The lightly understood field of Fed Tectonics

I'm officially coining a new term for the economic community: "Fed Tectonics".  The concept is not new but the phrase has no hits in Google which quite surprised me:

I have found in my professional career that there is significant value in communications.  Sometimes people come up with great ideas but they receive no credit or recognition for them because they did not communicate ("market") them properly for success.  Then, a few months later, someone else comes along with a repackaged version of the same idea sporting a fancy name and a slicker pitch.  Suddenly, it's heralded as the greatest discovery since the wheel.

There is a reason that good sales and marketing people are so over paid: those with the power to communicate an idea are often more influential in the actual uptake and broad instantiation of the idea than the really smart guy who figured out the underlying tech.  Well, I am not the really smart guy in this deal so what does that leave me with?  The communicator role.  That is what this blog has always been about:economic truth telling in such a way that anyone can understand.

So what does this new buzz phrase refer to?  Simply, the science behind how the market distortions implemented by the Federal Reserve can put off financial earthquakes (market movements) but they cannot prevent them.  Additionally, and importantly, the energy of the market movements that are deferred in this way does not dissipate; it builds up just like the energy at a fault line builds up if the plates do not move smoothly across each other over time.

The market is a powerful force; a force of nature in fact.  Like a mighty river, it can be dammed and it can be diverted but it cannot stopped.  In the Fed Tectonics analogy, the markets want to move like tectonic plates.  The long term movement of the plates is beyond anyone's control.  The Fed can, does, and has already effect(ed) the short term movements of markets by doing the economic equivalent of driving steel girders into the economic ground at key locations in order to stop TODAY's movement of the economic plates.  Of course, that does not stop the overall movement.  The pressure piles up behind until the girders snap with an awful sound and instead of having a few small, survivable quakes, we get "the big one".   The Fed is setting us up for the big one and our time has almost run out.

The Fed Tectonics is just a catchy way of saying things that have been known by smart people like Ron Paul forever:

• The fed is smart and cunning but neither omniscient nor omnipotent.  Because of this, every action they take results in a temporary distortion, not a true long term direction change of the markets.  They cannot mandate perpetual prosperity.
• The fed is really not in control.  The markets are much, much, MUCH bigger than the fed or the US government or all of the world governments combined.  The free market will not stay encumbered forever.  Once the markets begin to move, they are an unstoppable force.
• Like delayed plate movements, Fed Tectonic control does not cause the economic pressure to  go away.  It simply builds up until a sudden plate dislocation occurs.  What we have to look forward to is an economic dislocation.  People who think that the Fed can stop it are delusional.  They really have no idea of what is going on.
• The Fed is the architect of its own destruction.  The fed is all about enticing others to take on debt.  That is their only real goal.  Why?  Because increasing debt increases the money supply which increases inflation which keeps asset prices growing which provides their banks the false appearance of solvency.  
• But once the market has bought into the idea of all this debt, it expects the Fed to keep the debt Ponzi going forever.  
• Well, the Fed is not all powerful.  If it inflates the monetary base too much then gas, meat, eggs and milk become too expensive for the Wal-Mart worker to afford and that leads to a pitch fork revolution.   Unfortunately for the bankers, the AR-15 s the new pitchfork. When the fed is shown to ultimately be powerless to the mass defaults that are coming, people will literally want to string them up.  Bernanke better be looking at property in a remote non-extradition country because people will be calling for his head, literally.  
• Those calling the loudest will be those morons who most supported all of this government intervention.  By killing or jailing the agents that they supported they hope to get rid of the evidence of their own stupidity.  Again I say, much of the anger will not be due to the loss of funds as much as it will be due to the realization that people were used as patsies.  It will be the embarrassment of this fact that drives many people to do the worst acts of retribution.  Emotion over logic is herding 101.

In looking at all of the things going on, in looking under the covers at the debt markets, in looking at the charts, I think the start of a major, major plate movement is within spitting distance.  In recognition of this fact I'll do something that Mish likes to do: a musical tribute.  Please enjoy the following YouTube: I feel the Earth move under my feet by Carol King (live version).