0:00:00.810,0:00:06.350 So in a normal economy[br]we know that employment 0:00:06.350,0:00:09.250 will drive overall demand. 0:00:09.250,0:00:12.690 If we have high employment[br]or low unemployment, 0:00:12.690,0:00:14.590 then people are going[br]to have more jobs, 0:00:14.590,0:00:15.920 and they're going to[br]have higher wages, 0:00:15.920,0:00:16.970 and that will have[br]higher demand. 0:00:16.970,0:00:18.900 Or if the other way goes[br]around, if they lose their jobs, 0:00:18.900,0:00:21.430 demand is going to go down,[br]wages will start to go down, 0:00:21.430,0:00:24.030 and people aren't going to[br]have money in their pockets. 0:00:24.030,0:00:26.610 So employment drives demand. 0:00:26.610,0:00:28.440 And we can view the[br]demand-- and I'm 0:00:28.440,0:00:30.730 making a huge[br]simplification here-- 0:00:30.730,0:00:33.670 demand will drive production. 0:00:33.670,0:00:36.280 Or maybe we could[br]think of it as supply. 0:00:36.280,0:00:42.560 It'll drive supply, and it[br]can also be a driver of price. 0:00:42.560,0:00:46.130 And of course, there is a little[br]bit of a negative feedback 0:00:46.130,0:00:47.800 loop for both of these things. 0:00:47.800,0:00:50.840 If the demand is high[br]and the price goes high, 0:00:50.840,0:00:53.060 that might produce a little[br]bit of negative feedback 0:00:53.060,0:00:54.280 on the demand. 0:00:54.280,0:00:57.090 Instead of an arrow, this line[br]here means negative feedback. 0:00:57.090,0:00:58.970 I'll put a little[br]negative sign here. 0:00:58.970,0:01:01.860 And let's say the demand is high[br]and then the supply goes high. 0:01:06.050,0:01:07.550 Well actually, the[br]supply going high 0:01:07.550,0:01:10.110 would drive the[br]price going down. 0:01:10.110,0:01:13.130 So maybe I should draw a[br]negative feedback like here. 0:01:13.130,0:01:16.000 High supply would[br]mean lower price. 0:01:16.000,0:01:18.360 But that's not what I want[br]to focus on in that video. 0:01:18.360,0:01:20.360 And we could keep[br]adding more lines here. 0:01:20.360,0:01:22.970 But this is roughly[br]simple take on it. 0:01:22.970,0:01:26.820 But the general idea[br]is supply and price 0:01:26.820,0:01:30.800 will then drive corporate[br]profits, or just profits 0:01:30.800,0:01:33.300 in general, even for an[br]individual business owner. 0:01:33.300,0:01:38.850 And then profits are[br]going to drive employment. 0:01:38.850,0:01:40.390 Now, let's imagine a scenario. 0:01:40.390,0:01:44.567 We are in a bad economy, maybe[br]a depression-like economy. 0:01:44.567,0:01:46.400 So in that situation,[br]you could start really 0:01:46.400,0:01:47.590 at any point in this circle. 0:01:47.590,0:01:49.100 I'll just start at employment. 0:01:49.100,0:01:51.890 So let's say employment[br]is really low. 0:01:51.890,0:01:54.640 That's going to make[br]demand really low. 0:01:54.640,0:01:56.700 And if demand is[br]really low, then supply 0:01:56.700,0:01:59.550 is going to go down, and[br]price is going to go down. 0:01:59.550,0:02:01.520 And then that's going[br]to make profits go down. 0:02:01.520,0:02:04.400 And that's going to make[br]employment even lower. 0:02:04.400,0:02:07.520 And so what we find ourselves[br]in this kind of recessionary 0:02:07.520,0:02:09.570 or depression area[br]environment, this 0:02:09.570,0:02:11.525 would be called a[br]deflationary spiral. 0:02:17.380,0:02:19.300 And it's a spiral[br]because a bad economy 0:02:19.300,0:02:20.860 is driving lower[br]prices, which is 0:02:20.860,0:02:23.260 in turn driving a bad economy. 0:02:23.260,0:02:25.680 And to make matters worse, if[br]this continues long enough, 0:02:25.680,0:02:28.080 or if these price declines[br]are severe enough, 0:02:28.080,0:02:29.690 you could imagine[br]people saying, look, 0:02:29.690,0:02:31.930 I have this dollar in my pocket. 0:02:31.930,0:02:34.020 I'm not going to spend[br]this dollar because, one, I 0:02:34.020,0:02:37.570 might lose my job[br]at any moment, and I 0:02:37.570,0:02:39.810 know that that dollar is[br]becoming more powerful, 0:02:39.810,0:02:42.810 that I can buy more[br]every minute that I wait. 0:02:42.810,0:02:45.450 So as the price goes down,[br]so as all of this scary stuff 0:02:45.450,0:02:47.610 happens-- so the[br]employment is going down, 0:02:47.610,0:02:51.000 profits are going down,[br]prices going down-- this 0:02:51.000,0:02:55.150 makes people not[br]hoard goods the way 0:02:55.150,0:02:57.420 that they would do in[br]an inflationary spiral. 0:02:57.420,0:02:58.670 But it makes them hoard money. 0:03:02.380,0:03:04.870 And why it's ultra scary[br]for central bankers 0:03:04.870,0:03:06.580 or for governments[br]is they start to not 0:03:06.580,0:03:08.600 have as much control[br]over the economy. 0:03:08.600,0:03:10.360 They can't just run[br]the printing press 0:03:10.360,0:03:13.080 and try to stimulate the[br]economy in this situation, 0:03:13.080,0:03:15.800 because if they did people are[br]so conservative right now-- 0:03:15.800,0:03:17.300 You could imagine[br]maybe a depression 0:03:17.300,0:03:19.370 is going on for years[br]and years and years. 0:03:19.370,0:03:21.760 And let's say that they take[br]some type of a helicopter-- 0:03:21.760,0:03:24.400 And this isn't how you actually[br]distribute money to the money 0:03:24.400,0:03:27.472 supply, but it's just to[br]show an extreme example. 0:03:27.472,0:03:28.930 So they take a[br]helicopter, and they 0:03:28.930,0:03:30.440 start dumping cash on people. 0:03:30.440,0:03:33.030 They print cash, and they[br]start dumping it on people. 0:03:33.030,0:03:37.400 So every man, woman, and child[br]in the country gets a $10 bill. 0:03:37.400,0:03:39.784 Well, if people are really[br]scared and really afraid, 0:03:39.784,0:03:41.450 they're just going[br]to take that $10 bill 0:03:41.450,0:03:42.810 and stuff it into[br]their mattress, 0:03:42.810,0:03:44.393 and it's not going[br]to change anything. 0:03:44.393,0:03:46.200 That dollar isn't[br]going to actually enter 0:03:46.200,0:03:47.290 into the money supply. 0:03:47.290,0:03:50.259 The velocity on it will be 0.