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)