The Incompetence Of The Federal Reserve And Deep State Is Unavoidable

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

It's not the managers who are incompetent, it's the organization itself that is incompetent.

I received a number of interesting reader responses to my previous entries on the incompetence of the Federal Reserve and the Deep State:

The Federal Reserve: Masters of the Universe or Trapped Incompetents? (March 21, 2014)

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

Some readers thought I was underestimating the power of these institutions to pursue essentially unlimited money-printing and related global strategies.

While I understand the apparent power of unlimited money-printing and global Empire, my point (poorly articulated the first time around) was this:

The incompetence of these organizations is not a reflection of the competence or intelligence of their managers--it is the intrinsic consequence of their limited control of complex systems. If the system has reached the point of being ungovernable, even the most brilliant and experienced managers will fail because it's not the managers who are incompetent, it's the organization itself that is incompetent.

If we boil down the Fed's vaunted god-like powers, they can be reduced to three levers: lower interest rates by purchasing interest-bearing assets, creating the money to buy the assets, and making free money (zero interest or near-zero interest) available to the global banking sector via lines of credit.

That's it. Everything else is window-dressing.

Is it even plausible that any organization can control an immensely complex economy with three levers? The Fed's three levers exert no control over how much money is borrowed from the Fed or what insanely risky speculations and malinvestments the borrowed money funds.

The Fed can't even control if the free money stays in the U.S.; by one estimate, fully 60% of the Fed's free money has left the U.S. for higher-interest carry trades and speculations in the emerging economies.

The levers of power wielded by the centralized Fed and Deep State are too clumsy and limited to control a complex system at any useful level. The Fed, the Federal government and the deep State are all the wrong unit size.

This excerpt from Preparing for the Twenty-First Century by Paul Kennedy (1993) explains why:

The key autonomous actor in political and international affairs for the past few centuries (the nation-state) appears not just to be losing its control and integrity, but to be the wrong sort of unit to handle the newer circumstances. For some problems, it is too large to operate effectively; for others, it is too small. In consequence there are pressures for the "relocation of authority" both upward and downward, creating structures that might respond better to today's and tomorrow's forces of change.

All these centralized concentrations of power have moved into the diminishing returns phase of the S-Curve. As the unintended consequences of their efforts to manage complex systems with their clumsy, limited tools pile up, their profound failure of imagination kicks in and they do more of what has already failed.

The structural incompetence of centralized, wrong-unit-size agencies and central banks is global: the centralized strategies of China, Japan, the European Union and yes, Russia, too, will all fail for the same reasons: organizations with a few limited controls are intrinsically incapable of managing complex systems.

The Global Status Quo Strategy: Do More of What Has Failed Spectacularly (April 23, 2013)

The Master Narrative Nobody Dares Admit: Centralization Has Failed (June 21, 2012)

"Do you know what amazes me more than anything else? The impotence of force to organize anything." (Napoleon Bonaparte)

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buzzsaw99's picture

incompetence - wrong answer bozo

kliguy38's picture

right answer is "intentional"

BLOTTO's picture

Someone (again) fan the fire faster...this limbo period is the worst.


The anticipation is making me edgy...

new game's picture

most laughable thing for me today is the belief that the markets are markets. tylers still talk di and dat like we have a market place of exchange via supply and demand. are they drinking kolaid too? of course this blog is driven by our cog dis of a real marketplace does exist? haha, you funny bunnies, cause this is one big sharade as in parade... days numbered til the great fleece down of all assets paper...only reason i come around is as an antagonist to see smart and dumb people think they are smart-haha....

there aint no marketplace anymore-get it? dorthy, quit looking for that goddamn dog. . .

acetinker's picture

Toto did the right thing- lay off!  No markets, huh?  There's markets alright, but some are not to be trusted... like the stawk market, the bond market, the bitcoin market and the PM market.  There are others, but you get the idea.

OTOH, there's flea markets and farmer's markets where wysiwyg rules the day.  People who are too stupid to make their way in these open markets will clamor for more regulation, and fuck those markets up, too.

Humans are their own worst enemy.

Jumbotron's picture

Charles is absolutely correct.  But the problem is that the Masters of the Universe will burn down the world trying to either keep or regain control once it's inevitable to everyone that control is being lost, never to return in quite the same way or completely as it was before.

With everything so interconnected, this will cause worldwide chaos and wars until the dust settles.

Awsome....can't wait.  fuck me

Dick Buttkiss's picture

Right you are, Jumbo, just a question of what level of hell we descend to, with The Road being distinct possibility.

Utter nonsense to think it's all going according to plan.

Rafferty's picture

Interesting concept but the post's author offers little or no supporting evidence as far as I can see.  It's just an assertion.

LibertyBear's picture

So where are we? Maturity, Expansion or Stagnation? Opinions please.

Dick Buttkiss's picture

A black swan away from TSHTF.

acetinker's picture

It can't be maturity, as Thomas Sowell has observed, we are a nation of adolescents.

Expansion is observed in the universe, and in the welfare state, but not in general awareness- so, no.

Stagnation does not fully describe our situation.

However, entropy comes to mind.

How did I do?

Itchy and Scratchy's picture

Raise the Debt Ceiling!

Kirk2NCC1701's picture

Soon we'll all be running for the state of Deep Cover.

acetinker's picture

Aaaah, fuck it cap'n!  At this point, I just hope I'm in close to ground zero.  I'll never know what hit me, from what I hear.  Peace, finally!

PlusTic's picture

Intentionally designed to fail, so they can fold us into one global by the same assholes in charge now

NotApplicable's picture

Not so much designed to fail, rather than "cannot help but to fail" as it is but a parasite killing the host via wealth transfer. Yes, there are intentional actions, but those can be thought of as "shape charges" to engineer the collapse in a manner of their liking.

The interesting thing will be watching globalism arise as the result of the failure of nation-states.

Dave's picture

"shape charges", nice analogy. Interesting, perhaps. Ugly, certainly.

The Axe's picture     You dont need gold or silver just bet with CNBC new sports guru!!     Only the dude is a ex-con and not even a sports expert....kind of like Lenny Dystra --another CNBC star...Lenny said he was 99-out of 100 on his stocks picks...ha ha

10PastMidnight's picture

the fed is on borrowed time,on life support with a incurable disease called greed and very soon their debt notes will carry no weight, personally i think they'll still be used and perhaps abused but their power days are over and thus their control.


behold the death throws of a dieing animal known as the fed.

NotApplicable's picture

Matters not, as the banksters behind the scenes will escape to greener pastures, and create a new order from the chaos.

The death of an institution occurs only in one's mind, as it's the only place it ever exists.

In other words, the fed is but a tool. A very useful tool, indeed. But like all tools, it will be tossed when no longer having any value.

BennyBoy's picture

"organizations with a few limited controls are intrinsically incapable of managing complex systems."


Right. Which is why we need more controls.


Like currency controls.


Thought control would be nice, too. NSA is working on that.

russwinter's picture

I much as I like Charles Hughes Smith's work in most respects, I think he misses the boat with this incompetance rationale. The Deep State is built on a criminal, looting foundation: ranging from no bid contracts to abject failure to prosectute crimes to outright conspiracy practices.

The Breaking Bad Ratline Sistema:


Ignatius's picture

These recent "Deep State" articles from CHS are way below the thoughtful posts that he normally writes.

Why he's writing this tin-plated tripe is beyond me.  He's promoting "incompetence" and de-fanging the development of a meaningful Deep State narrative.  Maybe CHS is CIA.  Maybe I should get some breakfast.

The Deep State is a big subject that's important for understanding how the world works and he's really illuminating nothing of substance.

KnightTakesKing's picture

A few thoughts:

1) The left hand doesn't know what the right hand is doing.

2) Complex systems take on a life of their own and are largely uncontrolable. (CHS main point)

3) There are only a tiny few that have the complete picture. There are wheels within wheels within wheels.

4) Very few want to know the truth. They just say that they do.

SgtShaftoe's picture

Completely agreed.  We certainly have some malicious actors as well.  Complex systems have fractal properties: the micro resembles the macro and vice versa.  So what you see at a large or small scale will closely resemble the other, i.e. broken and corrupt.

As complexity increases, things inevitably speed up, and the speed of institiutions attempting to manage complexity is highly coorelated with scale.  The bigger the organization is, the slower it can operate.  The more complex the problem, the faster things can get out of hand. (OODA loop) So you have the Red Queen Dillema - running faster and faster to stay in the same place.  

System collapse is inevitable.  We have to build new systems in order to provide survival (like a life boat). 

Ignatius's picture

Oh I get it about large complex systems and bureaucratic inertia, but I also get that some are paid handsomly by all this "incompetence".

I'm also convinced after long study that 9/11 was a deep, constructed event to turn the herd in a desired direction, and that CHS doesn't touch these subjects among others.

NotApplicable's picture

Give him time. Fuck, it wasn't that long ago when he was writing about political SOLUTIONS. At least he's gotten over that, by putting out articles on the deep state.

What I find most amusing about your rant against him. You're saying he's ignoring X, Y & Z, when those are the very type of things that led him to understand the deep state.

In other words, you're both making the same argument.

Ignatius's picture

"In other words, you're both making the same argument."


Rafferty's picture

I think you're correct.  As I said earlier, CHS offers little or no supporting evidence for his incompetence explanation.  In fact to my mind there is clear and indisputable evidence of a transcendant and multi-faceted globalist agenda that's operating with amazing efficiency.

Buckaroo Banzai's picture

Hey russwinter, aren't you the douchebag who wrecked the Bear's Chat forum?

My apologies if I have the wrong guy.

Professorlocknload's picture

How nice it would be to return to markets that operate on fundamentals,,,


agent default's picture

Go tell that to the EU who are pushing for even more centralization.


Duc888's picture



Yup, incompetence is a design feature, not a bug.  Some people things should work right, but they're currently running wrong.  Other observant people can see that in this system of graft, things are working perfectly for those at the helm.


You either produce, or you skim.  The skimmers are parasitic and feed off the producers.  Banksterz are skimmers, such as 90% of goobermint.

Kirk2NCC1701's picture

These kinds of curves are common in business also.  The difference between the Winners and Losers, is that the Winners find a way to move from one level of Maturity (Plateau) to a higher one.

If the Fed (USD) tried to do that, the Petro-Dollar would HAVE to become the Energy-Dollar.  And to do that, it would have to corner enough of the Gas/LNG market, to create a gas-cartel that joined OPEC and then used the USD as the official currency for pricing and buying/selling.

The USSA and the BRIICs* are now in a foot-race (trying to front-run and outrun each other) toward that Finish Line.  The USSA does not care for gold, because the USD will not be backed by PM, whereas China has NO choice. 

   * BRIIC: Brazil, Russia, India, Iran, China       <--- Resources + People


     Eurasia = RIIC = Russia, India, Iran, China  <--- Resources + People

     Euro = EU countries                                   <--- resources + People + Debt

     USSA = NAFTA = USA+Canada+Mexico      <--- Resources + People + Debt

It's not unlike a game of Roller Derby, where the aging & overweight Team USSA is using its weight and cunning tricks to take out the other competitors.  Team Euro is simply there to run interference (block) for Team USSA, as needed, and on demand.  The irony is that Team Euro is geographically more aligned with Team EurAsia (the RIICs), and Team USSA does not like it one bit.  Team UK is still trying to get over the fact that they no longer rule the waves, and are "feel" closer to Team USSA, but are otherwise closer to Team Eurasia in every way.

acetinker's picture

Looks like the lardass (USSA) is only able to block a section of the track, just now.  Unable to skate, and incapable of any action aside blowing up the arena, it is still very dangerous.  A cornered animal is a dangerous animal.

False flag is almost certain at this point, will we recognize it?

commoncourtesy's picture

Great article. It is also the fault of the International players and how they are allowed to infiltrate the system. Our present system is heavily corrupted, complicated by intent and not fit for purpose. So much for transparency. Any system can be manipulated, without stringent controls in place.

Virtually all the money in the world economy has been created as a debt and why in a world reliant upon money created as debt, are we kept perpetually short of money? The world has been looted! explains why business and corporate debt is at its highest level ever, why debts mean that a small farm can be productively very efficient, but financially not 'viable', why national debts can never be paid off ­ without monetary reform, how debt fuels the 'need to grow', revolutionising national and global transport strategies, destroying local markets and producers and increasing waste, pollution and resource consumption. It shows how 'Third World debt' is a mechanism used by the developed nations to inject ever-increasing amounts of money into their own economies, and why debtor nations can never repay the debts. It explains why politicians who rely on the banks for money can't fund public services and why 'debt-money' is undemocratic and a threat to human rights.   Greg Palast explains the problems. He calls it briberization.
daemon's picture

" ... organizations with a few limited controls are intrinsically incapable of managing complex systems. "

That's probably why "centralized systems" always end up producing laws that restrict "freedom", and creating (or giving more power to) agencies like CIA, NSA, KGB, etc ..... 

This allows "simplification" of the situation at the expense of "freedom", ... inevitably leading to tyrany.

Kirk2NCC1701's picture

That's only true under the present Organizational Architecture and Operating System.

The human body, or that of almost any complex life-form is MANY orders of magnitude more complex, yet functions beautifully.  Human government hasn't been redesigned for a very long time -- but needs to, if it wants to come anywhere close to the efficiency of life forms.

This is a very scary proposition for the superstitious, the cruel, the dim and the stubborn -- who currently wield disproportionate power and wealth.

daemon's picture

" The human body, or that of almost any complex life-form is MANY orders of magnitude more complex, yet functions beautifully "


But to what point can you compare a human society and a govenment to a biological life form ?

After all, cells and organs don't seem to have what we call "will" , or a desire of "freedom" from the complex system they are a part of.


" Human government hasn't been redesigned for a very long time -- but needs to, if it wants to come anywhere close to the efficiency of life forms. "

I don't know whether human government hasn't been redesigned for a very long time.

To me a society, whatever shape it takes, is not an entirely "natural" environment for humans. A society is not the gathering of benevolent beings who "gratuitously" give their time and energy to its operation. To me, a society is the gathering of rather "autonomous" organisms that operate according to the system as long as it goes along with their interest. 

As such, i'm definitely not sure what a society or a government operating with the efficiency of life forms would look like.

I Write Code's picture

It's not rocket science, any river of money will be drained by rent-seekers and corruption and will not get downstream to anyone who needs it.

risk-reward's picture

Any economic decision is made on the margin....should I save or spend (how much $can I make on the savings vs how much is THAT going to cost in the future?)

Do I want to bust my butt at a low paying job or just take the handout and work "off the books"?

All of us make these decisions (and many more) each and every day.  All of these decisions combine to direct the economy.

The Fed has been acting like a dictator...I'm not sure that has ever worked for long in any society, especially one as complicated and intertwined as is ours in the U.S. 

.....pretty soon you run out of other people's money.......

Pumpkin's picture

Incompetence?  Evil genius is the correct answer! 

elwind45's picture

You need a bigger status quo?

kevinearick's picture

Make-Work:  Best Business Practice

BBP says to take the system parasite, the Global City, and replicate its practices across the planet, with geo-engineering. Public Education BBP says to incorporate third world RE control mechanisms, peer pressure immobilization, to maintain power. And US Navy was spoiled rotten before Vietnam. The Big Dogs are spreading the disease of stupidity wherever they go, and History tells you that they are going to turn on each other.

Wherever you look, humanity is falling backwards, in a hurry, which means that no work is being done. The war on poverty, the war on drugs, the war on climate, it’s all make-work. The empire depends entirely upon the top producers, to circle back and drive mobility from the bottom up, against resistance, from the ‘top’ down. University gives legacy an A, cuts the top out entirely, and grades the rest on a curve, for compliance.

All you have to do as a producer is step out, or better yet, step forward to create a gap, and the system implodes. If you step forward, the Law of peer pressure can’t touch you, because it can’t see you. It can only see you if you fight it. You might want to employ some of that kinetic energy in the fall. The earth’s purposes are served either way.

Somebody getting something free by law, and everyone else demanding an equal share, is not an economy, no matter how busy the participants make themselves out to be, pretending to work. RE inflation does no work; tourism does no work; public works does no work. The majority is destroying itself, with manufactured automation.

What’s the problem?

You don’t need no stinking badges / licenses.

A fleeing moron from Oregon came down to the Lost Coast and shot a deputy. I’m not going to go into the politics of why he went down that road alone, but Ricky was a human being first, playing the role of a deputy, and his family left behind can be proud of his practices. He will be sorely missed. Funny, not, how the majority always brings up the rear, with blind hindsight. Now, we hear from the elected politicians…

Priorities. A manufactured pot cartel run by ‘peace’ officers in Homeland Security, ‘profiting’ on every angle, is not an economy, no matter how much bullsh- they advertize on Facebook. America has been hollowed out accordingly. Law Enforcement is not your dad, and Public Education is not your mommy. They are run by passive aggressive Nazis in every country, hiding behind the authority of a willfully ignorant majority, and issuing debt to pay their pensions is coming to an end.

The value of money depends upon the issuer, which is you, if you think about it. Warren Buffet creates money at every stage, because there is no lack of critters seeking something for nothing. Look at the wage to rent ratio in the Dakota RE ponzi. It’s a good place for a young single person to pick up a transferable skill on the mobile pipeline, but it’s the last place you want to raise a family.

The majority gets the leadership it deserves, which it votes for with every decision it makes.


acetinker's picture

Kev, quite possibly the most astute, if pseudo-cryptic comment I've read on the Hedge.  Thanks.

Wilcox1's picture

Isn't it paradoxical how the Fed has only the three crude levers but that the results of its' actions include the incredibly narrow specializations that today's jobs have become.  The resulting comlexity renders the system unmanageable.