The Incompetence Of The Federal Reserve And Deep State Is Unavoidable

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: