The Federal Reserve: Masters of the Universe or Trapped Incompetents?

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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  • LiberatedCit

    The Fed is a bunch of grossly overpaid government bureaucrats and no they don’t have the power Congress does. The politicians wouldn’t give the power that comes with the purse. Not to mention that now that we are so deep in debt how would they come up with the trillions needed in gold to back our debt?

  • jadan

    If you define Fed success as wise financial management in the name of the public interest, the Fed has failed miserably. But if you define success as the care and feeding of the investor class, it’s doing what it was designed to do from the start: protect the interests of its owners. Notice the huge wealth disparities.

    If you do not point out that the Fed is a private corporation, you can’t really make an assessment of its performance because you don’t know the nature of the beast you’re dealing with.

    If you do not do a little compare and contrast with a publicly owned banking systems you can’t make an assessment either. This is a little difficult to do in our country in which the banking system was privatized from the beginning by Alexander Hamilton. Americans by and large have no idea what public banking is. They consider the Fed model as the only game around and do not understand the meaning of Article 1, Section 8 of their own Constitution. This is because commentators who shape opinion are on the whole incompetent to discuss the issue since they have no ability to discuss another non-private banking model.

  • Rehmat

    Federal Reserve was created to serve the interests of the 1% population – and it’s has done an excellent job in that category.

    Several western nations are finding out how the Zionist mafia is swindling their gold wealth stored in the US Federal Reserve Bank, a privately owned ‘gold warehouse’ established in 1913. The latest story comes from Germany’s Bundesbank, which decided to repatriate its 674 metric tons (out of 1,500 metric tons) of gold from the New York-based Federal Reserve Bank by 2020 to restore public confidence in the safety of Germany’s gold reserves. However, to its great shock, it found out that most of its gold deposits were missing.

  • Bev

    We have to fund massive public, debt-free money in Japan, the U.S. and other countries to pay huge engineering efforts to try to reduce the current and future terrible damage from Fukushima, eventually all 400 nuclear power plants at the end of their life cycle, and climate change for the many generations it will take to accomplish.

    Politicians and economic advisers listen to the following group ready to help all of us. The American Monetary Institute advocates a true Public, Debt-Free money:

    Historical experience has taught us what we need to do:

    1. Put the Federal Reserve System into the U.S. Treasury.
    2. Stop the banking system creating any part of the money supply.
    3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

    These 3 elements must all be done together, and are all in draft legislative form as the proposed American Monetary Act see:

    The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.

    The correct action for the States is to insist on this Federal action! Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.

    We don’t need any more diversions.

    We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.

    So what is the solution?

    It’s the monetary system which must be changed to end the fiscal crisis, and State governments cannot do this – it’s a matter for the Federal Government.

    Under present constitutional and legal conventions, the only institutions that can create money without debt are national treasuries and/or central banks. State governments within a federal nation cannot do this – the problem can only be solved at the national level.

    Proposals promoting anything else would require a constitutional amendment, which is not necessary.

    by Robert Poteat, for AMI

    December 23, 2013, will be the one hundredth anniversary of the signing of the Federal Reserve Act. This Act is arguably the greatest attack on humanity in all of history. It is the culmination of centuries of political, financial, intellectual, and moral corruption. The corruption has only increased in the one hundred year history of the Federal Reserve Banking System.

    The Chicago Plan Revisited

    Michael Kumhof (Deputy Division Chief, Modeling Dept., IMF) applies modern computer modeling to the Chicago Plan, which support the monetary reforms of HR 2990 and dispel the widespread fears of inflation under a government money system.

    Workings of A Public Money System of Open Macroeconomies
    – Modeling the American Monetary Act Completed –
    ( A Revised Version)
    by Kaoru Yamaguchi
    Doshisha University


    All nations need to do this. How else are we going to fund the massive money needed to even try to reduce the future terrible damage of Fukushima, eventually all other nuclear power plants at the end of their life cycle, and climate change for the many generations it will take?

    Please spread this around fast. Thank you.

  • Bev

    Dear Charles Hugh Smith and washingtonsblog, see posting at Max Keiser since it does not post here:

    • Bev

      I now see it again below. It reappeared. thanks.

      • Bev

        Well, the post does now show here, but not at Google. Google does not
        list Max Keiser nor washingtonsblog’s posting of this article unless you go
        to the end of google’s list and hit the line that says repeat with all,
        ommited listings showing. Then this article comes up 3rd at Max
        Keiser’s posting of it, and washingtonsblog comes up 4th.

        Since I
        posted my comment at both sites, I do wonder if google or some other is
        trying to hide the American Monetary Institute’s information on a
        public, debt-free money, an obvious solution to serious, dangerous
        problems affecting everyone. Is it the common good emphasis that gets
        them? The lack of a pyramid structure with them on top? They are ruining
        people, businesses and governments and now the whole planet for their
        own profit.

        Charles Hugh Smith ought to give Dennis Kucinich and Stephen Zarlenga a call or an email to interview them. And, everyone else.

  • 5ds

    of course bernanke and grynzpan were/are incompetent
    they made the corrupt rich filthier richer.
    they were successful incompetents.