The Fed Discusses The Relevancy Of The "Invisible Hand"

Tyler Durden's picture

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thunder44's picture

Don't you wish you had a invisible hand if you were going pick someones pocket.

TheGoodDoctor's picture

But isn't that the crux really? You never know what caused the bubble until it pops and causes the problems.

G-R-U-N-T's picture

Yeah...Pop Goes the Weasels!!!!

Fraud-Esq's picture

More powerful than the Supreme Court...


"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting.

jeff montanye's picture

the greeks had a word for it: hubris.

Nikki's picture

The unbridled hubris of a sociopathic narcissistic economic terrorist.

deadparrot's picture

Translation: If we let private sector professionals with real-world experience into our ivory tower, they will be able to prove to the country that the Fed is a nothing more than a group of the most dangerous people on the planet: idiots with Phds.

G-R-U-N-T's picture

Indeed...The finest so called minds in the country, coming from the most sophisticated, and prestigious universities, and the best they could do is bankrupt our country.

Back where I come from we call people like that "Dumb as a Fence Post!"


Assetman's picture

Sounds like classic groupthink to me.

The last thing the Fed has wanted, past and present, is for outsiders to get involved in an intellectual debate-- that only those in the inner circles actually understand.

What a much of pompous maroons.  Hopefully, this will be the rough phrasing in the annals of history.

BlackBeard's picture

Well, in that case the Fed can jerk me off with that invisible hand.

At least with all this assraping, they'd have the decency to give me a courtesy reach-around.

Mercury's picture

I think you're coming close to a breakthrough economic insight here: The marketplace has the power of the invisible hand but the government (via NY Fed, ZIRP, TBTF etc.) has the power of the invisible reach-around.

Oooh! hey that's not my that you Mr. Marketplace?

Oh my assets! Go easy, I'm trying to save for the fuuuutre....

chumbawamba's picture

Howard, that's definitely a t-shirt ;)

I am Chumbawamba.

TheDuke's picture

I guess what the author is trying to say is "this time is different".

Unfortunately when one questions or ignores the invisible hand it turns into an invisible fist and smacks down all that are non-believers in free and fair enterprise.

Common_Cents22's picture

I see your invisible hand, and raise you a federal govt boot on the neck.


Obama's Interior Sec Ken Salazar:

"Our job is basically to keep the boot on the neck of British Petroleum," Salazar said, who often sports a Stetson and who four months ago stirred the ire of the oil business by saying unlike under his predecessors in the George W. Bush administration, oil companies would no longer be treated like "kings of the world." When he was a senator, he had to apologize after calling Christian conservative leader James Dobson "the antichrist of the world."

Yardfarmer's picture

I also noticed that crude and ridiculous tough guy comment. Mr. Sleazliar has never been known for subtlety of expression or depth of intelligence. When running of the Senate in Colorado, at one of his campaign rallies, he demanded that security remove and arrest an individual silently bearing a sign in support of his opponent Peter Coors. I doubt if his signature chest thumping possesses any relevance or is going to have any effect on this catastrophe especially in light of the fact that BP, whom I believe is under contract with the South Korean government, has a reported $75 million liability cap in that arrangement. Certainly many unseen hands are working behind the scenes in this imbroglio.

LeBalance's picture

I would dearly love to know if this "invisible hand" model has ever been thought applicable.  A free market may have existed at your 12 year olds lemonade stand, but really nowhere else.  This is especially true in the crimnocentric US I find my self in.  Even the "founding fathers" tried to steal King George's enterprise in 1780 and came up short, but the US was never "free or brave", more aptly described as "fee and slave."

The doorway to begin realising a further rabbit hole bungie drop begins by understanding what the device called a "Constitution" is and what "Constitutors" are.

Oh in that sense the "invisible hand" is a useful myth to fog the minds of the "c"itizens.  They think that the smooth functioning of the economy is due to "fairies in the night" and recessions are due to "animal spirits."

I guess it is convenient to distract oneself from the distinct sigmoidal fullness and the heavy breathing on the neck that is our every day life.

Invisible Hand's picture

Am I still relevant? Of course I am! (Don't ask my wife).

Bottom line: A single monkey with a piece of scrap metal can destroy in 1 second the most complex piece of machinary every built.  However, given all the parts of the same machine, a million monkeys could never assemble the machine in a million years.

Single monkey = FED

Million monkeys also = FED

They can break it, but they can't fix it.

The economy in the US worked despite the FED, not because of it.  However, eventually given rope and enough time the FED has managed to hang all of us.

Ain't government wonderful?



jeff montanye's picture

particularly in the last decade, the u.s. economy didn't work very well with or without the fed.  what the essay above seems to ignore is the gross perversion of free markets that the concept of too big to fail introduces.  apparently the smart financiers knew they would be bailed out and the dumb ones (seemingly the majority) never considered they'd need to be.  

the solution isn't an either/or.  if private industry is going to have the power to create money, and apparently they are, both those in daylight and those in the shadow banking system need to be intelligently and honestly supervised regarding, at a minimum, fraud, monopoly, insider trading and maintenance of sufficient reserves/insurance for risks taken.  most importantly, none may be to big to fail.  and when they do fail, the management, stockholders and bondholders are liable first.  long before the taxpayer.

KevinB's picture

what the essay above seems to ignore is the gross perversion of free markets that the concept of too big to fail introduces.

I am sorry, but I must disagree. The last sentence of the report - which is where you usually put your zinger - says they must remove incentives that encourage excessive risk taking by executives. Isn't that precisely what TBTF encapsulates? It's the ultimate bad incentive - heads I win, tails you lose. If you know that you are politically connected (hi Lloyd!), you don't have to fear losing your job (hi Marty! hi Ken!) and, while it causes considerable hardship for the guy on Main Street to lose his bonus for a year, when you've been earning tens of millions for years, it's more an annoyance. Of course, in the squid dominated DC establishment, Leroy had to be circumspect about saying this, lest he lose his own job.

faustian bargain's picture

The Fed has been ubiquitous since its inception, so there's no way of gauging whether the economy has worked well 'with or without it'. It's always been 'with', since 1913. And we've done pretty poorly since then.

Fish Gone Bad's picture

What invisible hand?  All those traders that the Fed hired are doing what exactly?  This is actually pretty obvious, Dorsch said it best, "Imagine for just a moment, that the Dow Jones Industrials has become a key instrument of national economic policy, and that by “actively managing” its direction, the government could impact the wealth of tens of millions of US households, and by extension, influence consumer confidence and spending. By ramping up the growth of the money supply, and slashing interest rates to zero percent, in order to inflate market bubbles, the Fed could in theory, fuel an economic rebound."  Nothing is allowed to fail. 

Implicit simplicit's picture

The invisible hand has a prosthetic index finger with algorithmic sensors guided by misguided brains who think they know what is best.

ghostfaceinvestah's picture

The President of the European Central Bank, Jean-Claude Trichet, told Forbes that global governance is extremely necessary if we want to prevent another financial crisis. In his prepared printed and spoken remarks to the Council on Foreign Relations, Trichet emphasized that politicians, economists, and financiers must work across the Atlantic and collaborate on methods to create an international set of standards

Kreditanstalt's picture

"Another crisis"?  You's OVER?

nmewn's picture

Oh goody...One World Government finally reveals itself...I've been waiting all my life for this...only half snark.

The Final Ponzi...LOL.

How is it that the same people who wrought all this social chaos, financial ruin and mass enslavement to THEIR credit system still get a microphone to even be heard???

Pondering the imponderables.




Kreditanstalt's picture

It's all very convenient to lambaste free markets when you are engaged in a desperate search for someone to take the blame.  Or when the organization for which you work bears some likelihood of someday being held responsible for the mess.  Or when you have lost a measure of your house value/living standards/wealth and need help in playing the needy victim...

But they're running out of other people's money...  

Hansel's picture

No, they're not.  They can print money.  I've seen no indication that this will end.  I have seen many people find some solace in thinking this will end eventually.

Kreditanstalt's picture

True.  But that is liquidity.  Or currency, or credit, or something...NOT real MONEY.  More and more people will be demanding real, unencumbered non-debt-derived MONEY.

Jean Valjean's picture

Bingo.  Money is the key.  The invisible hand has not been functioning since 1971 because we have not been using REAL MONEY to transact and measure profits.

Burnbright's picture

They aren't running out of "money", but they are running out of "value". As printing continues the incentive to actually produce something of value decreases.

So no I don't think it will go on for ever.

Fraud-Esq's picture

So long as there is no substantial debate about appointments to the Fed, this will continue. Glass Steagall was also slowly eaten away by regulatory changes inside the Fed too, not only legislative. A few "5-4" decisions with Volcker in the minority up against Greenspan. Nothing had broad debate. De-politicizing the Fed and monetary policy is the coup of coups. After 2008, it is still a nonissue, more-less, in mainstream media. Legislation rarely gets the whole job done. You have to get in these people's faces and demand accountability, especially when they hide their proceedings. We need supreme court style selection and consent. It ain't happening. They're hiding behind their economic degrees and bank support when it all really about...who's making money, how and who's side they're on. There is no rule Fed board member have to come from the banking industry just like Supreme court don't have to be judges.    

drbill's picture

Once again, the "free market" has failed and we need government to correct the tendencies of the "free market" to self-destruct.

What's truly sad is that most people (and a sizable percentage of economists) actually go for this line of reasoning.

I guess that's why I believe the current system ultimately must collapse.

Assetman's picture

Good points, drbill.

I'm still amazed there was a regulatory structure in place over the past 2 decades, and although imperfect, the regulators (esp. the SEC, DOJ and Fed) did very little to enforce what was already in place.

Free markets didn't work because fraud was widely accepted as everyday business practice-- and it was something that could have been detected and enforced.

So do we REALLY think MORE regulation (though much of what has been inlcuded, esp the amendments, make sense) will really be the magic pill? 

I don't think so.


Burnbright's picture

That is exactly right, you can lead a horse to water but you can't make em drink. What good does it do to increase taxes and regulations when simply following the law (i.e. the constitution) would have prevented all this from happening in the first place?

GeoffreyT's picture

It annoys me immensely that academics never start their examinations in the right place (as my mentor once quipped: there is six weeks' worth of actual theory in economics - the rest is embroidery).

When considering the latest financial disruptions, the central counterfactual in the "regulation versus free-markets" argument should NOT be whether the problem could have been avoided by changes in the degree of oversight of financial market participants.

The central counterfactual should be whether the situation would have been avoided if the short term price of money (the interest rate) was determined by a market or by a politically-appointed group of frothy old crabbers led by a failed investment consultant (Alan "Wrong Way" Greenspan, whose forecasting performance is immortalised in an image on my site: had Greenspan not fastened himself to the public teat he would have starved to death).


If Mises and Hayek were correct about the information problem in economic calculation (and they were correct), then why the fuckety fucking fuck do we still insist on letting central planners decide the most important price in a modern western economy (the price at the short end of the yield curve)?


If you don't start at the right point, you wind up asking the wrong questions. The political-parasite class relies on this type of misdirection to mislead the polity into accepting greater degrees of regulation at levels ABOVE the root causes of core problems.

To refresh Diderot (to account for the collapse of kingdoms and priesthoods): man will be free when the last politician is bludgeoned to death with the severed arm of the last police sniper.

Caedite Eos.





LeBalance's picture

are we clowns to you?  are we here to amuse you? can't you fff'n see us? didn't we make ourselves fff'n obvious?  don't we have our (ahems) so far up your (aha) that you know who we are?  c'mon, three guesses and the first two don't count.

dumpster's picture

man will be free when the last politician is bludgeoned to death with the severed arm of the last police sniper.

the hand having been severed  from the arm as it placed a  brown paper sack in front of a crowd of politicians

Hulk's picture

Dumpster, where the hell did that come from???

dumpster's picture

 paraphrase Diderot...

Burnbright's picture

I understand that you were joking but there are some people who won't. Not trying to be rude...just sayin.

Hulk's picture

Thanks Dumpster. Diderot new to me , so I will need to do some reading...

nmewn's picture

"man will be free when the last politician is bludgeoned to death with the severed arm of the last police sniper."

If I can condense that to coffee mug size to sell to suburban college trained anarchists I intend to make a fortune ;-)


Mitchman's picture

Go for it!  I'll buy the first dozen mugs.  Every libertarian in the US will buy one.