Beware False Either/ Or Choices–Especially with the Fed – Investment Watch

by Charles Hugh-Smith

Echoing Sun Tzu (“All war is based on deception”), the success of central banking is based on deception masked by a torrent of transparency.

A classic form of manipulation is to set a false option, as if there were no other options. For example, while our political choice is limited to red and blue, many people are revolted by the excesses of both parties, possibly even the majority. This does not mean that non-partisans favor the purple: a mix of failed self-service policies from both outdated garbage; many favor an entirely new frame of reference that requires removing both garbage.

Other false options include: growth vs. anti-growth, ecological limits vs. innovation i Fed tightening vs. Fe relief.

What we want is growth of efficiency, conservation, productivity and faster-better-cheaper, not “growth” of wasteful consumption in the landfill economy.

What we want are innovations that scale and do not require large resources that serve to reduce humanity’s burden on planetary ecosystems.

As for Fed tightening or easing, that’s also a false dichotomy. Remember that the Fed serves not only as the central bank of the US, but of the entire world. Trillions of dollars in Fed support and guarantees during the 2008-09 global financial crisis bailed out foreign banks and propped up other central banks.

In other words, it’s not all or nothing: the Fed can ease here and tighten there. Given the Triffin paradox, the Fed must play 3D chess, not on inflation and steady employment, but on the US domestic economy as a whole and the global economy and financial system. Call it what you will, but that’s the game the Fed has to play.

Here are some of the many posts I’ve written on Triffin’s Paradox:

Who will benefit from the global recession? The US Dollar (October 9, 2012)

Understanding the US Dollar’s ‘Desorbed Privilege’ (Nov 19, 2012)

The Big-Picture Economy, Part 1: Labor, Imports and the Dollar (September 23, 2013)

The Fed has several tools to manage the game boards. While pundits are affected by the Fed’s Balance Sheet and the money supply, there are other things going on in discount windows, swaps (eg central bank liquidity swaps) and in the Fed repo and reverse markets.

The Fed also uses proxies. The major players buy and sell at the behest of the Fed. (A graphical representation of the machinery is shown below.)

The point is tighten or loosen is a false either/or. The better question is: What is being strengthened and alleviated at the same time by various tools and proxies, as part of a larger strategic program?

Echoing Sun Tzu (“All war is based on deception”), The success of central banking is based on deception masked by a stream of transparency.

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