The Federal Reserve posted a record $81 billion profit for 2010 in the latest sign of an economy addicted to artificial stimulus. The central bank’s take is more money than the entire U.S. banking industry has made over the past three years. Most of the money has come from interest on the garbage mortgage loans the Fed took on to relieve its friendly banks when their exploitation of the subprime market took a turn for the worst. In the midst of our current malaise how can the Fed reach such favorable outcomes?
Like the money it prints, the profits reported by the Federal Reserve aren’t what they seem, representing returns on precarious investments that no sane investor would undertake-- Treasury Bonds, Mortgage-backed securities, et. al. The Fed’s theft is a discreet, impersonal process whereby “the taxpayer” is depleted “to keep funds flowing through the economy.”
The Fed’s ostensible reason for its madness is to manage the economy. But despite its best intentions, there are complexities, many involving political processes, making the sheer folly of accomplishing that goal a fool's errand.
Consider the example of one household charged with managing every other home on its street. Even the most well-organized, methodical family couldn’t possess all of the facts necessary to conduct all of every other house’s business, to allocate their resources efficiently or master their particular issues. Even assuming that the family could compile the relevant facts, it wouldn’t be able to make sense of them in a way that would allow it to dispense funds and materials appropriately.
The political elite’s control of our economic system is more circuitous and less direct than that on our hypothetical street, but the fundamental principle and its coinciding problems are the same. Hierarchical organizations like the Federal Reserve, the huge bureaucracies at the helm of our society, enjoy a presumption in their favor within our conceptual scaffolding. If we probe what they do, though, we’ll find that they perform through a combination of insanities that we would never entertain in running our own lives.