The Hidden Economics Behind the Shrinking US Money Supply | Analysis

[00:00:00]Janet Yellen and Jerome pal are hiding something from you that's right they've got this dirty little secret they don't want you to know about and I'm going to reveal it to you right now in three simple fast Steps step number one let's go over how there's almost a trillion dollars that has just vanished from the TGA the treasury gener ener account this is basically Janet yellen's checking account that she has at the Federal Reserve and if we look at this chart going all the way back to May 22 it was over 900 billion so like I said almost a trillion dollars and then if we fast forward about a year later to May of 2023 almost the entire amount is gone so this begs the question where did it go well a lot of you watching this video right now are probably saying to yourself well George that's easy because she spent money on Social Security payments or buying zalinski a brand new mansion in Malibu or it's going to be something like that where it's very explainable well okay fine I understand that she spent the money out of the account let's remember this is during the time frame when we were dealing with the debt sealing issues so she wasn't able to issue as many treasuries as she otherwise would have but there's a lot more to the story once you start scratching beneath the surface let me show you what I'm referring to first and foremost let's go over the mechanics of the TJ very straightforward here so Janet Yellen collects taxes from this guy right here who's probably pretty pissed off he's paying way too much Biden's telling him to pay his fair share he's like well go ahead and quantify what my fair share is because this 30 or 40% of my paycheck that I'm giving Janet Young it definitely doesn't feel fair to me but then you have another group of people that are also buying bonds but they're doing this they're taking the money whether they're buying bonds from Janet Yellen or they're paying her taxes they're taking their moneyy out of their bank account makes sense whether it's their checking account or savings account so that money goes to Janet Yellen and then she parks that at the Federal Reserve this is the TGA that again in May of 22 was over $900 billion almost a trillion and then what she'll do is she'll spend that money back into the economy let's say to Social Security recipients just to keep this example simple So based on these straightforward mechanics when this money is coming into the account all else being equal you should expect the aggregate total of savings accounts or checking accounts to decrease to go down and as she spends that money back out into the economy you should expect the account balances to go up by the exact same amount they went down to begin with but you see this is where it becomes quite mysterious editor go ahead and throw up a chart of M1 money supply from May 22 to May 23 and you'll see that it went down dramatically well let's go ahead and throw up M2 money supply this is another money aggregate total that you would expect to increase quite substantially if Janet Yellen is spending almost a trillion dollars into the economy and just like M1 we see that it actually declined now for those of you who have watched a lot of my videos and are really paying attention right now I'm sure you're probably saying to yourself okay George I get what you're saying here but we all know that the entities that are really in charge of the money supply would be the banksters themselves so if they are lending a lot lot less in other words on net balance if there are more loans that are being paid off than are actually being taken out or being created by the Banks then you would expect that to put downward pressure on the overall supply of currency units in other words these money Aggregates that we showed earlier but editor go ahead and throw up a chart of overall Bank credit from this time period and we see that it's pretty much flat so where did this almost $1 trillion go did they give it to you did you bury it in your backyard nah I didn't think so they definitely didn't give it to me but we've got to figure this out we've got to put our CSI detective hat on because when we do this leads us to the secret that I was talking about before that Janet Yellen and Jerome pal have been hiding from you step number two all right now let's go ahead and start putting some of the pieces of the puzzle together first of all when was the last time you went to Walmart Home Depot or Target my guess is in the very recent past maybe even today or this week and why because those are hugely popular stores that most Americans frequent at least at least on a weekly basis to get kind of the Staples the stuff they need all right well when you go to Walmart when you go to Home Depot when you go to Target where are those goods coming from well most of them are not coming from the United States I can assure you they're coming from China Indonesia Malaysia Mexico Etc let's actually go to a visual representation of this from none other than the visual capitalist and we can see the largest importers in the United States these are us corporations the top three like I just said Walmart Target Home Depot number four Lowe's Do's food Samsung Family Dollar Tree LG group Phillips and AA and of course the list goes on and on and on but let's think about this when you're going to one of these stores or when you're buying any of this electronic equipment what you're doing is you're taking your dollars and you're sending them outside of the United States and you're trading those dollars for the goods that you're buying at AA as an example so now let's go over over to a chart of the United States trade deficit well this is a chart of the trade balance but I can assure you we are not running a surplus that is for sure if we look at the time frame that we discussed earlier from May of 2022 to May of 2023 in 2022 we see the deficit was about 85 billion for the month now fortunate that improves slightly but when we get to May of 2023 were still right around $65 billion a month so if you just average this out say well it's roughly 80 billion dollar a month then you come to a number that's very close to the one trillion that Janet spent out of the TGA during this time frame but there's a lot more to the story than just the trade deficit but this starts to explain what's happening behind the scenes basically Jan enen takes all those dollars spends them into the real economy the individuals and entities in the real economy take those dollars and they basically ship them to China Indonesia Mexico or whoever our trading partners are that are sending us the goods in return now normally this wouldn't be a problem assuming the banks were functioning like they typically do and extending credit to borrowers and whether we like it or not we live in a debt based monetary system so you need the debt to continue to go up assuming that velocity is staying constant and if you have velocity going down well then you really really need the debt to go up and go up very quickly or else you're going to go into a deflationary bust similar to what we saw during the 1930s like we said in Step number one the banks aren't lending and these monetary Aggregates are actually going down and to tell tell you how unprecedented this is the last time we saw M2 money supply actually decline was in fact during the 1930s and the Great Depression step number three now I'm going to reveal Janet and Jerome's little secret they don't want you to know about this is something I believe they've been hiding from the general public let's start with the chart going all the way back to 2008 we go to today's date on the left 0 trillion all the way up to $9 trillion most of you will recognize exactly what this is It's the feds BS and I'll let you determine what BS actually stands for but we know back in 2008 it was right around 800 billion with a B dollars under a trillion then we do quantitative easing 1 2 three and we go up to call it four five trillion and then we start to do QT and it goes down but then we have the repo blow up and they start QE again and then we have the seresa sickness and you guys know the story from there the fed's balance sheet explodes higher up over $9 trillion and what I want you to focus on is this red line specifically that highlights the time frame we've been discussing throughout this video May 2022 to May 2023 when Janet yellen's checking account went down by over $900 billion almost a trillion so during this time frame Jerome Pal's balance sheet went down by about 400 billion this little blip right there is the btfp where they bailed out the banking system in March of 2023 but where it gets interesting is when you start analyzing the mechanics behind what happens when the FED is actually doing qt or they're reducing the size of their balance sheet let's go down here and it looks what a modification on what we did in Step number one we've got Jerome or no forgive me Jerome pal right here and then Janet Yellen right there in the middle obviously and she is taking in tax dollars let's say from this guy who's pissed off because he's paying his fair share and instead of spending that money back out into the economy this time Janet has to do something different you see because Drome pow has a lot of these treasuries on his balance sheet and he might not be selling them back into the market but he's allowing them to mature so let's say that he got a treasury that's maturing today for $1 billion okay well what happens Jen Yellen has to pay him that $1 billion we'll assume there's no interest whatsoever so you got to pay him the principal in full so does she do that by actually giving him dollars and maybe he spends them back into the economy no absolutely not it's the exact same process as you making a payment to your bank maybe you've got a mortgage with Wells Fargo let's say and every single month you pay them $2,000 well do they actually take dollar bills from you no they just simply reduce your balance that you have with them in your checking account or your savings account so they're not really increasing the asset side of their balance sheet they're simply reducing the liability side that's exactly what Drome pal does remember Janet yellen's account is a liability of the Federal Reserve the TGA so if she makes a payment to Jerome poell for let's say a billion dollars then he simply reduces her account balance by that much so in this case let's say he reduced her account balance from 900 billion down to 500 billion that's where we get this drop of $400 billion now before we move on I want to be very very clear I'm just using approximate numbers and there's multiple variables as an example Janet Yellen might not be paying Jerome pal Janet Young could be paying Jamie Diamond and if she's paying Jamie Diamond for treasuries that he has on his balance sheet with JP Morgan the exact same process would happen her account balance would go down and those reserves would go into JP Morgan's account but that would not have an impact on let's say M2 money supply or those broad Aggregates that we talked about in Step number one so I don't want to get into too much detail because it gets very very very complicated and we'll have to save that for a completely separate video and again I want to be very clear before moving on I'm not addressing all of the variables and I'm I'm using approximate numbers just so you guys can understand the concepts of what's actually happening behind the scenes so why the mechanics really matter when Jerome Powell is doing quantitative tightening is because Janet Yellen isn't going to spend that money back into the economy remember if she's receiving it in tax dollars then she's spending it back out well that's going to mean the money aggregate on net balance is the exact same but if she's receiving it and then giving to Dron pal and he takes it by reducing her account balance then there's nothing going back into the economy therefore on net balance all else being equal the money Aggregates are going to decline and that's where we run into a big big problem when you combine what Jerome pow's doing with the trade deficit and money leaving the United States like we talked about before four now the money supply shrinking in and of itself isn't that big of a deal for those of you who study economics or just have some common sense you realize that if we go from $20 trillion circulating in the US economy down to 10 trillion well prices would just adjust assuming that we get rid of minimum wage and whatnot and it's not we just have fewer currency units chasing the exact same amount of goods and services as long as the goods and services don't change change is the price of that drink that you normally buy for $2 goes down to $1 and your wages pretty much get cut in half but your purchasing power is the exact same so it really doesn't matter but what is a big deal is if you have an economy with a tremendous amount of debt so if the money supply goes down well then the prices of goods Services stuff goes down as well but the cost every single month of those debt payments does not go down it stays the exact same so if people have the exact same amount of debt or if the debts actually increasing but the amount of money they have is actually decreasing that math doesn't work like we said when I was a kid that dog don't hunt for very long at all so I think Jerome pal and Janet Yellen are looking at these monetary Aggregates they're looking at the trade deficit and they're looking at QT and they're saying whoa whoa we have got to pump the breaks because we can come out and tell the general public how we're fighting inflation and we're getting really tough on these prices going up because we know it's negatively impacting the consumer but behind closed doors I think the real secret is there're much more worried about a deflationary bust than they are a reacceleration of consumer price inflation and just the other day when they came out and made the announcement about holding interest rates steady they also made an announcement about QT and said they were going to reduce QT from $60 billion a month down to $25 billion a month in other words they're going to leave an additional $35 billion a month in the economy most likely to serve as this debt instead of extracting it like they have been since May of 2022 so the bottom line is regardless of what they do with interest rates or regardless of what the rhetoric is around whatever scop they're trying to push in the mainstream media the bottom line is their balance sheet likely won't go down much further in my base case would be if we fast forward a year or two it will start going back up and actually exceed the level we saw before especially if Bank lending remains flat or actually declines in the future at the end of the day I think they're far more worried about 1930s deflation than they are about a 1970s style inflation hey guys I want to remind everybody that coming up May 31st through June 2nd in Orlando is Rebel capitalist live this is the annual conference I do and this year it's it's going to be absolutely incredible I think it's going to be the best Rebel capitalist live we've done we've got some amazing speakers some incredible VIP guests this is an event that you're not going to want to miss I can assure you of that so you can get your tickets you can check out all the details and a list of speakers at Rebel capitalist live.com and I will see you in Orlando May 31st