so we're officially live ladies and gentlemen and once again thank you very much for being here and thank you for your punctuality so without further Ado as always let me provide the lesson plan for today what are we going to be doing in today's exciting class number one as always is a tradition for us we're going to go over the solutions of homework number six um in addition I need to show you the video we're going to continue our exploration of the tools of monetary policy at the disposal of the Central Bank of the United States also known as the fair so we're going to talk today about the F fund I need to show you a video regarding that we're also going to talk about depth depth depth depth so we're going to talk about ladies and gentlemen um we're going to talk about depth for the United States how the United States borrow money how does the country borrow money in the first place so we're going to talk about that and that's going to lead us into the discussion of what is a bond a bond b n d ladies and gentlemen so we're going to talk about the US Bond that's going to lead us into or connected to the secondary tool of monetary policy at the disposal of the central bank which is called Federal open market operations ladies and gentlemen we're going to talk about monetary expansion and contraction via Federal open market operations and then in addition we're going to show you a video regarding of course all the afford manal process and that's going to lead us into something called The Reserve requirement all of these are tools of monetary policy right and we're going to show you again the monetary expansion and contraction with both Federal open market operations and the reserve requirement and if time permits we're going to talk also about something called the lender of Last Resort do the discount rate which is related to our discussion of the historical perspective of the 11 to 12 different Financial panics in the latter half of the 19th century and why the country or the situations of for mentioned or or those discussions led to the creation of a lender of L Resort and the connection again to something called the discount rid ladies and gentlemen which is quote unquote that emergency lending or the lender of Last Resort as we talked discussed last time and to close today's lecture we're also going to talk about Excel I need to give you something related to Trend finding how do you know if a if um if um if unemployment is going up or down how do we insert a trend or a trend line in Excel very simple to do excel is one of the most powerful features we're going to do that today so now that most of you are here if I may con trouble you to answer IA all your name by the way my apologies if you hear background noise of construction yes they're doing constructions I live in in Midtown Manhattan close to yes so there's always construction going on my apologies if there is any background noise with that in mind ladies and gentlemen kindly answer as I call your names this is greatly appreciated let's begin with Miss Laya alhuda miss alhuda calling Miss Al hudai again not here um Mr Ali Mr Jam Ali Mr Ali not here miss Veronica bukara good morning Professor good morning Miss bukar thank you very much good morning good morning um Mr Marcus Burns thank you sir thank you Mr Birds I appreciate that miss nelli kasal is already there I already read her message thank you very much for that Mr Eric Chen Mr Eric Chen calling Mr Eric Chen there uh thank you Miss ALU noted all right Miss Chestnut I'm here thank you very much M ches good morning good morning uh Mr nikolo konini here thank you sir good morning good morning um Miss uh Mr Excuse me Mr gbriel good morning good morning sir thank you very much Mr juriel uh Miss Esther Dua good morning good morning Miss Dua thank you very much um Mr oh excuse me skipped one person Miss suan W yes I am here good morning Professor good morning Miss W thank you very much I appreciate that Miss chenik Jackson Miss Jackson good morning I'm here good morning Miss Jackson thank you very much I appreciate that Mr Joshua KH good good morning good morning sir thank you Mr Khan good morning Miss Madison Marcado Miss Madison Marcado thank you very much good morning good morning M Mar and thank you again uh Mr Julio Ramirez Mr hold morning good morning sir thank you very much Mr Ramirez good morning Miss Gizelle Ramirez here good morning good morning Miss Ramirez thank you very much Miss Miss Kimberly Rin just in case Miss Kimberly Rin not here Miss Roberts Miss Roberts just in case M Roberts uh okay Mr Nicholas Rodriguez I'm here good morning good morning sir thank you very much Mr Rodriguez good morning Mr Nicholas Sanchez good morning thank you sir good morning good morning H Mr anel Valdez Mr anel Valdez last call for Mr anel Valdez he is not here uh Miss janah Wilson here thank you very much Miss Wilson good morning good morning Miss Emily Tang here good morning good morning good morning thank you very much uh we have uh one second Miss Wy Tang here thank you very much good morning good morning Mr Alvin Tang here thank you sir good morning good morning and last but not least Miss Naomi Nunes Miss Nunes Miss Naomi Nunes here all right ladies and gentem did anybody arrive late after I called your names this is when you kind of let me know just in case I'm sure I want to I already read all the messages and direct messages so I know Miss gwal and Miss Alis are here by the way all right then so without further Ado let's go and begin our discussion and we're going to go as always over the homework solutions so let's go over homework number six right now if you kindly give me one second here quickly if I don't get lost in my own monitors and embarrass myself in my morning class let's double check here give me one second please and of we go all right so let me just switch my monitors quickly and let's begin okay here we go sharing right now Perfect all very good so ladies and Gentlemen let's go over this right now which is the solutions of course for homework number six let me just samplify that and zoom in here we go ex everybody's attention please exercise one based on our D class discussion of course please define the following a what what is the federal funds rate funds rate excuse me and why is is it the most important interest rate in the world ladies and gentlemen that is an tremendous important question Miss s go ahead if you would please um the federal funds rate is the interest rate that Banks charge to each other for borrowing their excess reserves deposited at the FED on an overnight basis this is the most important interest rate in the world as it serves as a benchmark for all other interest rates excellent Miss Z thank you very much ladies and gentlemen this is one of those key components of not just the entire lecture for this week and the next week but of the entire semester why you're wondering because every time the FED increases the Fed Federal the interest rate they're not going to tell you the federal funds rate they're going to tell you the fed or the Central Bank rais interest rates right away you're going to know oh they're talking about the federal funds rate and the federal funds rate exactly as Miss sang kindly stated serves as The Benchmark for all other interest rates that means if the federal funds rat goes up every other interest goes up including of course your credit cards your parents mortgages Etc so it's very important that's it serves as the most important interest rate in the world also because don't forget about half of the World's Trade is denominated in US Dollars and if you want if you're a foreign company and you want to borrow dollars well well well what interest are you going to pay something close to of course the fedal funds rate plus the spread of course so with that in mind let's take a look at Part B of this question how does the Federal Reserve Bank keep inflation under control oh my gosh that's an amazing question and we have two people two students so let's go I saw Miss bukat and then Mr Nicolas Sanchez in that order B since this this this will probably have multiple answers as well so let's go first to miss bukar and then to Mr Sanchez in the r please go ahead Miss bukar please the Federal Reserve controls inflation by adjusting interest rates if prices are rising too fast they increase interest rates I mean they makes borrowing more expensive and slows down spending thank you very much Miss bukar indeed um I think it was somebody else if Mr Sanchez do you wish to add anything just in case or the gentleman who raised his hand before just in case uh I wrote that uh if inflation is high the FED raises the ffr and as a result lending activity slows down with and this leads to lower prices as sellers will will be forced to lower presses to stimulate demand absolutely true so ladies and gentlemen that is at the heart of everything here this is the connection because if we don't understand this question meaning Part B everything else will be just a dis disjoint collection of definitions nobody wants that that's a there's a big difference between understanding and or memorizing versus understanding so absolutely true every time there is a high inflationary period the FED needs to react to that and that is their race interest rates in conjunction with the Dual Mandate of the fifth which is of course price stability and maximum employment ladies and gentlemen now you may be wondering sure let's move on but ladies and gentlemen I hope you realize that balancing or keeping inflation under control and balancing with a strong job market is not an easy task mind you the economy of the states and the union are they are vastly different the largest the largest economy in the states the largest contributor to the GDP of the United States is the state of California and California has a very different economy versus New York versus Florida versus say West Virginia for instance which is becoming depopulated because of economic uh slowdown in local economic slowdown so it to keep inflation under control is very hard because if you raise interest rates and You observe inflation of course you induce economic slowdown and then is very it's that economic slowdown takes time to occur and in addition it affects different states differently because you understand different economies react have they have different Eon macroeconomic conditions unemployment Etc so with that in mind let's go over part C of this question which is why did the federal funds rate reach historically high levels in the early 1980s this is like a typical question discussed at Wharton School of Business or Harbor business school by the way or MIT by the way why did the FED funds rate reach historically high levels in the 1980s this is related to one of the questions that we had who would like to share their views on the question why did we have such high inflation Miss Ramirez I appreciate that go ahead if you would please um I put that in the early 1800s the FED funds rate um were very high levels and it was because of inflation was extremely high at the time the FED raised Rate rates sharply to try to control inflation which was causing prices to rise quickly and they were unpredictable thank you very much Miss Ramirez indeed and just to illustrate this point if you part of the digression for one second I'm going to show you that graph by the way related of course to miss R's response that graphing question is this one everybody has seen it we discussed it in detail it's very important for you to know ladies and gentlemen the historical context of this graph not just the definitions and that's why Miss Ramirez is absolutely correct in her assessment number one let's take a look specifically at the inflation in red we're only looking at the red line now that's where I kindly um direct your attention to so inflation is going up and we have periods of recession recession those are the gray bars in the graph look how many we have one in the 197 early 1970 exactly on that in 1970 another one 1974 1975 another one in 1980 so we have three recessions in a 10year period if you really think about it a recession is again two consecutive quarters of negative economic growth or contraction in other words GDP was just decreasing and decreasing constantly or consecutively over six months time at least so one thing that I want you all to appreciate from this graph ladies and gentlemen is the importance of supply chain disruptions or disruptions in the supply chain environment two of them in particular were related to oil prices what I know some people are saying what why oil ladies and gentlemen I hope you get to appreciate the fact that with oil there wouldn't be a western civilization why there wouldn't be any trade without Commerce without bis without Commerce without transportation there wouldn't be migration products wouldn't be able to be transported there will be no trans Atlantic shipments so at that time in the 70s ladies and gentlemen there was a couple of oil shocks produced give me one second here if I may go back I believe to this one you see there was something called the oil crisis in 1974 and another one at the end of the towards the beginning of 1980 why political instability in the Middle East which is the largest oil producing region in the world when that happens oil ex oil exports into the United States slowed down and there was also political retaliation because of a problem related to to a war again in the Middle East so oil especially ladies and gentlemen these two shocks related to oil caused inflation to go up dramatically here and that's why we are observing the result here why oil because if they transport they need trans Transportation expenses and it's more expensive to get oil companies still do business but they're going to pass on those extra fees to the consumer and that means everybody else don't forget GDP in the United States which is about $ 29 trillion do expected for 2024 about 70% of that of those almost 29 almost $ 30 trillion is all consumption every time you click that buy on Amazon or go to Macy's or buy anything in the United States that 70% of GDP in the United States is consumption so consumption is very sensitive to the prices of oil because it acts as an implicit tax in the economy all right so so much for that question a very simple question with a very profound answer you may argue all right so let's go let's take a look at D if the economy is experiencing a high inflationary environment oh boy which is absolutely true why would you advise the Central Bank in terms of interest rate policy wow so who would like to take a chance here who would like to kindly answer this question I'll answer thank you Mr Ken go ahead if you would please thank you sir if the economy were in an inflationary environment I would advise raising the federal funds rate and and the reserve requirement and having foros sell bonds these are ways of reducing the money supply thank you very much indeed so you see ladies and gentlemen now we are beginning to understand and hopefully appreciate the beauty of the art of Central Banking if there absolutely as Mr Khan says he's correct if there is high inflationary environment in first of all inflation does not affect everybody equally I hope you agree with that if they raise the fair for the MTA for the rights for the subway Fair well billionaires don't care because they don't take the subway but the rest of us especially those of low incomes uh then they get Hur to the most because they're they need to pay a higher share of their disposable income towards transport food and transportation ladies and gentlemen so absolutely true all right now with that in mind I want you also to appreciate the fact that notice again that the in the 1980s was double digit about 20% between 15 and 20% depending on the period you look at it from the chart and the FED took almost 20 years to stabilize inflation that is something that the books don't tell you ladies and gentlemen but it's very important to know especially coming from a practitioner like myself since I used to work in Wall Street Ladies and Gentlemen controlling inflation is one of the most difficult challenges especially in the large economy well Diversified like the United States because different states have different economies local economies all right so with that in mind let's take a look at e if the economy is experiencing high unemployment numbers what would you advise the Central Bank in terms of interest rate policy very important question as well so uh um Miss Zen go ahead if you would please thank you um if the economy is experiencing high employment numbers I would recommend the central bank to lower the federal funds rate and this would make borrowing cheaper encourage standing and investment and help stimul stimulate economic growth to reduce in employment levels thank you very much Miss stank indeed abs absolutely correct if the economy is experiencing high unemployment numbers the FED will you will be of course correct to advise them to uh lower the the FED fund rate so that the con so that companies can borrow so that companies can expand so that companies create jobs so that people have money and that would generate the prosperity effect ladies and gentlemen so that's what we have here and um notice also one point I want to make just quickly notice ladies and gentlemen that there you're going to learn we are learning the different tools of monetary policy I know one of them of course the federal funds rate then today we're going to talk about something very very different which is based on depth and then we're going to learn two three four more why is this important you're wondering because the FED does not use a single tool the time no they use as many tools as there are as as there as it's needed to get the job done all right so without further Ado let's take a look at F of Part F of this question connecting to the video shown in today's well yesterday's in the last time's lecture why is the New York Federal Reserve so important why is the Fed what it makes the New York Federal Reserve so important ladies and gentlemen what's what is it that the New York fed H has that other Banks don't something related to close to 25% who can complete that that answer what makes the New York Federal Reserve based in the video what did You observe it's stored 90 feet be and be beneath Manhattan Manhattan's Beth at the New York Federal Reserve ladies and gentlemen uh Mr jbril go ahead sir the reason why the reason why the New York Federal Reserve so prominent is because they hold more than 25% of gold thank you sir absolutely true notice ladies and gentlemen the near fed Reserve holds or has in reserve approximately a quarter of the world's gold reserves that's an amazing quantity by the way so that is the primary reason for that and in addition to that something we're going to learn today the New York Federal Reserve is the only authorized agent to borrow on behalf of the United States government imagine the power to do that so two things are going on at the near Federal Reserve even right now for all I know there may be selling bonds right now and at the same time maybe taking gold deposits I don't know this is hypothetical and that those are the two primary functions or the two uh most important functions of the New York Federal Reserve in addition to of course is whole different WI a wide gamut of different functions that they do but primar what that make what makes the New York Federal Reserve unique is gold reserves and something called Federal open market operations something that we're going to do today all right so ladies and gentlemen with that in mind as always let's take a look at exercise two this class always shines with their selections of business news especially because we have elections coming up in about one and a half months ladies and gentlemen and then perhaps if you I'm sure you have read the news this upcoming election is one of the most important elections in about 25 years perhaps because what happens in the United States the United States being the most powerful nation state in the world has repercussions globally so with that in mind let's take a look at selective business news that appeals to your personal interest then please prepare a proof summary so talking about that 20% participation ladies and Gent from your final grade who would like to kindly share those anal analyzed business news business news who would like to share their business news ladies and gentlemen just in case who would like to share their business news all right so we have a thank you very much Miss bukar and Mr Nicolas Sanchez in that order please so go ahead Miss bukata let's everybody pay attention please uh LinkedIn is using its user data like post articles and uh artificial intelligence models some people are super upset because LinkedIn automatically opted everyone into this without asking for permission first users are calling for C campaigns to stop auto enrolling people in such progress and give them a choice up front thank you very much Miss bukar indeed this is something that is happening all the time every time all of us are clicking that click for a like or dislike or a comment it's being analyzed so we are not just consumers you all of you ladies and gentlemen all of us are data generators what data think about it you go to websites you shop online you purchase things you travel you chat you post you like you dislike all of that is data terabytes of data maybe even more large very huge large or very large data sets they're analyzed what is the importance here connecting to miss bat's point when you generate so much such a massive amount of data on a daily basis how do you Analyze That Excel cannot handle that because the data is so huge so you in you have special computers and you have of course artificial thinking machines let me put it that way thinking machines and artificial intelligence and machine learning are used to extract Trends Trends Trends what are your favorite first I give you an example for instance connecting to miss BK's Point what are the favorite topics for let's say college students college students studying business in the metropolitan area of New York what are the top five companies and when do they choose to apply all these things if companies can extract that kind of information they can turn things around on you and say Well they're going to bombard you with that saying we can help you get a job if you're a business and they will put specifically they will monitor what are the hours where they have the highest traffic and then that's how they bombard you with ass notice ladies and gentlemen I give you another example how Amazon Amazon uses tremendous amount of artificial intelligence with days and what they do have you noticed how those suggestions for potential products based on your prior browsing history they get better and better and better every day that's because they're using artificial intelligence and very Advanced on the cloud machine learning that helps them predict your tastes so that they can of course do suggestions to make money and become profitable excellent point uh Mr Sanchez my apologies to keep you waiting sir do you wish to share your news sir uh ahead of the upcoming election former president Donald Trump threatened well-known agricultural manufacturer John Deer with a 200% tariff as the company moves production from the US to Mexico the company's decision Sparks controversy as their website claims their commitment to us manufacturing and its investments in American factories and workers the move to Mexico would shut down facilities in Iowa where many Americans will be laid off as a result Trump also used the opportunity to call out aut mobile manufacturers that currently have production facilities in Mexico thank you very much Mr Sanchez absolutely true if you recall when President Trump was um well let me just explain one thing president Trump wanted to have things or products goods and services manufactured in the United States why because they wanted he wanted to have jobs create jobs luckily well that's great except for one thing don't forget for getet to there's always two sides of the story one is of course consumers but the other is the sellers right so if you are a buyer or let me put it this way if you're a seller well that means you're a manufacturer take the case for instance at Mr Mr Sanchez's uh discussion of De John Deere which is a manufacturer of indust of industrial and the production equipment heavy machinery they if they keep Manufacturing in the United States we have high wages we have to pay labor cost overtime Medicare so from a sellers perspective that reduces your profit margins you make less money because it's more expensive to pay an American worker to do the same job whereas if you take the same job and move it across the real grande to Mexico well they're going to pay a fraction of the price ladies and gentlemen and don't forget Mexico has a free trade agreement with the United States a Free Trade Agreement means low tariffs or no tariffs at all so you can import all those goods made in Mexico into the United States or maybe do a combination of both maybe pre-assembled components in Mexico and finalize the product into the United States so if you're an American Consumer that means you or John Deere is going to keep prices relatively stable but if you want to get jobs in the United States get keep the jobs here of course you may want to protect the American workers by threatening like former president Trump did and uh U it's of course open up for discussion but uh the trend seems to be given the fact of global markets and general in general globalization that jobs have been lost here because they have been restructured or reassembled or Taken to somewhere else across the globe with that in mind ladies and gentlemen thank you so much for sharing those outstanding news of course this is an election year so you can imagine what our discussion will look like in about one and a half months when we selected a new president for the United States so with that in mind ladies and gentlemen thank you and let's head down of course into our discussion for today so let me have everybody's attention please excuse me so we talked about Federal open market operations uh excuse me we talked about the federal funds rate we talked about the inflation every time that there is high inflation the FED has to respond by raising interest rates no surprises that was the homework now we're I need to show you a small video related to the federal funds rate and that will serve as a connecting bridge to the topic that we're going to cover today which is US bonds and something called Federal open market operations which is the secondary primary tool of monetary policy at the disposal of the central bank so with that in mind let me just show the video here give me one second please bear with me please let's see here oh video not available anymore all right so we're going to skip the video I'm going to have to search it again links change all the time let me actually take a look if I see if I may be able to this was from Investopedia memories bear with me for one second I'm just going to try to find the link quickly for you because this is an important link by the way this to PDM Federal Federal old federal funds rate video give me one second please uh should used to be here let's see maybe they just shot shot it down Unfortunately they shut it down all right well uh no so they closed that video so that's fine that's fine they just get R they no longer have it I apologize for that so ladies and gentlemen now let's pursue Federal open market operations which is one of the most profound monetary or economics discussions that we can have let me have everybody's attention please before we begin talk about fedal open market operations I need to show you something called a US Bond what what what US Bond b o n d I think David like this one second something that looks like this a US Bond I know it's a little small I know that we have the uh thing here the background and all of that it looks almost like a gigantic version like eight and a half eight and a half by 11 paper piece of paper but it says us Bond I know it's a little small but nevertheless it is an instrument of debt so number one a US bond is an instrument of debt why do we need to know about this because we need to know what a US bond is for us to understand Federal loal market operations and this is how it works everybody's attention pleas this is the most important partner you're not going to find it this in books by the way so here is how the government works everybody's attention please thank you very much much gracias look I am going to pretend that I am the US government so hypothetically speaking pretend please that I am the government the US government needs to pay the politicians the military so they need money right now you each and every one of you are going to play the role of investors investors investors have the money right so look at this relation in which you have what I need which is money you have the money remember you're the investors I need money why because I am running a deficit the United States federal debt is running depth giv the redundancy at the tune of 150% of GDP which is about 45 to 50 trillion worth worth of of federal debt a lot of money ladies and gentlemen how did we get there this is how again I am the federal government and you are the investors you have the money I want I need your money I need a loan so you see I am the government I am ancle Sam I need a loan and you are going to give me that loan because you're investors remember so this is how I'm going to do it I am going to print a piece of paper that looks like this okay and I am going to tell you lend me $100 will you lend me $100 and you're going to say sure for wait a second why why would I lend you $100 well well well because of what you're going to I am going to pay you eight% of $100 which is for every $100 that you buy meaning each one of these I am going to pay you eight bucks in addition so you see I am effectively if I sell you these you're going to give me $100 thank you very much the bond goes to you you have the bond now but I have to pay you what that 8% you see that 8% there 8% that's why so let me explain I know people are saying what what is he talking about ladies and gentlemen you are lending me money only and only because it's in your best interest you make money what money 8% what is 8% of a 100 8 so for every $100 that you lend me the US government I have to pay you eight extra dollars in interest alone and then give you back your 100 bucks so everybody sees that I if you lend me your money I have to pay you interest and then return the original money that that you let me so in your interest is of course making money and in my interest is give me your money because I need money because I need to pay the military politicians social programs the ETC okay so one thing I want to tell you ladies and gentlemen is the only authorized agent in the United States to be able to sell you these piece of paper uh like this is the Federal Reserve Bank of newk York the New York F that's power there very powerful why think about the the New York Federal Reserve controlling or being the only authorized agent to become the buyer or seller of these bonds issued by the United States government this is an instrument why an instrument because it helps this can be tra this can be traded bought and sold and in addition to that it can help the government borrow money because it B when the government sells you a bond you're investors effectively the government is issuing debt because you are lending government money and then the government needs to pay you interest so that is called a Dept instrument a bond is a Dept instrument because it's effectively a loan that's it all right so what the government does is very simple they have something called Federal open market operations and what are federal open market operations again come back here Mr Bond you see buying and selling or these that's it Federal open market operations very important ladies and gentlemen I know it gets technical as as it should by the way but buying and selling of these gizmos is also subject to the two most fundamental forces of Economics what are those two most fundamental forces of Economics ladies and gentlemen that we always go back to who can tell us what are the two most fundamental forces of Economics that we always go back to supply and what else demand and demand thank you Mr Ken absolutely so ladies and gentlemen wakey wakey I know it's Wednesday but uh very important to remember and thank you Mr clan for that we have the two most fundamental forces of Economics don't forget that because everything our Commerce business is all pretty much based on the forces of supply and demand for instance for instance ladies and gentlemen suppose again you are the investors suppose I am selling only one bond that looks like this I am only selling one Bond and all of you want it at the same time H I am only selling one of these and all of you want it at the same time you playing the role of investors ladies and gentlemen what am I going to do with my price of this bun now that I know that all of you want it what am I going to do with my price ladies and gentlemen if I know you're competing and you want this product that I have that's my question thank you very much Miss Jackson I am going to increase the price thank you very much so you see goes back to supply and demand if I have a limited supply of these and if all of you want this us Bond you're going to push the prices up or down depending on the two most fundamental forces of Economics so just like a product the bonds are also subject to supply and demand and that is what Federal open market operations represent okay not only that second point I want to make before before I go back to the presentation question for the class question for the class let's see who's paying attention here can the US government ever fail to pay back the money that they owe in interest to investors can the government ever run out of money to pay the investors that's my question can the government thank you very much Mr K very very good the government cannot ever rent out of money technically speaking of course because they have a monopoly of dollars they can always print more dollars ladies and gentlemen they can print as many as they need theoretical is of course only with within the limited scope of of a theoretical example so my point here is different just like again just like the United States can issue a bond so can the government of Mexico so can the government of Brazil so can the government of France or Argentina or China for that matter so different countries have different bonds and different bonds have different risks associated with not getting your money back after all one thing is to lend money to the United States and a very different thing is to lend government to let's say the government of Venezuela ladies and gentlemen not that I mean to pick on Venezuela but we are we're just doing it just as an example here for academic purposes so you see different countries have different risks because different is a riskier to lend to some countries that are in financial trouble versus the United States so what is my point here my point here is every time a country wants Goose de meaning good bonds they usually buy us us bonds thank you very much US Federal Reserve because they are issuing this along with the US Treasury everybody wants this around the world why because it's safe remember this represent you're lending money to the most powerful nation state in the world if you're buying one of these so that is what makes this so powerful and number two the US can never run out of money as Mr Kent argued which is true and correct because the government can always print more money and pay you your money back end of the story that is why the United States always has demand for those bonds all right in general in general so with that in mind are there any questions about bonds that is they are not clear this is what you kindly did to ask because I'm going to head down now into Federal open market operations are there any questions ladies and gentlemen or anything that it may not be clear just in case just in case yeah I have a question Miss vuk thank you very much go ahead please uh is it like eight% for bonds like stable or they increase sometimes like ah very good very very good question we're going to tackle that question too so miss Veronica is asking a very good question which is uh something that looks like this is this interest rate stable that's a question and the answer is no it is not why because the Federal Reserve targets a specific level of interest rate that they want to achieve via Federal open market operations something that we're going to cover shortly so what matters is from a from an Investor's perspective if I sell you if I am the Federal Reserve and I sell you one that says 8% you're say thank you I am going to get 8% interest rate on this now suppose two weeks pass by and now I sell you one but now give me one second please Suppose there is another Bond but now that Bond pays 10% Pretend This is another Bond ladies and gentlemen I know my handwriting is atrocious I apologize for that but now pretend that this is another bond that pays you 10% H what are you going to do ladies and gentlemen suppose first of all let me ask you simple question what interest rate do you prefer to get you're getting money do you prefer to get 8% $8 or do you prefer to get $10 ladies and gentlemen which one looks better for you of course 8% as low as you know it can be possible very good so well one I want to clarify something here if you are getting paid for Lending government to the United States government if you're lending uh then if you get 10% you get $2 more versus $8 right so that means you're probably going to sell the eight Bond the 8% bonds and buy the 10% bonds because you just make more money when you are lending government if I am on the other hand the bar over ouch because that means of course like you're implying I'm going to have to pay more for my debt to borrowed that money so that means interest rates change in accordance with Federal open market operations which means again come back Mr Bond somewhere here buying and selling of these that's it they will Target the specific interest rate based on feral open market operations very good point by the way all right are there any other questions ladies and gentlemen before we proceed with this discussion any other questions all right uh uh yes and that's 8% on top of the 100 and 8% is only a hypothetical example in reality that may be more like 4.25% I'm just responding to Mr Ramirez's point so let's go back to the presentation ladies and Gentlemen let's go back to our presentation here and let's see here what we got all right everybody's attention please introducing Federal open market operations ladies and gentlemen and what is feral open market operations buying and selling of us Bonds on behalf of the unit United States government and that means for us buying and selling electronically from or trading via the the trading desk at the New York Federal Reserve a trading desk is a room full of computers and networks in which they buy and sell electronically these us bonds they used to be made on paper and of course investors will just go to the Federal Reserve and then they will compete and they say buy sell and this this that used to be the good old days of trading in person something called a pit trading because it was a floor a trading floor in the pit in which buyers and sellers will meet and Yale their orders back and forth now no longer H that no longer happens all of that is pretty much electronically ladies and gentlemen so how does that connect to our previous discussion specifically what are the profound intricacies of Federal open market operations within the context of microeconomic policy for the United States so let's go over 2.1 here when the FED sells bonds to investors this is the key Point everybody's attention please this is very important part when the FB sells bonds to investors investors give their cash to the FED obviously the investors have the money the FED acts as a lender or a borrower in this case he will be a borrower if the FED sells bonds to invest s investors give their cash to the FED obviously to pay for the bond these at the end of this transaction investors have so given the money to the FED in EX in other words lending to the federal government and the fed or the and the US Treasury have sold the bond which is an asset to the investors at the end of this transaction or at the end of this um um well yes transaction for lack of a better word the money supply in the financial system has been reduced why the FED has the money why because the investors pay for that bond that they have now so invest investors give the cash to the fed and this leads to monetary contraction ladies and gentlemen that is very important for you to know if the FED sells the bond the bond goes to you the investors and investors how do you pay for the bond you give your money to the FED at the end of this transaction you have less money you just spend it so that leads to monetary contraction of course when I say investors I mean hedge funds companies banks in general the American economy and Market participants uh now let's take a look at the other point suppose now that the opposite happens everybody with me please I'll be asking questions shortly thank you very much suppose Now ladies and gentlemen that the opposite happens remember you have the bond suppose now the FED suppose I am the fed you have the bond which you just purchased in 2.1 now I am going to buy the bond back from you so you are going to sell me that Bond remember these are tradeable meaning they can be sought bought and or sold so the FED buys the bond from investors and the bond go to the feather to me and how do I compensate you for that I have to give you the money to pay for that Bond's purchase that's what this is referring to at the end of this transaction the money targets the the money supply has been expanded because I get purchased the bond from you but I am the FED giving you money for paying for that purchase price or the bond at the end you have more money you don't have the bond I understand but you have more money and that is called monetary expansion ladies and gentlemen see so we have two things going on which is essential for you to know if the FED wants to contract the economy they are going to sell bonds very important and you you're wondering why why does the FED why would that lead to monetary contraction let's think for a moment please which is essential Here If the Fed reduces first of all inflation let's think about inflation inflation can potentially as some economists have defined it in the latter half of the 20th century it's defined potentially as too many dollars chasing too few goods in other words too much liquidity liquidity is having too many dollars floating around so if there is too many dollars floating around people who have money they spend it and people who spend it well what happens to inflation I have a question here for the class let me just show my face here connecting to this topic when we have the pandemic and the government issue stimulus checks to some of your to some people including potentially some of your families as well I don't know what happened when people received those stimulus checks did they all just save the money or did they spend it anybody can tell us here what happened what was the story behind this ladies and gentlemen thanks pend thank you very much people went on shopping spree they purchase TVs they purchase a lot of entertainment PlayStations of course some of them save it too but most people spended it h if everybody spends at the same time what is going to happen to prices ladies and gentlemen if everybody has a lot of money and everybody's suspending prices are going where they're going thank you very much there's only one One Way remember supply and demand same thing so demand if if if everybody has money Merchants are going to know this that ah everybody's walking around the low death I'm going toate I'm going to increase my prices if you're a seller so that's exactly what happened so let's go back here and connect it to of course Federal open market operations um here see this here here we go so if the Govern if there's if people have if there is too many dollars floating around inflation usually goes up so how does the FED react they say uhhuh there is too many dollars floating around we need to contract the money supply and that means we're going to sell bonds if they sell bonds the investors the country or the people rather including investors of course pay they give up their cash to the fev in exchange for the benefit of the bond the bond pays interest that's why they will lend money of course so at the end of this transaction there was there is going there is going to be less money floating around and that serves as an as an inflationary control mechanism ladies and gentlemen that is the important part here not just the definition it's essential to for you to know how this happens especially in an election year like I keep reiterating now suppose the opposite happen happens ladies and gentlemen suppose suppose that the government that we have a pandemic or an act of God or of or a major disaster or economic slowdown or something very serious Whenever there is an emergency such as covid the government responses was well let's give people money so that they so that business economic activity is not going to slow down when they do that what they do is they buy bonds Buy bonds yes I know at least a quarter reviewer saying what how does that even happen ladies and gentlemen think for a second if there is bonds and investors have bonds and the government needs to issue liquidity if the government wants to do monetary expansion what they do is they just sell bonds why I mean buys bonds excuse me so they the government I am the FED I buy bonds from you I need to pay you for surrendering that Bond so to speak or selling me that Bond and I have to give you dollars at the end of this transaction you no longer have the bond but you have money and that's what it's called monetary expansion so you see there is no discussion on Federal open market operations unless you know what a US bond is ladies and gent and US bonds are the most important uh depth instrument in the the world because they're safe hey they repr per at the end of the day if you buy a bond us Bond you're lending government to the most powerful nation state in the world the largest economy in the world responsible for about 20 to 25% of the entire Global GDP ladies and gentlemen so that means of course the prestige and less risk associated with that um so one last point the FED cannot force Banks to borrow at a specific rate Direct directly meaning the federal funds rate so how does that connect to the federal funds rate itself well what they do is they target a level of buying of us Bonds on behalf of US Government I will have to say more about it specifically that last point but I want to make an very an equally important Point here ladies and gentlemen let me just show my face for one second so we agree again come back Mr Bond there we go so we agree that this is the bond is this is this is the most power is the best quality one everybody every country in the world likes these us bonds why they're safe they get interest on top of that if you buy this so you make money for every hundred bu bucks that you earn in these or a thousand you get 8% plus your money back and it's safe because the US can never run out of money to pay you investors but it's even gets even more interesting connected to business and you're going to be surprised how things to work out in international business and international trade number one question for the class where is most of your clothing manufactured where is most CH China I think you very much China is the manufacturing our house of the world of course of course so think about it for a second every time you buy in the United States clothing such as this t-shirt made in China well you are giving your dollars and those and in exchange you get your clothing I get that but what happens to the money that the dollars that you with which you pay or you buy that t-shirt well those dollars go back to China yes somebody has to pay those manufacturers in China in Shanghai and in Beijing all those great cities somebody has to pay them right and that's straight your dollars make their way you by Chinese made Goods those dollars you give those Merchants your dollars and those dollars go back across the Atlantic electronically to China ladies and gentlemen okay and China now has a lot of billions trillions of dollars accumulated because the excess trade that they have versus us meaning we buy more from them than they buy from us it's just what it is ladies and gentlemen so I have a question for you again going back to the American Consumer we choose to buy maid in products made in China well every time you do that you are given Chinese manufacturers your money your US dollars so the the dollar that you were that you bought for with which you buy Chinese made Goods uh in the American markets they those dollars go back to China question for the class what do you think those dollars are going to do do you think that the in this case Chinese manufacturers and hedge fund managers and all of that they're going to let those dollars collect dust or sleep or put it under the mattress like my grandparents used to do or does anybody know a very good investment that offers 8% 8% and it is V virtually risk-free have you seen this before ladies and gentlemen and that buy us bonds excellent Mr Ken that's it so you see every time look at those t-shirts and your pants and all of that and the all things that we buy from China every time you buy those items you are surrendering your US dollars to Chinese manufact factors whether that's good or bad that's not that's a political science question we are not engaging in political science here it's just a business and that business grows over time and Chinese manufacturers get those dollars and then their government buys us debt on the behalf of China ladies and gentlemen so we are we buy from them they buy from us and it's essential because if they lend to us we can keep interest rates low here if they wouldn't be able to buy our bonds we will pay even higher interest rates ladies and gentlemen so you see how important this trade is for business it's a symbiotic relation if you would they help us we help them they help us now you're you're asking but professor gave us a figure how much money has China accumulated because of the afford mentioned process ladies and gentlemen about one trillion dollar between China and Japan they have about approximately approximately two trillion dollar worth of us bonds ladies and gentlemen $2 trillion dollar that's more than twice the GDP of Argentina ladies in gentlemen just to give you a measure of that and why and that leads to question question let's see now who's paying attention why would any government even if they don't like us or even if we have different deferring or very different vastly different political systems or may even they may be our competitors why would they buy our us Bonds in the first place even if they may not even like us why would a foreign government or Nation buy our us bonds effectively lending money to the United States ladies and gentlemen that's my question the money the money is guaranteed like it's going to come back very good so Mr Ramirez is a future Trader there absolutely and what else ladies and gentlemen what else why would you lend money because of that how do we call that 8% a word that begins with an i we call that interest interest thank you very much so you see that 8% ah is risk-free because the US government gives you dollars they can never run out of money the government is not going to collapse nobody is really challenging us directly yet as of the world power that is why and ladies and gentlemen I hope you appreciate the fact that uh trade helps keep interest rates low here in the United States by the afford mention mechanism who would have thought as a byproduct of globalization and trade that foreign governments want our us bonds because the prestige and risk free profits it's essentially risk-free because the government can never go bankrupt in theory at least in theory and the when you buy you get US Dollars you all that is backing the value of the dollar again is of course Faith your faith in the government institutions in the Federal Reserve in our political leaders Etc so with that in mind ladies and Gentlemen let's head down now into the second component of this question uh which is Federal open market operations let me just give me one second here and oops now actually what I want to do now is I want to concentrate on the small Excel exercise like I promised I was supposed to do it on Monday but I postpone it until today because I wanted to you to have the weekend to think about it so we're going to put our Excel hats on and we're going to take a look into Excel just give me one second please give me one second if you will kindly let me give me one second here I want to do an Excel trend exercise and this is important because I need to show you how to find the trend in Excel this is is very very simple no need to make it complicated or anything like that no first of all ladies and gentlemen I'm going to give you data that looks like this okay I'm going to give you data I need you to produce a graph that looks like this just create a graph as simple as it gets and most importantly I need you to insert a trend what is a trend these line that you observe there you see the dash line there ladies and gentlemen that means is is a is in this case we're looking at Amazon the price of Amazon's stock when I say stock I mean ownership a piece of paper that represents Co ownership and is tradable for Amazon as a company okay now now I need to know if I give you data such as this older data between 2020 and monthly and this is uh monthly prices if you looked at this look at the spacing is beginning August 2020 headed all the way to July of 2021 these are prices for Amazon these are older prices I need you to number one do two things only only two things ladies and gentlemen I need you to create a graph we already know how to do that and I Need You Now to create a trend insert a trend what is this trend the dash line why is this important because I want to answer a very simple question is the company value going up down or moving sideways or staying flat some people say so the way we answer is is very simple we insert this trend that's a trend and what is this trend from basic basic high school algebra a trend for us a trend is a line and what is a line remember from your basic high school algebra y = mx plus b that's it that's an equation of a line what kind of line we call it slope intercept form what is that well where m is called the slope and here you remember that if I tell people slope they say what what was that well this rise over run remember from high school that's it another word for slow by the way is inclination by the way inclination that's it so think about it for a second uh well just give me one second I'm going to give you examples so that you understand how this works and B that we talk about m m here is the slope why is the slope rise over run or the inclination the higher the slope the steeper the curve the lower the slope could be negative then the lower inclination may be headed down or if the slope is zero it's a horizontal line meaning it has no inclination obviously now what is B meaning this B That You observe there that b is called the Y intercept so let me just put it here y y right intercept and that Y intercept is a number could be positive could be negative could be even a fraction it tells you where the what where this line here if I extended extended to the Y axis the point where it will cross so that's what this says here ladies and gentlemen what we're going to do is very simple just give me one second because I'm going to start this from scratch I give you an example now for a line an example of a line in slope intercept form is for instance y = to 5x plus 3 this is an example of a SL line in slope intercept form where five is my slope or rise over run that plays the role of M look at that that five and here what is another word for slope by the way let's see who's paying attention what is another word for slope ladies and gentlemen inclination thank you very much Mr juriel inclination that means these for every unit that you run you're going up five units remember the rice over run that's what it is and B is your Y intercept where the line this line will cross the Y AIS so I need to show you two things I need to show you how to create this beautiful graph if I give you the data and number two I need you to know how to insert this dotted line and also produce an R square value that we're going to discuss next time but for now look what I'm going to do let me erase everything I'm going to do this from scratch by the way from scratch so everybody's attention please because this is this will be part of your homework this is what we're going to do I'm going to give you data what data something that looks like these what is your job you're going to have to number one create a graph number two insert a trend line for the graph and why do we need a trend line because that tells us the direction of the stock or whatever is it that we want to do for instance is unemployment going up or down how do you know a trend line so those it's inflation going up or down how do you know if inflation is going up or down or staying flat well you insert the trend line is production or Manufacturing capacity in the United States or labor participation rate going up or down how do you know you can insert the trend line most of the times it works sometimes it doesn't but most of the times it does of course with some slight differences that we're not going to get at least into detail right now so everybody's attention let's complete the task what are the task here task number one create a line create a graph a graph of what of the stock that's it everybody sees this task number one so look what I'm going to do step number one select the data that's it I just selected the data nothing more step number two in this case go to insert in the ribbon up there this is called the ribbon up here let me actually show give me one second here I want to show the um uh all these here so I'm going to go into home look at that insert this all this is called the ribbon let me just pain it down just in case look at that and under insert again you you need to select the data like this now you go into insert the insert tab up there and then you head into charts look at that these are all charts click charts step number four look at that this is a scatter plot I just I didn't even click I just moved my mouse to where where it's scatter this and I have these option I have different types of scatter graphs like scatter with straight lines and markers I in my case I am just going to do something that looks like perhaps this one which is scattered with straight lines and markers I am going to click that one finally now so I'm going to click it that's it let me repeat it let me repeat it just in case look at that highlight all the data oh excuse me highlight all the data like this go into insert go to charts click scattered and select this graph here excuse me this one that says scattered with straight lines and markers that one let me actually here you see this I'm going to minimize a little bit of the graph here so that I can have it more a little bit easy visualization there like this everybody sees this so I have the graph nothing new let me just tell you see if you click the if you click the white area here and you see these points you can drag I am dragging the points to minimize or maximize my border you see let me click this point here so you can just move it or tailor it to your needs but I have a question why is this Amazon's price is it going up or down what is the trend and we need to insert the trend which is our second task so let me slow this down let me say task number two task number two create or actually insert my apologies insert a trend line trend line and our Square okay so that's what we're going to do for these all you need to do is know where to click notice ladies and gentlemen I have the beautiful graph here all I want to do is Click any of the blue dots what blue dots you see this you see that you see this dots I am going to just go you can pick any anyone like I can go like mini mini miny mo and then you can say choose the last one and go and look what I'm going to do I'm going to rightclick right click your mouse I am right clicking your M the mouse I'm going to see you see this add a trend line ladies and gentlemen very important select add trend line now I'm going to click at trend line that brings the format trendline menu right away the default option is linear linear so that's what we need to select but what did I say we need to do we have to insert a display equation and chart and our Square value in chart so everybody Sayes the last two options I need everybody's attention please because you're not going to find a more straightforward video Rel related to this ladies and gentlemen look what I'm going to do I am going to add the equation and the chart just by checking that box there with my mouse what box look at the kind look at the menu kindly on the right check display equation there and then check display our squar there I know it's a little uh give me one second here one moment please because the memory Excel is running out of memory I'm going to do it again excuse me please for that the problem is sometimes is that Excel of course you see it's there but Excel doesn't show it simply because I am running out of memory don't forget that I'm broadcasting recording and using five six different Windows here so let me repeat the entire process ladies and gentlemen let me say this step number one right click any of the blue dots I want to insert a trend line and R square value on my data step number two select add a trend line SE then check the last two boxes display equation and chart and display r squar value there and once I do that and let me see if I move this around you see they are there bingo so you can move this around how can you move this around just click on that little Legend on top of that and then drag the Border you just need to drag that border like click here you see that little border there that's how you can get it ladies and gentlemen I have a question for you is this good news or bad news well I have a question how do we call this number here in front of the X which is the m value look at that on the right we how do we call that by the way this 67 96 is that b or is that M by the way that's m thank you very much Miss marado excellent that is our slope remember ladies and gentlemen that's our slope also known as the rise over run also known as the inclination well now let me ask you if it's positive that means look at the sign look at the sign positive or negative you guys are going to help me positive positive thank you very much and that means we have a positive slope a positive slope means it is increasing over time and that explains why this line is going up so we are all we are doing here is just to answer the chestnut is transfering creating using data to create a graph and insert a trend line that's all we're doing that's it so this is good news imagine if you were doing unemployment if you were doing unemployment and you see that the trend has a positive slope that is bad news if these were If This Were unemployment this would have been bad news because you don't want unemployment to go up especially in an election year ladies and gentlemen okay so that is what we are doing here just in case for everybody who wants to see this again I'm actually going to do it and then we will call it a day everybody's attention please look at that number one step number one select your data step number two Go go to insert step number three go to scattered step number four select scatter with straight lines and markers this option here you see that click there then you have to uh reshape this I know it's a little it's just too much information there so let me just let me just squeeze this and make it a little bit more manageable just bear with me kindly please here we go I am just dragging the borders and then what am I going to do here what did I say we need to do let's see who's paying attention here ladies and gentlemen what do we need to do to activate the trend line menu I have to select what I have to select yes right click one of the dots ah thank you very much both thank you thank you thank you both I'm going to click any of the dots heck let me choose the first one go now to add trend line you see and last but not least CH check the last two boxes move perhaps this a little bit slide it over ladies and gentlemen and you're done you wondering now why do we need to do this the reason is at some point we're going to have a midterm presentation I'm going to make a formal announcement on Monday and you are will be required and you of course will have like about a month's time or thereabouts to prepare it and you will be required to have some data and some graph obviously which nobody nobody's going going to look at these by the way all presentations are always graphs people love graphs so you're going to choose something that you can graph so that you can present to the class and something for which you can insert a trend why Trends tell story is an employment going up is it down is GDP of the United States going up or down is trave going up or down ladies and gentlemen so that is why so we're going to keep it simple and to the point point and again ladies and gentlemen you're not going to find an easier explanation anywhere with that in mind are there any questions are there any questions about what I have done here are we going to be using those dates uh I am going to be sending the data to make your life even easier how about that Mr K okay yeah so I'm going to be sending the data for you to make everybody's life easier yes your book so and is go ahead only homework no well I'm going this is going to be one of the problems within the homework because don't forget we already covered no material so I'm going to give you like two three problems for the homework including one simple Excel exercise for which I am going to be giving you the diet okay all right ladies and gentlemen with that in mind let me just pause for one second here oh wait uh what are we gonna say what do you want us to save the file as ah very good question you know I'm going to give you an extra point for that Mr K very good question thank you ladies and gentlemen here is the kicker of the story and thank you again to Mr con for that look I want you to say this as Excel why is this important because look how easy it is to destroy your model if you don't know how to save it ass look what I'm going to do everybody's attention please go to file go to save ass save as I'm going to just select my location like in this case this one I need you all to save it as an Excel workbook I know it's a little small I apologize I cannot make this larger well actually I think I can make this larger but no I can the the font size wouldn't be larger but everybody sees that the option is save save as type under save T as type I need you to show Excel workbook Excel workbook why is this important because if you're not careful look up all these different things there like CSV file comma The Limited no don't get confused here save it as an Excel workbook please you're going to click save say yes and B and done okay any other questions ladies and gentlemen any other questions what do you want to name to name it at what do you want us to name it oh well in that case I already answered that question because is part of the first day of class in which I showed you how to label your files did I I showed you how to do that label your files accordingly first day of classer absolutely okay any other questions any other questions do you want us to name it Excel no like your name I already explained that Mr K in the first week of class right dat night in which if you go back to your lectures you're going to see that I ask you to save as homework number comma your last name comma your first name I went over that in detail in the first week of classes absolutely uh Miss wank you have a question go ahead please if you would yeah you just talk about the midterm exam before so is it any information about midterm so far ah very good question Miss Wang is already asking about the mm so I am going to talk about that in detail on Monday's class because I want to set you up for success and give you enough time to prepare for it of course of course so I'm going to talk about extensively on Monday's class all right regarding the M okay thank you my pleasure with that in mind ladies and gentlemen are there any other questions about what we did today are there any other questions just in case any other questions all right then so with that in mind let me just to stop here ladies and gentlemen and once again uh just don't go anywhere please since I need to double check the attendance and leave everybody a fa chance of course just bear with me for one moment please stay here for one second please thank you very much for that for every par patience did anybody arrive late after I called your names just in case just in case there anybody arrive way all right if not ladies and gentlemen let me just pause the recording