[SOUND]. I showed you what the balance sheet of the Fed looked like before the crisis. More than a lot of loans to Main Street there, there was a lot of loans to the government, right? Treasury bills were the main asset of, of the, of, of, of the Federal Reserve. And that was almost immediately true, because once the Fed was created, the, the, the U.S. went to war again. Okay, and the fed got involved not so much in this kind of action. Okay, but in financing another war. And so at the end of the war, the fed, the reserve banks, and in fact, even all the member banks were stuffed full of treasury bills. That's what they had. They had treasury bills, as a consequence of war. And so the whole system in the 20's, even when, even when Alan Young was writing. The banks, the fed reserve banks, are all stuff full of treasury bills. He doesn't mention this. He's imagining that this is temporary, right? That this is not how the system was supposed to work, okay? It's temporary, and so they're trying to figure out a temporary way of creating elasticity in, this kind of elasticity. Without the mechanism that they imaged would provide it. And he's imagining, open market operations. He talks about open market operations. None of this could happen, okay, because all the banks are filled with treasury bills. So instead what we had was open market operations. [SOUND]. Open market operations were invented [SOUND], by the New York fed, by Benjamin Strong in the 20's. Exactly when Allen Young is writing. This thing you've learned in your Intermediate Macro, even Intro Macro class, right? About how the fed changed the money supply by buying treasury bills or selling treasury bills or something. That's what we mean by, by, by open market operations, right? I'm not going to write down those balance sheets, because in fact that fed never did use that mechanism to change. That, that's not actually true, how open operations work. It involves the repo market and other things, but we, we're going to get to that okay, in, in a while. I, I just want to say, to emphasize here, that the importance of open market operations is a historical accident, okay? It's an accident that the fed got stuffed with treasury bills. It was never supposed to lend to the government. This is why I tell you all this history, right? The whole danger of central banking is that, is legal tenders, the greenbacks are in the minds of the framers of the federal reserve. It's like, give the government power to print money, and it is going to print money. So, we want to make sure that you are only allowed to use loans to main street as collateral for expanding the reserves. Only use loans to main street as collateral for expanding federal reserve notes, okay? But then came World War, World War I. The cat was out of the bag. And we got used to that. Where now you, no one now finds it weird to say look at that, the, the, the federal reserve is stuffed full of treasure bills, you know. People thought that's the way it should be. In fact they found it weird when the, when the federal reserve liquidated all those treasure bills and made loans to banks, to the private sector. or to Chrysler or you know, in his commercial paper operations and so forth. They found that weird, but somebody who had a knowledge of history would remember. There's nothing natural about this. Central banks don't necessarily lend mainly to the government. it wasn't supposed to, in the first place. That wasn't, that wasn't the idea. Okay, so let's let's draw some conclusions here. I think it's about time. What, what I'm trying to, I mean I'm, I'm partly trying to get you used to this balance sheet way of thinking, okay? But there is actually a, a conceptual point here too, about the relationship, between the government, state money. And private money in the banking system. It's a complex thing, you know? We, we live in a hybrid system that is partly, where, where the central bank is partly a bankers bank. So it's a bank for other banks. In times of crisis, it's a government bank. It provide, it helps the government sell its bonds, in, in war. It did this is World War I. It did this in World War II. It'll do it again, you know? If we, this, this is what it will, this is what it will do. And that's its job. That's not, it's not any kind of perversion of, of its job. That is its job. In normal times, it's, it facilitates the operations of private, of private capital markets. And it's moving back and forth between, between those, over, over, time. Here's another one of those instances, where you can build monetary theory, okay? By imagining that really at the root of everything is the state that is printing money, and everything else is just a promise to that. And so it's really all about the state, okay? Or you can build a whole monetary theory by saying really, it's all, the private banking system, okay? And the government is making use of the private banking system to borrow, or something like that, okay? So we start with the original, the gold standard, and people borrowing and buy, you know, making pledges. So you can build monetary theories that are pure private money. And you can build monetary theories that are pure state money. And neither of these is going to do you any good. Because the actual system is a hybrid. The actual system is a hybrid. And it, and it moves back and forth. Sometimes, it's more one, sometimes it's more the other. Here's another example, where it's better to know two theories which claim to be opposites, okay? Because both of them are true, in some dimension, okay? Both of them are true about the part of the system they're talking about, okay? But not about the whole system. So, again, I find myself, you know, in, in, in between, not being willing, not being a chartalist. Well but neither being a medallist either, okay? but understanding both of those positions, the elasticity position and the, and the, and the, and the discipline position. The monotrous position and the keynesian position, okay? They both get at genuine features of the actual system. I find this balance sheet approach, very helpful for letting us know when, when one approach makes sense. And when we should be, when we should be focusing on the other approach, because this is always true. The balance sheet approach is, is really just a relationship between debits and la, debits and credits. So, this will, this will always work for you. Whether you're talking about state money, or whether you're talking about private money. you can use the same language, so it's a great bridging technique, and that's why, that's why I emphasize it in this course.