Expansion. I talked about daily g/ overdrafts. The expansion of the balance sheet of chips, the expansion of the balance sheet of the Fed, in order to make payments possible during the day. And then there's this discipline function, okay, at the end. Where both of them are trying to shrink their balance sheets back down, okay. And the Feds funds market is one way they achieve that. But credit doesn't shrink right, it just moves off balance sheet of chips. It moves off the balance sheet of the Fed. It moves onto the balance sheet of the individual bilateral borrowers and lenders. Here. Okay? Overnight, so it's the bilateral, a bilateral exposure, and it moves onto the balance sheet of the Fed fund's dealers. Okay. So there's this expansion of credit during the day. And then the center of the system, you know, the Fed and Chips are protecting themselves by saying, we're not going to extend these overnight, you do it. Okay, you do it on your own balance sheets. And these are the balance sheets that take it, okay? It's the customer's balance sheets or the bank, the bank's and the Fed funds dealer balance sheets. So if there's some difficulty with the clearing You know, if there's imbalances, if there's payment imbalances in the system you're going to see them as an expansion of Fed funds, credit okay? And expansion of the dealer balance sheets here. So these are symptoms of, of daily imbalances that couldn't be cleared. That couldn't be cleared, had to be pushed into the future, with the hope that maybe tomorrow the imbalance will flow the other way. And if it flows the other way, everything can all be cancelled. But if it goes on for two or three days, maybe it gets bigger and bigger and bigger. and so people are watching these balances. These balances are, are highly sensitive measures. Of the, of the, of the payment patterns in the economy. You can see the quantities and you can also see the prices. Because these prices are made in, in active markets. They're bidding, the, the dealers are watching their balance sheet. And they're seeing you know, oh, there's many more people borrowing from me than lending to me, I'm, I don't want to have that exposure, okay, so I better move my price. Okay? If I want more people to lend, lend to me I'd better, I'd better, better move that price. If I want, If I want more people to lend to me I have to pay them more. So I have to move the Fed funds rate up. And if the imbalances of the direction move the Fed funds rate down, okay, so the Fed funds rate is a market rate in that regard, and we saw. This is not fluctuation in today, okay? In today, this is fluctuation over, over business cycle. but during the day, it fluctuates too. And Stigum talks about some of that in, in, in the book, it fluctuates during the day. So, where does the Fed come in here? Okay. Because we think of and we're used to from our. Intermediate macro class, or something, saying, oh the Fed sets the Fed funds rate. How does that connect up here, okay? Well, the Fed, ha, it does not set the Fed fund rate in that sense. The kind of models you have seen in that regard are not actually true. The Fed is not actually a participant In the Feds fund market. It's not borrowing. It's not lending. It's not doing either, either of these things. That's not what, so how can it be setting the Fed funds rate. It has a target for the Fed funds rate. How does it influence it? Okay. It influences it by manipulating the quantity of reserves. In the economy as a, as a whole by entering in other markets in particular in the Repo market. So we'll see about that a little bit, a little bit tomorrow. But almost everyday stigum makes a very good point here. Now you're used to in your intermediate macro textbooks what does the Fed do, oh it makes monetary policy. And how does it do that? It buys and sells treasury bills in order to expand the money supply or something shift the LM curve you're used to that. Okay. Here I'm talking abut the Fed going in every single day, pretty much every single day trying to anticipate where they going to be imbalances okay and if there any imbalances in payment flows. that are causing the Fed funds, Fed funds market to expand that's going to drive up interest rates and I'm going to miss my interest rate target. OK. If there are imbalances that are causing in the other direction, that's going to drive and I'm going to miss my interest rate target. OK? So I go in. I'm the Fed, and I try to change the underlying quantity of reserves that people are borrowing and selling as a way of trying to influence the need for buy-, for this credit expansion. So I change money. In order to influence credit. How do I do that? The Fed wants to change the quantity of reserves out there in order to indirectly influence the Fed funds rate. Okay? How does it do it? It does it by making over night loans. [SOUND] And I'm going to call it a Repurchase Agreement Loan. Overnight Repurchase Agreement Loan that creates additional reserves, okay. And whatever you're counter-parting for that is borrowing from the Fed and getting additional reserves. Okay? And these reserves if they want to they can lend in the Fed funds market. So you see creating additional reserves if this makes this agent in fact we'll call this a security dealer because that's what it is actually. And we'll, this is just anticipating What we're going to do next time, okay. That, here's a security dealer that is funding his security positions by using by using them as collateral for borrowing from the Fed. All of these words will mean something next time. but winds up with reserves which he doesn't want to have. And so can lend on into the Feds funds market. Okay and that can change, that can make more funds available and put down more pressure on the daily rate, the fluctuation of the rate during the day. Fed Funds Effective, this number here, okay is the average of the Fed Funds Rate during the day During the day, this rate, fluctuates. Also not everyone is charged the same rate, some people are bad borrowers, they pay more, okay, some people are good borrowers, they pay less, okay. So the, this is just an average of the rate that everyone is paying in the market.