four verses on the
economy that last for sometimes months, either providing extra liquidity
or withdrawing liquidity, making conditions more restrictive or more easy.
Over a long enough time horizon, it is true that
these forces balance out because just looking at the US
government's fiscal policy alone, the amount of money they're taking
(15:20):
in taxes, the amount of money they're borrowing, which creates
treasuries that are assets for banks, and then the amount
of money that it's spending. The effect on the financial
system alone is going to be netted out over time,
because over a long period of time, they're going to
have money coming in and money then eventually leaving. But
those time periods where the conditions switch from more easy
(15:42):
or more restrictive can last a while and can provide
headwinds or tailwinds to markets, especially if they happen in
conjunction with the other things like QE, interest rates, bank lending,
et cetera. And if you're wondering the best way to
protect your investments from the volatility and some times the
harsh crashes that these forces can impose on the markets,
(16:03):
you're not alone. That's why hundreds of investors have signed
up for Heresy Financial University, where I teach you how
to do exactly that, beat the averages consistently and protect
your portfolio against losses. Link to sign up is in
the description below. As always, thank you so much for watching.
Have a great day.
The United States government's Treasury Department spent the final six
months of twenty twenty three stockpiling hundreds of billions of
dollars into an account called the Treasury General Account, which
now sits at seven hundred and thirty billion dollars. So
what is this account and what exactly are they planning
(00:22):
on using this massive stockpile of cash for? Well, to
answer that, we actually have to answer a more curious question,
which is why did the government not used to use
this account? Prior to the financial crisis. Well, up until
two thousand and eight, the US government kept its cash
inside the banking system, which meant that it had bank
(00:43):
accounts at regular banks the same way that you and
I did. This meant when the government would take money
in taxes or they would borrow money, it would go
inside their bank accounts, which were held at regular banks.
And then, just like you and I, when they would
spend money, that money would be debited out of their
bank accounts and it would be transferred to whoever they
are spending the money on, whether that be a pharmaceutical
(01:06):
company or a social Security paycheck or politician's pockets. But
everything changed in two thousand and eight because for the
first time in United States history, the Federal Reserve engaged
in something called debt monetization. Now they called this QWI
or quantitative easing, but that's just a euphemism. The actual
practice is debt monetization. Debt monetization is the practice by
(01:29):
which the central bank prints money and lends it to
the central government. It's called debt monetization because you're taking
debt from the central government and you're turning it into
money because the central bank is buying it with freshly
printed cash. Technically, this process goes through the banking system.
The FED doesn't buy this debt directly from the government
(01:50):
because that's illegal, but you still get the same effect.
This is why the Federal Reserve's balance sheet was always
under one trillion dollars until they started the first round
of quantitative easing when they started buying a bunch of
government debt and mortgage backed securities starting in two thousand
and eight. This eventually took their balance sheet up above
four trillion dollars by twenty fifteen. Now, debt monetization or
(02:12):
quantitative easing has some effects on the banking system that
they needed to make some changes in order to handle.
You see, before this started happening, anytime the US government
spent money, whether they took that from taxes or they
borrowed it, it was simply a dollar transfer. They borrow
a dollar from a bank and they spend it on
(02:34):
a Social Security paycheck, or they take a dollar from
your paycheck in taxes and they spend it on a
military contractor so let's deal with the taxes first. Clearly,
with taxing the money that is a direct dollar trans
for no dollars are being created or destroyed in that process.
They're taking a dollar from your paycheck and they're depositing
(02:54):
it into somebody else's account. That has a net zero
effect on the banking system because one bank will lose
a deposit, which is a liability for a bank, and
another bank will gain a deposit, which is again a
liability for a bank. Because when you make a deposit
at the bank, you are owed that dollar back. It
(03:14):
is debt to the bank. You are a creditor. So
the bank needs to take that dollar go do something
with it in order to make money. Otherwise they're just
losing money holding on to your dollars for you. So
what they do is they go buy assets, which is
typically creating loans, and that gives them an asset to
offset their liability or an asset some collateral to offset
(03:35):
the dollar that they owe back to you. So, prior
to the financial crisis, anytime the US government spent money
by taxing it, it was just a net transfer of
dollars and there is no net effect to the banking
system overall. With borrowing, the process can be a little
different because when loans are made, you actually can have
an increase in the total number of dollars. This is
(03:55):
why the money supply has always increased. Because loans are
continually being made in a fiat monetary system that is
not backed by anything like gold, Dollars are lent into existence.
This is done through fractional reserve banking. Because every time
you deposit a dollar, like I said before, that bank
is going to take that dollar. They're going to go
do something with it, which is typically making a loan.
(04:18):
But remember when they make a loan, let's say it's
for a mortgage, that dollar gets transferred into somebody else's
bank account as a deposit, and then that bank takes
that same dollar and lends it out again. But when
you go to check your bank balance. You still have
that dollar showing in your bank balance, and you can
get it out at any time. So while that dollar
has been loaned from one bank to another, and to
(04:38):
another and to another, it is still showing up as
an accessible dollar in every single person's bank account along
the way. This is why when debt is paid off,
it reverses that process and destroys that money that was
lent into existence. So prior to the financial crisis, when
the US government would borrow money in order to spend it,
it was typically money that was getting lent into existence
(05:01):
by a bank. But again this didn't have any net
negative result for the banking system because you were seeing
a liability a deposit created at the same time as
you were seeing an asset a US Treasury alone created. So,
prior to the financial crisis, anytime the US government spent
any money, they would do so by taxing, taking money
from taxes, and spending it, which was just a transfer
(05:23):
of liabilities in the system for banks, or they were
borrowing money and then spending that which was creating a
new liability, but it was also creating a new asset
for those banks. The banking system was very comfortable with
handling this. But again everything changed in two thousand and eight,
and this is why the Treasury General Account started to
get used. In two thousand and eight, right at the
(05:44):
exact time as the Fed's balance sheet started to explode,
because for the first time, the Federal Reserve was buying
those assets, those US treasuries themselves, which meant there were
fewer US treasuries available to the financial system, while at
the same time, there were more dollar deposits, again because
the Federal Reserve has to print those new dollars in
(06:05):
order to buy those assets, so they were taking treasuries
out of the system and inserting new dollars into the system.
The Federal Reserve and the Treasury were both concerned that
this new way of doing things with quantitative easing, where
there were more dollars coming in but less assets and
less collateral available for banks. They were concerned that this
(06:26):
would lead to liquidity issues collateral issues, and they didn't
want to put extra stress on the banks, that was
the whole point of doing the bailouts in the first place.
So the Treasury General Account absorbed the United States government's
full accounts and it basically became the entire checking account
for the US government held directly at the Federal Reserve.
(06:47):
Remember I said before that the United States government used
to have its accounts in the banking system. As of
two thousand and eight, that's no longer the case. The
federal government has their account directly with the Federal Reserve.
That is exactly what this account is, the Treasury General account.
It is the government's checking account. Now, when they take
money in taxes or borrow money, that cash goes into
(07:09):
the Treasury General account, and then when they spend money,
it leaves the Treasury General account. This is not an
account held at a bank, so there's no need for
them to worry or wonder about assets and liabilities and
the banking system be able to handle those liabilities and
needing to get collateral. This is simply an entry on
the ledger held at the Federal Reserve, just ones and
(07:30):
zeros on a spreadsheet. As a result, the federal government
was now able to borrow in tax and spend without
having to worry about if they were saving too much
at a time or spending too much at a time
and causing undue stress and swings in the banking system.
And from two thousand and eight through twenty nineteen, the
usage of the Treasury General Account grew and became more volatile.
(07:55):
From the years two thousand and nine through the years
about twenty fourteen, the account stayed with an average balance
of around one hundred billion dollars. Following twenty fifteen, you
started to see bigger spikes, with the account getting up
above four hundred billion dollars and then getting drained back
down to again around the thirty to forty fifty billion
(08:17):
dollar mark. There are a couple of reasons why the
usage of this account began to grow and the volatility
in this account began to grow, and we don't have
to get into all the details during this video, but
part of it came down to the Federal Reserve trying
to undo that quantitative easing from before. Starting in twenty fifteen,
the quantitative easing stopped with their balance sheet flatlining, and
(08:39):
then starting in twenty eighteen, it actually started to decrease
with the first round of quantitative tightening where they were
trying to let their balance sheet decline. They were also
making changes to interest rates. There were also political and
administration changes which changed the way that borrowing and spending happened,
and all this led to more volatility with the Treasury
General Account and larger peak balance, but none of that
(09:01):
came close to what we saw began to happen with
this account starting in twenty twenty. Moving into twenty twenty,
we saw this account explode to a peak of one
point eight trillion dollars. Now that seems crazy, but if
we remember that the Treasury General Account is simply the
checking account for the US government, we remember that at
that point, the US government borrowed a bunch of cash
(09:24):
so that they could start to spend it on all
of the COVID relief stuff, all the paycheck protection plans,
and the stimulus payments, and all the other hidden stuff
that they spent money on. But the borrowing had to
happen first, so the money came into the account and
then they started to spend it down. After the inauguration
of President Joe Biden, the new Treasury Secretary, Janet Yellen,
(09:44):
said that she didn't want this account to be that large,
and so they stopped borrowing more money and just spent
down the amount in the Treasury General Account. The plan
was to get the account down to about four hundred
billion dollars. Now, that plan hit a snag, and ever
since then, this plan has continued to hit snags every
time there are issues with the debt ceiling and government shutdowns.
(10:07):
That is why, despite this account reaching highs of close
to a trillion dollars again, it continues to be drawn
down all the way down, almost empty, back down to
its old levels of around forty billion dollars. Again, this
is the checking account for the US government, and so
when the government hits a snag and is not able
to politically borrow anymore, Yellen understands that they still have
(10:30):
to spend money, and so she has spent time building
this account up so that they can continue to spend
money while Congress figures out a solution to start borrowing again.
As of the end of twenty twenty three, the account
was back up to about seven hundred and thirty billion dollars,
which on the surface sounds like a staggering amount of cash.
But when we put this into perspective of how much
(10:53):
money the US government actually spends, we can see that
that is less than a quarter of spending for the
United States government, which has spent over one trillion dollars
in its first quarter of its fiscal year, which by
the way, is up seventeen percent from the same period
the prior year. When the US government is regularly and
easily spending six trillion dollars in a fiscal year, having
(11:17):
seven hundred billion dollars in its checking account is not
really consequential. However, what happens What is the effect on
markets and the economy when this account is filling up,
when it is full, when there's a lot of cash
in there, or even more importantly, when the account is
being spent down and that cash is being drank. When
the Treasury General account is being filled up, that simply
(11:39):
means that there is more money going in than there
is coming out. Right, as it is with any checking account.
For individuals like you and I, that means we are
spending less than we are receiving an income. If our
accounts are growing in value, obviously that's what's happening. And
it's the same thing for the US government. When the
Treasury General account is filling up, it simply means they
are taking more in taxes and borrowing more than they
(12:03):
are currently spending. Remember what I said earlier about this
account being held at the FED. It's not inside the
banking system anymore. This means that the result of the
account filling up is actually less liquidity available in the
banking system. You don't have banks able to take these deposits,
leverage them, loan them out, rehypothecate those deposits, and have
(12:23):
that contribute to a growing money supply. When the Treasury
General account is filling up, that actually means there's less
liquidity in the financial system. Banks have less access to cash.
Dollars are being withdrawn from circulation. Now, all else being equal,
this has the same effect on the economy as something
like raising interest rates or quantitative tightening. It is restrictive
(12:46):
from an economic standpoint, all else being equal, this pushes
down on asset prices and suppresses economic activity. Now on
the flip side, what happens when this account is moving down, Well,
when this account is moving down, it means the US
government is spending at a faster rate than they are
borrowing or taking in taxes. Because again, every dollar they
take in taxes and every dollar they borrow goes into
(13:08):
this account, and every dollar they spend comes out of
this account. So when the account value is moving down
simply means they're spending faster than they're taking income. If
you've noticed I say that the government takes income. I
use that word very intentionally because governments can't make money,
they can only take money. As I said before, the
Treasury General account is held outside the banking system, So
(13:29):
when this account is going down in value, it means
dollars are leaving this account and re entering the banking system,
re entering circulation. This means there's more money in circulation.
They're more dollars entering into banks, there is more liquidity.
This has the same effect as reducing interest rates or
quantitative easing. This increases liquidity and has the effect of
(13:52):
pushing up on asset prices, stimulating economic activity. Now, clearly,
this is not the only contributing thing to liquidity, to
whether the economy overall is facing restrictive headwinds or stimulative headwinds.
This is simply one out of men other things like
the fed's QE, the fed's raising or lowering interest rates,
(14:12):
bank's willingness to lend, or them contracting their lending. Individual's
own decisions on whether to spend more, borrow more, save more,
be more productive, produce more income. All of those factors
have massive effects. So everything we're talking about here, as
always with economics, is ceteris parabis, all else being equal.
This is simply the force that the Treasury General account
(14:34):
exerts on the economy, whether up or down, and it
may be fully offset by other forces, or it may
be doing the exact same thing just adding to those
other forces. But it is absolutely worth paying attention to
because while it's easy to take a look at a
chart and just see a line moving up and down,
it can be even easier to forget that these movements
can take a long time, sometimes months and quarters. So
(14:57):
we do get these swings, these four verses on the
economy that last for sometimes months, either providing extra liquidity
or withdrawing liquidity, making conditions more restrictive or more easy.
Over a long enough time horizon, it is true that
these forces balance out because just looking at the US
government's fiscal policy alone, the amount of money they're taking
(15:20):
in taxes, the amount of money they're borrowing, which creates
treasuries that are assets for banks, and then the amount
of money that it's spending. The effect on the financial
system alone is going to be netted out over time,
because over a long period of time, they're going to
have money coming in and money then eventually leaving. But
those time periods where the conditions switch from more easy
(15:42):
or more restrictive can last a while and can provide
headwinds or tailwinds to markets, especially if they happen in
conjunction with the other things like QE, interest rates, bank lending,
et cetera. And if you're wondering the best way to
protect your investments from the volatility and some times the
harsh crashes that these forces can impose on the markets,
(16:03):
you're not alone. That's why hundreds of investors have signed
up for Heresy Financial University, where I teach you how
to do exactly that, beat the averages consistently and protect
your portfolio against losses. Link to sign up is in
the description below. As always, thank you so much for watching.
Have a great day.
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