The Federal Reserve: Masters Of The Universe Or Trapped Incompetents?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Suppose the Fed was actually little more than a collection of incompetents trapped in a broken system that is beyond repair.

For a variety of reasons, the Federal Reserve is viewed by many as the financial Master of the Universe. Given how the media hangs on every pronouncement and the visible power of the Fed's policies to move markets, this view is understandable.

But suppose rather than being masters of all things financial, the Fed was actually little more than a collection of incompetents trapped in a broken system that is beyond repair. Many reasons have been proposed to explain the Fed's policies,and most (including my own expressed here) focus on the Fed's need to protect the banking sector and the Status Quo, lest the whole rotten contraption collapses in a heap of worthless derivatives and various Ponzi schemes.

An alternative view is that the members of the Fed have been selected for incompetence by a system that fosters incompetence by its very nature, i.e. a centralized power center.

Longtime correspondent Harun I. recently offered this explanation of the incompetence of those atop the heap:

Regarding the competence of the Deep State and Federal Reserve:When one merges the Peter Principle and Pareto Principle one realizes that, not only are they incompetent, it is inevitable. Complexity does not equal competence. And because complexity is a form of leverage it does not require a majority of systems inoperable to fail.

Modern developed civilizations rest upon several inverted pyramids. How many people out of any random sampling know how to produce their own food, make their own clothing, build their shelter, or tap into their own water source? As complexity increases and the division in labor grows increasingly in areas that have nothing to do with core survival the civilization becomes increasingly incompetent.

Since a civilization is a hierarchal system, its leaders (the vital few) will eventually be incompetent. Inverted pyramids and inept leadership are a toxic mix. As history would indicate this situation eventually disintegrates then reorganizes... to be repeated.

Another key characteristic of such centralized systems is the way they trap participants, even those at the top. Analyst Catherine Austin Fitts has discussed this attribute, for example, in this interview: Catherine Austin Fitts on Wall Street's Corruption, the Austrian School and Who's 'Really' in Charge.

One way to think about this is to ask: let's say the voting members of the Fed knew that the best way to re-start sustainable growth was to normalize interest rates by ending the Fed's zero-interest rate policy (ZIRP) and quantitative easing.
Even if they knew these changes would ultimately profit the banking sector and the economy as a whole, could they withstand the pressure that would be exerted by everyone benefiting from the Status Quo?

I have long maintained that the Fed's vaunted independence is actually contingent, i.e. the Fed is a political entity and as a result it responds to political pressure like any other political entity. And like any hierarchy, it is prone to group-think and the urge to conform to norms.

This raises another question: even if the voting members of the Fed wanted to fix the nation's broken financial system, do they have the ability to do so?

I have posited that whatever consensus/group-think dominated the various factions that comprise the Deep State has eroded, and the cracks of profound disunity are opening between powerful factions in the Deep State.

Rather than Masters of the Universe, the Fed's governors are increasingly looking more like deer caught in the headlights of a transformation they cannot understand, much less control.

Is the Deep State Fracturing into Disunity? (March 14, 2014)

Why Is Our Government (and Deep State) So Incompetent? (March 6, 2014)

The Fed Has Failed (and Will Continue to Fail), Part 1 (March 11, 2014)

How The Fed Has Failed America, Part 2 (March 12, 2014)

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Soul Glow's picture

Trapped, bitchez.

economics9698's picture

Leveraged 74-1, adios bitches.

SoberOne's picture

Trapped incompetents. But then again, if their goal was to crash the US and world economies they are masters of the unicornverse.

StychoKiller's picture

Someone's gotta say it:  "By the power of NumbSkull!!"  :>D

SafelyGraze's picture

"This raises another question: even if the voting members of the Fed wanted to fix the nation's broken financial system, do they have the ability to do so?"

yes they have the ability

however, the "wanted to" part is complicated

as the fed lends increasing amounts of FRNs to the elongated-head aliens, these beings solidify their control over the amygdala of each fed board member

hence, each member increasingly *wants* to extend more and more credit to their robe-wearing masters

it is like the famous conundrum of the dude having orgasms every five minutes, trying to convince the doctor that he wants them to stop.




Flakmeister's picture

And exactly who/what forces them in Chapter 11? Or 7?

economics9698's picture

"And exactly who/what forces them in Chapter 11? Or 7?"

When the EBT card crowd realizes a Big Mac cost $30 and the realize there is gold in them bank vaults on  33 Liberty St, New York, NY 10045.

What a bummer when they see the vaults are empty.  Then the ropes will come out. 

jcaz's picture

The look on Yellen's face tells the world everything they need to know-

Terrified,  confused, clueless, over her head......

Buckaroo Banzai's picture

seeing that He-Man action figure reminds me of this:


daveO's picture

But, following orders. To crash the markets and then flood the system once again.

Flakmeister's picture

And when does the $30 Big Mac happen?

People on SNAP don't give a flying fuck about what is in the vaults at 33 Liberty St. You give them far too much credit...


Don't get me wrong, the game is going to end, but there is at least another 15-20 years to run..

I am in the process of writing an article outlining how I see it happening...

economics9698's picture

This next crash is going to be pretty bad.  15-20 years?  No way.

Now think what happened last crash?  Trillions printed, stagnant growth, and we are 5 years 4 months into this bubble.  And when it burst?  6.6 years, 2015?  What goes up must come down.


By the end of the decade you will see a reset.  My guess is it will get real around 2015 and escalate from there.

Stoploss's picture

"My guess is it will get real around 2015 and escalate from there."

When the purple party realizes they are finished in November, they will really start to tear it down.

Good observation.

Flakmeister's picture

Well, you are entitled to your opinion... 

The game doesn't end until the ability to convert USD into foreign oil imports ends...

And even then the USD will likely get cut only in half as the US is still a major producer of oil with the bulk of its imports coming from its immediate neighbours, Canada and Mexico...

And I can assure you that at somepoint Venezuala will get Monroe Doctrined.....

Between Canada and Venezuala, you have the two largest exploitable resources of oil known...  

Empires do not die easily....

economics9698's picture

West Texas crude came on line in 1931.  Did not make much of a impact on the Great Depression.

Flakmeister's picture

Why would a glut of oil do that? The GD had nothing to do with the availability of cheap energy.

It is interesting that the great Permian field that you refer to was a large part in why the Allies won WWII...

Panafrican Funktron Robot's picture

I think you are failing to properly account for the leverage riding on the US 10 year.  It doesn't take a big move in the valuation of this product to heavily stress the entire (global) fiat system. Systemic risk starts happening around the 3% yield line.  I will say that I am not convinced the end of the petrodollar is actually imminently at hand though, depends on how China responds to their financial issues.

Flakmeister's picture

You are aware that over the past two years that the FED has sterilized Treasury purchases that dwarf Chinese holdings?

And do you not think that the FED would not pull off the equivalent of another trillion of QE if it was required? The Bernanke would not have any qualms, and I doubt JY would either...

Two black swans could change things, the fall of the House of Saud and/or the loss of a carrier group or something similar...

Rafferty's picture

" My guess is it will get real around 2015"


I've been hearing 'it's going to happen next year' for the last three years.

Flakmeister's picture


Eventually the broken clock will be right though...

NotApplicable's picture

A.K.A. when does the Big Mac index go vertical?

VD's picture

Fed is not a political entity per se; it is a banking entity that leverages politics. said banking sector lobbies the political machine. a vital distinction.

daveO's picture

Seems to me, the other way around. DC does their bidding. Been that way for decades. 

PlusTic's picture

They are either totally incompetent, or they are destoryng the country on purpose...there is no other explanation

Lewshine's picture

Here's what the average one percenter would say: "Who cares if its incompetence or genius?...Show me the money!!!"


The results of  current equity pricing kind of kicks the teeth out of the question - Nobody making a ton of money gives a shit!

...Therefore, nothing changes and the answer to the question becomes a great waste of time.


economics9698's picture

The tribe thinks with head #2 99.9% of the time.  

Another bankrupt nation or a piece of ass.  The piece of ass wins every time. 

These fucks fight wars to run up debt and could care less about the dead.

Hang the MF’s high.

optimator's picture

They're doing exactly what they did to Germany in the nineteen twenties.  The parasite only leaves the host when the host is dead. 

Offthebeach's picture

Just finished Victor Klemperer's two volume 1930s-1945 diary of Germany.

German sheeple went right along with their own slaughter either at the front, camps or under bombers. Sheeple grumbled but mostly about German EBT type state support cuts. Totally acclimated population.

Ditto Solzhenitsyn comment on grumbling in the Soviet camps. Ditto China, Cuba....

Sheeple are sheeple world wide, across time and space. And the 1% ers no matter what there names know it.

Rafferty's picture

Sad but true. Then again it's been said that it takes only 10% of the population to be fully awakened for revolution to take place.

madcows's picture

hey, it ain't my debt.  gimme the ass.

NotApplicable's picture

That was my thought. I see them as Masters of the Trapped Incompetents Universe.

Incompetents serve a very important obscuring function protecting the true masters behind the curtain.

daveO's picture

If bankers could install the Bolsheviks, why not BHO?

khakuda's picture

The most amusing part of the whole thing is that asset market bubbles are appearing right in front of them and they remain blind.  When they pop, they still won't know what is going on. 

daveO's picture

They simply pretend not to see it so banks can load up on the short side(stocks). Remember all the things Greenspan said about not seeing it. Yet, Yet! he warned about Irrational Exuberance years(1996) before the bubble popped. Why didn't he raise margin rates then? Because he wanted to live a little longer! 

fijisailor's picture

I hate to make repetative posts but this is really relevant.

Despite "tapering"  the FED expands the monetary base by $104.8 billion in February.

I knew it.  This whole tapering thing is a lie.

yogibear's picture

Exactly. Smoke and mirrors.

They can't stop until Russia and China comes in with baseball bats beating up the US federal reserve by killing the petro dollar, which their on target to do.


madcows's picture

no different than the deficit.... "We reduced the Deficit!  Hooray!  We're Heroes!"... Umm its still a fucking deficit.

The wife went shopping.... on sale.... look at all the money I saved.

Congress.... borrowed from the FED at rediculously low rates... funded all their re-election campaigns, er... programs.... LOOK AT ALL THE MONEY WE SAVED!  WE'RE HEROES!  NO MORE FIGHT OVER RAISING THE DEBT LIMIT.  WE FUNDED THE GOVERNMENT.  YOU'LL ALL GET "PAID".

Fucking Criminals

NotApplicable's picture

The lesson being, "money is fungible."

Taper the QE while letting it out via other channels... like say that new reverse repo facility.

centerline's picture

They are not stupid.  They know the game.

yogibear's picture

Russia and China will burst the Federal Reserve's bankster's wet dreams by refusing to play their games.

Fed head banksters, Yellen, Rosengren, Evans and Dudley, looks like your going to lose. When China and Russia get going they'll swipe the financial center from NY to Asia.


Flakmeister's picture

Hardly.... By the time those pipelines are built, the world economy will be a smoking wreck...

Flakmeister's picture

Actually, the FED is a mixture of both...

Peak Oil implies that what is not sustainable will not continue to be.....

Spastica Rex's picture

As a Catholic, they remind me of cardinals.

Pope Yellen.

Everybodys All American's picture

Sorry but that's a strange view of Catholics.

Spastica Rex's picture

Well, there are good popes and bad popes, but the faithful don't ever question them. Economic theories are secular stand-ins for religion.

I may be a Catholic, but I ain't a papist. They can excommunicate me for that, if they want.

Flakmeister's picture

Yeah, the college of Cardinals is good comparison... 

So rooted in outdated existing dogma that there are incapable of changing fast enough to meet the new challenges...

NotApplicable's picture

Change is kind of difficult when they supposedly preach "True Gospel."

Either you're an absolute bedrock, or just another piece of driftwood in a sea of relativism.