The one thing to keep in mind is that a lot of people, no matter what the, what the situation is, we have a tendency to fight the last battle. So say we lost a sports game. We focus on you and whatever mistake we did, that's, that's, we're focusing on worrying about happening again. Same thing. When we have a recession, people always assume that the next recession is going to look like the past recession.
Uh, and so what happened in the past recession that the chest nature's nine crisis and then the aftermath was that we had, like, as you pointed out, you know, central bank assets were very small percentage of GDP prior to them, uh, and banks were, were highly leveraged. Uh, and so what happened was when the private sector debt bubble blew up, so real estate values went down.
All these banks were highly leveraged. They had, you know, very little cash reserves. Uh, so they, you know, they, they pretty much went and solvent. Uh, and so the federal reserve and the, and the treasury came in and said, okay, we're going to buy some of these toxic assets from you. Uh, we're also going to buy some of the treasuries from you.
We're basically, we're going to create new base money or check your cheese tokens as you point out. We gave them to the banks and it took some of their assets in return. So the fed, you know, they, they, uh, you know, they took something in return for those assets. Some of those things were worth money, like, you know, treasuries and mortgage backed securities.
Other things ended up being toxic and then kind of, you know, physically. Uh, filter through, uh, and you know, kind of removed from the private sector. Uh, and so however that didn't get out into the, you know, the broad money supply that maze mainly to stay in the banking system, to recapitalize the banks and to help them be more solvent, essentially.
Uh, and so if you looked at broad money supply, it didn't really do much at all from that, you know, that chose Nate to chosen 15 period where they were increasing those bank reserves. So that first leg up it's because, you know, If you were a homeowner and, and you, you know, you lost your job and your, you couldn't pay your mortgage, you lost your house, you didn't get billed out.
Uh, you know, there were minor fiscal programs like cash for clunkers or things like that. There were, you know, the, around the margins, there were these, these fiscal stabilizers, but there wasn't some sort of big kind of public bailout. It was mainly to shore up the financial system. And so some people got bailed out.
Most people didn't, you know, most people on main street didn't uh, and so we didn't have that big increase in broad money supply. Bank reserves are things that, you know, the banks, they hold it with the fed. Uh, and so it's, it's an asset for the bank, but it's a liability for the fed. Then the banks, you know, they, uh, you know, when we have money, like when you were, I have money, we store, if you store it at the bank, that's the bank's liability and our asset.
Uh, and so that, that's the, the part of broad money. And so what made this 2020 to, to, uh, 2021 periods somewhat different than is that broad money supply actually did go up quite a bit. Uh, and that's because unlike the Chesney, nature's nine, uh, all the way through, you know, the years after period, uh, this time they actually did send a lot of money to people.
So they sent people, stimulus checks. If you lost the job and you weren't getting your income, they would send you 400 a week in extra federal unemployment benefits on top of the state benefits. Uh, and so, you know, for some people got literally thousands of thousands and thousands of dollars of stimulus, then you had, you know, the PPP loans that mostly turned into grants.
So they're basically small business loans that were then forgiven in large part. Then you had corporate grants essentially. I mean, they weren't really, they weren't loaned to the most part they were, they were given. And so what that did was that actually increased the broad money supply, because what, the way that the mechanism there works at the treasury, send people money out there.
Like you get a car, you get a car, but he gets a car. Then they issue bonds to pay for that. Uh, but then instead of, you know, private sector buying those bonds and that draining cash on the system, the federal reserve creates new base money and buys those bonds. And so the, the way that it gets into the broad money supplied out of the checky keys area is, is that fiscal component where they literally send you the check.
Uh, and so that's kind of how the 2020 slash 2021 period has been somewhat different than at other period. And why, you know, broad, my splice gone up very quickly. Now there's still some issues like for, you know, for most of the past year, People will have limiters on how much they could spend that money.
Right. So people were mostly skipping their, their, you know, their vacations. Uh, they were, you know, driving less, uh, and they were, you know, mostly staying at home and, and, you know, basically being far more efficient with how they did things and, you know, they, they invested in, in like a second Netflix subscription or, or they bought Disney plus or something rather than go on like a trip to Europe or, you know, traveling around.
Uh, and so that the things they spend money on. Uh, you know, we're not the more inflationary sorts. So energy prices were low. All sorts of things were low that concerned to look out for now is that, you know, people's bank accounts are largely stuffed with cash, uh, and things are opening up and we're heading into the summer and we have these easy base effects.
So now we're in the period where some of that inflation might actually start to, to be more parents is how I'm looking at it. And that's whether, you know, if a banking system fails, you can have bailouts or balance, uh, or, or neither. Uh, and so if you go all the way back in the United States to the, you know, we're talking about the 1940s, let's go back a little bit further to the twenties and thirties.
Uh, you know, when, when did they had that big crash in 1929, then they went into the great depression, uh, you know, uh, banks failed. Uh, there was no FTSE insurance. So if your bank failed and you were deposited, you lost your money. Uh, and. Because of that, we had this big debt bubble collapse, uh, about a third of bank just went out of business, uh, and about a third of the broad money supply just disappeared.
Uh, and so people literally had checking accounts and then those just vanished or where they got, you know, a haircut, they got cut in half and said, this is, you know, we're in solvent. Now we can only, they have to deposit back. And of course that was deflationary. If people have less money. Uh, and it, it generally, it pushed down the prices of a lot of goods.
And then only, you know, years later, as you got into the, you know, the, the, you know, early to mid thirties, uh, they started to do things to kind of unwind that deflationary spiral where they, they devalue the dollar versus gold, uh, which, which helped some bank stabilize. Cause they had gold as reserves. Uh, you know, they basically did a bunch of things to kind of recapitalize the banking system and they started to get that inflationary move out of that deflationary collapse.
Uh, and so. Uh, that that's, you know, that's an example of, you know, no bailout came at least not right away. And so people actually lost their money in their, in their banks. Now, if you fast forward to 2007, 2008, just nine, uh, in the United States, when we had that big, uh, you know, collapse, the banking system, uh, you know, depositors were still safe because instead of letting that happen, They, you know, we, we, we did the whole, like we talked about before we made more of this Chuck E cheese tokens.
Uh, and so, you know, anyone who was, you know, invested in a bank that the bank had an issue that they were still covered as a depositor. Uh, and so we did not have a decrease in the broad money supply. We didn't have, we didn't have a spike either for reasons I described before, we kind of just had. Broad money kind of kept doing his thing during that period.
You know, we didn't really get a spike in money supply until this, these past couple of years. Uh, and so that's why, you know, we had two very different scenarios. Now then if you take that same question, you look at, uh, Cyprus. Now that the difference that a country like Cyprus has is that they adopted the Euro.
Uh, and so they can't that that country can not print their own currency. Same thing for, for Greece. You know, same thing for, for Spain, these countries no longer have the power to print their own currency. They can't decide how many Chucky cheese tokens are in the banking system. Uh, they ha they busy outsource that to, to the broader European system, which they're only a small part.
And so if their banking system collapses, uh, they can't say, okay, we're going to print a ton of money. We're going to make sure every deposit is made whole. We're going to make sure that, you know, they can't, they literally don't have the capacity to do that. It's not even a choice unless they were to break out of the whole European union and kind of, you know, reformat their whole banking system.
So within the current construct of where they were, they literally didn't have the money. So they went out and they said, Hey, can we, can we get a bailout? And then they, you know, if they're denied. Well, then their only option is they say, okay, so if we're going to do a bail in instead, so if, uh, you know, your deposit in that bank, they said, okay, everybody gets a haircut on their deposit.
Uh, if you're, if you're a big deposit or you get a bigger haircut as percentage, uh, and if you're a bank bond holder, you get a haircut. Uh, and they gave, it's funny. They gave people bank equity in exchange for their haircut. And so they said, okay, you'll lose some of your cash, but now you own more of this.
Like, you know, Halfway and solve it back now. So congrats on that. Uh, and so you actually, you know, you've lost money. And so the main thing there, you know, kind of judging whether or not that's likely in any given country is, is that country monetary sovereign, because a monetary sovereign country is able to effectively inflate their way out of it in the sense where, you know, bond holders can still get screwed over by having their bonds feeling to keep up with inflation, same thing for cash holders, right?
So you can still lose value on your deposits, but it's for a different reason. Instead of actually losing the number of units in the system. They can, they can, you know, spread it out and mix it up so that the individual units are worth less. We still have just as many of them, uh, whereas in those countries that, that cannot, you know, they, they, they live in the camp print money because they've, they've joined a union and they've basically outsourced their printing, their, you know, they, they outsource their printer.
Uh, then they have to resort to things like balance. You see a similar thing in emerging markets when they have dollars dominated debts. Uh, and so they, they can't simply print dollars like Brazil can't print dollars or Turkey can't print dollars. Uh, and so if they have it solved and sees related to an outside currency that they can't print, uh, you know, then there's actual risk of nominal default and, and, and, and, you know, localized collapses there, uh, because it's liabilities that they can't print.
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