Those Whom the Gods Wish to Destroy They First Make Fed Governors

05-09-2011 • OfTwoMinds.com/blog

The hubris of the Federal Reserve knows no bounds; the Fed Governors' delusions will lead to tragic failure. In the tragi-comic farce that is the U.S. economy, the Federal Reserve plays the part of the hubris-soaked Hero whose overconfident meddling triggers ruin. Entire volumes could be written about the folly of the Federal Reserve's policies, but I will limit this to two specific points of a general nature. Many observers have likened financial systems to natural systems, i.e. an ecology in which complex interactions establish a dynamic harmony of ebbs and flows within a stable framework. The current global ecology of finance is out of balance and intrinsically unstable. The Federal Reserve and the other central banks are playing the role of financial gods, if you will, intervening in the interactions of mere mortals to create the illusion of stability. To this end, the Fed has created trillions of dollars behind its veil of secrecy, and used this money to prop up delusional asset values (high) and interest rates (low). If we look at a decentralized financial system as a self-organizing ecology, we find that the strength of the system lies in the adaptability of the myriad organisms in its many micro-climates and meandering streams. The key strength of a decentralized financial ecology, i.e. one not organized as a top-down command economy, is the "genetic diversity" of its many participants. There is not just one dominant species in the ecology, but many interdependent species. In a financial ecology, there is not one lender and one class of borrowers, but a huge diversity of lenders, borrowers, creditors and savers, and a wealth of interacting, inter-dependent enterprises. A centralized financial ecology is a doomed system.