[SOUND] So we got the Fed. There were attempts, he tells us about them, attempts to create the Fed by the bankers themselves but they, of course, were not viewed as trustworthy. Ultimately it was President Wilson who, who got it, who got it through just in time for for World War I to use it, for World War I finance, which I'm going to come to in a moment. The history of American central banking is a history of war finance. let me show you what the idea was of the Fed. This was how, this is just turning into balance sheets, okay, what it is that Young is saying in words there. So you can, you can connect these things back up. He says there are, under the Federal Reserve system, there are three sorts of levels. Okay, not dissimilar to, to this here. Okay, there are the member banks. [NOISE] There are the reserve banks. Which are sprinkled around the country. In fact, they're in exactly the same place as the, as the, reserve banks were before in the, in the private sector. So there's one in Boston, in San Francisco, and all those sorts of things. And, then there's the Federal Reserve system. And this is the, sort of central, central bank. And the idea of the system was this. That any member bank, okay. It, it's just a bank. It's making loans to its local customers. Farmers, merchants, people, main street. Okay. These are Main Street banks. So they're making loans, and they're making loans by expanding their balance sheet, possibly, their own deposits, okay? This is good. This is what we want, supporting business, supporting Main Street. We want these banks to be able to do this. Okay, what constrains these banks from doing this is a fear that if these deposits are withdrawn, you won't have sufficient reserves to make those payments. Okay. We don't want these banks to worry about that, okay. And how do we make, because then they make loans. [INAUDIBLE] . We want them to make these loans. So we, we create this system of discounts in order for them to replenish their reserves. If they run out of reserves, they can always get more from their local reserve bank. And the way you do that, okay? Is by using these loans themselves. As collaterals, as collateral for borrowing from the Federal Reserve Bank, okay. This is called discount loan, okay? So you're borrowing. You're borrowing from the Federal, Federal Reserve system. By using this loan as, as, as collateral, okay? [SOUND] [INAUDIBLE] , or by even selling it to the. If it's, if it's in a certain form, you could even sell it to the federa-, to the, to the reserve bank. And the reserve bank will give you reserves. [SOUND] [SOUND] For this. Okay. This is the alchemy of banking. Once again, notice the member bank is able to make loans. Good loans to customers with out fear of running out of reserves. Why? Because you can use those loans to borrow from the reserve banks to get more reserves. And why? Because the reserve banks can create reserves on their own balance sheet. The are expanding their new balance sheets. They're from thin air. These are new reserves in the system. They weren't there before. Elastic reserves. Not like the national banking system. Okay. Well, that's all very fine and good if you're making a transfer to another bank, but what if these deposits are withdrawn in, in notes? Okay. What about that? Have you thought about that? Yeah, they thought about that. And here's, here's how that works. OK. These reserve banks have the right to rediscount [CHALK] at the Federal Reserve which prints money. Little green pieces of paper. This is how he's explaining it. This is not exactly how it works today, okay. So just be aware of that. I'm just translating what he says into balance sheets so that you can. Under, understand it. but the point is these things. [SOUND] These things are cash money. Right. These are deposits in a bank. Okay. These things are cash money that can circulate. Okay. So cash also is elastic. The supply of cash also is elastic and can expand and contract to meet demand. That's the whole idea of the Fed. The whole idea the Fed was founded on was the notion That were living in this agricultural country where the demand for, for money fluctuates seasonally. So we need to have the supply of money fluctuating seasonally. Okay. The demand for deposits fluctuates sea, seasonally, so we need to have the supply of reserves back those deposits fluctuate seasonally. And we created a system for that, that was based on the idea that banks would be taking their loans to Main Street, and using them to acquire these reserves and these notes. That was the idea. If you read the Federal Reserve Act, that what it says. It says, we''re going to, the assets of the reserve banks Are supposed to be, these discounts, which are essentially loans to Main Street. That's, that's how it was sold by President Wilson. Okay? [BLANK_AUDIO]