Hello fellow rebel capitalists hope you're well. I was just going through some thought

experiments and I thought well I'll just go ahead and share it with the audience for

those macro geeks and nerds out there that really like to get

into the weeds maybe they'll enjoy this so I want to start off by going over the plumbing when the Fed does quantitative easing and buys the Treasury from a non-bank entity,

if the primary dealer buys the Treasury from a non-bank entity, and assuming the non-bank entity bought it from the government.

So we've got the government, everyone's favorite, right here at the top top and the first transaction is average Joe or in

this case non-bank buys the Treasury so he's going to have to give and just as I

go through these guys the green dollar sign represents M2.

The red dollar sign represents bank reserves or base money.

So this represents broad, red represents base.

So he's going to have to give his hard-earned M2 or M1 to Janet Yellen.

Okay, well, when that happens, the currency units are deleted from his account,

it Wells Fargo, and the bank reserves go

onto the Treasury's account, most of you guys know that. But those dollars just

poof, disappear.

No longer an M2.

They go to money heaven.

And then that Treasury goes onto the balance sheet

of the average Joe, the non-bank entity

that bought it in the first place and you say okay George that decreases

M2 or M1 right but then Janet Yilin's gonna spend the money at some point I can

guarantee you that.

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