How A Handful Of Unsupervised MIT Economists Run The World

Tyler Durden's picture




 

Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people, explains why.

From the WSJ:

Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

 

The dinner discussions on money and economics are more than academic. At the table are the chiefs of the world's biggest central banks, representing countries that annually produce more than $51 trillion of gross domestic product, three-quarters of the world's economic output.

 

Of late, these secret talks have focused on global economic troubles and the aggressive measures by central banks to manage their national economies. Since 2007, central banks have flooded the world financial system with more than $11 trillion. Faced with weak recoveries and Europe's churning economic problems, the effort has accelerated. The biggest central banks plan to pump billions more into government bonds, mortgages and business loans.

 

Their monetary strategy isn't found in standard textbooks. The central bankers are, in effect, conducting a high-stakes experiment, drawing in part on academic work by some of the men who studied and taught at the Massachusetts Institute of Technology in the 1970s and 1980s.

 

"Will history decide they did too little or too much? We don't know because it is still a work in progress," said Kenneth Rogoff, an economics professor at Harvard and co-author of a book, "This Time Is Different," examining financial crises over eight centuries. "They are taking risks because it is an experimental strategy."

 

Three of the world's most powerful central bankers launched their careers in a building known as "E52," home to the MIT economics department. Fed Chairman Ben Bernanke and ECB President Mario Draghi earned their Ph.D.s there in the late 1970s. Bank of England Governor Mervyn King taught briefly there in the 1980s, sharing an office with Mr. Bernanke.

 

Many economists emerged from MIT with a belief that government could help to smooth out economic downturns. Central banks play a particularly important role in this view, not only by setting interest rates but also by influencing public expectations through carefully worded statements.

 

While at MIT, the central bankers dreamed up mathematical models and discussed their ideas in seminar rooms and at cheap food joints in a rundown Boston-area neighborhood on the Charles River.

 

Over Sunday dinners in Basel, which often stretch to three hours, they now talk of pressing, real-world problems with authority. The meals are part of two-day meetings held six times a year at the BIS. Dinner guests include leaders of the Fed, ECB, Bank of England and Bank of Japan, as well as central bankers from India, China, Mexico, Brazil and a few other countries.

The same BIS, incidentally, which is an employer of "The People Bringing You Currency Manipulation On A Daily Basis" whom we described in April.

The role of the Bank for International Settlements has broadened since it was formed in 1930 to handle reparation payments imposed on Germany after World War I. In the 1970s, it became the center of discussions on bank capital rules. In the 1990s, it became the meeting place for central bankers to talk about the global economy.

It is also the place where the coordination of all the real trading these days: that conducted by central planners of course. Most importantly, it is responsible for perpetuating the status quo.

As for our unsung MIT heroes...

The 18-member group, formally known as the Economic Consultative Committee, has only once issued a public statement: a two-line missive in September, promising to look for solutions in interbank lending markets, responding to allegations that some private banks had conspired to manipulate the Libor interest rate.

 

On Mondays after the dinner, the bankers join a larger group of central bankers at a large round table on a lower floor of the BIS building, which is shaped like a rook chess piece. Staff members sit nearby at desks decorated in white leather.

...

The Bank of England's Mr. King leads the dinner discussions in a room decorated by the Swiss architectural firm Herzog & de Meuron, which designed the "Bird's Nest" stadium for the Beijing Olympics. The men have designated seats at a round table in a dining area scented by white orchids and framed by white walls, a black ceiling and panoramic views.

 

"It is a way in which people can talk completely privately," Mr. King said in an interview. "It is a big advantage if you have some feel for how central banks think about questions, what they're likely to do in the future if certain events were to occur."

 

Serious matters follow appetizers, wine and small talk, according to people familiar with the dinners. Mr. King typically asks his colleagues to talk about the outlook in their respective countries. Others ask follow-up questions. The gatherings yield no transcripts or minutes. No staff is allowed.

The punchline: a handful of people from MIT, deeply steeped in economic theory (not practice), the same people whose actions incidentally were responsible for the first great financial crisis, and who yield more power than any potenate in the history of the world - people who, as the ECB showed in the case of Berlusconi, can take down presidents and PMs with the flick of a switch, meet in private. No transcripts or buttlers are allowed.

In other words, they are accountable to absolutely nobody.

Which is to be expected: after all they are conducting the greatest experiment in monetary, geopolitical and social history. If they fail... when they fail, everyone loses.

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Wed, 12/12/2012 - 19:37 | 3057743 Spinelli
Spinelli's picture

That site says global warming is a scam and that humans are not short cicutting a natural process and causing intrisic changes to the climate...

I loled, an entire site... despite how accurate and well researched down the drain.. *waves good-bye*

Wed, 12/12/2012 - 21:46 | 3058060 earleflorida
earleflorida's picture

"Carbon Trading '2012' & Global Warming" 

big, big bucks, and global regulatory capture, except this time... it's the NWO's TBTF's running the show!

http://www.muckety.com/carbon-trading/5073762.muckety

enjoy

have ya seen gore lately?

Wed, 12/12/2012 - 23:49 | 3058344 Michaelwiseguy
Michaelwiseguy's picture

So, these are some of the people on the hit list?

Wed, 12/12/2012 - 12:52 | 3056178 Silver Bug
Silver Bug's picture

A small handful of global "elites" (I use that term loosely) most certainly do direct the flow of the world. Just look at how many goldman sachs guys are now central banksters!

 

http://ericsprott.blogspot.ca/

Wed, 12/12/2012 - 20:53 | 3057934 GOSPLAN HERO
GOSPLAN HERO's picture

You meant MDB.

Wed, 12/12/2012 - 22:08 | 3058121 Freddie
Freddie's picture

Paul Krugman is a (faux) "economist" and a total f***tard lefty like this lot of vermin.   The Goldman men doing Beelzebub's work.

 

Thu, 12/13/2012 - 00:08 | 3058378 lasvegaspersona
lasvegaspersona's picture

hehe...he said BUTTler

Wed, 12/12/2012 - 10:09 | 3055442 mjorden
mjorden's picture

Either them or Jesus ... 

Wed, 12/12/2012 - 10:12 | 3055463 Flakmeister
Flakmeister's picture

Jesus is their gardener....

Either them or the "Boys from Chicago"...

Wed, 12/12/2012 - 10:31 | 3055551 Chief KnocAHoma
Chief KnocAHoma's picture

No... remember that Jesus stood up to the bankers of his day. He threw them out of the Temple, and was hanging on a cross three days later. Lesson learned.... don't fuck with the money changers.

Wed, 12/12/2012 - 10:37 | 3055583 Element
Element's picture

Good, because there's a few sionists in that lot.

Wed, 12/12/2012 - 12:33 | 3056096 Flakmeister
Flakmeister's picture

Since the z and s are next to each other, we will let this one zlide...

Wed, 12/12/2012 - 10:54 | 3055668 MassDecep
MassDecep's picture

I assume it is your assumption that man is God. That, my friends, is our only problem.

 

Jesus died, to pay for our sins. Gods precious gift to us, was his only son. If you think that money changers had any power in crucifying Jesus, you are dead, blinded .....and wrong.

 

Wed, 12/12/2012 - 11:27 | 3055830 Chief KnocAHoma
Chief KnocAHoma's picture

So I guess that mob calling out for the crusifix outside of Pontius Pilat's place had nothing to do with it. 

A believer can use common sense. Those two traits aren't exclusive.

Wed, 12/12/2012 - 14:15 | 3056572 takinthehighway
takinthehighway's picture

That mob was incited by the Hebrew religious leaders to call for Jesus' death. Since the Hebraic law did not allow for the death penalty in this case, the leaders went to the Romans and charged Jesus with setting Himself up as king in direct opposition to Caesar. Pilate was pressured to do this with the threat of the religious leaders going to Caesar and informing him that Pilate was aligning himself with a king other than Caesar. Pilate would lose his position if not his life. Even though he knew that the charges were false, Pilate was not about to allow a localised religious dispute to destroy him. Expediency trumps right - same as it ever was.

Wed, 12/12/2012 - 23:48 | 3058338 Dave Thomas
Dave Thomas's picture

This sounds almost ponigent to todays world. My how time works.

Wed, 12/12/2012 - 15:48 | 3056950 MassDecep
MassDecep's picture

Jhn 19:10 KJV - Then saith Pilate unto him, Speakest thou not unto me? knowest thou not that I have power to crucify thee, and have power to release thee?
Jhn 19:11 KJV - Jesus answered, Thou couldest have no power [at all] against me, except it were given thee from above: therefore he that delivered me unto thee hath the greater sin.

So, it was all in the plan?

Wed, 12/12/2012 - 19:48 | 3057765 Spinelli
Spinelli's picture

Uhm.. I highly doubt jesus was thinking about the sins of people thousands of years after his time.. He was more likly rebelling against the conditions of his time.

And as for God, that word isnt even defined, keep it to yourself and dont make erronous statments kktybai :)

You know a site is good when stupid comments like yours get double the downvotes that up ^.^

Wed, 12/12/2012 - 21:31 | 3058017 tbone654
tbone654's picture

but history repeats itself over and over...  the nature of feudalism...  The only economic system that always, always works...  an endless cycle...

someone conquer's another... conqueror either kills everyone or assimilates them into their own... the society gets fat and sassy and becomes an easy target to conquer... insiders seek the help of outsiders...  wash, rinse, repeat...

It's just history...

Wed, 12/12/2012 - 21:02 | 3057953 Schmuck Raker
Schmuck Raker's picture

That's right. The Jews didn't kill Jesus, God killed Jesus.

Not a lot of people realize that.

Wed, 12/12/2012 - 12:51 | 3055752 DaveyJones
DaveyJones's picture

that's because it's easier to resurrect a human than a currency

Bless me Banker for I have sinned. It's been three months since I last refinanced my mortgage.

Wed, 12/12/2012 - 10:42 | 3055611 Oquities
Oquities's picture

yer wrong tree barking - YAHWEH is their dude.

Wed, 12/12/2012 - 19:05 | 3057663 john39
john39's picture

tetragrammaton.... god of zionism... god of freemasonry...   a liar from the beginning.

Wed, 12/12/2012 - 10:10 | 3055448 djsmps
djsmps's picture

Do all their voices quiver when they talk?

Wed, 12/12/2012 - 10:29 | 3055535 CPL
CPL's picture

I wouldn't trust anythem to engineer anything but answer a phone, write a ticket and pass it on to someone that knows how to fix it.

 

Being senior doesn't necessarily mean seniority in a trade.  Besides...Economists as Engineers.  No.  They get their iron ring and learn a useful trade first.  Until then they are just gasbags with money and a project idea.

Wed, 12/12/2012 - 10:52 | 3055622 AlaricBalth
AlaricBalth's picture

Modern economists suffer from an affliction call "physics envy". What their over-inflated egos will not allow them to understand is, unlike physics, in which pure mathematical logic can often yield useful insights and intuition about physical phenomena,  a purely deductive approach to economic analysis may not always be appropriate and can sometimes be destructive. 

Paul Samuelson admonished against theoretical economics when he wrote, "Only the smallest fraction of economic writings, theoretical and applied, has been concerned with the derivation of operationally meaningful theorems. In part at least this has been the result of the bad methodological preconceptions that economic laws deduced from a priori assumptions possessed rigor and validity independently of any empirical human behavior. But only a very few economists have gone so far as this. The majority would have been glad to enunciate meaningful theorems if any had occurred to them. In fact, the literature abounds with false generalization.

We do not have to dig deep to find examples. Literally hundreds of learned papers have been written on the subject of utility. Take a little bad psychology, add a dash of bad philosophy and ethics, and liberal quantities of bad logic, and any economist can prove that the demand curve for a commodity is negatively inclined."

Wed, 12/12/2012 - 11:32 | 3055797 disabledvet
disabledvet's picture

The irony of course is that if you have a gold standard the "money numbers" can actually start to make sense..at least the "money at risk" (backed by gold at a set price) numbers. Now you have to be a genius just to SAY the number.

Wed, 12/12/2012 - 14:30 | 3056622 koncaswatch
koncaswatch's picture

AB thanks for the Samuelson quote; a Nobel Economist that understands the failings of his feild of study.

Wed, 12/12/2012 - 23:00 | 3058237 TruthInSunshine
TruthInSunshine's picture

I regret that I only have but one up arrow to give to Alaric.

Economics, the truly dismal "science" perpetuating a dismal field of dismal prognosticators with a success rate in economic tinkering and forecasting so low that it makes Wile E. Coyote look like an absolute success & genius by contrast.

Wed, 12/12/2012 - 10:11 | 3055450 ihedgemyhedges
ihedgemyhedges's picture

Accountable to none, responsible for all.  How do I get one of those gigs?

Wed, 12/12/2012 - 10:10 | 3055451 hero HNL
hero HNL's picture

I went to mit too....not in econ though.

Wed, 12/12/2012 - 10:23 | 3055469 GetZeeGold
GetZeeGold's picture

 

 

Money well spent I'm guessing.

Wed, 12/12/2012 - 10:34 | 3055565 hero HNL
hero HNL's picture

Nope.....on scholarship. But I didn't like the school so much.

Wed, 12/12/2012 - 10:42 | 3055590 GetZeeGold
GetZeeGold's picture

 

 

That's why I went to a coed school.....in Florida. I suppose I learned something. Hell if I can remember what.

Wed, 12/12/2012 - 10:11 | 3055454 hero HNL
hero HNL's picture

I was in course22.

Wed, 12/12/2012 - 10:13 | 3055456 LawsofPhysics
LawsofPhysics's picture

 

It's a club, and you are not in it.

I maintain my original hypothesis;  Once all the real wealth and physical assets have been claimed by the TBTF conglomerates around the world and the real owners have their tribes in order.  A universal police state society, much like the current chinese state, will be imposed on the earth.  The real power brokers in China and America have been on the same page for quite a while and have learned many things from each other.  Regarding all the paper promises and debt, all the central banks (who really serve as the control points for the owners) will get together and re-negotciate everything, effectively evaporating derivatives and any debt or risk that they had on their books.  You will still be reasponsible for your debt of course.  The good news is there will be numerous dead-end, debt-slave, government/coroporate-sponsored positions for you to work the rest of your life at.  The true power brokers know exactly what they can get away with from the experiences of people trapped in the toy/tech factories of china and the prisons of America.

Personally, I am in capital preservation mode, not hiring, not firing, trying to produce the minimum product and save on the maintenance costs for my equipment so we can simply stay in business.  It takes real commodities and energy to keep this equipment running.  Tell me Mr. Bernanke, what is inflation in these areas dumbass?

 

Wed, 12/12/2012 - 10:17 | 3055485 EscapeKey
EscapeKey's picture

Inflation? Clearly, your problem is that you don't buy enough iPads.

Wed, 12/12/2012 - 10:26 | 3055524 eclectic syncretist
eclectic syncretist's picture

It's a good day to buy silver.

Wed, 12/12/2012 - 10:34 | 3055559 Pseudo Anonym
Pseudo Anonym's picture

also, dont forget that even in this scenario:

... the real owners have their tribes in order.

a supreme court will be needed to shower everybody with their tribal justice

http://vigilantcitizen.com/sinistersites/sinister-sites-israel-supreme-c...

http://vigilantcitizen.com/category/sinistersites/

Wed, 12/12/2012 - 10:34 | 3055564 Tao 4 the Show
Tao 4 the Show's picture

I see you are re-posting this so guess you either want feedback or just to distribute the idea.

If one creates mental vectors for the many trends that are gaining momentum (and imagines them extending forward in time), your conclusion is reasonable. The problem I see is that the system loses stability at every step along this path. I won't go into the reasons here, but anyone studying complex systems would know why. Even Taleb, the "Black Swan" guy talks about this in the context of markets and he is not really the brightest bulb around (though a good salesman).

Certainly absolute control is the dream goal for many types of pathology. It never works for long though can cause much pain in the process. The former East Germany is a good example.

Wed, 12/12/2012 - 10:41 | 3055589 LawsofPhysics
LawsofPhysics's picture

Just stating my position.  One that I am guessing other small business owners are also familiar with.  That, and desparately looking for more suggestions on capital preservation.

 

Wed, 12/12/2012 - 10:40 | 3055603 Tao 4 the Show
Tao 4 the Show's picture

Just responding to your idea by saying that I don't think global control will work.

Regarding capital preservation, I am faced with the same thing and agree with your approach. Low profile is the key.

Wed, 12/12/2012 - 10:52 | 3055657 LawsofPhysics
LawsofPhysics's picture

Despite their true lack of compassion or common sense, these are smart people.  They don't talk about what they are really doing until it has been implemented.  So if the issue really is complexity, the obvious solution is to eliminate that complexity where they can.  From and economic/monetary perspective that would mean that all sovereign entities and social differences/individualism must be eliminated.  This is exactly what I see being attempted in the eurozone.  Remember, if you are a tenant of the Coroporation of the United States, the United Nations issues your birth certificate already.  Long term, I agree with you, but people like this always "push the envelope" as it were until things outright collapse in order to rebalance the real environmental and resources costs.  WWII is a perfect example regarding how the "rebalancing occuring.  There were maybe a few billion on the planet then, makes you wonder how that "rebalancing" will go this time around.

Wed, 12/12/2012 - 11:00 | 3055710 Tao 4 the Show
Tao 4 the Show's picture

I didn't clarify my word usage. I was using "complexity" in the "complex systems" sense. That type of complexity can be used to describe free markets, traffic jams, ant colonies, and a bunch of other phenomena. Complex in the sense of the tax code is something completely different and philosophically moving in the opposite direction. Taleb wrote an article or two about what happens when you begin to centrally control markets. They go from being flexible and self-correcting to being fragile and at risk of sudden and enormous crashes.

My point was that in reducing freedom in markets, societies, etc., you reduce their functionality. They may try harder and harder to control everything, but that will reduce the complexity and richness of the system, eventually crashing it altogether. Control doesn't work in organic systems. Ever seen a marriage where one partner tried keeping the other under control?

Wed, 12/12/2012 - 11:05 | 3055723 LawsofPhysics
LawsofPhysics's picture

The only complexity I see that matters is the flow of energy.  It drives all the biological cycles that must be maintained in order to sustain life, in it's current form anyway.  Nothing else really matters. Interupt any one of a number of essential biological cycles and the ant colony dies, no exceptions.  It's the secret to Nature's success.

Wed, 12/12/2012 - 11:12 | 3055753 Tao 4 the Show
Tao 4 the Show's picture

Excellent point about energy - unquestionably the first requirement. After that is still interesting though.

Why does a hurricane form? There is an energy difference between earth and sky that tends towards equilibrium. As it turns out, the vortices formed in a hurricane are more efficient at energy transfer than the situation where the air is still and merely conducts or radiates the energy away. Complexity forms in response to conditions involved in energy flows. Who says the Second Law is no fun!

Wed, 12/12/2012 - 11:30 | 3055839 LawsofPhysics
LawsofPhysics's picture

The hurricane still consumes a lot of thermal energy, it had to go somewhere after all, and the mess left behind a hurricane's path gives that entropy right back several fold.

Wed, 12/12/2012 - 11:38 | 3055874 Tao 4 the Show
Tao 4 the Show's picture

Yep, entropy happens. Maximum entropy is when thermal equilibrium is reached. This happens in any case. It's just more interesting when the process of moving from lower to higher entropy involves formation of a complex system like a hurricane rather than just something boring like thermal conduction. No energy consumed... just movement from low entropy which can perform work and high entropy or theremal equilibrium which can perform no work.

Wed, 12/12/2012 - 11:53 | 3055929 LawsofPhysics
LawsofPhysics's picture

" It's just more interesting when the process of moving from lower to higher entropy"

-------------------------------------------

Gee, you mean like a human cell.  The world has a lot more human cells then it did 100 years ago, now about those landfills...  fish stocks... and arable land... etc.

By the way, I don't necessarily see this as an improvement.  the capital and resource mis-allocation and mal-investment continues.

Wed, 12/12/2012 - 12:05 | 3055981 Tao 4 the Show
Tao 4 the Show's picture

Interesting point. Yes, I find cells fascinating, but too much human impact is reducing complexity on the planet. And no argument about poor resource allocation. Humans, in the mass, are not too bright.

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