What Does The Fed Do?

Tyler Durden's picture

A simple enough question it would seem. As Jim Grant so eloquently begins his oratory (describing how the Fed operates in contrast to how it was meant to operate per its founders) at Ron Paul's Fed Lecture Series from earlier in the year: "If one reads the Federal Reserve Act, you will be struck by how little the 21st Century model resembles the projected central bank - as in fact the founders advocated for a De-Centralized system." Note the specific wording at the end of the Act: "...to establish more effective supervision of banking in the United States; AND for other purposes." It is the 'other purposes' that provide the jumping off point for everything that has come since...


(h/t Sovereign Speculator)

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stinkhammer's picture

fuck u ben bernanke

ACP's picture

"Other purposes" are the key words...

...other purposes, other assets...



CIABS's picture

Similar story with the creation of the CIA, if I recall correctly.  It's a template.  FBI, too.

SMG's picture

The fed (and all other central banks for that matter ) were created to steal from and enslave their host country. That's why all modern central banks were created.

I want to be free.

Pinto Currency's picture


Grant is confusing.

As if any central bank, especially one owned by the commercial banks could:

(a) regulate its own shareholders without being corrupted, or

(b) operate with a debt-based money system, or

(c) at any level determine interest rates.

And penalizing officers of the banks is not the issue - central banks are always corrupted.  The money interests  change the laws, change the regulations, buy off the politicians and the regulators.

This guy is very disappointing to me given the knowledge that he is supposed to have.  Almost seems like he is positioning himself for a job.

The Fed was designed as a foot in the door to eventually allow for complete control of the economy and the monetary system.  It was no surprise that it evolved as it did.

Also, Grant says the Fed had no idea that a collapse was coming in 2007 / 2008 - he ought to read "What Does Alan Greenspan Really Think" which is an analysis of a speech that Greenspan gave in Belgium in 1997.  Link here: http://www.fame.org/pdf/MG_ISBN097103804X.pdf

Greenspan, the bank CEOs and the Fed knew exactly what was going happen; it was everyone's job to say "Who knew?" when the whole thing blew up.

Grant seems like a very nice guy but he is disappointing.

Michael's picture

Chart of who "owns" the Federal Reserve


The Federal Reserve is a private corporation. The more it loads up on toxic assets on behalf of its member bank owners, the more worthless its private banking cartel becomes, thus paving the way for its own destruction.

QE to infinity and beyond I say Ben. 

Caviar Emptor's picture

In Japan it was all about nuclear-mutated monsters from the Pacific. That's what they feared. For us it's all about QE-mutated zombie banks. Our sci-fi 

economics9698's picture

Central banks give the owners the ability to outbid the peasants for goods and services.  Wall Street and Washington.  If the peasant gets $100 print $200.  If the peasant gets $200 print $400.

ATM's picture

Heads they win, tails you lose.

Sabremesh's picture

I think you will find that Grant is very well aware of what the truth is. However, there is a boundary between things that can be said and cannot be said in public - at least by people who don't want to be shredded by TPTB/mass media-managed "public opinion". Grant is very sensible in keeping the right side of that boundary.

The sad truth is that it doesn't matter if you are telling the truth - if the mass media manage to make you an object of public ridicule, you cannot come back from that, even if it is later proved that you were right. People only remember the ridicule.

bankruptcylawyer's picture

People fail to understadn this time and again. THERE IS A DIFFERENCE BETWEEN WHAT YOU SAY IN PUBLIC AND PRIVATE MORONS. 


THE SAME GOES FOR YOU ASSHOLE 9/11 TRUTHERS. people are too stupid to get this time and again. it amazes me. It gets tiring explaining to the moron peons  who think they own the world and can go around doing and saying as they please , precisely why you cannot do and say as you please. You would think most adults would understand what the difference is between 'the truth' talkied about in private, and 'the truth' talked about in public. but this distinction is lost. and to be honest, at some point, the people who ignore this distinction are really setting themselves up to be shunned and to be an underclass because ---even the people who might agree with them in private----do not have an obligation to spend all their time educating and explaining to these people how to conduct themeslves, precisely when that explanation itself becomes a point of contention.

there is an underclass , and it's because different people behave and think differently about how to go about saying and doing and behaving in public. it's not all about capitlism or religion-ism or some other ism. blame it on biology, choice, culture, social contagion, whatever you want------but there are a lot of idiots out there.

anyone complaining about jim grant being 'dissapointing' is a FUCKING MORON and would be caught complaining about the pope being disspointing as a figure head for not giving a truthy enough public speech/support for  ultra-arch-crazy secret heretical offshoots of the catholic church. That person clearly doesn't know what the pope's job is and is someone who should shut up or be ignored.

and there are a lot of people who need to shut up or be ignored.



CPL's picture

They are incredibly busy on a molecular level.

xtop23's picture

They are incredibly busy on a fecal level.


sbenard's picture

It PRINTS! When all you have is a hammer...

Michael's picture
Chart of who "owns" the Federal Reserve


The Federal Reserve is a private corporation. The more it loads up on toxic assets on behalf of its member bank owners, the more worthless its private banking cartel becomes, thus paving the way for its own destruction.

QE to infinity and beyond I say Ben. 


i-dog's picture

Be careful what you wish for! ... Many of those toxic assets are collateralised by people's property and persons (student loans, car loans, home loans, etc). The FED/TPTB will be holding notes against a massive proportion of the [formerly free] population ... to work off in a FEMA camp, or kiss their favourite possessions goodbye.

I suspect TPTB have a motive, such as the above, rather than it being an 'unforseen circumstance'. TPTB will not be giving up without making a claim against every one of the "useless eaters" (as they think of us ... never forget that they are a different species -- not 'lizard people', but psychologically a quite different species nevertheless).

3MonthsZHober's picture

The Interest Rate Observer is pissed!


Not much to observer at static sub 1%.

TruthInSunshine's picture

The funny thing about things that people expect to go on forever is that they don't, and more often than not, they tend to reverse in a rather dramatic, sudden manner.

I can think of 4 such things that played out on a macro economic level in such a way in just the past 12 years, and I suspect there are about at least as many pending travesties in the making as I type this (that will inevitably bust, and sooner rather than later).

Duke of Con Dao's picture

all the members of the Fed what this hood ornament on the

front of their cars...  



a limited edition from the Squid

earleflorida's picture

jim grant for treasury secretary!

RobotTrader's picture

Paul Krugman for Fed Chairman

All of our problems will be over.

rufusbird's picture

The absubdity of your comment gave me the first belly laugh I have had in five hours....isn't that what we already have?

ReactionToClosedMinds's picture

I just posted this on the Goldie 'flow' post; more applicable here under Grant:

some good posts tonight on top of another great catch & post by ZH.

Now don't start to attack me when you read this ..... a lot of thought (?) went into this:

Why is Ron Paul so seemingly comfortable with Romney? Why did Rand almost enthusiastically endorse Romney?

I have NO facts, but am very good at reading how & why people behave as to bely what they are actually doing versus saying.

Romney is going to put reform of the Wall Street dominated Federal Reserve Bank very high on his top 10 to do list. Ron P ( and maybe Rand) will spearhead it ... do the bloody part.

Romney knows finance ... but he is not a Wall Streeter. he had to deal with 'real' companies .. .manage them, operate them, run them, deal with rank & file, deal with unions, deal with vendors, .... deal with investors.

He knows the Fed Reserve as we know it has become a tool for Wall Street over Main Street and primary co-option of the WashDC political & media class. Main Street can no longer function under these conditions. It is obvious and has been obvious since Robert Rubin took over Treasury. The NY Fed has to be emasculated without cutting off flow of information and cooperation. The NY Fed has to lose it's predominancy within FRS at a minimum.





CompassionateFascist's picture

Romney will do nothing of the kind. Obama in whiteface, except he is largely bankrolled and encapsulated by a clot of warmongering Zionist neo-conz. And since the Fed exists to debt-finance the warfare/welfare state, he will - absent system collapse - maintain it as is. Ron Paul? Sold out to secure his son's political future, nothing more.  

i-dog's picture

Agreed. I pointed out on here at least 6 months ago that Ron Paul was not even trying and just going through the motions of running a "campaign". It was patently obvious in an interview he did with Alex Jones, where AJ was having to put words in RP's mouth while RP was responding by saying that it would "be OK" if Perry won! WTF!!!

RP is very well connected with the religious conservative right, yet none of them supported him. It has been a deliberate divide-the-ticket tactic from the start ... to ensure either an Obama or other puppet win. TPTB couldn't care less, since they control them all and control the vote count too.

The whole sham has just been to make the election seem, to the unsuspecting rubes, like it actually mattered!!!

Snidley Whipsnae's picture

i-dog... Nothing new at all. After Hitler came to power and eliminated all competition from other political parties, elections and plebicites continued... one example of many I could list.

The population must continue to believe that they have a hand in decision making... even though they don't.

A read of Machiavelli's 'The Prince' gives one a near perfect plan of how a person/government can rule through tyranny or, better yet, a democracy, where all continue to believe that they are 'free'. The structural parts of a democracy can remain in place while they are ignored by the government in power...


r00t61's picture

I think this proposition is as absurd and Hopium-laced as when Charles Hugh Smith opined that Obama was continuing the bailout madness, early in his term, in a clever ploy to give the bankers enough rope to hang themselves with (http://www.oftwominds.com/blogapr09/obamas-secret-plan04-09.html).

I mean, my God, just look at Mittens' top campaign contributors (http://www.opensecrets.org/pres12/contrib.php?cycle=2012&id=N00000286):

Goldman Sachs $573,080


JPMorgan Chase & Co



Bank of America



Morgan Stanley



Credit Suisse Group



Citigroup Inc


Do you need to see any more?

Rand P. sold out to Romney to get some political capital.  Interestingly enough, Ron. P has not...yet.  But if Ron. P eventually loses in Tampa, and then comes out in support of Romney, whose record he has previously challenged on topics such as Romneycare in Massachusetts, Romney agitating for war in Iran, Romney expressing his approval and support for TARP, etc., then this just proves that even a man like Ron P., who has seemingly been a straight shooter for 30 years, can eventually become corrupted by Potomac fever.

CompassionateFascist's picture

Chickenfeed. Sheldon ZOGwar Adelson just handed Romney's PAC $10 million.

All Risk No Reward's picture

Ron Paul always protected the Federal Reserve System by covering up the FACT they lie about their mandate to keep monetary and credit aggregates commensurate with the nation's production potential in order to covertly take monetary and credit aggregates parabolic to actualized production capacity known as GDP...


Paul also pretends that the Fed are composed of "intellectual idiots" instead hard core, lying, criminal, murdering pieces of trash.

Where is Ron Paul demanding criminal prosecution of banksters?

That's the main reason I couldn't join the Paul love fest...  you don't get the criminals down right, you don't get my support.


my puppy for prez's picture

I have come to the conclusion that RP is simply a clever shill.  I have been fighting that gut feeling for awhile, but some things just don't add up.  Have you ever seen this quote from him that is in the Congressional Record?


Here is just one quote from the beginning of a longer piece:

"There's nothing to fear from globalism, free trade and a single worldwide currency. But a globalism where free trade is competitively subsidized by each nation, a continuous trade war is dictated by the WTO, and the single currency is pure fiat, fear is justified. That type of globalism is destined to collapse into economic despair, inflationism and protectionism, and managed by resurgent militant nationalism."

Granted, it's important to read the whole piece for contextual meaning, but I really have a problem with his premise of a global currency and such.  I don't care if it IS backed by gold!  And his supposition that if we could just have a global gold standard currency without middlemen and manipulators, then all would be hunky dorey!  That is simply pie in the sky utopianism.  Who is going to oversee and manage this "global currency backed by gold"?  Someone has to!

This doesn't sit right with me.  I encourage all to read the whole piece and decide for yourselves.  

bankruptcylawyer's picture

yes you see , what all the anti-globalists want to believe is that somehow -------you can ignore the continual competition of the world's human beings ( and countries) . you cannot. anti-globalists are just people who want to isolate themselves, and when you choose not to compete as a nation, you simply choose to lose. and losing means economic subservience and possible military conquest of your nation in the long run. 

the reason this is the case is becasue TRADE ties the rest of the world (the external) to the internal ( the soverign state ) TRADE is the external factor that cannot easily be controlled and that always injects chaos from the outside to the inside of the country. if a country fails to embrace this, than trade dies , and the country cannot obtain what it wants from the outside world, nor market its own goods to the rest of the world. 

look at the countries that DO NOT trade. they are all losers. and the countries that have their wealth forcibly taken from them, they are losers. 

when there is a hieraarchy of the whole world, you cannot choose to NOT be in the hierarchy. you CAN try and establish a stable niche that isolates yourself from the volatility of the competition , but that's not easy to do ,and it's usually impossible to maintain a homestatic balance between the two. the world is chaos. trade is the ultimate effectuator of this chaos. 

what Ron Paul correctly points out is that TRADE is unstoppable and generally good, but that WARFARE BY MONEY MANIPULATION, AND BY MILITARY FORCE-----IS BAD AN UNSUSTAINABLE AND LEADS TO A SINGULARITY ( GLOBAL DEPRESSION AND WAR) . 

Ron Paul is not an isolationist because he's not an idiot. Unfortunately Many of the people who consider themselves libertarians or liberty minded happen to be ignorant of the fact that liberty does not operate in a vaccum and that the technologies that have made the world smaller and that have increased trade and communication cannot be 'Undone" . the genie is out of the bottle, you cannot simply put it back in the bottle. we cannot go backwards in time without simply ignoring that the world is a different competitive landscape right now. and that other countries have industrialized. You can however make the choice to be ok with ones ignorance and embrace policies that would lead to social collapse and war---which I think is stupid, because if you are going to embrace war and collapse, you best be doing it with a plan for something to come afterwards. and that plan cannot be based on ignorance. it will lose. 

American can lose, and by that I mean American can very well one day end up as two slices of coastal bread with a sandwhich of third world country in the middle. 

xtop23's picture

I'm curious how he will pay for that new fleet of rail-gun warships?

Cosimo de Medici's picture

I don't know why, but I cannot help but think that as you wrote your post, you were wearing "The Garment".

Demogorgon's picture

Cliffs notes on his introduction by the lady up front: Ummmm. Ahhhhhh. Ummmmm. Ahhhh. Welcome, Jim Grant!


After that, good stuff...although now that I've noticed it, due to her stumblings, I'm focusing on all of the of the ummms and ahhs from Jim. Fuck!

q99x2's picture

The owners of the central banks are in the process of taking over the physical world. I think that is their main goal--to own everything and do as they choose to do.

newworldorder's picture

Bravo - 1000% agreement on this comment.

The instrument they have chosen to do so is called debt based fractional reserve fiat banking, which is being used in almost every country in the world.

Politicians are contolled either thourgh bribery or the threat of taking away the punchbowl which keeps almost all governments and therefore by extention the masses satiated and happy.

The masses are either too uninformed, uneducated or simply dont give a sh*t to care. As long as they are getting their daily needs met (whatever that means,) then pitchforks and torches stay in the cupboard unused, away from idle hands with the need to fix things.

veyron's picture

Jim Grant is the Bill Nye of the financial world

Newsboy's picture

Complex systems collapse to the highest level of complexity which is inherently stable under the new conditions.

What does that mean for the fed and money?

Manthong's picture

I will watch the whole thing, but let me guess first..

Answer: Manipulate and intervene in the capital markets for the benefit of the financial elites and their lackeys, the politicians.

Soda Popinski's picture

I imagine Ben Bernanke sitting at the table with the consultants, kind of like that scene from Office Space. 

"What would you say ya do here?"

"Well look, I already told you! I deal with the goddamn customers so the bankers don't have to! I have people skills! I am good at dealing with people! Can't you understand that? What the hell is wrong with you people?"

Zgangsta's picture

Nikkei has bounced back into positive territory.  Is Europe fixed again?

Jim in MN's picture

They really, really blew it with the real estate bubble. The dotcom bubble was like a tulip craze: just wish it away and it's all done with stocks and credit. Losses, yes, but so what?

With the low interest rates goosing housing up and up, it was different. The bond market came along for the ride. Now they can't blink and have it not be real. It looks like the dotcom bubble on a chart of the S&P 500, but it's deadly serious and nothing at all like the dotcom fluff.

Stupid. Now they have not only John Doe out of cash/credit for twenty years (no one will ever save a $100K down payment for a house from scratch, for like twenty years, with flat to declining real disposable personal income), but in addition the entire health and life insurance complex, plus the pension complex, are potentially fatally compromised via bond holdings. Not to mention the actual banks, elite scum, and oh yeah the sovereigns holding plenty of 'bag'. All are effectively out of the game in terms of new cash to exchange for each others' rotten, useless toxic paper. Except for the truly deluded oil producers and China, to a degree that doesn't really change the dynamic.

FedFlow doesn't happen in a vacuum. The underlying credit conditions and velocity of money are very fucked right now. How would Fed induced flow affect a (sadly entirely hypothetical) healthy economy? Probably a whole lot less. Frankly the goal should always have been to strive for a system where the Fed is obsolete. Instead the dumbasses in charge have destroyed any chance for normal economic flow and substituted this zombie nurse with a methadone kit.

Pull the fucking plug already. They're just making it worse and worse. Bond haircuts or bust....literally!!!

Caviar Emptor's picture

Bond haircuts or bust....literally!!!\

Yup. It's been that way since the great freeze up of 2008. Default would have been the great forest fire that would have left the ground fertile for new entrants, true competition and an invigorated economy. Instead we have kept all the rotten limbs alive so the tree is beginning to suffer. 

All Risk No Reward's picture

They didn't blow anythiing - this is EXACTLY what they want to do!  This is asymmetrical warfare when one side has no idea that there is a war going on...  As Sun Tzu said, war is all about deception - and there is no better war deception than when those you are assaulting HAVE NO IDEA THEY ARE BEING ASSAULTED!

The prupose of war is to take your chit.  The Fed is orchestrating the world's largest "take your chit" event and pretending to be idiots while the Fed's controllers roll up everyone's chit under their front corporations.


“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

“Under the Federal Reserve Act, panics are scientifically created. The present panic is the first scientific one, worked out as we figure a mathematical equation.” (Congressman Charles A. Lindbergh, The Economic Pinch, 1921.)

They are going to use austerity to destroy the economy, bankrupt the debtors, roll the debtor assets up under their front corporations and then, after society is muppet r*ped, they will hyperinflate to "balance their books" and call it even.

It isn't complex, folks, it is Psychopathic Economics 101.

The real question is...  once they have almost everyone chit rolled up under their [D]elite control, WHAT'S NEXT?

i-dog's picture

+ infinity!

I'm glad there is at least one other person on here who isn't fooled by the whole "let's rearrange the deckchairs again" routine! ... neither with an idiotic "bring back Glass-Steagall...that'll fix everything" nor with a stupid "vote for Ron Paul...he'll fix everything" suggested panacea. Just the plain truth: This has been the inevitable and well-planned end-game of a sequence of events that was begun a very long time ago. They haven't won yet, but they are damned close!

The ruling class has been trying for well over a century to regain their undisputed "god-given right to rule" that was taken away from them by the rise of a wealthy middle class during the industrial revolution.

That middle class has now been progressively and essentially destroyed by unrepayable debt - both individually and collectively - with only a few remaining wealthy holdouts that will be picked off one-by-one by financial snipers (aka HFT algos and missing-in-action regulators).

The bankers and their backers all need to be told to "jump you fuckers ... I ain't payin'" while local communities need to start again from the ground up by re-taking control of their own governance ... 'cos this global ponzi has only months left to run before TPTB attempt their long-planned final coup de grace.

my puppy for prez's picture

You are so right, i-dog!  This is just the ol' Hegelian Dialectic playin' out:  the antithesis is ALWAYS scared, desperate, and hungry people who are screaming for salvation.  The synthesis....well, you know what THAT will be!

Hegel didn't invent the dialectic method, he just formalized it.  Now you have a bunch of ivory tower douche bags who spend every waking moment debating as to how they can better implement the dialectical process!

grid-b-gone's picture

The Fed, and modern banking in general, is the updated, electronic equivalent of the company store, right down to the detail of creating their own currency and tactically blocking workers' attempts to maintain financial freedom.

This process has not changed since the beginning of time and mimics exponential expansion and eventual colony collapse in the natural world.

Slaves vs. owners, dictators vs. their population, unions vs. management. Just look at Egypt and Africa, two of the oldest human entities and still struggling to get it right.

At the core is human psychology that corporations tap into today using psych tests to match individual personalities to job descriptions.

Robo-signers are hand-picked to accept any lame answer when they ask, "Why am I signing someone else's name?"

Some people are wired to put in their 40 hrs per week, content to earn shelter, food, a weekend 12-pack, and occasional NASCAR tickets. Others relentlessly pursue the best school, the next promotion, and the Mc-iest McMansion.

We know we're pretty deep into this cycle because some people are resigned enough to lock in cash for five years for 2%. Contrast that with hedge funds looking for 70% to buy roads and municipal buildings to lease back to the people who just collectively owned them.

If you want a somewhat cheesy documentary of how quickly the docile can switch to copy the cunning, view The Wild and Wonderful Whites of West Virginia (2009). If you watch the piece, look past the salacious aspects and consider how disruptive and effective their crude, almost instinctive response to the status quo is. Imagine our original thirteen colonies' response to that system of entrenched greed and monopolization. Also consider how even a moderate level of wealth sharing by bankers and coal interests could have avoided the mahem. Finally consider that the bankers and coal interests were so wired to pursue control, wealth and power consolidation that sharing the spoils of that resource-rich area was never a consideration. Winners don't cut up the trophy.   

Most humans are not sophisticated enough to properly determine the value of a derivative, but they know when they are being taken advantage of. Type A's don't change much. They'll always push for growth, work harder for more exclusive meals and neighborhoods, and believe their intellect entitles them to use the complacent to leverage more benefit for themselves.

It's the average, the masses that will temporarily change their natural disposition to get by and get along when conditions approach untenable. 

For this reason, few company stores survived for long. Even the entrenched financial institutions of today must keep limits in mind to survive, but they won't because those at the helm are wired to push, always push. And that ensures eventual push-back.

jimmyjames's picture


"The ability of interest rate manipulations to herd human beings in a desired direction"


The big one-

exiledbear's picture

They watch porn, like everyone else does. What did you think they do?