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Could The Fed Lose Control Of The Frankenstein Economy It Has Created?

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What if there are tail risks present in the Fed's Frankenstein Economy of the same sort that Greenspan et al. failed to identify in 2008?

A longtime correspondent emailed me last week about the apparent contradiction between a Federal Reserve that has had the power for five years to counteract any decline and my call for a market decline in 2014: why would the Fed allow a market it has pushed higher for five years to ever fall?

It's an excellent question, as it summarizes the key question: is there any limit on "don't fight the Fed?" Can the Fed push assets higher essentially forever? And if so, why did it fail to do so in 2008?

Former Federal Reserve chairman Alan Greenspan's recent bleatings in Foreign Affairs,Why I Didn't See the Crisis Coming, offered one primary reason: the Fed's models failed to accurately account for "tail risk," (otherwise known as things that supposedly happen only rarely but when they do happen, they're a doozy), because guess what--they happen more often than statistical models predict.

I would add that tail risk is a fancy name for unintended consequences of central planning. Thus Greenspan had more in common with failed Soviet planners than he would ever admit.

Greenspan also confessed that the Fed overcame the meltdown by creating and lending unlimited sums of money--yes, unlimited. Various accountings after the fact identified $16 trillion in direct Fed backstops and loans to global banks, but implied or indirect subsidies, backstops and lines of credit added tens of trillions of dollars to the total bailout of the privately held banking cartel.

This money spigot has remained open for five years, and a tiny reduction ($10 billion a month) is all the Fed dares to do lest the global markets melt down again.

So are there no "tail risks" or unintended consequences to leaving the money spigot fully open for five years running? Those who believe the Fed's record of five years of rising asset prices proves its ability to drive prices higher for another five years. In other words, having created a Frankenstein economy that depends on unlimited credit pumping, the Fed can control its monster with uncanny finesse.

The Fed's extraordinary success in suppressing risk, tail and every other variety, has given punters and strategists alike a supreme confidence in the Fed's ability to suppress risk for another five years, and another five years after that. (The similarity to Soviet-era five-year plans is ironic coincidence.)

What if there are tail risks present in the Fed's Frankenstein Economy of the same sort that Greenspan et al. failed to identify (or grossly under-estimated) in 2008?

If the limitless hubris of the Frankenstein story doesn't resonate for you, consider the unseen risks of monoculture agriculture as an apt analogy. In this view, the financial markets are a Fed-farmed monoculture that is sustained solely by massive quantities of financial fertilizers and carefully engineered "crops." The Fed claims its engineered monoculture is as resilient as a market-based ecosystem, but this is simply not true: monocultures are exquisitely vulnerable to tail risks that are impervious to the policies intended to kill all threats.

Indeed, in the monoculture analogy, central planning engineering perfects the power of threats to bypass the system's defenses.

Despite the supremacy of Fed hubris and punter confidence in the Fed's Frankenstein Economy, the likelihood of some tail risk emerging out of nowhere is rising. Indeed, the very confidence in central planners, i.e. that the Fed is now the ultimate power in the Universe, is a prerequisite for collapse.

Debt = Serfdom (April 2, 2013)


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Thu, 01/02/2014 - 10:28 | 4292963 Rubbish
Rubbish's picture

Tyler it's already the 2nd and no obese chicks?


What gives, rising Gold can only make us happy so long.

Thu, 01/02/2014 - 10:30 | 4292970 Headbanger
Headbanger's picture

But the Fed IS Frankenstein!

Thu, 01/02/2014 - 10:31 | 4292977 GetZeeGold
GetZeeGold's picture



The real question is would they lose control of it.....on purpose?

Thu, 01/02/2014 - 10:35 | 4292992 Iocosus
Iocosus's picture

They purchased 5 billion rounds to fight inflation, or rather, the effects thereof. Wonder what the huge potassium iodid purchase signifies? For those with "thyroid problems"?


Thu, 01/02/2014 - 10:39 | 4293012 BLOTTO
BLOTTO's picture

Interesting...the Galatic Empire and the Fed are both ruled by the same 'people' - Annunaki :-)


"The Empire will always strike back!"

Thu, 01/02/2014 - 10:45 | 4293020 Stackers
Stackers's picture

The collapse will start in china and spread from there

Thu, 01/02/2014 - 11:34 | 4293168 G-R-U-N-T
G-R-U-N-T's picture


"Could The Fed Lose Control Of The Fankenstein Economy It Has Created?"

The answer is yes, but not only the Fed, but the rest of Washington, however the last thing they will do is blame themselves!


Thu, 01/02/2014 - 11:46 | 4293202 kliguy38
kliguy38's picture

Washington??? You act like they really have a say? hehehehe......... the owners of the Fed call all the shots

Thu, 01/02/2014 - 11:54 | 4293218 Stuck on Zero
Stuck on Zero's picture

The way the system works is that the top 0.01% will never have any tail risk.  All the tail risk is born by us poor folk.


Thu, 01/02/2014 - 14:45 | 4293834 SeattleBruce
SeattleBruce's picture

"The way the system works is that the top 0.01% will never have any tail risk."

And they think of themselves as 'brilliant' investors, etc...nothing but a bunch of crooks...i will give them this - it's a pretty clever criminal enterprise as most 'Murikans, and other citizens of the world don't know they're being robbed blind.  But does that fall more to the cleverness of the criminals, or the stupidity of the victims?  I will say, it's pretty convenient when the person you're robbing doesn't know they're being robbed and continues to do 'business' with you, as if you're providing a benefit.  Is this proof of the Stockholm Syndrome?

Thu, 01/02/2014 - 11:22 | 4293130 Antifaschistische
Antifaschistische's picture

The Fed will always retain the control over inventing money via the debt mechanism....any one see that power being threatened?

As long as these insiders can invent debt/money, then they may lose power over some of the secondary economic statistics....but they will never lose power over the ability to enrich themselves at the expense of the masses.

That's the bottom line...and it is why the Fed must be destroyed.

Thu, 01/02/2014 - 11:40 | 4293185 czardas
czardas's picture

So so true.  Why anyone would think the FED, after getting praise for the predicament we find ourselves, could lost control is ludicrous. If the name of the game is perception, they have already won.   The vast majority think of the economy now in terms of what the State does - not private transactions.  The "economy" has devolved into niftier ways of sloshing debt from one account to another.  Yes, there will be a reckoning but not as long as the Fed controls the conversation.   I no longer look for a huge catastrophe but a continuation of the slow but steady decline in our status as a true economic power.  Perhaps cultural vigor can only last so long - this all may be rear guard action of something that is inevitable. 

Thu, 01/02/2014 - 13:00 | 4293443 Dingleberry
Dingleberry's picture

I'm still trying to figure out why I never heard of or learned about the fed in all of my years in  public school and college. In fact, everything I was taught turned out to pretty much be wrong (about consequences of deficits, interest rates, free markets, accounting, law, etc). 

It took the invention of the web for me to see things clearly.

There is no excuse for ignorance today. Sadly, most actively choose to remain so.

Thu, 01/02/2014 - 19:57 | 4294836 NickVegas
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I'm finding out most everything I learned in learned in school has either turned out to be wrong, or somehow didn't make it into the syllabus. In my simple opinion, it is the conditioning of the test that indoctrinates.

Thu, 01/02/2014 - 14:50 | 4293853 SeattleBruce
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"I no longer look for a huge catastrophe but a continuation of the slow but steady decline"

The implosion/explosion of the financial 'markets' could still happen (if the FED accidentally or on purpose loses control), but that steady decline you talk about is definitely happening all around the world thanks to these manipulators.  We just need to do our own PR and put that blame squarely on their backs.

Thu, 01/02/2014 - 11:55 | 4293223 Oldrepublic
Oldrepublic's picture

Yes,indeed, the fed is an evil monster

Thu, 01/02/2014 - 13:47 | 4293642 BuddyEffed
BuddyEffed's picture

Maybe in a contracting economy, there could be higher risk of more Fukushimas where spent fuel pools might gassify, raising the level of take up in humans and all species.  Wasn't that compound a blocker that prevents take up in people in the more sensitive thyroid body part?  If too many spent fuel pools end up in the environment, some of the technical materials I've seen suggests that longer living species might become challenged just to  reach reproduction ages.  Wouldn't it be a shame if this place ended up mostly inhabited by fast breeding species because of their ability to produce at least some viable offspring in the short term, regardless of genetic drift due to mutation and increased mortality due to uptake and concentration of the harmful topes in the food chain?

Thu, 01/02/2014 - 11:59 | 4293244 Landrew
Landrew's picture

Yes to be  literal, the Fed is Dr. Frankenstein and the economy is Frankenstein's monster. 

Thu, 01/02/2014 - 12:09 | 4293271 Bangin7GramRocks
Bangin7GramRocks's picture

The answer is no! They can invent money and manipulate any data necessary to maintain the status quo. The people who know the dirty details are all making billions so they have no reason to talk.
There is no market.

Thu, 01/02/2014 - 14:55 | 4293872 SeattleBruce
SeattleBruce's picture

"The people who know the dirty details are all making billions so they have no reason to talk."

Well, we all know the dirty details around here - and there aren't many of us making billions, I'm sure.  I think the FED is concerned about the continuing PR battle they need to wage these days (after 100 years, it's about time, don't ya think?)  That's the front line of our war against them, imho, and one we need to actively engage in with every possible person, and be ready to make our arguments against them.  The Rs have had a bubbling anti-FED campaign through Ron Paul and certain parts of the Tea Party, and then the Ds through their Occupy groups a couple years back.  All the anti-FED energy needs to be unified across those two parties (perhaps into an I party, or at least an independent movement that agitates to end the FED's tyranny.

Thu, 01/02/2014 - 10:31 | 4292980 Temporalist
Temporalist's picture

Gold up on the day starting from the overnight and yet Yahoo finance has 3 lead stories on the front page reporting:

"More bad news ahead for those trying to play gold this way"

Newmont Mining was the worst performing stock in the S&P 500 for 2013. Things may be even darker in 2014, say two strategists.


"Gold jumps in thin volumes, but outlook remains dim"


Why gold bugs should brace for an 'awful' 2014 "

Thu, 01/02/2014 - 10:44 | 4293017 GetZeeGold
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I'd rather read Pravda before I read Yahoo.

Thu, 01/02/2014 - 11:57 | 4293235 Oldrepublic
Oldrepublic's picture

old Soviet Russia saying: “”In Pravda there is no news, in Izvestia there is no truth.

Thu, 01/02/2014 - 12:00 | 4293238 Temporalist
Temporalist's picture

My point is that gold is sooooo meaningless, such a bad idea as an investment, only that minority of "crazy gold bugs" could care...yet it's the lead story of the first business day of a new year and it's all negative.  I guess leading with a positive story about ANYTHING else would have been weird.


Thu, 01/02/2014 - 13:34 | 4293600 bentaxle
bentaxle's picture

As an investment? Well, things went pretty well for it between 2000 and August 2011. 

How about gold's intrinsic "purpose," in relation to counterparty risk? In those terms fiat really, really sucks! And who controls fiat, some generally decent, honourable, fair-minded individuals that have the best interests of the human race at heart? Or a bunch of sociopathic crooks out to screw you but look out for themselves? If the latter then gold itself won't be enough, but having none is unlikely to have been a wise investment decison in the not too distant future. 

Thu, 01/02/2014 - 10:48 | 4293027 Calculus99
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But this is what the Gold bulls need, almost EVERYONE (apart from the Longs/people who believe the Gold story) believing that Gold is not only a busted flush, but a) expected to go lower and b) has ZERO chance of rising.

Never forget  Goebbels, keep repeating the same message over and over again, then by osmosis everyone gets it. Well, almost everyone because I don't get it!

PS. On a  similar matter. I probably switch to CNBS a few times a month, a  routine channel search. Last week I saw a message they were carrying, a cut/paste job with about 6-7 central bankers all saying 'things are getting better'. I(f that's no outright propaganda I don't know what is. I almost put my foot through the telly. And the morons at CNBS wonder why  viewership is at an all-time low.


Thu, 01/02/2014 - 10:58 | 4293051 Spungo
Spungo's picture

Contrary indicator. That means we are near the bottom.

Thu, 01/02/2014 - 11:20 | 4293133 max2205
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Markets high enough that they can drop it and cause a rush to treasuries to keep rates in check

Thu, 01/02/2014 - 13:22 | 4293549 Landrew
Landrew's picture

Short rates are still zero, long rates are close to zero. People will move to cash/short  maturity  rather than long U.S.T.

Thu, 01/02/2014 - 10:28 | 4292964 Pladizow
Pladizow's picture

This assumes it had control to begin with.

Thu, 01/02/2014 - 10:32 | 4292982 BLOTTO
BLOTTO's picture
'Could The Fed Lose Control Of The Frankenstein Economy It Has Created?'


A. Yes, because evil is dysfunctional and that will be its eventual downfall.

Thu, 01/02/2014 - 11:02 | 4293059 nickels
nickels's picture

The "economy" is an engine that makes money for the players. The piston goes up- the piston goes down. It doesn't just keep going up. The players make money on both sides of the market. When the timing is right, the spark will fire, the market will go down and the players will make more money in what the sheeple will see as a "market crash".

Thu, 01/02/2014 - 11:24 | 4293143 NoDebt
NoDebt's picture

Yeah, but in that process there's normally some power created and sent down the drivetrain to the rear wheels.  That seems to be the part that's lacking right now.  Piston's still going up and down but the wheels aren't putting much power to the pavement.

Free-rev an engine in neutral with your foot to the floor long enough and you know what happens.... bang!

Thu, 01/02/2014 - 10:38 | 4293005 Sudden Debt
Sudden Debt's picture

are we talking about the same morons who actually build a death start but managed to include a engineering mistake where on fighter could drop a bomb in a unprotected air vent that caused the entire thing to explode?

I mean... just a piece of  simple chicken fence would have stopped that bomb... and they didn't think about that?


Thu, 01/02/2014 - 10:42 | 4293018 NIHILIST CIPHER

Got gold?    Best tailhedge around. Ben bernanke said it's a tailhedge.

Thu, 01/02/2014 - 11:49 | 4293211 Hedgetard55
Hedgetard55's picture

Yes, the same morons that thought an air vent would work in outer space!

Thu, 01/02/2014 - 12:48 | 4293407 The Wisp
The Wisp's picture

Air Vent ? in a Vacuum...

   Good Thin the Government didn't build the Fed the Government can't do anything right.

Chicken wire stop a Bomb ? i thought they dropped thru roofs before they exploded.  :)

Thu, 01/02/2014 - 10:28 | 4292966 fooshorter
fooshorter's picture

<--- Mr. Yellan is a Sith Apprentice

<--- Mr. Yellan is an ewok



Thu, 01/02/2014 - 10:53 | 4293044 zaphod42
zaphod42's picture

Mr. Yellan is a woman!  Therefore not "Mr."  Just FYI.

Can a woman be a Sith?  I know no reason.  However, she seems much more cuddly than that.

My vote:  ewok!


Thu, 01/02/2014 - 11:08 | 4293089 fooshorter
fooshorter's picture

Mr. Yellan is a woman!


You sure 'bout that? Search your feelings. 

Thu, 01/02/2014 - 11:14 | 4293116 drendebe10
drendebe10's picture

Maybe a tranny? Pretty fukn ugly woman if really a woe-man. Ugh.

Thu, 01/02/2014 - 11:29 | 4293152 GeezerGeek
GeezerGeek's picture

Some people say the same about Hillary Clinton. I'm still in the undecided camp.

Thu, 01/02/2014 - 12:35 | 4293351 NIHILIST CIPHER

  I'm not saying it's true but there is a large community of people who contend that the WOOKIE is a tranny. Real name Michael Lavaughn Robinson. Lots of pics out there showing Moochelle's package. Look  for the one where he/she has on black pants.... what is that in your pants Moochie?

Thu, 01/02/2014 - 10:26 | 4292967 TeamDepends
TeamDepends's picture

Could they?  The question is have they?

Thu, 01/02/2014 - 10:26 | 4292968 gwar5
gwar5's picture

Is it losing control if the Fed does it on purpose?

Thu, 01/02/2014 - 11:04 | 4293071 dick cheneys ghost
dick cheneys ghost's picture

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered........''

Thomas Tyler Jefferson

Thu, 01/02/2014 - 10:30 | 4292973 Save_America1st
Save_America1st's picture


Thu, 01/02/2014 - 10:32 | 4292979 besnook
besnook's picture

in other words, reality eventually wins over a system based upon illusion(or is it delusion?).

Thu, 01/02/2014 - 12:23 | 4292983 buzzsaw99
buzzsaw99's picture

There are only two things that would induce the fed to cause a market crash. One is double digit ust rates. The other is $200 oil. The first can't happen because the market is rigged so that leaves door #2 which is jammed due to market manipulation and military intervention.

Thu, 01/02/2014 - 10:30 | 4292986 kurzdump
kurzdump's picture

Unemployment is out of control - the FED lost control long ago.

Thu, 01/02/2014 - 10:39 | 4293014 Sudden Debt
Sudden Debt's picture

just wait untill the runaway inflation starts, than they'll have lost control.

See how the 3yr is creeping up? It will keep on doing so and go vertical when they taper more.

and the 3yr is pretty critical for a lot of stuff, starting with housing.

Thu, 01/02/2014 - 10:50 | 4293038 zaphod42
zaphod42's picture

Note also the 10 yr is creeping up on the 30 yr.  Last time it passed was in the 70's IIRC. 

This promises to be an interesting year, as pointed out by virtually everyone!


Thu, 01/02/2014 - 10:57 | 4293049 resurger
resurger's picture





Thu, 01/02/2014 - 12:13 | 4293262 Sudden Debt
Sudden Debt's picture

Why not?

If they do:

1. Deflation kicks in making rich people's money be worth more.

2. Assets crumble.

3. Those with shitloads of money will be able to buy the world 3 times over.

4. Those with debt will drown.

If they don't:

1. The powers that be will lose all their wealth by inflation.



And in the past, they already did that several times so there's a pretty good guideline to what to expect.

So that's why people should get out of debt.

 In a war... bet on the side where the money is.

But as Ceasar once put it... "those with the largest trunks of gold win the war"

So while it's not really clear who'll win, we're pretty sure who will lose for sure: The common people.

Thu, 01/02/2014 - 11:00 | 4293062 XitSam
XitSam's picture

The Fed will lose control (and they are aware they could), but it won't be their fault.  Ben said at numerous press conferences that "Monetary policy is not a panacea.

Thu, 01/02/2014 - 12:00 | 4293232 AustriAnnie
AustriAnnie's picture

Don't fight the Fed.

The Fed will kill itself without your help.


Empires fall when the policies that helped them rise to power are followed to their logical conclusion.  Trying to rush along that endpoint, however, is futile.  Things happen on a timeline and we can either exist within that timeline or self-destruct betting on the imminence of the inevitable.

Thu, 01/02/2014 - 12:15 | 4293283 overmedicatedun...
overmedicatedundersexed's picture

austri, so in your view we should never do anything, and let it follow thru to self destruct, very buddist of you, but perhaps there is a slight problem with your premise.

Thu, 01/02/2014 - 12:44 | 4293367 AustriAnnie
AustriAnnie's picture

I'm just saying that power will concentrate futher until it self destructs.

"The people" are not going to dismantle the Fed.  The status quo is such that too many people are dependent on handouts, from banks to corporations, to government workers and students on student loans, to food stamp and welfare recipients, farmers with subsidies, and every homeowner whose net worth is dependent on the value of their stock portfolio and the value of their house going up.

I think we are past the point of talking this country out of investing in the ponzi scheme.  Everyone is fully invested and only the collapse of the entire ponzi will push people away from a life of dependency.

My above comment does not suggest being passive and doing nothing.  You inferred that from my statement on your own. 

Thu, 01/02/2014 - 12:42 | 4293395 overmedicatedun...
overmedicatedundersexed's picture

Austri, as you know the ZH timeline outcome is O..some central controlled economies (Dynastic Egypt) lasted thousands of years, what's your time line for this collapse? what would it be with active resistance?

Thu, 01/02/2014 - 13:03 | 4293453 AustriAnnie
AustriAnnie's picture

I don't have a timeline.  That's exactly my point.  Using my hard-earned money to bet against an empire is insanity.  

I've been active in "resistance" since I was 8 years old.  The Fed managed to create a few more booms and busts without self-destructing since then, and I"m not going to bet on the timing of the crack up boom.

I'm going to, and have been, preparing myself to live well in spite of the determination of the Fed to reduce the standard of living in this country until it falls apart.  But the world will have one powerful elite group after another.  I'm just saying that is the way of the world, and I'm going to let them rise and fall around me without tying up my entire existence in destroying them.  If I do that, then they own my life, and I won't give them that satisfaction.  You say its buddhist of me, and I hope that is true.  I'm choosing to live, at peace as much as possible, within a world i cannot alone control.  I have no problem with that.  It used to make me angry and depressed, now it doesn't.  

Thu, 01/02/2014 - 13:43 | 4293624 overmedicatedun...
overmedicatedundersexed's picture

Austri, you will benefit from the sacrifice of others, same as it ever was. I admire you for your candor. and insight. may you never hear the knock on your door at 0 dark thirty. yours may be one of the more sane responces to a corrupt world. One I too follow, but have not felt good about it." good men need do nothing for evil to prevail"

Thu, 01/02/2014 - 13:52 | 4293655 AustriAnnie
AustriAnnie's picture

I will say it again: I have never suggested doing nothing, nor have I "done nothing".  I have been arguing with people since I was 8 years old trying to tell them that this will end with someone knocking their door down at dark thirty.  

Nobody gave a shit. They had home equity lines of credit and were busy standing in line to buy an ipad.

Should I count on the masses to suddenly see the light and help me fight the Fed.  Or should I realize they will wait until its too late, and then stay huddled in their homes hoping their neighbor gets the knock on the door first?  That, I fear, is inevitable.

All the fightin in the world will not stop mobs from getting what they wish for.  Ron Paul has shown us that.  You only hope that a small group of people can be reached so that you can help each other out.

Fri, 01/03/2014 - 00:49 | 4295656 NickVegas
NickVegas's picture

Annie, I just fell in love with you. That's my sentiments exactly. Collapse, no collapse, we all walk a path of our own choosing.

Thu, 01/02/2014 - 10:33 | 4292988 resurger
resurger's picture


This is bullshit, risk died back in 2008, tail risks 10 sigma moves, VaR, CS01, DV01, CP risk is all fucking bullshit...

I say Zimbabwe is the template.

Fuck the FED!

Thu, 01/02/2014 - 10:33 | 4292997 Musashi Miyamoto
Musashi Miyamoto's picture

These are not the jobless claims your looking for.

Thu, 01/02/2014 - 10:48 | 4293034 Rusty Shorts
Thu, 01/02/2014 - 10:37 | 4293000 Bosch
Bosch's picture

Could a bear shit in the woods? 

Thu, 01/02/2014 - 10:35 | 4293002 overmedicatedun...
overmedicatedundersexed's picture

this might apply to the FED's future plans:

"according to the CEO Jason Leday, more than 150 employees haven't been paid in nearly a month. 

"I understand that they have children and a house payment, bills. Not getting paid is wow," nearby resident Theresa Gutierrez said. 

The hospital is strapped for cash not because its not making money, but because Leday says a new Medicare payment facilitator named Novitas Solutions is taking too way long to pay out Medicare claims to the hospital. 

Leday says he's owed nearly $3 million in payments from Medicare and can't make payroll...

The Texas Medical Association says they are familiar with complaints like this one regarding the medicare payment facilitator- and a representative told us smaller community hospitals like this one are in similar situations. "

Thu, 01/02/2014 - 10:40 | 4293015 thtmnbhndthecrtn
thtmnbhndthecrtn's picture

Yes, and now come the (covered or uncovered?) Obamacare zombies.....

Thu, 01/02/2014 - 11:24 | 4293145 drendebe10
drendebe10's picture

Gee, that's toooooooo bad. Hospitals are over bloated, expensive, highly bureacratic and inefficient models to deliver health care. For profit hospital models always cut those who actually take care of patients while rarely laying off all the ticks n fleas running aroundtheir halls pushing papers, going to meetings and eating donuts n coffee. Patients would be better off if these nightmare behemoth insitutions enabled by hospital lobbyist co-written monkeyboycare implode.

Thu, 01/02/2014 - 12:52 | 4293427 The Wisp
The Wisp's picture

Hi I'd like a Gall Bladder surgery, And I have Cash..

Thu, 01/02/2014 - 10:37 | 4293004 yogibear
yogibear's picture

Yes, other players can make the US dollar crash creating panic in the Fed. Once the US dollar crashes the Fed is useless. 

The Saudis, Russia, China, etc can force a different reserve currency and stop accepting the US dollar as a currency.

Game over for the Fed once the US dollar is no longer accepted. The Fed's only fear.


Thu, 01/02/2014 - 10:39 | 4293013 Max Damage
Max Damage's picture

The flaw this time for the FED is no wage growth and reducing employment. Those 2 factors alone will ruin the latest fake from the FED and Wall Street

Thu, 01/02/2014 - 10:41 | 4293016 youngman
youngman's picture

20 Years ago the Fed was the ruler of the universe...but now there are some new players....and they want to they would like to see the game change....and I think it will as the center of power shifts east....away from the west....and the shift will include the currencies too.....

Thu, 01/02/2014 - 10:51 | 4293039 resurger
resurger's picture

Bandar is now sucking Russians dicks

Thu, 01/02/2014 - 10:42 | 4293019 Racer
Racer's picture

What's this funny colour I keep seeing everywhere?

Thu, 01/02/2014 - 10:49 | 4293029 Tinky
Tinky's picture

Not if, but when.

Thu, 01/02/2014 - 10:50 | 4293031 icanhasbailout
icanhasbailout's picture

tail risk = chance of getting fucked up the ass by the government and the banks

Thu, 01/02/2014 - 11:25 | 4293147 GeezerGeek
GeezerGeek's picture

And all this time I thought that tail risk was the chance your wife would find you've been chasing some tail. Thanks for the clarification.


Thu, 01/02/2014 - 10:50 | 4293032 Rising Sun
Rising Sun's picture

You could say that Yellen is a fat lady.


Wonder how well she sings??

Thu, 01/02/2014 - 10:50 | 4293037 Bosch
Bosch's picture

It isn't like that hasn't already happened once barely 5 years ago. 

Thu, 01/02/2014 - 10:54 | 4293041 SheepDog-One
SheepDog-One's picture

FED knows it's just a matter of time, that's why they're buying up all they can with their free cash.

Thu, 01/02/2014 - 10:53 | 4293047 whateverittakes
whateverittakes's picture

Debt is a black hole. Central bank debt, government and private debt worldwide is huge and deflationary. The FED needs to add 1 trillion a year in stimulus just to maintain the so called escape velocity and prevent the financial world from imploding. 

Thu, 01/02/2014 - 11:01 | 4293061 gwar5
gwar5's picture

FED: The ignorant peasants know nothing! It's alive! It's alive!

Thu, 01/02/2014 - 11:02 | 4293075 Seasmoke
Seasmoke's picture

First one out the Death Star Exit, Wins !

Thu, 01/02/2014 - 11:13 | 4293080 realWhiteNight123129
realWhiteNight123129's picture

Of course it will lose control. It is built to fail. Those guys are working backwards, they think their job is:

1. To create permanent inflation

2. To promote all sorts of credit including junk credit that rise in credit is good per se.

3. That currency aggregates should rise no matter what and faster than economic activity preferrably.

4. That real rates, rewarding savings should never exist.

5. That consumption is "good" per se even if it comes from excessive leverage.

6. That bad borrowers and bad banks should always been bailed out of the sake of stability.

7. Always look at the stock market reaction before taking a decision.

Those guys are actually retarded, and they are chosen by the banks because of their retarded view which always guarantees a tail I win, head I do not lose for the banking industry.



The guys at the central bank have 0 chance of succeeding with those concepts in mind and they already massacred the US manufacturing base starting with Burns in 1970.

The real job of the central bank is:

1. Avoid proliferation of bad credit by making sure interest rates are not too low in relation to the rate of commercial profits and inflation.

2. Reward savers with positive interest rates.

3. Dis-incentivize imbalance of excessive consumption.

4. Make LBO boostrapping and other junk bond thievery impossible by making interest rates positive in real terms. (Hard).

5. Keep internal price low as to not penalize manufacturing and the wages earners. 

6. Let bad borrowers and bad banks fail.

7. Never look at the stock market while making a decision for the long term benefits of the country.



Thu, 01/02/2014 - 11:38 | 4293189 Bioscale
Bioscale's picture

Keep it real, there is no real job for a central bank, once you acknowledge the market takes care about money production much better than any government monopoly.

Why on earth would any byrocratic government institution take care about the sheeple? Or be "independent"? Or care about the savers? WHY?

Central banks were always just tools for empowering those who had control over them. Their goal always was to steal the savings and to finance the wars. The war is the rocket!

Thu, 01/02/2014 - 11:58 | 4293229 realWhiteNight123129
realWhiteNight123129's picture

You need a system to clear interbank bills in any event, it can be done without a central bank, like a banking guild in Scotland in XIX century or in China up until the 1930s, or the US prior to 1913 and it can work.


Your point is valid in some way that a centralized authority is recipe for abuses.

That being said when BoE asked for the UK Gov to repay its debts, the Gov had to repay no questions asked back in 1820. That was probably the biggest single event of central bank independence in the West in the last 300 years.


Fri, 01/03/2014 - 01:13 | 4295686 NickVegas
NickVegas's picture

Steal savings and finance wars. Seriously, why isn't this in the dictionary? Langauge lies.

Thu, 01/02/2014 - 11:09 | 4293088 besnook
besnook's picture

burns replaces martin then the usa drops the gold standard.

miller replaces burns then the usa gets stagflation

volcker replaces miller then the usa raises interest rates into the teens to reset the economy launching the 30 year bull in bonds.

greenspan replaces volcker then the usa gets the 1987 dollar devaluation launcing the biggest bull market in history culminating in the internet bubble.

bernanke replaces greenspan then the entire market melts down.

yellen replaces bernanke then the usa resets.

every time a new chairman has been appointed since 1970 some huge economic event follows within a year.

Thu, 01/02/2014 - 13:59 | 4293673 Clowns on Acid
Clowns on Acid's picture

Thats just coincidence. It's like jewish lightening.

Thu, 01/02/2014 - 11:10 | 4293103 RaceToTheBottom
RaceToTheBottom's picture

The collapse has occurred, the only question is how long they can keep hiding the failure?

Thu, 01/02/2014 - 11:16 | 4293119 insanelysane
insanelysane's picture

There are 2 economies; a market economy and a main street economy.  The FED has complete control over the market economy and by definition cannot lose control.  The FED is attempting to do something to the main street economy via the market economy but they have very little control over the main street economy and will lose control.  Blame it on the weather because blizzards and bitter cold weather are going to suck a ton of money out of people's pockets.

Thu, 01/02/2014 - 11:26 | 4293142 yogibear
yogibear's picture

LOL, watch how fast the Fed would loose control with a free-falling dollar. As people rush to dump dollars a realization they have lost their game.

Look throughout  history. They have no control when others in the world are not willing to cooperate in their scheme.

The best way for Russia and others to win against the US is economically, cause a currency panic. It's getting easier by the day.


Thu, 01/02/2014 - 11:40 | 4293191 TrustWho
TrustWho's picture

This is why Al Qaeda won on 9/11. Between, TSA, NSA, wars, FBI, CIA, states security upgrade, large city security much has USA spent responding to 9/11 attack? No nation can win such a massively asymetrical on terrorism war.

Thu, 01/02/2014 - 11:53 | 4293212 FeralSerf
FeralSerf's picture

Still playing that silly tune, eh -- that "al Qaeda" is somehow "on the other side" in the "War on Terror" being fought by "our guys", the TSA, NSA, FBI, CIA?

Either you are the most stupid poster this site has ever accommodated or you're a dog felating, taxpayer tit-sucking, TREASONOUS SHILL for the REAL TERRORISTS.

"how much has USA spent responding to 9/11 attack?"

How much has the USA spent on you responding to 9/11 posts?

Thu, 01/02/2014 - 12:13 | 4293273 insanelysane
insanelysane's picture

Someone woke up on the wrong side of 2014 but I'm with you the whole way.

Thu, 01/02/2014 - 13:17 | 4293517 FeralSerf
FeralSerf's picture

I guess I need a new set of rose coloured glasses. I couldn't see the "right side" of 2014 today.

Fri, 01/03/2014 - 01:16 | 4295690 NickVegas
NickVegas's picture

Stay calm Feral, this will persist until the funding stops.

Fri, 01/03/2014 - 12:15 | 4296663 FeralSerf
FeralSerf's picture

As long as the funding is just printed IOUs, this nonsense will persist until nearly everyone finally understands the truth of who the enemy really is. Those of us that know who the enemy is have a moral obligation to spread the truth.

"Remember the Maine" was a false flag cry to arms perpetrated by the Elites. It worked for the Elites. Why not a new slogan: "Remember 9/11 and Oklahoma City"?

Thu, 01/02/2014 - 12:29 | 4293331 Escapedgoat
Escapedgoat's picture

Can somebody tell us whether the FED and the ECB are NOT  in cahoots?

As we know the Central Bankers own most of the major Currencies. Euro Dollar Yen, are the Russians against the Dollar? If so how come the have Dollar and Euro reserves? Who props up the Euro most of the time? andwith what? What is the Vampire Squid going to do in order to benefit, as they seem to have their tentacles all over the Planet (Draghi, Carni, etc. etc. etc.)

Thanks in advance.

Thu, 01/02/2014 - 13:30 | 4293582 Reference Variable
Reference Variable's picture

I'll bite.

The FED is facilitating the strong Euro by allowing for easy bond purchases of member states and accomplishes debasing the dollar at the same time. Euro needs the prop-up to remain intact. They are dealing with currency imbalance through trade controls. 

There is absolutely collusion between the ECB and FED. Japan is doing the same. The goal is to keep up with Chinese currency debasement. 

The Russians are playing a different game entirely. Why stop your enemies from destroying themselves? They are positioning themselves for resources and hegemony over their neighbors. We have seen examples of all for the last year. It is fascinating and terribly sad at the same time.

Thu, 01/02/2014 - 11:30 | 4293141 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Off topic but of interest.

Even in an age of government belt-tightening, one thing Washington featured in abundance once again in 2013 was waste. What follows are five top examples culled from reporting in The Washington Times over the past 12 months, examples of misguided and pointless spending of taxpayer dollars so egregious they earned the coveted “Golden Hammer” award:


Interesting tidbit concerning Iran and Afganistan about waste from the article.


But perhaps one of the most egregious spending mistakes came in February. Inspectors found the U.S. gave more than $1 billion to the Afghan National Army for fuel purchases. Yet oversight of the payout was so lax that investigators think some of that money in turn went to purchase oil from Iran, a clear violation of international sanctions.



Thu, 01/02/2014 - 11:36 | 4293180 El Hosel
El Hosel's picture

Can MOAR Fail? It already has for most of the real economy. "The Markets" have become Plastic Toys made in the USA, finally a manufactoring "Recovery".

Thu, 01/02/2014 - 11:57 | 4293234 FeralSerf
FeralSerf's picture

In our age where trillions of $$$ are unaccounted for at the Pentagon, a billion is just petty theft.

Thu, 01/02/2014 - 11:38 | 4293166 Quinvarius
Quinvarius's picture

They will crash the market, in the end, for the same reasons they are propping it up now.  Greed.  Volatility is how the bankers make money.  The Fed is only working for the bankers.  And lets face it.  They can make a lot more money, a lot faster, by dropping the market.  You cannot know when.  But the pricing is too high now and the economy is still getting worse.  We can all see what they did to paper gold, in the face of all reality, and all reason.  They pounded it with BS paper and purposeful targeted raids for their own reasons.  Dropping the entirely paper stock market would be infinitely easier.  There is no physical market demand backstopping stocks.  They can create as much of that paper as they want.   

Thu, 01/02/2014 - 11:36 | 4293172 yogibear
yogibear's picture

Just look at the ever-increasing US debt and demographics.

It will become more profound going forward.

So when does the Fed buy 50% of the US debt? What a scheme.

Thu, 01/02/2014 - 11:53 | 4293213 Spungo
Spungo's picture

"So when does the Fed buy 50% of the US debt?"

They already are. Google it. Different articles say the fed is buying 60% of new bondsor 90% or new bonds, depending on the date. The situation does not look good.

Thu, 01/02/2014 - 11:37 | 4293173 Number 156
Number 156's picture

The economy is in the dumps,
there are more people on government assistance than ever before,
they are experiencing the highest unemployment ever,
the gold vaults have been drained of almost all their gold,
the Chinese are on their way to owning more American homes than the Americans...

The only ones who have benefited are the politically connected banker class and their minions.

In this context, the word 'Control' has no real meaning to me.


Thu, 01/02/2014 - 11:34 | 4293175 Luckhasit
Luckhasit's picture

Can the Fed lose control? Does a bear shit in the woods?

Thu, 01/02/2014 - 11:36 | 4293179 adr
adr's picture

Since 2009 the cost of food at the grocery store has just about doubled. Even shit food has increased dramaticaly. Big Mac meal was $3.80, now $6.00.

My water bill has doubled, electric rates have increased $.05 per kWh. Gasoline seems to have hit a permanent $3.25 per gallon plus. My property taxes are up 20% even though my home has lost 30% of its value since 2009.

Tolls on turpikes like 76 in PA have doubled. Airfares are way up, hotels are way up. Red Roof Inn used to be $35, now it's $69. Average Holiday Inn Express is like $140.

It all adds up to a cost of living that has nearly doubled in half a decade. $60k a year is like making $30k in 2000. $60k is actually the new poverty line. Even with $100k a year you can't live well in most metropolitan areas.

When I first graduated college in the Dotcom Crash black hole, I was able to make ends meet and live on my own taking in $1500 a month. I paid $350 a month for rent in a good suburb, my cooking gas bill was $8 a month. The same apartment now goes for $750 and cooking gas is $38 a month because of the $25 base charge and other fees. The laundry was $.25 per load, now it is $2.00. I know this because my sister lives in the building I used to.

This is what Bernanke created. A world where anyone under the privileged class suffers. His goal along with the rest of the tribesmen was to eliminate the middle class. They did a great job.

Thu, 01/02/2014 - 11:44 | 4293193 vxpatel
vxpatel's picture

the goal isn't to eliminate the middle's more like to squeeze us until we actually do something...but increase pressure until then.



Thu, 01/02/2014 - 11:53 | 4293217 insanelysane
insanelysane's picture


Ben says you are full of shit.  There is no inflation.  Move along.

Thu, 01/02/2014 - 12:02 | 4293251 smacker
smacker's picture

Agree with all that about prices. But you are obviously still earning an income. Imagine those who are retired and trying to live on a small pension and the income from their savings. It's a complete disaster.

Thu, 01/02/2014 - 15:17 | 4293936 SeattleBruce
SeattleBruce's picture

And those folks are old, isolated, perhaps handicapped by various ailments.  Not likely to revolt...why not squeeze 'em if you're an a-hole .1%er, banker, FED governor, or corrupted politician (95%?) fighting for 'your district's budget' and 'jobs' ...

Thu, 01/02/2014 - 11:38 | 4293186 vxpatel
vxpatel's picture

The fed is getting in the way of allowing a depression to allow mother nature to heal. the planet can't support continuously increasing consumption. humanity needs a break, time to think of the consequences of our consumptive habits.

Thu, 01/02/2014 - 11:53 | 4293214 overmedicatedun...
overmedicatedundersexed's picture

Not idiotic, but:

"time to think of the consequences of our consumptive habits."

get corzine and the .1% to reduce life style, and you might make an impact, those making $65,000 cutting back has NO EFFECT.

Thu, 01/02/2014 - 11:58 | 4293231 vxpatel
vxpatel's picture

agreed, but the entire country needs to re-think our dining habits. we're eating crap subsidized by our tax money, we're poisoning ourselves, and enriching big pharma in the process...

Thu, 01/02/2014 - 11:52 | 4293220 yogibear
yogibear's picture


These punk PhD economist like Evans and Dudley need be wearing orange jumpsuits and thrown into prison with hardened criminals.

Thu, 01/02/2014 - 11:56 | 4293225 disabledvet
disabledvet's picture

"I suggest we don't use it" says this guy: "what's your name again? Dork Vapor?"..."It's Darth. Darth Vader." ... "Oh, sorry. Well...meeting adjourned! Go build more ten more of those things if you want just make sure you go through the folks at Appropriations first!"

Thu, 01/02/2014 - 11:55 | 4293230 HamRove
HamRove's picture

When you have Alan Greenspan coming out saying the market is "Broken" I'm guessing that means Frankenstein's economy is on the loose.

I mean, I expected the market to freak out the very next day and yet here we are 5 months later and it seems to me the stock prices go up no matter what happens.

I'm glad I don't spew my view of economics on people very often, because I'd be having egg on my face until something or someone decides to pop this stock bubble.


Thu, 01/02/2014 - 11:59 | 4293245 IREN Colorado
IREN Colorado's picture

Tail Risk? Unintended Consequences?

I'm Shocked! Shocked! to discover that dumping unlimited cash into specially chosen Financial firms (read: Goldman Sachs, JP Morgan, Stock Market, & WS Banksters) will cause problems in the rest of the economy! I'm Shocked! Shocked! to find out that raising taxes on everybody else (bush tax cuts expire, obamacare, payroll tax increases, tax rates on investment, medical device tax, death tax) in the economy will cause loss of investment, loss of employment and a migration of jobs to other countries.

Who knew?


Thu, 01/02/2014 - 12:08 | 4293259 Compwiz4u
Compwiz4u's picture

Greenspan claims there was “one primary reason for the 2008 collapse: the Fed's models failed to accurately account for 'tail risk,'”

I remember him saying that he disregarded the Fed’s models because they were not working and therefore he used his own instincts to set policy. I believe he then allowed the massive credit expansion to set the stage for the 2008 crash as deep-down he knows this system is non-sustaining and must be reset.


Thu, 01/02/2014 - 12:42 | 4293398 moneybots
moneybots's picture

"Greenspan claims there was “one primary reason for the 2008 collapse: the Fed's models failed to accurately account for 'tail risk,'”


Greenspan recently admitted "we knew it was a bubble al along."  How could they have failed to account for tail risk, when 100% of bubbles burst and deflate?

Thu, 01/02/2014 - 12:15 | 4293282 Son of Captain Nemo
Son of Captain Nemo's picture

Don't find this lady on this site much. But this is a great New Year watch, about 45 minutes.

Thu, 01/02/2014 - 12:21 | 4293316 deepsouthdoug
deepsouthdoug's picture

Or as Emerson said, "Events are in the saddle and ride mankind."

Thu, 01/02/2014 - 12:27 | 4293322 deepsouthdoug
deepsouthdoug's picture

Ah the old double post - damn events!

Thu, 01/02/2014 - 12:27 | 4293333 moneybots
moneybots's picture

"is there any limit on "don't fight the Fed?" Can the Fed push assets higher essentially forever?"


Wall Street paled next to Caracas, last year.  The FED has lot's of room for improvement.


Thu, 01/02/2014 - 12:28 | 4293335 muleskinner
muleskinner's picture

If I were the fed, I'd be in Colorado, Oregon, Washington, and California buying every single oz of kind bud.  Might as well head to Mexico, Panama and to Colombia for the mumbo dumbo colombo.

Wouldn't that be great?  Tons of cannabis stacked high in the fed reserve warehouses instead of pallets of 100 dollar bills.

Build a new warehouse in Colorado for central distribution and no hold up in deliveries.  A federal reserve bank worth its weight in gold is what you would have.

They would have heavy demand and low supplies, like always, instead a pile of money that is worth about nothing.

Long cannabis and vanilla swiss almond.

Thu, 01/02/2014 - 12:32 | 4293348 F em all but 6
F em all but 6's picture

Lose control? Naw. This is clearly a case of controlled demolition. All collateral damage will be handled internally through FEMA.

Thu, 01/02/2014 - 12:39 | 4293369 CPL
CPL's picture



They did in 2007, they made their choice with their own free will.

Thu, 01/02/2014 - 13:01 | 4293458 BuddyEffed
BuddyEffed's picture

I suspect that the prior to 2007, the business models that the Fed was using worked for them well in ways.   Now with the economic/politcal/structural events post 2007, I suspect that the Fed is trying to change business models for various reasons.  Whether their internal business models match the public business models is questionalbe.  The Fed is in a unique position where it's potentially unlimited QE (instituted either publicly out the front door, or privately out the back door) can be used to affect markets and events.  Whether good or bad, it is what it is.

Thu, 01/02/2014 - 13:06 | 4293479 rosiescenario
rosiescenario's picture

As much as I like Smith, he is continuing the charade that the Fed has created some sort of "economy" we all know what the Fed has done is just move more wealthtothe wealthy which has done nothing for the true economy of the remaining 99.5%.


I would also say that the tail risk has always existed....what we may soon see is the risk emerging from its hiding place.


For those that might believe the Fed can pump forever, glance at the results of Weimar.

Fri, 01/03/2014 - 01:30 | 4295709 NickVegas
NickVegas's picture

The Fed create an economy, that's a joke. They print, you believe, all done at gun point.

Thu, 01/02/2014 - 13:21 | 4293544 Yes_Questions
Yes_Questions's picture



This is a big question for me.


The number of USD on myriad ledgers is one thing and difficult to contemplate given its all debt.


But, what about energy and the decline of PetroDollar supremacy?   I'm guessing the FED is owned by the same people who really want to maintain the present oil/gas/coal energy regime and in that context losing control has begun.


What comes next is almost too frightening to contemplate.  They'll either decide to start exploiting the mineral wealth off world or populations will be culled.  Will they serve in heaven or rule in hell?  Big Questions.








Thu, 01/02/2014 - 13:30 | 4293571 doggis
doggis's picture









Thu, 01/02/2014 - 13:59 | 4293681 Wilcox1
Wilcox1's picture

Every great strength has a corresponding great weakness.

Thu, 01/02/2014 - 14:21 | 4293759 BeerMe
BeerMe's picture

They already have.

Thu, 01/02/2014 - 15:32 | 4293989 toadold
toadold's picture

Well historically speaking "Black Swan" events will occur.  You could probably do some cobbled up analysis that would give you the odds on something completely unforseen happening.  On the shop floor when they would ask a team leader how long it would take to build some complex assembly tool. He would do a PERT graph and carefully figure out how much time it would take, then he would double the time pencil whip the graph and hand that off to the engineers.  Somebody would make a major mistake or an outside supplier would run dry, or something would happen.  Even the top 0.1 percent can get wiped out or forced to join the losers club.

Fri, 01/03/2014 - 01:33 | 4295716 NickVegas
NickVegas's picture

A "Black Swan" event is a euphamism for I gambled with other people's money and lost. It's a black hole for culpability, like a plane crash. I'm feeling a little jaded tonight. impatiently unprogramming.

Thu, 01/02/2014 - 19:03 | 4294376 honestann
honestann's picture

Author:  You forgot the photo of the death star blowing up at the end of your article!

BTW, central planning has unwanted consequences (unwanted by the predators and their prey), but they are not unaware of them (as in "unintended").  Those negative consequences are necessary, by nature of the actions they take.

But congrats to the author for making an article that identifies a fundamental point that some of us "down here" make, but rarely finds its way to the articles.  And that is the analogy with monoculture.

Actually, this is not an analogy, except to apply the phenomenon of "monoculture" to humans as well as plants and farm animals.

This "lack of diversity" point is extraordinarily important.  Another word for this is "lack of liberty and individualism", which is even more to the point, because "diversity" is not the fundamental, the "liberty" and "individualism" are.

What do I mean?  Just having a diverse pile of random nonsense rarely has much of any value.  What does have great potential is this:

#1:  everyone trying to figure out what actions get great results.

#2:  many trying different actions and getting different results.

#3:  lots of folks watching actions others take, and the results.

#4:  folks adopting actions that seem to work for others.

This does lead to great diversity... but not maximized or unlimited diversity.  This leads to a constant bubbling of ideas, actions, attempts and consequences that everyone can observe and choose from.  Where "choose from" means "liberty".  And forces applied to prevent folks from choosing from various options is statism, central planning and predatory authoritarianism.

It should be soooooo obvious that this dynamic is vastly more successful, not to mention benevolent, than any authority-contrived behavior.  If this isn't immediately obvious, just think for awhile and it will become obvious.

And besides, the other feature of this dynamic is important too.  That is the feedback aspect.  Those folks who take stupid actions suffer the consequences of their actions (while other folks don't).  Those folks who take smart actions enjoy the consequences of their actions (while other folks don't, except to have great examples to learn from).  In other words, this dynamic is the only ethical one.


One more comment.

There have been no Black Swans.

Many of us saw every single one of the so-called "black swans" coming.  They were totally freaking obvious!

However, given the extreme and mostly invisible powers and manipulations practiced by the predators-that-be, we cannot always know when the most dramatic of the consequences will strike.

But... black swans?

Name one!

Thu, 01/02/2014 - 19:23 | 4294734 zippy_uk
zippy_uk's picture

Yes - but look what happens to the global economy if the FED puts up interest rates...


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