Small sample size confidence intervals

WEBVTT
Kind: captions
Language: en

00:00:00.530 --> 00:00:02.780
7 patients blood pressures
have been measured after

00:00:02.780 --> 00:00:05.580
having been given a new
drug for 3 months.

00:00:05.580 --> 00:00:07.960
They had blood pressure
increases of, and they give us

00:00:07.960 --> 00:00:11.010
seven data points right here--
who knows, that's in some

00:00:11.010 --> 00:00:12.330
blood pressure units.

00:00:12.330 --> 00:00:17.440
Construct a 95% confidence
interval for the true expected

00:00:17.440 --> 00:00:21.510
blood pressure increase for all
patients in a population.

00:00:21.510 --> 00:00:24.740
So there's some population
distribution here.

00:00:24.740 --> 00:00:26.930
It's a reasonable assumption
to think that it is normal.

00:00:26.930 --> 00:00:28.990
It's a biological process.

00:00:28.990 --> 00:00:32.560
So if you gave this drug to
every person who has ever

00:00:32.560 --> 00:00:38.630
lived, that will result in some
mean increase in blood

00:00:38.630 --> 00:00:40.730
pressure, or who knows, maybe
it actually will decrease.

00:00:40.730 --> 00:00:42.970
And there's also going to be
some standard deviation here.

00:00:45.730 --> 00:00:47.400
It is a normal distribution.

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And the reason why it's
reasonable to assume that it's

00:00:49.850 --> 00:00:51.580
a normal distribution
is because it's

00:00:51.580 --> 00:00:52.580
a biological process.

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It's going to be the sum of many
thousands and millions of

00:00:55.370 --> 00:00:56.440
random events.

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And things that are sums of
millions and thousands of

00:00:59.370 --> 00:01:02.000
random events tend to be
normal distribution.

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So this is a population
distribution.

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And we don't know anything
really about it outside of the

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sample that we have here.

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Now, what we can do is, and this
tends to be a good thing

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to do, when you do have a
sample just figure out

00:01:19.090 --> 00:01:20.980
everything that you can
figure out about that

00:01:20.980 --> 00:01:22.070
sample from the get-go.

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So we have our seven
data points.

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And you could add them up and
divide by 7 and get your

00:01:27.010 --> 00:01:28.150
sample mean.

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So our sample mean
here is 2.34.

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And then you can also
calculate your

00:01:35.410 --> 00:01:36.980
sample standard deviation.

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Find the square distance from
each of these points to your

00:01:39.380 --> 00:01:43.460
sample mean, add them up, divide
by n minus 1, because

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it's a sample, then take the
square root, and you get your

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sample standard deviation.

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I did this ahead of time
just to save time.

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Sample standard deviation
is 1.04.

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And when you don't know anything
about the population

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distribution, the thing that
we've been doing from the

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get-go is estimating that
character with our sample

00:02:03.210 --> 00:02:04.790
standard deviation.

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So we've been estimating the
true standard deviation of the

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population with our sample
standard deviation.

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Now in this problem, this exact
problem, we're going to

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run into a problem.

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We're estimating our standard
deviation with an n of only 7.

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So this is probably going to
be a not so good estimate

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because-- let me just write--
because n is small.

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In general, this is considered
a bad estimate if n

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is less than 30.

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Above 30 you're dealing
in the realm

00:02:47.830 --> 00:02:49.880
of pretty good estimates.

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So the whole focus of this video
is when we think about

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the sampling distribution, which
is what we're going to

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use to generate our interval,
instead of assuming that the

00:02:58.970 --> 00:03:02.490
sampling distribution is normal
like we did in many

00:03:02.490 --> 00:03:05.180
other videos using the central
limit theorem and all of that,

00:03:05.180 --> 00:03:08.290
we're going to tweak the
sampling distribution.

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We're not going to assume it's
a normal distribution because

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this is a bad estimate.

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We're going to assume that
it's something called a

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t-distribution.

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And a t-distribution is
essentially, the best way to

00:03:18.270 --> 00:03:22.820
think about is it's almost
engineered so it gives a

00:03:22.820 --> 00:03:25.340
better estimate of your
confidence intervals and all

00:03:25.340 --> 00:03:29.170
of that when you do have
a small sample size.

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It looks very similar to
a normal distribution.

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It has some mean, so this is
your mean of your sampling

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distribution still.

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But it also has fatter tails.

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And the way I think about why
it has fatter tails is when

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you make an assumption that this
is a standard deviation

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for-- let me take
one more step.

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So normally what we do is we
find the estimate of the true

00:03:59.090 --> 00:04:01.560
standard deviation, and then
we say that the standard

00:04:01.560 --> 00:04:07.950
deviation of the sampling
distribution is equal to the

00:04:07.950 --> 00:04:11.360
true standard deviation of our
population divided by the

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square root of n.

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In this case, n is equal to 7.

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And then we say OK, we never
know the true standard, or we

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seldom know-- sometimes you do
know-- we seldom know the true

00:04:21.660 --> 00:04:22.400
standard deviation.

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So if we don't know that the
best thing we can put in there

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is our sample standard
deviation.

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And this right here, this is the
whole reason why we don't

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say that this is just a 95
probability interval.

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This is the whole reason why
we call it a confidence

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interval because we're making
some assumptions.

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This thing is going to change
from sample to sample.

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And in particular, this is going
to be a particularly bad

00:04:49.860 --> 00:04:53.380
estimate when we have a
small sample size, a

00:04:53.380 --> 00:04:55.450
size less than 30.

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So when you are estimating the
standard deviation where you

00:04:58.810 --> 00:05:00.920
don't know it, you're estimating
it with your sample

00:05:00.920 --> 00:05:04.320
standard deviation, and your
sample size is small, and

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you're going to use this to
estimate the standard

00:05:07.490 --> 00:05:10.940
deviation of your sampling
distribution, you don't assume

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your sampling distribution
is a normal distribution.

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You assume it has
fatter tails.

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And it has fatter tails because
you're essentially

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underestimating-- you're
underestimating the standard

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deviation over here.

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Anyway, with all of that said,
let's just actually go through

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this problem.

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So we need to think about a 95%
confidence interval around

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this mean right over here.

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So a 95% confidence interval,
if this was a normal

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distribution you would just
look it up in a Z-table.

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But it's not, this is
a t-distribution.

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We're looking for a 95%
confidence interval.

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So some interval around
the mean that

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encapsulates 95% of the area.

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For a t-distribution you use
t-table, and I have a t-table

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ahead of time right over here.

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And what you want to do is use
the two-sided row for what

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we're doing right over here.

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And the best way to think
about it is that we're

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symmetric around the mean.

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And that's why they
call it two-sided.

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It would be one-sided if it
was kind of a cumulative

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percentage up to some
critical threshold.

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But in this case, it's
two-sided, we're symmetric.

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Or another way to think
about it is we're

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excluding the two sides.

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So we want the 95%
in the middle.

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And this is a sampling
distribution of the sample

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mean for n is equal to 7.

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And I won't go into the details
here, but when n is

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equal to 7 you have 6 degrees
of freedom, or n minus 1.

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And the way that t-tables are
set up, you go and find the

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degrees of freedom.

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So you don't go to the n,
you go to the n minus 1.

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So you go to the 6 right here.

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So if you want to encapsulate
95% of this right over here,

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and you have an n of 6, you
have to go 2.447 standard

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deviations in each direction.

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And this t-table assumes that
you are approximating that

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standard deviation using your
sample standard deviation.

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So another way to think of it
you have to go 2.447 of these

00:07:17.680 --> 00:07:20.850
approximated standard
deviations.

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Let me it right here.

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So you have to go 2.447-- this
distance right here is 2.447

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times this approximated
standard deviation.

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And sometimes you'll see this
in some statistics book.

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This thing right here,
this exact number,

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is shown like this.

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They put a little hat on top of
the standard deviation to

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show that it has been
approximated using the sample

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standard deviation.

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So we'll put a little hat over
here, because frankly, this is

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the only thing that
we can calculate.

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So this is how far you have
to go in each direction.

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And we know what
this value is.

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We know what the sample
distribution is.

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So let's get our
calculator out.

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So we know our sample standard
deviation is 1.04.

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And we want to divide that
by the square root of 7.

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So we get 0.39.

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So this right here is 0.39.

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And so if we want to find
the distance around this

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population mean that
encapsulates 95% of the

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population or of the sampling
distribution, we have to

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multiply 0.39 times 2.447,
so let's do that.

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So times 2.447 is
equal to 0.96.

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So this is equal to-- so this
distance right here is 0.96,

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and then this distance
right here is 0.96.

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So if you take a random sample,
and that's exactly

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what we did when we found
these 7 samples.

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When we took these 7 samples and
took their mean, that mean

00:09:22.880 --> 00:09:25.680
can be viewed as a random
sample from the sampling

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distribution.

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And so the probability, and so
we can view it, we could say

00:09:30.560 --> 00:09:36.440
that there's a 95% chance-- and
we have to actually caveat

00:09:36.440 --> 00:09:39.340
everything with a confident,
because we're doing all of

00:09:39.340 --> 00:09:41.010
these estimations here.

00:09:41.010 --> 00:09:43.720
So it's not a true precise
95% chance.

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We're just confident that
there's a 95% chance that our

00:09:47.870 --> 00:09:51.840
random population, our random
sampling mean right here, so

00:09:51.840 --> 00:09:55.870
that 2.34, which we can kind of
use-- we just picked that

00:09:55.870 --> 00:09:59.790
2.34 from this distribution
right here.

00:09:59.790 --> 00:10:12.160
So there's a 95% chance that
2.34 is within 0.96 of the

00:10:12.160 --> 00:10:15.940
true sampling distribution mean,
which we know is also

00:10:15.940 --> 00:10:18.370
the same thing as the
population mean.

00:10:21.820 --> 00:10:25.360
Or we can just rearrange the
sentence and say that there is

00:10:25.360 --> 00:10:33.400
a 95% chance that the mean, the
true mean, which is the

00:10:33.400 --> 00:10:39.770
same thing as a sampling
distribution mean, is within

00:10:39.770 --> 00:10:45.420
0.96 of our sample
mean, of 2.34.

00:10:45.420 --> 00:10:52.460
So at the low end, so if you go
2.36 minus-- if you go 2.34

00:10:52.460 --> 00:10:56.100
minus 0.96-- that's the low
end of our confidence

00:10:56.100 --> 00:10:57.590
interval, 1.38.

00:10:57.590 --> 00:11:01.830
And the high end of our
confidence interval, 2.34 plus

00:11:01.830 --> 00:11:05.260
0.96 is equal to 3.3.

00:11:05.260 --> 00:11:10.610
So our 95% confidence interval
is from 1.38 to 3.3.


Mean and variance of Bernoulli distribution example

WEBVTT
Kind: captions
Language: en

00:00:00.550 --> 00:00:03.820
Let's say that I'm able to go
out and survey every single

00:00:03.820 --> 00:00:07.650
member of a population, which
we know is not normally

00:00:07.650 --> 00:00:09.830
practical, but I'm
able to do it.

00:00:09.830 --> 00:00:13.690
And I ask each of them, what do
you think of the president?

00:00:13.690 --> 00:00:16.620
And I ask them, and there's
only two options, they can

00:00:16.620 --> 00:00:23.230
either have an unfavorable
rating or they could have a

00:00:23.230 --> 00:00:24.480
favorable rating.

00:00:28.900 --> 00:00:32.009
And let's say after I survey
every single member of this

00:00:32.009 --> 00:00:38.240
population, 40% have an
unfavorable rating and 60%

00:00:38.240 --> 00:00:39.760
have a favorable rating.

00:00:39.760 --> 00:00:44.300
So if I were to draw the
probability distribution, and

00:00:44.300 --> 00:00:46.140
it's going to be a discrete one
because there's only two

00:00:46.140 --> 00:00:49.260
values that any person
can take on.

00:00:49.260 --> 00:00:52.160
They could either have an
unfavorable view or they could

00:00:52.160 --> 00:00:55.880
have a favorable view.

00:00:55.880 --> 00:01:01.900
And 40% have an unfavorable
view, and let me color code

00:01:01.900 --> 00:01:02.460
this a little bit.

00:01:02.460 --> 00:01:06.445
So this is the 40% right over
here, so 0.4 or maybe I'll

00:01:06.445 --> 00:01:10.620
just write 40% right
over there.

00:01:10.620 --> 00:01:15.090
And then 60% have a
favorable view.

00:01:19.750 --> 00:01:21.020
Let me color code this.

00:01:21.020 --> 00:01:23.730
60% have a favorable view.

00:01:23.730 --> 00:01:26.660
And notice these two numbers
add up to 100% because

00:01:26.660 --> 00:01:29.500
everyone had to pick between
these two options.

00:01:29.500 --> 00:01:34.450
Now if I were to go and ask you
to pick a random member of

00:01:34.450 --> 00:01:38.040
that population and say what is
the expected favorability

00:01:38.040 --> 00:01:40.870
rating of that member,
what would it be?

00:01:40.870 --> 00:01:44.270
Or another way to think about it
is what is the mean of this

00:01:44.270 --> 00:01:45.740
distribution?

00:01:45.740 --> 00:01:48.980
And for a discrete distribution
like this, your

00:01:48.980 --> 00:01:51.690
mean or you're expected value
is just going to be the

00:01:51.690 --> 00:01:55.310
probability weighted sum of the
different values that your

00:01:55.310 --> 00:01:56.960
distribution can take on.

00:01:56.960 --> 00:01:59.030
Now the way I've written it
right here, you can't take a

00:01:59.030 --> 00:02:02.690
probability weighted sum of u
and f-- you can't say 40%

00:02:02.690 --> 00:02:05.780
times u plus 60% times
f, you won't get

00:02:05.780 --> 00:02:06.830
any type of a number.

00:02:06.830 --> 00:02:09.620
So what we're going to do
is define u and f to be

00:02:09.620 --> 00:02:10.930
some type of value.

00:02:10.930 --> 00:02:16.350
So let's say that u
is 0 and f is 1.

00:02:16.350 --> 00:02:20.330
And now the notion of taking a
probability weighted sum makes

00:02:20.330 --> 00:02:21.020
some sense.

00:02:21.020 --> 00:02:27.550
So that mean, or you could say
the mean, I'll say the mean of

00:02:27.550 --> 00:02:33.710
this distribution it's going
to be 0.4-- that's this

00:02:33.710 --> 00:02:48.790
probability right here times 0
plus 0.6 times 1, which is

00:02:48.790 --> 00:02:51.870
going to be equal to-- this
is just going to be

00:02:51.870 --> 00:02:53.795
0.6 times 1 is 0.6.

00:02:56.700 --> 00:03:00.370
So clearly, no individual can
take on the value of 0.6.

00:03:00.370 --> 00:03:05.190
No one can tell you I 60%
am favorable and 40% am

00:03:05.190 --> 00:03:05.840
unfavorable.

00:03:05.840 --> 00:03:09.180
Everyone has to pick either
favorable or unfavorable.

00:03:09.180 --> 00:03:12.910
So you will never actually find
someone who has a 0.6

00:03:12.910 --> 00:03:13.810
favorability value.

00:03:13.810 --> 00:03:15.320
It'll either be a 1 or a 0.

00:03:15.320 --> 00:03:18.720
So this is an interesting case
where the mean or the expected

00:03:18.720 --> 00:03:20.825
value is not a value that
the distribution can

00:03:20.825 --> 00:03:22.010
actually take on.

00:03:22.010 --> 00:03:27.430
It's a value some place
over here that

00:03:27.430 --> 00:03:28.840
obviously cannot happen.

00:03:28.840 --> 00:03:31.820
But this is the mean, this
is the expected value.

00:03:31.820 --> 00:03:35.580
And the reason why that makes
sense is if you surveyed 100

00:03:35.580 --> 00:03:38.660
people, you'd multiply 100 times
this number, you would

00:03:38.660 --> 00:03:41.850
expect 60 people to say yes,
or if you'd summed them all

00:03:41.850 --> 00:03:44.110
up, 60 would say yes, and
then 40 would say 0.

00:03:44.110 --> 00:03:47.480
You sum them all up, you would
get 60% saying yes, and that's

00:03:47.480 --> 00:03:49.360
exactly what our population
distribution told us.

00:03:49.360 --> 00:03:50.690
Now what is the variance?

00:03:50.690 --> 00:03:53.890
What is the variance of this
population right over here?

00:03:53.890 --> 00:03:57.630
So the variance-- let me write
it over here, let me pick a

00:03:57.630 --> 00:04:02.570
new color-- the variance is
just-- you could view it as

00:04:02.570 --> 00:04:06.640
the probability weighted sum of
the squared distances from

00:04:06.640 --> 00:04:10.250
the mean, or the expected value
of the squared distances

00:04:10.250 --> 00:04:11.040
from the mean.

00:04:11.040 --> 00:04:12.500
So what's that going to be?

00:04:12.500 --> 00:04:14.230
Well there's two different
values that

00:04:14.230 --> 00:04:15.330
anything can take on.

00:04:15.330 --> 00:04:19.000
You can either have a 0 or you
could either have a 1.

00:04:19.000 --> 00:04:23.140
The probability that you get a
0 is 0.4-- so there's a 0.4

00:04:23.140 --> 00:04:25.910
probability that you get a 0.

00:04:25.910 --> 00:04:30.510
And if you get a 0 what's the
distance from 0 to the mean?

00:04:30.510 --> 00:04:35.570
The distance from 0 to the mean
is 0 minus 0.6, or I can

00:04:35.570 --> 00:04:37.880
even say 0.6 minus 0-- same
thing because we're going to

00:04:37.880 --> 00:04:42.770
square it-- 0 minus 0.6
squared-- remember, the

00:04:42.770 --> 00:04:49.030
variance is the weighted sum
of the squared distances.

00:04:49.030 --> 00:04:51.540
So this is the difference
between 0 and the mean.

00:04:51.540 --> 00:04:59.880
And then plus, there's a 0.6
chance that you get a 1.

00:04:59.880 --> 00:05:03.430
And the difference between
1 and 0.6, 1 and our

00:05:03.430 --> 00:05:07.060
mean, 0.6, is that.

00:05:07.060 --> 00:05:13.780
And then we are also going
to square this over here.

00:05:13.780 --> 00:05:15.910
Now what is this value
going to be?

00:05:15.910 --> 00:05:21.140
This is going to be 0.4 times
0.6 squared-- this is 0.4

00:05:21.140 --> 00:05:24.930
times point-- because 0 minus
0.6 is negative 0.6.

00:05:24.930 --> 00:05:30.090
If you square it you
get positive 0.36.

00:05:30.090 --> 00:05:33.130
So this value right here-- I'm
going to color code it.

00:05:33.130 --> 00:05:37.800
This value right here
is times 0.36.

00:05:37.800 --> 00:05:40.860
And then this value right
here-- let me do this in

00:05:40.860 --> 00:05:46.720
another-- so then we're going to
have plus 0.6 times 1 minus

00:05:46.720 --> 00:05:48.650
0.6 squared.

00:05:48.650 --> 00:05:51.600
Now 1 minus 0.6 is 0.4.

00:05:51.600 --> 00:05:56.450
0.4 squared is 0.16.

00:05:56.450 --> 00:05:57.790
So let me do this.

00:05:57.790 --> 00:06:01.900
So this value right here
is going to be 0.16.

00:06:01.900 --> 00:06:05.060
So let me get my calculator
out to actually calculate

00:06:05.060 --> 00:06:06.310
these values.

00:06:09.500 --> 00:06:22.870
So this is going to be 0.4 times
0.36, plus 0.6 times

00:06:22.870 --> 00:06:29.590
0.16, which is equal to 0.24.

00:06:29.590 --> 00:06:37.250
So our standard deviation of
this distribution is 0.24.

00:06:37.250 --> 00:06:42.200
Or if you want to think about
the variance of this

00:06:42.200 --> 00:06:45.610
distribution is 0.24 and the
standard deviation of this

00:06:45.610 --> 00:06:48.190
distribution, which is just the
square root of this, the

00:06:48.190 --> 00:06:50.460
standard deviation of this
distribution is going to be

00:06:50.460 --> 00:06:55.280
the square root of 0.24, and
let's calculate what that is.

00:06:55.280 --> 00:07:00.870
That is going to be-- let's take
the square root of 0.24,

00:07:00.870 --> 00:07:07.330
which is equal to 0.48-- well
I'll just round it up-- 0.49.

00:07:07.330 --> 00:07:11.840
So this is equal to 0.49.

00:07:11.840 --> 00:07:16.230
So if you were look at this
distribution, the mean of this

00:07:16.230 --> 00:07:18.390
distribution is 0.6.

00:07:18.390 --> 00:07:20.250
So 0.6 is the mean.

00:07:20.250 --> 00:07:23.720
And the standard deviation
is 0.5.

00:07:23.720 --> 00:07:28.290
So the standard deviation is--
so it's actually out here--

00:07:28.290 --> 00:07:30.180
because if you go add one
standard deviation you're

00:07:30.180 --> 00:07:32.740
almost getting to 1.1, so this
is one standard deviation

00:07:32.740 --> 00:07:36.900
above, and then one standard
deviation below gets you right

00:07:36.900 --> 00:07:37.440
about here.

00:07:37.440 --> 00:07:38.490
And that kind of makes sense.

00:07:38.490 --> 00:07:43.580
It's hard to kind of have a good
intuition for a discrete

00:07:43.580 --> 00:07:45.310
distribution because you really
can't take on those

00:07:45.310 --> 00:07:47.580
values, but it makes sense
that the distribution is

00:07:47.580 --> 00:07:49.390
skewed to the right over here.

00:07:49.390 --> 00:07:52.520
Anyway, I did this example
with particular numbers

00:07:52.520 --> 00:07:54.270
because I wanted to
show you why this

00:07:54.270 --> 00:07:55.630
distribution is useful.

00:07:55.630 --> 00:07:58.080
In the next video I'll do
these with just general

00:07:58.080 --> 00:08:01.130
numbers where this is going
to be p, where this is the

00:08:01.130 --> 00:08:05.510
probability of success and this
is 1 minus p, which is

00:08:05.510 --> 00:08:07.410
the probability of failure.

00:08:07.410 --> 00:08:09.820
And then we'll come up with
general formulas for the mean

00:08:09.820 --> 00:08:12.930
and variance and standard
deviation of this

00:08:12.930 --> 00:08:15.120
distribution, which is actually
called the Bernoulli

00:08:15.120 --> 00:08:15.720
Distribution.

00:08:15.720 --> 00:08:18.840
It's the simplest case of the
binomial distribution.


American-Chinese Debt Loop

WEBVTT
Kind: captions
Language: en

00:00:00.560 --> 00:00:03.200
Where we left off in the last
series of videos, we had the

00:00:03.200 --> 00:00:13.500
Chinese Central Bank that was
trying to make sure that the

00:00:13.500 --> 00:00:16.800
yuan does not appreciate
too much.

00:00:16.800 --> 00:00:20.620
So the way they did that is that
they bought up all of the

00:00:20.620 --> 00:00:24.730
excess dollars using yuan
that they printed.

00:00:24.730 --> 00:00:30.150
So what they do is, they print
yuan-- I'll do the yuan in

00:00:30.150 --> 00:00:40.360
this blue color-- so they print
yuan, and then they use

00:00:40.360 --> 00:00:44.330
that printed yuan to buy dollars
in the open market.

00:00:44.330 --> 00:00:47.360
And what that does is it props
up the demand for dollars and

00:00:47.360 --> 00:00:51.370
keeps the price of yuan down,
so then they get dollars.

00:00:51.370 --> 00:00:55.820
So they print yuan and
they buy dollars.

00:01:00.140 --> 00:01:03.090
And as we saw, they have to keep
doing this in order to

00:01:03.090 --> 00:01:08.780
keep the yuan deflated,
or in order to

00:01:08.780 --> 00:01:10.860
keep the dollar inflated.

00:01:10.860 --> 00:01:13.100
And this is so that they
can maintain a

00:01:13.100 --> 00:01:14.840
favorable balance of trade.

00:01:14.840 --> 00:01:17.680
But as they do this, they're
just building the stockpile of

00:01:17.680 --> 00:01:18.930
dollar reserves.

00:01:22.620 --> 00:01:24.620
And as we mentioned in the last
video, they're not just

00:01:24.620 --> 00:01:27.510
keeping a big vault of
dollar bills there.

00:01:27.510 --> 00:01:29.760
They're going to use it to buy
assets, and they're going to

00:01:29.760 --> 00:01:31.730
buy liquid and safe assets.

00:01:31.730 --> 00:01:34.030
And the main asset they're
going to buy is

00:01:34.030 --> 00:01:35.890
U.S. Treasury bills.

00:01:35.890 --> 00:01:40.600
So then they take these dollars
and they buy U.S.

00:01:40.600 --> 00:01:41.160
Treasury bills.

00:01:41.160 --> 00:01:42.940
And let me draw some of the
other actors here, because

00:01:42.940 --> 00:01:45.160
they can buy it from two
separate people.

00:01:45.160 --> 00:01:48.870
There is the United
States government.

00:01:48.870 --> 00:01:53.586
So there is the U.S. Treasury.

00:01:53.586 --> 00:01:56.620
They are going to issue Treasury
bills, when they

00:01:56.620 --> 00:01:58.500
essentially just need
to borrow money.

00:01:58.500 --> 00:02:00.560
And then there's other people
that have already bought

00:02:00.560 --> 00:02:01.650
Treasury bills.

00:02:01.650 --> 00:02:03.300
So let me draw them over here.

00:02:03.300 --> 00:02:06.930
So then there are other people
who own Treasury bills.

00:02:06.930 --> 00:02:09.770
So this is someone who owns a
Treasury bill right over here,

00:02:09.770 --> 00:02:11.820
wearing a hat, maybe
with a little bit

00:02:11.820 --> 00:02:13.230
of hair and a moustache.

00:02:13.230 --> 00:02:14.780
So this is someone who
owns a Treasury bill.

00:02:14.780 --> 00:02:19.680
So just to give a review, when
the U.S. government wants to

00:02:19.680 --> 00:02:27.360
borrow money, people hand the
U.S. government money-- I'll

00:02:27.360 --> 00:02:30.890
draw it as a dollar bill, right
over there-- they hand

00:02:30.890 --> 00:02:34.460
the U.S. Treasury money, and
then the U.S. Treasury gives

00:02:34.460 --> 00:02:35.710
them an IOU.

00:02:38.690 --> 00:02:45.690
This IOU is what a Treasury bill
is, and what it entitles

00:02:45.690 --> 00:02:48.240
the holder of this piece of
paper to, it allows them to

00:02:48.240 --> 00:02:51.070
get interest from the Treasury,
depending on what

00:02:51.070 --> 00:02:53.240
type of Treasury bill
or bond it will be.

00:02:53.240 --> 00:02:54.610
It'll be over a certain
period of time.

00:02:54.610 --> 00:02:56.880
I have a whole video on this,
especially the ones where I

00:02:56.880 --> 00:02:58.240
talk about the yield curve.

00:02:58.240 --> 00:03:00.910
And then at some future date,
the U.S. Treasury is going to

00:03:00.910 --> 00:03:05.200
pay them a larger amount of
money than they put back in.

00:03:05.200 --> 00:03:13.030
So this right here is a
Treasury bond or bill.

00:03:13.030 --> 00:03:15.630
T-bill if it's a shorter
duration, Treasury bond if

00:03:15.630 --> 00:03:18.320
it's a longer duration.

00:03:18.320 --> 00:03:19.630
This is a Treasury bond.

00:03:19.630 --> 00:03:22.220
It is a loan to the
U.S. Treasury.

00:03:22.220 --> 00:03:24.450
Now, the Chinese Central
Bank, they have all

00:03:24.450 --> 00:03:25.750
these excess dollars.

00:03:25.750 --> 00:03:28.180
They can buy treasuries from
either two sources.

00:03:28.180 --> 00:03:33.210
When the U.S. Treasury itself
needs to raise funds, it will

00:03:33.210 --> 00:03:35.860
essentially put these
IOUs for auction.

00:03:35.860 --> 00:03:39.740
It will sell them to whoever
is willing to take them for

00:03:39.740 --> 00:03:43.600
the least interest. So let me
put it this way, so what they

00:03:43.600 --> 00:03:46.440
can do is they can give the
money directly to the U.S.

00:03:46.440 --> 00:03:50.240
Treasury, when the U.S. Treasury
puts Treasury bills

00:03:50.240 --> 00:03:52.540
or Treasury bonds
up for auction.

00:03:52.540 --> 00:03:55.670
So it can give the money
directly to the U.S. Treasury,

00:03:55.670 --> 00:03:58.470
and then the U.S. Treasury will
give them one of these

00:03:58.470 --> 00:04:06.450
IOUs, or it could buy it from
someone already has it out in

00:04:06.450 --> 00:04:07.700
the open market.

00:04:10.750 --> 00:04:14.100
This is a very deep, very,
very liquid open market.

00:04:14.100 --> 00:04:17.430
Or they can give these people
right over here money, and

00:04:17.430 --> 00:04:22.089
then they would transfer the IOU
over to this Central Bank.

00:04:22.089 --> 00:04:24.670
So what is happening at
the Central Bank?

00:04:24.670 --> 00:04:27.160
What is essentially
happening here?

00:04:27.160 --> 00:04:30.420
What's essentially happening
is the Chinese Central Bank

00:04:30.420 --> 00:04:34.300
printing money to buy dollars
that it will then essentially

00:04:34.300 --> 00:04:36.800
lend to the U.S. Treasury.

00:04:36.800 --> 00:04:41.110
So it looks kind of convoluted,
but the essence of

00:04:41.110 --> 00:04:44.720
what is happening here is that
the Chinese government, you

00:04:44.720 --> 00:05:01.240
have the Chinese Central Bank
lending to the U.S.

00:05:01.240 --> 00:05:01.700
government.

00:05:01.700 --> 00:05:04.380
And it might be buying other
assets, but the Treasury bonds

00:05:04.380 --> 00:05:07.140
and bills are really the main
form of liquid asset they

00:05:07.140 --> 00:05:08.460
might be buying.

00:05:08.460 --> 00:05:11.230
So how does this affect the
United States, other than the

00:05:11.230 --> 00:05:15.876
fact that instead of owing other
investors these IOUs, it

00:05:15.876 --> 00:05:16.500
now owes it to the Chinese?

00:05:16.500 --> 00:05:19.760
But what is the net effect of
having this player out here,

00:05:19.760 --> 00:05:22.880
having this very significant
player out there, that is

00:05:22.880 --> 00:05:28.620
fairly aggressively willing to
pay for U.S. government IOUs,

00:05:28.620 --> 00:05:29.850
U.S. treasuries?

00:05:29.850 --> 00:05:31.090
What is the effect of that?

00:05:31.090 --> 00:05:34.700
Well, we saw in the yield curve
video that the more

00:05:34.700 --> 00:05:36.900
people willing to give you a
loan, the lower the interest

00:05:36.900 --> 00:05:37.540
rates are going to be.

00:05:37.540 --> 00:05:40.580
And I can show you a very
simple example of that.

00:05:40.580 --> 00:05:44.100
If I'm looking to borrow-- and
I'm no longer talking about

00:05:44.100 --> 00:05:47.410
nations, I'm just talking about
Sal now-- let's say that

00:05:47.410 --> 00:06:01.510
I'm over here, and I'm looking
to borrow $10.

00:06:01.510 --> 00:06:04.510
And I say, hey, who's willing
to give me the best deal on

00:06:04.510 --> 00:06:06.960
$10, and I'm going to pay
you back next week.

00:06:06.960 --> 00:06:14.490
So you might come along and say,
I'll lend it to you for

00:06:14.490 --> 00:06:16.120
10% interest over a week.

00:06:16.120 --> 00:06:25.900
So you can pay me
$11 next week.

00:06:25.900 --> 00:06:28.610
So this would essentially be
10% interest over the week.

00:06:28.610 --> 00:06:31.920
You give me $10 now, and if I
agree to you, then I'll give

00:06:31.920 --> 00:06:33.560
you $11 in a week.

00:06:33.560 --> 00:06:34.900
That would be 10% interest.

00:06:34.900 --> 00:06:37.890
But then let's say
Mary comes along.

00:06:37.890 --> 00:06:40.950
And she says, oh, I can do
better than Mr. Orange Guy

00:06:40.950 --> 00:06:41.430
over there.

00:06:41.430 --> 00:06:42.680
This is Mary.

00:06:48.820 --> 00:07:00.310
I'll lend you $10, and you can
pay me $10.50 next week.

00:07:00.310 --> 00:07:01.380
So notice what happened.

00:07:01.380 --> 00:07:03.780
Both of these people
have $10 to lend.

00:07:03.780 --> 00:07:06.540
They're looking to get some
return on their $10.

00:07:06.540 --> 00:07:09.310
If he was the only player here,
I'd have to go to him

00:07:09.310 --> 00:07:11.460
and say, OK I'm going to pay
you 10% interest. Then she

00:07:11.460 --> 00:07:14.560
says, no, no, no, I also have
$10 and, gee, I'd be happy

00:07:14.560 --> 00:07:16.390
with just a 5% return.

00:07:16.390 --> 00:07:19.450
$0.50 off of my $10 in one week,
that's a good return.

00:07:19.450 --> 00:07:20.880
So right now, look
at this person.

00:07:20.880 --> 00:07:25.160
But the more money that's
available to borrow, the more

00:07:25.160 --> 00:07:27.740
competitive this side of the
equation is going to be, and

00:07:27.740 --> 00:07:29.940
the lower the interest
rate I can get.

00:07:29.940 --> 00:07:33.440
You can imagine even a third
person says, no, no, no, wait!

00:07:33.440 --> 00:07:36.770
I've got $10.

00:07:36.770 --> 00:07:40.710
Let me draw this third person,
who says, I have $10,

00:07:40.710 --> 00:07:41.570
and you know what?

00:07:41.570 --> 00:07:43.590
It's going to just be sitting
in my bank account doing

00:07:43.590 --> 00:07:45.400
nothing unless I
lend it to you.

00:07:45.400 --> 00:07:52.870
You can pay me, I don't know,
$10.25 next week.

00:07:52.870 --> 00:07:53.960
And then I'm going to
go to this person.

00:07:53.960 --> 00:07:56.810
So the larger than the number
of people willing to lend to

00:07:56.810 --> 00:08:00.190
me, the lower my interest
rate will be.

00:08:00.190 --> 00:08:03.310
Or another way you could think
of it, the larger the supply

00:08:03.310 --> 00:08:18.210
of money to be lent, that leads
to lower-- you can view

00:08:18.210 --> 00:08:18.930
it different ways.

00:08:18.930 --> 00:08:26.280
You could view it as lower
borrowing costs, which is

00:08:26.280 --> 00:08:31.280
another way of just saying lower
interest. Or you can

00:08:31.280 --> 00:08:32.840
even view it as cheaper money.

00:08:32.840 --> 00:08:35.090
It costs less to borrow
the money.

00:08:35.090 --> 00:08:40.360
The cost of borrowing money
is the interest.

00:08:40.360 --> 00:08:41.580
Now, what does that do?

00:08:41.580 --> 00:08:42.890
What does having
lower interest?

00:08:42.890 --> 00:08:45.950
So this is just a small example
with me trying to

00:08:45.950 --> 00:08:47.220
borrow $10.

00:08:47.220 --> 00:08:49.490
The more people there are, the
more competitive that is, the

00:08:49.490 --> 00:08:51.960
better interest rate I'll have.
So you just take that

00:08:51.960 --> 00:08:54.590
same notion to kind
of a macro level.

00:08:54.590 --> 00:08:57.570
The U.S. government is
constantly borrowing money.

00:08:57.570 --> 00:09:00.110
The more people out there
willing to give it money,

00:09:00.110 --> 00:09:03.220
willing to buy the U.S.
government's IOUs, the lower

00:09:03.220 --> 00:09:04.760
the interest rate will be.

00:09:04.760 --> 00:09:10.540
So the net effect of having
this major buyer of U.S.

00:09:10.540 --> 00:09:14.180
Treasuries is that having them
out there accumulating all of

00:09:14.180 --> 00:09:16.790
these dollars, taking them all
out of the foreign exchange

00:09:16.790 --> 00:09:20.710
markets and then using them to
buy treasuries, it lowers the

00:09:20.710 --> 00:09:24.190
interest rate for treasuries.

00:09:24.190 --> 00:09:29.070
So the net effect is the
U.S. Treasury has

00:09:29.070 --> 00:09:32.650
lower borrowing costs.

00:09:35.820 --> 00:09:36.670
So what does that mean?

00:09:36.670 --> 00:09:38.740
So let's make it very clear.

00:09:38.740 --> 00:09:49.730
So the Chinese buy treasuries,
which are essentially loans to

00:09:49.730 --> 00:09:52.170
the U.S. government,
then the U.S. has

00:09:52.170 --> 00:09:53.595
lower borrowing costs.

00:09:53.595 --> 00:10:00.690
The U.S. has lower interest
or borrowing cost. And I'm

00:10:00.690 --> 00:10:04.090
talking about the government
right now.

00:10:04.090 --> 00:10:07.300
And this has several interesting
side effects.

00:10:07.300 --> 00:10:12.250
This means that it's
easier for the

00:10:12.250 --> 00:10:16.560
government to finance deficits.

00:10:20.750 --> 00:10:22.730
They don't have to
pay as much in

00:10:22.730 --> 00:10:25.380
interest to finance deficits.

00:10:25.380 --> 00:10:27.220
So that means that they
can spend more.

00:10:27.220 --> 00:10:31.490
They can give out more payments
to U.S. citizens, or

00:10:31.490 --> 00:10:33.500
they could lower taxes,
either one.

00:10:33.500 --> 00:10:35.040
Both of those would
lead to deficits.

00:10:35.040 --> 00:10:41.210
So it's easier so that the
government can either spend

00:10:41.210 --> 00:10:45.890
more or they don't have
to raise taxes.

00:10:45.890 --> 00:10:49.670
Or they could they could lower
taxes, because they don't have

00:10:49.670 --> 00:10:51.840
to spend as much in interest.

00:10:51.840 --> 00:10:54.600
Now, the other interesting thing
that the U.S. Treasury

00:10:54.600 --> 00:10:57.350
borrowing costs go down, that
means that the interest rate

00:10:57.350 --> 00:11:00.240
on everything goes down.

00:11:00.240 --> 00:11:02.770
This is one of the benchmark
interest rates.

00:11:02.770 --> 00:11:05.080
And you should watch the video
on the yield curve if you want

00:11:05.080 --> 00:11:06.130
to understand more about it.

00:11:06.130 --> 00:11:07.480
And I know some of you are
saying, wait, doesn't the

00:11:07.480 --> 00:11:09.820
Federal Reserve set
interest rates?

00:11:09.820 --> 00:11:13.710
The Federal Reserve only sets
overnight, very short-term.

00:11:13.710 --> 00:11:16.150
If you're going to borrow money
overnight in your bank,

00:11:16.150 --> 00:11:18.390
that's what the Federal
Reserve sets.

00:11:18.390 --> 00:11:21.470
If the U.S. government is
borrowing money over 5 or 10

00:11:21.470 --> 00:11:25.100
years or 20 years, that
is that by the market.

00:11:25.100 --> 00:11:28.350
That is set by a market
mechanism very similar to what

00:11:28.350 --> 00:11:29.720
I showed just over here.

00:11:29.720 --> 00:11:31.580
So this is dependant
on more capital

00:11:31.580 --> 00:11:32.860
being there to be borrowed.

00:11:32.860 --> 00:11:36.920
So this is 10-year, and 15-year,
and 20-year debt for

00:11:36.920 --> 00:11:38.900
the U.S. becomes cheaper.

00:11:38.900 --> 00:11:40.920
But this makes all debt
in the U.S. cheaper.

00:11:51.420 --> 00:11:53.300
And there's two ways
you can think about

00:11:53.300 --> 00:11:55.340
why this piece happens.

00:11:55.340 --> 00:11:58.170
One is, just on a very
superficial level, people say,

00:11:58.170 --> 00:12:02.110
hey, you know, someone like
General Electric is only a

00:12:02.110 --> 00:12:04.610
little bit more risky than
the U.S. government.

00:12:04.610 --> 00:12:08.810
If the U.S. government only has
to pay 3% on its on debt

00:12:08.810 --> 00:12:10.970
that it has to pay back in 10
years, maybe General Electric

00:12:10.970 --> 00:12:16.010
should only have to pay
0.3% more than that.

00:12:16.010 --> 00:12:18.950
So you use the U.S. government
as a baseline, and then

00:12:18.950 --> 00:12:20.420
depending on people's
risk, they pay a

00:12:20.420 --> 00:12:21.950
little higher spread.

00:12:21.950 --> 00:12:26.590
Another way to think about
it is up here.

00:12:26.590 --> 00:12:28.830
The Chinese government is just
pouring dollars either

00:12:28.830 --> 00:12:35.040
directly into the U.S.
government, or into the actual

00:12:35.040 --> 00:12:36.220
U.S. Treasury market.

00:12:36.220 --> 00:12:38.540
So this guy right now,
he has more dollars.

00:12:38.540 --> 00:12:40.540
He's not going to use the
Treasury, because he thinks

00:12:40.540 --> 00:12:42.850
treasuries are too expensive,
which means that their

00:12:42.850 --> 00:12:44.240
interest is too low.

00:12:44.240 --> 00:12:46.100
So he's going to take these
dollars he got from the

00:12:46.100 --> 00:12:48.620
Chinese, and he's going to
lend it to someone else.

00:12:48.620 --> 00:12:49.910
That dollar is still there.

00:12:49.910 --> 00:12:52.510
He'll lend it to General
Electric, or maybe he's a

00:12:52.510 --> 00:12:55.650
credit card company and he'll
lend it to the consumer.

00:12:55.650 --> 00:12:59.500
So in general, all debt in
the U.S. gets cheaper.

00:12:59.500 --> 00:13:02.740
Now, what's the net effect
of all of these points?

00:13:02.740 --> 00:13:05.870
What's the net effect of
this, all debt in the

00:13:05.870 --> 00:13:06.630
U.S. Becomes cheaper?

00:13:06.630 --> 00:13:10.630
There's just more dollars for
loan in the U.S., more dollars

00:13:10.630 --> 00:13:12.340
than people can borrow.

00:13:12.340 --> 00:13:15.220
The government is spending more,
or the government will

00:13:15.220 --> 00:13:16.000
lower taxes.

00:13:16.000 --> 00:13:18.020
What is the net effect
of all of this?

00:13:18.020 --> 00:13:21.760
Well, people will either have
more money in their pockets,

00:13:21.760 --> 00:13:23.910
because they've gotten a
government job or they've

00:13:23.910 --> 00:13:26.090
maybe gotten some type of
entitlement payment.

00:13:26.090 --> 00:13:28.010
Or, they're going to have more
money in their pockets,

00:13:28.010 --> 00:13:29.620
because they're paying
lower taxes.

00:13:29.620 --> 00:13:31.790
Or they're going to have more
money in their pockets,

00:13:31.790 --> 00:13:34.410
because it's easier for them
to put more debt on their

00:13:34.410 --> 00:13:37.380
credit card, or to refinance
their mortgage.

00:13:37.380 --> 00:13:47.800
So all of these lead to more
cash in American pockets.

00:13:47.800 --> 00:13:51.040
Now, that's obviously not an
unambiguously good thing,

00:13:51.040 --> 00:13:53.580
because this is all financed
with debt.

00:13:53.580 --> 00:13:55.870
It's not just solid
debt-free cash.

00:13:55.870 --> 00:13:59.990
So more cash in American
pockets essentially

00:13:59.990 --> 00:14:01.240
financed with debt.

00:14:07.770 --> 00:14:10.550
And this debt, as you can see,
it's either occurring at the

00:14:10.550 --> 00:14:13.220
credit card level, it could
be occurring even at the

00:14:13.220 --> 00:14:16.610
corporate debt level, or it's
occurring indirectly at the

00:14:16.610 --> 00:14:17.420
government level.

00:14:17.420 --> 00:14:20.880
But all of this is being enabled
by the fact that China

00:14:20.880 --> 00:14:23.570
is willing to buy treasuries,
which means that China is

00:14:23.570 --> 00:14:26.240
really just willing to
lend to the U.S.

00:14:26.240 --> 00:14:27.450
So what's happening?

00:14:27.450 --> 00:14:32.100
China is artificially keeping
its currency low, and it's

00:14:32.100 --> 00:14:36.080
doing that by buying dollars,
taking those dollars and

00:14:36.080 --> 00:14:39.280
essentially lending them
to the United States.

00:14:39.280 --> 00:14:42.570
And that eventually ends up in
the hands of American people

00:14:42.570 --> 00:14:44.660
and companies, and even
the government.

00:14:44.660 --> 00:14:46.150
And what are they going to do?

00:14:46.150 --> 00:14:49.390
Well, they're going to buy cheap
Chinese products that

00:14:49.390 --> 00:14:52.465
are artificially cheap because
the currency is lower.

00:15:00.820 --> 00:15:03.130
And obviously, you know, they do
have lower labor costs and

00:15:03.130 --> 00:15:05.960
all of that, but it's even lower
to the American than it

00:15:05.960 --> 00:15:08.490
would be if the currency were
allowed to freely float.

00:15:11.120 --> 00:15:15.400
So the net effect of this entire
scenario that I've been

00:15:15.400 --> 00:15:18.820
describing over the last few
videos, is that the Chinese

00:15:18.820 --> 00:15:22.310
are essentially lending money
to the Americans to then go

00:15:22.310 --> 00:15:26.160
ahead and buy more
Chinese products.


Chinese Central Bank Buying Treasuries

WEBVTT
Kind: captions
Language: en

00:00:00.570 --> 00:00:03.380
Let's review everything we've
done in the last few videos

00:00:03.380 --> 00:00:05.710
and then take it a few
steps from there.

00:00:05.710 --> 00:00:08.910
So let's say we have a reality
that right now-- and this

00:00:08.910 --> 00:00:11.870
isn't the actual exchange rate,
but I'm just using these

00:00:11.870 --> 00:00:14.720
numbers because they're nice
simple numbers-- the current

00:00:14.720 --> 00:00:20.320
exchange rate is 10
yuan per U.S. $1.

00:00:24.720 --> 00:00:27.540
And now we're in a reality where
the Chinese Government,

00:00:27.540 --> 00:00:30.360
the Chinese Central Bank,
wants to keep this

00:00:30.360 --> 00:00:30.950
[? PEG'd, ?]

00:00:30.950 --> 00:00:32.840
so it wants to lock this.

00:00:32.840 --> 00:00:37.390
It wants to lock this exchange
rate right over here.

00:00:37.390 --> 00:00:41.660
But the reality is, more is
being sold to the U.S., more

00:00:41.660 --> 00:00:43.860
is being exported from China
to the U.S. than

00:00:43.860 --> 00:00:45.310
the other way around.

00:00:45.310 --> 00:00:47.530
And so that leads to this
weird dynamic that we've

00:00:47.530 --> 00:00:48.700
studied in the last
few videos.

00:00:48.700 --> 00:00:53.910
So this is China right here, and
then you have the United

00:00:53.910 --> 00:00:58.010
States right over here.

00:00:58.010 --> 00:01:07.700
And let's say at this exchange
rate right over here, you have

00:01:07.700 --> 00:01:10.392
goods coming from China to the
U.S. Actually, let me do it in

00:01:10.392 --> 00:01:11.480
that same magenta color.

00:01:11.480 --> 00:01:22.680
So these are Chinese goods,
and then we are paying for

00:01:22.680 --> 00:01:26.190
those Chinese goods in dollars
and those dollars are being

00:01:26.190 --> 00:01:27.440
sent to China.

00:01:30.490 --> 00:01:34.240
So let's say we pay in
this time period.

00:01:34.240 --> 00:01:35.110
Let's say it's a year.

00:01:35.110 --> 00:01:52.190
Let's say that $100 sent to
China for the goods, and this

00:01:52.190 --> 00:01:53.570
is really just a summary
of what we saw in

00:01:53.570 --> 00:01:54.800
the last few videos.

00:01:54.800 --> 00:01:56.810
And let's say, on the other side
of this equation, some

00:01:56.810 --> 00:01:59.980
goods are sent from
the U.S. to China.

00:01:59.980 --> 00:02:08.800
Some are exported, so U.S. goods
are exported to China,

00:02:08.800 --> 00:02:12.340
and then we sell them in China
and then we get some yuan in

00:02:12.340 --> 00:02:14.760
return that go back to
the United States.

00:02:14.760 --> 00:02:16.690
And, of course, the reality is
that the money seldom is

00:02:16.690 --> 00:02:19.110
actually sitting on a ship
going across the Pacific.

00:02:19.110 --> 00:02:21.160
It's all in these bank accounts
that can be wired

00:02:21.160 --> 00:02:22.160
back and forth.

00:02:22.160 --> 00:02:25.190
The actual exchanges are
essentially happening on the

00:02:25.190 --> 00:02:28.180
internet, not really in any
physical location, but this is

00:02:28.180 --> 00:02:29.950
a good way to visualize it.

00:02:29.950 --> 00:02:32.560
So the U.S. goods are being
sold in China and then the

00:02:32.560 --> 00:02:35.100
U.S. producer is going
to get yuan.

00:02:35.100 --> 00:02:43.170
And let's say for their goods,
they get 500 yuan.

00:02:43.170 --> 00:02:45.650
So if all of these people were
just convert, and you actually

00:02:45.650 --> 00:02:47.400
don't know what the equilibrium
price would be,

00:02:47.400 --> 00:02:50.210
because the demand changes
depending on what the price is

00:02:50.210 --> 00:02:52.850
in each of the countries, but
if you really wanted to

00:02:52.850 --> 00:02:56.320
convert these $100 that the
Chinese producer gets into

00:02:56.320 --> 00:03:01.600
yuan at 10:1, you would need--
so we're going to assume that

00:03:01.600 --> 00:03:04.670
this PEG is what at least the
Chinese Government wants.

00:03:04.670 --> 00:03:18.370
So you would need 1,000 yuan in
order to convert all of his

00:03:18.370 --> 00:03:21.450
$100 at 10 yuan per dollar.

00:03:21.450 --> 00:03:27.520
Now this producer, the U.S.
producer, only has-- let me do

00:03:27.520 --> 00:03:33.400
it in a different color and I
should put the quotes around

00:03:33.400 --> 00:03:35.730
needs, not around the yuan.

00:03:35.730 --> 00:03:46.820
Now this U.S. producer only has
500 yuan to convert into

00:03:46.820 --> 00:03:48.810
dollars, and we've seen
this multiple times.

00:03:48.810 --> 00:03:51.690
But I really want to reinforce
it about how these currencies

00:03:51.690 --> 00:03:52.990
would fluctuate.

00:03:52.990 --> 00:03:58.940
The demand for yuan is much
higher than supply for yuan.

00:03:58.940 --> 00:04:01.830
And we could do the exact same
argument for the dollar, that

00:04:01.830 --> 00:04:04.960
the demand for dollars
is much lower than

00:04:04.960 --> 00:04:06.680
the supply for dollars.

00:04:06.680 --> 00:04:10.070
At this exchange rate, if we
assumed a PEG, this would only

00:04:10.070 --> 00:04:14.660
be $50 that we need to convert
into, while there's $100 of

00:04:14.660 --> 00:04:15.590
actual supply.

00:04:15.590 --> 00:04:16.990
But let's just focus
on the yuan.

00:04:16.990 --> 00:04:19.649
They need 1,000 yuan at
this exchange rate.

00:04:19.649 --> 00:04:23.900
There's only 1,000 yuan that can
be converted into dollars.

00:04:23.900 --> 00:04:25.850
And if we had a floating
exchange rate, that would

00:04:25.850 --> 00:04:28.750
increase the demand for yuan,
and then this number would go

00:04:28.750 --> 00:04:32.150
down, or another way to view
it, either that number goes

00:04:32.150 --> 00:04:35.030
down or this number
over here goes up.

00:04:35.030 --> 00:04:37.830
You could say the yuan would
become more expensive, which

00:04:37.830 --> 00:04:40.590
means maybe it's 9 yuan per
dollar or 8 yuan per dollar,

00:04:40.590 --> 00:04:41.550
or it could go the other way.

00:04:41.550 --> 00:04:45.330
For 10 yuan, instead of $1,
you'd get $1.10 or $1.20 or

00:04:45.330 --> 00:04:47.550
$1.30, either way.

00:04:47.550 --> 00:04:51.810
Now, in order for this lock and
for this PEG to occur, we

00:04:51.810 --> 00:04:53.960
saw in the last video that
the Chinese Central

00:04:53.960 --> 00:04:55.210
Bank needs to intervene.

00:05:00.520 --> 00:05:04.760
Remember, where are the
excess dollars?

00:05:04.760 --> 00:05:05.760
They're over here.

00:05:05.760 --> 00:05:06.490
Let me make it clear.

00:05:06.490 --> 00:05:12.420
There's $100 over here
that need to be

00:05:12.420 --> 00:05:13.470
converted into yuan.

00:05:13.470 --> 00:05:21.410
We have 500 yuan over here that
needs to be converted

00:05:21.410 --> 00:05:22.820
into dollars.

00:05:22.820 --> 00:05:26.080
Now, the Chinese government
wants this $100 to be

00:05:26.080 --> 00:05:28.670
converted into 1,000 yuan.

00:05:28.670 --> 00:05:36.900
So what he does or what they
do is they say, OK, $50 of

00:05:36.900 --> 00:05:39.530
this $100 dollars can be
essentially traded

00:05:39.530 --> 00:05:41.040
for these 500 yuan.

00:05:41.040 --> 00:05:46.280
Let me draw a two-way arrow
there. $50 goes to the

00:05:46.280 --> 00:05:51.990
American producer and then the
500 yuan go to the Chinese

00:05:51.990 --> 00:05:55.350
producer in exchange
for that $50.

00:05:55.350 --> 00:05:56.570
Obviously, this isn't
coordinated.

00:05:56.570 --> 00:05:57.600
It's not like matchmaking.

00:05:57.600 --> 00:05:59.240
It's not like someone
said, hey, you give

00:05:59.240 --> 00:06:00.180
this money to them.

00:06:00.180 --> 00:06:05.400
But essentially, there will only
be $50 to convert into

00:06:05.400 --> 00:06:15.660
the yuan and then the other
$50 will go to the Chinese

00:06:15.660 --> 00:06:16.910
Central Bank.

00:06:21.870 --> 00:06:31.340
Let me draw the Chinese Central
Bank, and they will

00:06:31.340 --> 00:06:37.530
just print yuan and give
another 500 yuan.

00:06:37.530 --> 00:06:39.610
And this is exactly what
happened in the last video.

00:06:39.610 --> 00:06:41.040
I drew it a little
bit different.

00:06:41.040 --> 00:06:47.080
All I'm showing is to make up
for the lack of supply of

00:06:47.080 --> 00:06:48.730
yuan, they needed 1,000
yuan, there's

00:06:48.730 --> 00:06:50.150
only 500 yuan to convert.

00:06:50.150 --> 00:06:53.290
In order to make that up, the
Chinese Central Government

00:06:53.290 --> 00:06:56.670
prints the extra Chinese
currency and buys

00:06:56.670 --> 00:06:57.580
dollars with it.

00:06:57.580 --> 00:07:03.580
So it's essentially sucking up
the excess dollars, right?

00:07:03.580 --> 00:07:08.330
This was excess dollars right
over here so that the dollar

00:07:08.330 --> 00:07:09.330
does not weaken.

00:07:09.330 --> 00:07:20.570
It is sucking up extra dollars
so that the supply for dollars

00:07:20.570 --> 00:07:24.280
isn't so high that it weakens
or so that the yuan

00:07:24.280 --> 00:07:24.870
strengthens.

00:07:24.870 --> 00:07:27.240
And so that's the way
the Chinese can

00:07:27.240 --> 00:07:29.660
maintain the trade imbalance.

00:07:29.660 --> 00:07:31.820
They could continue to
export more goods

00:07:31.820 --> 00:07:34.730
than they are importing.

00:07:34.730 --> 00:07:36.340
Now, what is the effect
of this, though?

00:07:36.340 --> 00:07:37.060
And we saw this.

00:07:37.060 --> 00:07:40.130
In order to maintain this
currency PEG while there is

00:07:40.130 --> 00:07:43.090
this trade imbalance, the
Chinese Central Bank keeps

00:07:43.090 --> 00:07:45.695
printing yuan and they keep
accumulating dollars.

00:07:48.710 --> 00:07:52.540
And if they ever stop
accumulating dollars, so it's

00:07:52.540 --> 00:07:54.590
not like they can just hold the
dollars they have and the

00:07:54.590 --> 00:07:55.216
PEG will hold.

00:07:55.216 --> 00:07:57.970
If they ever stop accumulating
dollars, then the PEG will

00:07:57.970 --> 00:07:58.400
break down.

00:07:58.400 --> 00:08:00.240
They have to do this
every time period.

00:08:00.240 --> 00:08:02.840
They have to actively
participate in the market

00:08:02.840 --> 00:08:04.490
printing yuan and
buying dollars.

00:08:04.490 --> 00:08:06.280
They are doing it every day
to maintain the PEG.

00:08:06.280 --> 00:08:09.020
Not every day, maybe sometimes
when it won't fluctuate on

00:08:09.020 --> 00:08:10.910
their own, but if the yuan is
getting expensive, they

00:08:10.910 --> 00:08:13.270
actually maintain a range, and
they will buy dollars.

00:08:13.270 --> 00:08:16.110
So they're just accumulating
more and

00:08:16.110 --> 00:08:17.400
more of these dollars.

00:08:17.400 --> 00:08:19.290
And now this is where
it gets interesting.

00:08:19.290 --> 00:08:24.190
What does the Chinese Central
Bank do with that cash?

00:08:24.190 --> 00:08:26.450
Now, like anybody,
cash is useless.

00:08:26.450 --> 00:08:29.310
You're not getting any
interest on it.

00:08:29.310 --> 00:08:31.430
It's just paper.

00:08:31.430 --> 00:08:33.900
It allows you to buy other
things that could give you

00:08:33.900 --> 00:08:37.130
some income or could give
you some value.

00:08:37.130 --> 00:08:39.520
So what the Chinese Central
Bank does, it doesn't hold

00:08:39.520 --> 00:08:41.510
actual dollar bills.

00:08:41.510 --> 00:08:44.710
It goes and tries to buy
the safest U.S.-

00:08:44.710 --> 00:08:46.790
denominated asset it can.

00:08:46.790 --> 00:08:51.715
And another thing, not only does
it care about safety-- so

00:08:51.715 --> 00:08:54.520
it wants to go to
a safe asset.

00:08:54.520 --> 00:09:00.690
It wants to go to the safe
dollar-denominated asset,

00:09:00.690 --> 00:09:03.450
which means that you would buy
it in dollars, and if it

00:09:03.450 --> 00:09:05.345
produces interest, the interest
would be in dollars.

00:09:10.210 --> 00:09:13.070
And it's also doing this on a
massive, massive scale, in the

00:09:13.070 --> 00:09:14.700
hundreds of billions of dollars,
and actually the

00:09:14.700 --> 00:09:16.630
Reserve is in the trillions
of dollars, so it's

00:09:16.630 --> 00:09:17.860
on a massive scale.

00:09:17.860 --> 00:09:21.490
So they can't just go buy a
random company's stock, one

00:09:21.490 --> 00:09:23.840
that won't be safe, but also
they would just drive the

00:09:23.840 --> 00:09:27.410
price up to infinity if they
used this many dollars.

00:09:27.410 --> 00:09:35.800
So it has to be a very liquid
asset, one that has a very

00:09:35.800 --> 00:09:38.660
deep market where the people
trading in that market, it

00:09:38.660 --> 00:09:40.890
really is in the tens
and hundreds

00:09:40.890 --> 00:09:42.510
of billions of dollars.

00:09:42.510 --> 00:09:44.730
And there's really only one
asset that meets those

00:09:44.730 --> 00:09:46.445
requirements, and that's
U.S. Treasuries.

00:09:51.580 --> 00:09:53.850
And this isn't the only thing
they will do, but this is the

00:09:53.850 --> 00:09:54.700
great majority.

00:09:54.700 --> 00:09:57.140
So what the Chinese Central Bank
does with all of these

00:09:57.140 --> 00:10:01.340
excess dollars, it essentially
buys U.S. Treasuries.

00:10:01.340 --> 00:10:04.120
So it gives the dollars away.

00:10:04.120 --> 00:10:08.910
Well, not gives away, it sends
the dollars to the people who

00:10:08.910 --> 00:10:11.570
are holding the U.S. Treasuries,
and then it gets

00:10:11.570 --> 00:10:12.930
U.S. Treasuries in return.

00:10:18.740 --> 00:10:21.280
Now, as a bit of review, and
I've done a few videos on

00:10:21.280 --> 00:10:23.860
this, what are U.S.
Treasuries?

00:10:23.860 --> 00:10:29.010
U.S. Treasury bills and bonds
are loans to the Federal

00:10:29.010 --> 00:10:30.090
Government.

00:10:30.090 --> 00:10:32.080
So that's maybe how you
should view it.

00:10:32.080 --> 00:10:33.985
These are loans to the
Federal Government.

00:10:43.510 --> 00:10:46.710
These bonds, these Treasury
bonds or these treasury bills

00:10:46.710 --> 00:10:50.010
that they're getting, these
certificates, are

00:10:50.010 --> 00:10:56.780
essentially-- in fact, they
are-- IOUs from the U.S.A, not

00:10:56.780 --> 00:10:59.400
to get cheesy with the acronyms.
These are literally

00:10:59.400 --> 00:11:03.770
IOUs from the U.S. Government,
and the U.S. Government will

00:11:03.770 --> 00:11:06.480
pay interest. They are
essentially-- so just to make

00:11:06.480 --> 00:11:10.220
it all clear of what's going
on, they're printing money.

00:11:10.220 --> 00:11:13.190
They're accumulating dollars.

00:11:13.190 --> 00:11:16.870
They're using those dollars to
go out into either the open

00:11:16.870 --> 00:11:20.250
market or even directly from
the Treasury, from the U.S.

00:11:20.250 --> 00:11:22.805
Treasury, and they are buying
U.S. Treasuries, which

00:11:22.805 --> 00:11:28.910
essentially means that they are
lending this money to the

00:11:28.910 --> 00:11:30.160
U.S. Government.

00:11:40.130 --> 00:11:42.110
Now, I'll leave you there in
this video, and maybe you want

00:11:42.110 --> 00:11:43.350
to think about it a little
bit before you even

00:11:43.350 --> 00:11:44.350
watch the next one.

00:11:44.350 --> 00:11:46.520
But in the next one, we'll talk
a little bit about what

00:11:46.520 --> 00:11:47.280
that even means.

00:11:47.280 --> 00:11:51.200
What happens if you have this
big holder of U.S. dollars,

00:11:51.200 --> 00:11:54.110
this huge holder of U.S. dollars
going out there and

00:11:54.110 --> 00:11:56.980
buying Treasuries and being
willing to lend money to the

00:11:56.980 --> 00:11:57.850
U.S. Government?

00:11:57.850 --> 00:11:58.480
Think about it.

00:11:58.480 --> 00:12:00.840
And in particular, think about
what would happen to interest

00:12:00.840 --> 00:12:04.240
rates and what those low
interest rates' impact would

00:12:04.240 --> 00:12:06.670
have on the rest of
the U.S. economy

00:12:06.670 --> 00:12:08.660
and on debt in general.


Amide formation from acyl chloride

WEBVTT
Kind: captions
Language: en

00:00:00.560 --> 00:00:03.520
Let's think about what might
happen if we had a molecule of

00:00:03.520 --> 00:00:05.010
butanoyl chloride.

00:00:05.010 --> 00:00:09.170
So one, two, three,
four carbons.

00:00:09.170 --> 00:00:11.190
That's where the but-
comes in, and then

00:00:11.190 --> 00:00:13.180
it's a butanoyl chloride.

00:00:13.180 --> 00:00:16.015
So it's an acyl halide or
it's an acyl chloride.

00:00:16.015 --> 00:00:17.710
Let me write this down
just to give us some

00:00:17.710 --> 00:00:18.780
practice with namings.

00:00:18.780 --> 00:00:24.260
This is butanoyl chloride.

00:00:24.260 --> 00:00:26.810
We saw a couple of videos ago
that acyl halides, you just

00:00:26.810 --> 00:00:29.130
count the main number
of carbons.

00:00:29.130 --> 00:00:32.020
One, two, three, four carbons.

00:00:32.020 --> 00:00:34.410
That's where butan-
comes from.

00:00:34.410 --> 00:00:37.880
And then this is an acyl
chloride, so the acyl chloride

00:00:37.880 --> 00:00:41.770
part, this part, gives
us the -oyl.

00:00:41.770 --> 00:00:43.590
Or I guess you could look
at even the carbonyl.

00:00:43.590 --> 00:00:47.190
We could even say this whole
part over here, we know it's a

00:00:47.190 --> 00:00:48.790
carboxylic acid derivative.

00:00:48.790 --> 00:00:50.690
It's in an acyl chloride.

00:00:50.690 --> 00:00:54.340
So that's why we have the -oyl
here and the chloride.

00:00:54.340 --> 00:00:56.420
So let's think about what would
happen if we have a

00:00:56.420 --> 00:01:00.020
molecule of butanoyl chloride or
if we had a solution, even

00:01:00.020 --> 00:01:03.340
better, of butanoyl chloride,
and for every molecule of

00:01:03.340 --> 00:01:09.870
butanoyl chloride, we had two
molecules of dimethylamide, or

00:01:09.870 --> 00:01:11.600
sorry, dimethylamine.

00:01:11.600 --> 00:01:12.440
Let me draw that.

00:01:12.440 --> 00:01:14.390
So dimethyl, so two
methyl groups.

00:01:14.390 --> 00:01:20.875
One, two, and then we have one
hydrogen, and then we're going

00:01:20.875 --> 00:01:23.490
to have two molecules of this
for every one molecule of our

00:01:23.490 --> 00:01:24.585
butanoyl chloride.

00:01:24.585 --> 00:01:27.110
So let me copy and paste this.

00:01:27.110 --> 00:01:28.840
So edit, copy.

00:01:28.840 --> 00:01:29.990
And edit, paste.

00:01:29.990 --> 00:01:31.810
So let's think about what would
happen in a solution

00:01:31.810 --> 00:01:36.190
with these reactants in
this ratio right here.

00:01:36.190 --> 00:01:39.830
And just as a bit of review,
this right here is dimethyl.

00:01:44.050 --> 00:01:46.980
We kind of have a tie for our
longest chain attached to the

00:01:46.980 --> 00:01:48.230
nitrogen: dimethylamine.

00:01:51.010 --> 00:01:53.950
You could pick one of these as
the longest chain and then it

00:01:53.950 --> 00:01:57.600
would actually be
N-methylmethylamine.

00:01:57.600 --> 00:01:58.840
Either one, this is the
one that you're

00:01:58.840 --> 00:01:59.880
more likely to see.

00:01:59.880 --> 00:02:02.710
But this video isn't about
naming, this video is to think

00:02:02.710 --> 00:02:04.080
about what's likely to happen.

00:02:04.080 --> 00:02:04.870
So what are we dealing with?

00:02:04.870 --> 00:02:09.280
We have amine here and then
we have an acyl chloride.

00:02:09.280 --> 00:02:11.790
And if we look at our hierarchy
of stability that we

00:02:11.790 --> 00:02:15.800
looked at in the last video,
we saw that when an amine

00:02:15.800 --> 00:02:18.470
reacts or a carboxylic
derivative from an amine,

00:02:18.470 --> 00:02:22.060
which is an amide, is
much more stable

00:02:22.060 --> 00:02:23.340
than an acyl chloride.

00:02:23.340 --> 00:02:24.860
This is the least stable.

00:02:24.860 --> 00:02:29.310
So if we're starting with an
acyl chloride and we have the

00:02:29.310 --> 00:02:35.090
ingredients for an amide, this
reaction will probably end up

00:02:35.090 --> 00:02:35.940
with amide.

00:02:35.940 --> 00:02:38.470
So let's see how we
can get there.

00:02:38.470 --> 00:02:43.430
What we know from previous
videos when we studied amines,

00:02:43.430 --> 00:02:46.610
that they are pretty good
nucleophiles, so they could

00:02:46.610 --> 00:02:48.840
have a nucleophile attack
on this carbonyl

00:02:48.840 --> 00:02:50.260
carbon right over here.

00:02:50.260 --> 00:02:53.650
So you can imagine this amine
right here, this nitrogen,

00:02:53.650 --> 00:02:56.480
gives an electron to this
carbonyl carbon.

00:02:56.480 --> 00:03:00.980
This carbonyl carbon can then
let go of this electron to

00:03:00.980 --> 00:03:02.960
this top oxygen over here.

00:03:02.960 --> 00:03:04.920
It was already hogging
it to begin with.

00:03:04.920 --> 00:03:08.110
And so the next step of our
reaction would look like this.

00:03:08.110 --> 00:03:11.260
What was the butanoyl chloride
will now look like one, two,

00:03:11.260 --> 00:03:12.660
three, four carbons.

00:03:12.660 --> 00:03:14.570
Now you only have
a single bond.

00:03:14.570 --> 00:03:17.240
This oxygen up here now
has a negative charge.

00:03:17.240 --> 00:03:20.920
Since it took an electron from
this central carbon right over

00:03:20.920 --> 00:03:24.900
here, you are still bonded
to this chlorine.

00:03:24.900 --> 00:03:26.570
And actually let me do that in
a different color so we can

00:03:26.570 --> 00:03:28.010
keep track of it.

00:03:28.010 --> 00:03:32.790
You are still bonded to this
chlorine atom and then the

00:03:32.790 --> 00:03:34.440
nitrogen has been bonded.

00:03:34.440 --> 00:03:36.850
So this bond I'll drawn green
because we're giving this

00:03:36.850 --> 00:03:41.270
green electron to form the bond,
and then the rest of the

00:03:41.270 --> 00:03:43.260
dimethylamine is still
over there.

00:03:43.260 --> 00:03:45.250
Let me do it in that
same color.

00:03:45.250 --> 00:03:51.460
The rest of the dimethylamine,
so you have CH3, CH3 and then

00:03:51.460 --> 00:03:52.950
you just have your hydrogen.

00:03:52.950 --> 00:03:56.420
And then this nitrogen gave away
an electron, so it has a

00:03:56.420 --> 00:04:00.390
positive charge.

00:04:00.390 --> 00:04:04.410
Now, the next step, and this
is chlorine, it's fairly

00:04:04.410 --> 00:04:05.350
electronegative.

00:04:05.350 --> 00:04:07.540
It's a not-so-bad
leaving group.

00:04:07.540 --> 00:04:10.430
It will want to hog this
electron that is on the

00:04:10.430 --> 00:04:11.480
central carbon.

00:04:11.480 --> 00:04:15.080
So you can imagine in the next
step that this oxygen gives

00:04:15.080 --> 00:04:19.120
back an electron to reform the
carbonyl group at the exact

00:04:19.120 --> 00:04:23.010
same time that this chlorine
takes an electron and forms a

00:04:23.010 --> 00:04:25.370
chloride anion.

00:04:25.370 --> 00:04:29.050
So the next step in this will
look like-- so the molecules

00:04:29.050 --> 00:04:30.670
will now look like--
you have there one,

00:04:30.670 --> 00:04:32.960
two, three, four carbons.

00:04:32.960 --> 00:04:34.990
That's one of the bonds to that
oxygen, but now you've

00:04:34.990 --> 00:04:37.005
now formed another bond.

00:04:37.005 --> 00:04:39.660
That electron was given back to
that central atom and now

00:04:39.660 --> 00:04:43.180
you have the bond to the
nitrogen, this bond right

00:04:43.180 --> 00:04:47.940
here, and then the nitrogen is
bound to one methyl group, two

00:04:47.940 --> 00:04:50.930
methyl groups, and a hydrogen.

00:04:50.930 --> 00:04:54.330
And it had given away an
electron so it has a positive

00:04:54.330 --> 00:04:58.870
charge, and the chloride anion
has been bumped off.

00:04:58.870 --> 00:05:01.800
The chloride anion, it took an
electron from that central

00:05:01.800 --> 00:05:06.260
carbon, so now it has
a negative charge.

00:05:06.260 --> 00:05:10.480
Now, we still have that other
dimethylamine molecule, or for

00:05:10.480 --> 00:05:12.310
every one of these, we should
have two of these.

00:05:12.310 --> 00:05:15.140
We've only use one of them, so
let me bring the other one

00:05:15.140 --> 00:05:18.150
into the mix, and this one could
just be in the mix to

00:05:18.150 --> 00:05:22.850
make this other molecule neutral
now, and this could go

00:05:22.850 --> 00:05:24.660
in either direction.

00:05:24.660 --> 00:05:26.600
This part right here could
go in either direction.

00:05:26.600 --> 00:05:34.400
This guy's not so weak or it's
not a bad base, so this guy

00:05:34.400 --> 00:05:38.750
could give an electron to this
hydrogen proton, and then the

00:05:38.750 --> 00:05:42.260
hydrogen proton's electron, or
that hydrogen atom's electron,

00:05:42.260 --> 00:05:46.680
can be taken back by this
nitrogen to make it neutral.

00:05:46.680 --> 00:05:49.760
And I'll make this go
in both directions.

00:05:49.760 --> 00:05:51.870
So this could go in
both directions.

00:05:51.870 --> 00:05:56.750
So then this molecule over here
will look like one, two,

00:05:56.750 --> 00:06:00.040
three, four carbonyl group.

00:06:00.040 --> 00:06:03.120
And let me color code it the
same way just so we know what

00:06:03.120 --> 00:06:05.030
parts are which parts.

00:06:05.030 --> 00:06:08.590
We have this green bond to this
nitrogen, which has now

00:06:08.590 --> 00:06:09.640
lost a proton.

00:06:09.640 --> 00:06:11.730
It was able to take
back an electron,

00:06:11.730 --> 00:06:13.410
so it is now neutral.

00:06:13.410 --> 00:06:18.170
It is bonded to one,
two methyl groups.

00:06:18.170 --> 00:06:22.500
This dimethylamine
took a hydrogen.

00:06:22.500 --> 00:06:24.290
So let me draw it over here.

00:06:24.290 --> 00:06:31.010
So it's nitrogen one, two, and
then it already had one

00:06:31.010 --> 00:06:33.700
hydrogen and now it's gaining
another hydrogen.

00:06:33.700 --> 00:06:36.090
It's gaining this hydrogen
right over here.

00:06:36.090 --> 00:06:38.240
So now it's bound to
that hydrogen.

00:06:38.240 --> 00:06:41.000
It gave an electron to get that
hydrogen nucleus so it

00:06:41.000 --> 00:06:43.120
now has a positive charge.

00:06:43.120 --> 00:06:45.190
And, of course, we can't forget
about that chloride

00:06:45.190 --> 00:06:46.440
anion that's floating around.

00:06:50.240 --> 00:06:51.860
And these might be attracted
to each other.

00:06:51.860 --> 00:06:55.290
One's positive, one's negative,
form a salt.

00:06:55.290 --> 00:06:56.930
So what are we left with?

00:06:56.930 --> 00:06:58.320
And then once again, this
is a little bit

00:06:58.320 --> 00:07:00.220
of practice of naming.

00:07:00.220 --> 00:07:03.980
We started with an acyl chloride
and we ended with an

00:07:03.980 --> 00:07:07.490
amide because we now have this
nitrogen group attached.

00:07:07.490 --> 00:07:08.720
So what is this?

00:07:08.720 --> 00:07:16.880
This has one, two, three, four
carbons so it's butan-, but

00:07:16.880 --> 00:07:18.200
it's an amide.

00:07:18.200 --> 00:07:20.390
So this part tells us that we're
dealing with an amide.

00:07:23.610 --> 00:07:28.210
It's butanamide, but to specify
what type of amide, we

00:07:28.210 --> 00:07:30.990
see that we have two methyl
groups attached to the

00:07:30.990 --> 00:07:34.420
nitrogen there, so we would call
this-- let me put another

00:07:34.420 --> 00:07:34.910
color here.

00:07:34.910 --> 00:07:38.790
We have one, two methyl groups
attached to the nitrogen, so

00:07:38.790 --> 00:07:41.500
we would call this N comma
N-dimethylbutanamide.

00:07:46.670 --> 00:07:49.760
This N comma N let's us know
that the methyl groups are

00:07:49.760 --> 00:07:55.880
attached here as opposed to on
the butyl group, I guess we

00:07:55.880 --> 00:07:56.550
could view it this way.

00:07:56.550 --> 00:08:00.280
So we end up with
N,N-dimethylbutanamide, which

00:08:00.280 --> 00:08:03.520
is an amide, one of the most
stable carboxylic acid

00:08:03.520 --> 00:08:04.340
derivatives.

00:08:04.340 --> 00:08:07.160
And then this right here,
this salt, what is this?

00:08:07.160 --> 00:08:17.520
This right here is dimethyl,
and this is now no longer

00:08:17.520 --> 00:08:19.000
dimethylamine.

00:08:19.000 --> 00:08:22.670
We now are a positively charged
cation, so this is

00:08:22.670 --> 00:08:23.920
dimethylammonium.

00:08:29.050 --> 00:08:31.100
We get that from the fact
that we have four bonds.

00:08:31.100 --> 00:08:32.419
We have a positive charge.

00:08:32.419 --> 00:08:35.330
This dimethylammonium, and then
we have this negative

00:08:35.330 --> 00:08:38.669
anion, dimethylammonium
chloride.

00:08:38.669 --> 00:08:39.970
I'll just go to the next line.

00:08:39.970 --> 00:08:41.620
Dimethylammonium chloride.

00:08:41.620 --> 00:08:44.140
But I really just wanted to show
you a mechanism here of

00:08:44.140 --> 00:08:47.680
how you could go from a less
stable or one of the least

00:08:47.680 --> 00:08:52.150
stable carboxylic acid
derivatives to one of the most

00:08:52.150 --> 00:08:55.210
stable, going from an acyl
chloride, which butanoyl

00:08:55.210 --> 00:08:58.310
chloride was, to an amide.


Carboxylic acid introduction

WEBVTT
Kind: captions
Language: en

00:00:00.650 --> 00:00:01.920
Let's see if we can
learn thing or two

00:00:01.920 --> 00:00:03.810
about carboxylic acids.

00:00:09.440 --> 00:00:12.700
They have the general form of
the carbonyl group, just like

00:00:12.700 --> 00:00:16.540
we've seen in aldehydes and
ketones, and they will be part

00:00:16.540 --> 00:00:18.590
of a longer carbon chain.

00:00:18.590 --> 00:00:20.930
But instead of having a hydrogen
here, as the case

00:00:20.930 --> 00:00:24.280
with an aldehyde, or having
another carbon chain here,

00:00:24.280 --> 00:00:30.170
with the case of a ketone,
we have an OH group.

00:00:30.170 --> 00:00:31.330
And you're probably saying,
hey, why is

00:00:31.330 --> 00:00:32.390
this called an acid?

00:00:32.390 --> 00:00:34.930
It must be called an acid
because it is an acid, and

00:00:34.930 --> 00:00:36.130
you'd be right.

00:00:36.130 --> 00:00:39.360
And the reason why it is an
acid, and why it is more

00:00:39.360 --> 00:00:45.160
acidic that just something
with an OH group, it's

00:00:45.160 --> 00:00:53.420
actually a good bit more acidic
than alcohols, is

00:00:53.420 --> 00:00:57.170
because once this thing loses
its hydrogen-- remember,

00:00:57.170 --> 00:00:59.550
depending on what type of acid
you want to think about, acid

00:00:59.550 --> 00:01:03.060
in the Lewis sense could be an
electron taker, and this

00:01:03.060 --> 00:01:05.990
oxygen can take the electron
of this hydrogen.

00:01:05.990 --> 00:01:08.370
Or if you think about the
Arrhenius definition of an

00:01:08.370 --> 00:01:11.530
acid, it is a proton donor,
and this OH group

00:01:11.530 --> 00:01:13.120
can donate a proton.

00:01:13.120 --> 00:01:15.760
It takes away the electron of
this hydrogen, gives the way

00:01:15.760 --> 00:01:17.640
the proton, either way.

00:01:17.640 --> 00:01:20.690
But the reason why this is more
acidic than alcohol is

00:01:20.690 --> 00:01:23.510
once it gives away this
proton, it is actually

00:01:23.510 --> 00:01:24.830
resonance stabilized.

00:01:24.830 --> 00:01:25.840
So let me show you
what that means.

00:01:25.840 --> 00:01:29.480
To do that, let me actually show
you the bond between this

00:01:29.480 --> 00:01:30.730
oxygen and this hydrogen.

00:01:36.450 --> 00:01:40.540
The oxygen has this pink
electron, and the hydrogen has

00:01:40.540 --> 00:01:43.200
that magenta electron
right there.

00:01:43.200 --> 00:01:47.260
If you put this in a solution of
water, so you have some H2O

00:01:47.260 --> 00:01:57.480
over here, this oxygen right
here really wants to take back

00:01:57.480 --> 00:01:59.370
this magenta electron.

00:02:03.400 --> 00:02:05.900
And as it takes back that
magenta electron, it would

00:02:05.900 --> 00:02:07.660
essentially donate the hydrogen

00:02:07.660 --> 00:02:09.395
proton to a water molecule.

00:02:09.395 --> 00:02:13.650
So the water molecule would give
one of its electrons to

00:02:13.650 --> 00:02:15.980
the hydrogen proton and
then become positive.

00:02:15.980 --> 00:02:19.890
So once this happens, the next
step would look like this.

00:02:19.890 --> 00:02:22.940
What was our carboxylic acid
will now turn into the

00:02:22.940 --> 00:02:28.190
carboxylate ion, so it will now
look like this, so it has

00:02:28.190 --> 00:02:29.740
our carbonyl group.

00:02:29.740 --> 00:02:32.910
Now, this oxygen just took
an extra electron.

00:02:36.360 --> 00:02:38.455
So if I want to draw it,
I have that one.

00:02:38.455 --> 00:02:40.060
Actually, let me draw.

00:02:40.060 --> 00:02:41.270
So this is the oxygen.

00:02:41.270 --> 00:02:43.980
To start off with, the oxygen
had two lone pairs, so I want

00:02:43.980 --> 00:02:47.490
to draw those two lone pairs
first. So to start off with,

00:02:47.490 --> 00:02:51.000
it had those two lone pairs,
and now it had this pink

00:02:51.000 --> 00:02:54.590
electron from the get go, and
now it took this magenta

00:02:54.590 --> 00:02:58.310
electron, so now it has one
extra valence electron.

00:02:58.310 --> 00:02:59.720
We can even draw them here.

00:02:59.720 --> 00:03:03.440
We can count them: one, two,
three, four, five, six.

00:03:03.440 --> 00:03:06.730
Six is just a neutral oxygen,
but now it gained another one.

00:03:06.730 --> 00:03:07.570
It has seven.

00:03:07.570 --> 00:03:11.580
It now has a negative charge,
and then the water has now

00:03:11.580 --> 00:03:15.330
become a hydronium ion.

00:03:15.330 --> 00:03:18.040
So you have the water here.

00:03:18.040 --> 00:03:20.630
We've increased the proton
or the hydronium

00:03:20.630 --> 00:03:21.970
concentration in the water.

00:03:21.970 --> 00:03:25.750
This one water molecule is now
a hydronium molecule, so this

00:03:25.750 --> 00:03:28.900
is now bonded with
this hydrogen

00:03:28.900 --> 00:03:31.130
proton just like this.

00:03:31.130 --> 00:03:35.010
This oxygen gave away an
electron to this proton, so

00:03:35.010 --> 00:03:37.810
now it has a positive charge.

00:03:37.810 --> 00:03:49.160
And this right here, this
carboxylate ion right over

00:03:49.160 --> 00:03:53.810
here, the reason why this thing
was a stronger acid than

00:03:53.810 --> 00:03:57.920
something that just had an OH
group is because the conjugate

00:03:57.920 --> 00:04:02.230
base, the carboxylate ion, is
actually resonance stabilized.

00:04:02.230 --> 00:04:05.610
It is more stable than the
conjugate base of an alcohol,

00:04:05.610 --> 00:04:07.080
and let me show you that.

00:04:07.080 --> 00:04:09.150
This thing can share its
negative charge.

00:04:11.900 --> 00:04:13.330
Let me draw it.

00:04:13.330 --> 00:04:16.240
It can take this magenta
electron, give it to this

00:04:16.240 --> 00:04:19.480
carbon, then this carbon will
have an extra electron, so

00:04:19.480 --> 00:04:22.390
then it can give back an
electron to this top oxygen.

00:04:27.260 --> 00:04:29.400
So it is resonance stabilized
with this

00:04:29.400 --> 00:04:31.260
structure right over here.

00:04:31.260 --> 00:04:35.565
Let me draw the same so it
could look like this.

00:04:35.565 --> 00:04:36.410
That's too big.

00:04:36.410 --> 00:04:39.110
Let me scroll down
a little bit.

00:04:39.110 --> 00:04:42.510
It could look like this.

00:04:42.510 --> 00:04:46.290
And now, this took back this
blue electron, so now one of

00:04:46.290 --> 00:04:50.880
the bonds is gone, and it
started off with two lone

00:04:50.880 --> 00:04:53.560
pairs, so I want to draw that
there, and now it has

00:04:53.560 --> 00:04:54.360
another lone pair.

00:04:54.360 --> 00:04:57.970
It has this electron, this
electron, and now it has that

00:04:57.970 --> 00:05:00.390
blue electron over there.

00:05:00.390 --> 00:05:04.140
And now this oxygen, this top
oxygen, has a negative charge,

00:05:04.140 --> 00:05:05.810
and now the carbon
has a double bond

00:05:05.810 --> 00:05:07.610
with this side oxygen.

00:05:07.610 --> 00:05:10.600
So now the carbon-- let me go
back to the yellow-- that's

00:05:10.600 --> 00:05:12.190
the first bond with
that oxygen.

00:05:12.190 --> 00:05:16.510
It had one, two lone pairs to
begin with, and now it has

00:05:16.510 --> 00:05:17.620
this magenta bond.

00:05:17.620 --> 00:05:19.900
So this pink electron
is at this end.

00:05:19.900 --> 00:05:23.280
And now this purple electron is
at the other end, or this

00:05:23.280 --> 00:05:25.080
magenta electron, and
now it has a double

00:05:25.080 --> 00:05:26.930
bond with this oxygen.

00:05:26.930 --> 00:05:29.160
And we know that when you have
resonance stabilization, it's

00:05:29.160 --> 00:05:30.360
not like you're going
back and forth.

00:05:30.360 --> 00:05:35.050
The reality is that you have a
half double bond between both

00:05:35.050 --> 00:05:37.250
oxygens, that the electrons are
just flowing across the

00:05:37.250 --> 00:05:39.920
whole place, and that stabilizes
the molecule.

00:05:39.920 --> 00:05:42.220
And so to show that this is a
resonance structure, let me

00:05:42.220 --> 00:05:46.570
put some brackets around it.

00:05:49.400 --> 00:05:52.160
And, in general, if this R group
right here is actually

00:05:52.160 --> 00:05:54.750
even better at withdrawing
electrons, so if you put

00:05:54.750 --> 00:05:56.570
something that was really
electronegative here,

00:05:56.570 --> 00:05:59.530
something that likes to hog
electrons, it would make the

00:05:59.530 --> 00:06:02.130
carboxylate ion even
more stable.

00:06:02.130 --> 00:06:05.500
It would make the carboxylic
acid even a better acid.

00:06:05.500 --> 00:06:07.630
So if you put something
electronegative here, then you

00:06:07.630 --> 00:06:10.050
could imagine that some of this
negative charge that we

00:06:10.050 --> 00:06:14.640
drew in these two resonance
structures, can be sucked to

00:06:14.640 --> 00:06:17.070
that R group, and then that
would make it even more

00:06:17.070 --> 00:06:18.850
stable, and would make
the carboxylic

00:06:18.850 --> 00:06:23.000
acid even more acidic.

00:06:23.000 --> 00:06:25.530
Now, like in everything we've
looked at, there are some

00:06:25.530 --> 00:06:28.930
common carboxylic acids that are
not systematically named,

00:06:28.930 --> 00:06:31.090
that it's probably a
good idea to know.

00:06:31.090 --> 00:06:34.230
And I'll start with one, just to
see the pattern that we've

00:06:34.230 --> 00:06:36.470
seen in other things.

00:06:36.470 --> 00:06:41.590
We've seen that this thing over
here, if we have this, we

00:06:41.590 --> 00:06:43.260
call this acetaldehyde.

00:06:47.380 --> 00:06:50.250
This was the very simple
aldehyde we studied.

00:06:50.250 --> 00:06:56.170
we saw that if we have something
like this, which is

00:06:56.170 --> 00:06:59.720
a ketone, we called
this acetone.

00:07:02.950 --> 00:07:05.930
So you could imagine what we're
probably going to name--

00:07:05.930 --> 00:07:08.760
let me do this in a different
color-- this

00:07:08.760 --> 00:07:14.050
molecule right over here.

00:07:14.050 --> 00:07:17.930
This is a carboxylic acid,
clearly, and it has just that

00:07:17.930 --> 00:07:20.950
one methyl group, just like the
acetaldehyde, just like

00:07:20.950 --> 00:07:23.545
the acetone, and so this
is acetic acid.

00:07:28.270 --> 00:07:31.210
So the acetaldehyde, acetone,
and acetic acid for me are

00:07:31.210 --> 00:07:33.980
fairly easy to memorize just
because they all have the

00:07:33.980 --> 00:07:35.420
acet- part.

00:07:35.420 --> 00:07:38.870
They all have that as their
prefix, and this part of the

00:07:38.870 --> 00:07:41.280
molecule is identical
in every case.

00:07:41.280 --> 00:07:43.290
And the difference is the
hydrogen, the methyl group

00:07:43.290 --> 00:07:47.080
over here, or the OH group,
making this one a carboxylic

00:07:47.080 --> 00:07:49.370
acid, an acetone,
and all that.

00:07:49.370 --> 00:07:52.360
Now, a couple of other ones that
it wouldn't hurt for you

00:07:52.360 --> 00:07:55.850
to know is this one
right over here.

00:07:55.850 --> 00:07:59.950
This is, you could argue, even
simpler than acetic acid, and

00:07:59.950 --> 00:08:01.205
this formic acid.

00:08:05.325 --> 00:08:08.800
And then another one, and
actually, I recently did a

00:08:08.800 --> 00:08:12.290
general chemistry video with
this, where we did a titration

00:08:12.290 --> 00:08:15.970
example, but this is essentially
two carboxyl

00:08:15.970 --> 00:08:18.130
groups attached to each other.

00:08:18.130 --> 00:08:23.440
It looks like this, two carboxyl
groups attached to

00:08:23.440 --> 00:08:25.280
each other and you
can see them.

00:08:25.280 --> 00:08:29.250
This is one carboxyl group right
over here, and then you

00:08:29.250 --> 00:08:32.200
have another carboxyl group
right over here.

00:08:32.200 --> 00:08:34.470
And so this actually can
be deprotonated twice.

00:08:34.470 --> 00:08:37.510
This hydrogen can be lost, and
that hydrogen can be lost, and

00:08:37.510 --> 00:08:38.760
this is oxalic acid.

00:08:43.669 --> 00:08:44.490
I'll leave you there.

00:08:44.490 --> 00:08:47.370
And in the next video, we'll
learn how to systematically

00:08:47.370 --> 00:08:50.230
name carboxylic acids.