On facts and fiction: the fed and interest rates, humans and herding.

In a recent comment to one of my posts, reader Chance_Nation made a statement that I find to be so common that I think it will help everyone to see it addressed in a full post of its own.  The discussion was regarding whether or not the federal reserve controls interest rates that the economy cares about such as the 10 year rate which is used to come up with mortgage and other loan interest rates.  The economy does not care at all about the fed funds rate.

My point was the same one I have made several times which is that Prechter debunked the notion that the federal reserve is some potent director capable of controlling anything in the economy, including interest rates.  He wrote this in his 2002 book Conquer the Crash.  As I have written on many occasions, Prechter is a data centric historian and statistician if he is anything.  He doesn't just make stuff up, he will always show a chart and have real data to back his claims.  I pointed people to the book.  Few have taken the time to read and many who have read it didn't understand it because it doesn't read like a story or a romance novel.  It is in that way somewhat dry.

Still, Chance (and probably many others) continue to believe that the fed does indeed control interest rates.  He wrote: "I think one of the main reasons that people like me have our view is because history has borne it out.".

OK, so I already wrote that Prechter had debunked this and I already cited Prechter's book but that was not good enough.  I get it.  So here is a video with just a small amount of the same data as the book.  If you watch that video then any thinking person will immediately abandon the notion that the federal reserve is in control of interest rates.

So I really hope that part of it has been put to bed.

But there is another part of this that is so, so, so important to learn from that it's importance far overshadows the relationship between  fed and interest rates.  That issue is how so many people believe beyond any shadow of any doubt that they absolutely know things that in fact they don't really know anything about.  This is not to pick on Chance!  I have caught myself doing it too!  In fact Prechter's book cleared up so many misconceptions I was having that as an engineer it made me wonder how the Hell I could ever have been so wrong about so many things.  I pride myself on having facts and I'm sure Chance and everyone else does too.  So where did we all go wrong?

We humans (and Americans in particular IMO) have a shitload of misconceptions which we are just positive are supported by history when in fact the data does not reliably support these views.  I believe that, as a herding species, we humans are very susceptible to hearing someone in authority say something and then storing it in our brains as fact even though it never really happened.  This is not a cut against me, Chance or the rest of humanity!  It is just a statement of my observation of human nature and as a software engineer I recognize it as a form of information compression.  In other words, it is part of us because it is useful in most cases.

If we had to go look up the actual facts associated with every-single-little-thing that we think we know then it would take our entire lives to do it and our brains would not be big enough to hold all the details.  So instead we just store the compressed "crib notes" version of the data and then we go about our lives in the belief that we know something. This technique is very powerful for us but because it is so powerful it can also be abused by those who have insight into how the human brain works.  This compression mechanism is not a choice; it's a DNA hard wiring thing.

• Side note: I think that the human brain is full of such compression techniques.  
• For example, the old optical illusion where you stare at a red square for 30 seconds and then look at a white sheet of paper you see a green square. I think that after a certain amount of exposure, your brain stops processing the red and instead stores a token.  When the color changes, it takes time for the brain to remove the token and begin processing in real time again.  During the time that the token is in play, the color processing portion of our brains does not have to work flat out.  Compression is done in the human brain for the same reason as in computers: processing bandwidth optimizations in some cases and latency improvement in others.  The eyes are the highest bandwidth input device of the human body (by far) and so it probably incorporates both.  In fact, here is one expert talking about how some optical illusions are a result of the brain trying to predict the immediate future.  He says"...when the brain attempts to generate a perception, it basically is taking a guess at the near future by trying to fast-forward a tenth of a second. As a result of this "neural delay," you might not be perceiving an image as it actually is, but as you expect it might soon be..  That is an attempt to reduce perceived latency if ever I saw it and it's damned clever. 
• The processing power of the human brain is not limitless else we would not care about doing compression.  So how do I know our brains care?  Simply by the widespread use of data limitation techniques in our design.  One example of this is how our peripheral vision is colorless.  It cares mainly about motion detection.  Why not fill the eye with only cones instead of designing in rods and cones?  It is a clear example of data limiting.  The human design does not do things that are not needed.  Another example of this is how there are a massive concentration of touch sensors in the hands and feet but very few in the top front part of the legs.  Experiments show that people cannot tell if two actual touch points on this area of their skin are one touch point or two as long as the points are less than about 1" apart.  That is some pretty low resolution sensing there because higher resolution there does not benefit us but it would take up more processing bandwidth.

The reason that authority figures are so powerful in a herd, be it wild horses or homo sapiens, is that they have the power to create reality in the mind of the herd simply by saying things or sending signals. This is not magic but rather magick.  Importantly, the herd is in full control of who it allows to have this power.  Sometimes the power is given because of perceived threats to the herd members, sometimes because of perceived benefits to the herd members but the herd is always in control of who gets to be believed and who is considered unworthy of being considered a trusted source of compressed information.  This is why truth-tellers are always labeled by the current establishment (those with the power to control perceived reality) in some way that causes the herd to not listen to them (i.e., the dismissive terms of "nut job", "crazy", "conspiracy theorist" and the like).  The establishment knows that these people are not in fact "crazy".  Their purpose of this labeling is to send signals to the herd that the source is not credible and thus not to be used as an information compression source.  This is why money-losing "news" outlets continue to be purchased and held by oligarchs.  Losing money is not a business, it is a control mechanism run by those who know how the herd works and who understand the power available to anyone who can control the herd (be it politician, religious leader, etc.).

The herd accepts it as truth as long as it comes from an authority figure.  This is why Brian Williams has been fired from NBC and will never be heard from again despite his claims of temporary self-removal.  Once the herd has lost confidence in the authority figure, nothing he/she/it says goes directly into the brain unchallenged as if it were fact. Once this compression mechanism benefit is lost, the value of the authority figure is lost; the magick is gone.  If I have to fact check every single little thing that comes out of the news-sayer's pie hole then I receive no compression benefit and thus I will not invest my time in listening to him.  When hit with something like this, the herd also begins to question everyone and everything connected which is why not only Williams' network but all other networks are distancing themselves from him and from any similar act rumored to have been done by others.

One thing about the herd: once it catches you in a lie nothing you say can be trusted again even if it is true.  Why?  Because nobody wants to do the hard work of checking facts in real time!  We would rather just pick people that we believe (generally based on some kind of track record for being right, for being honest, etc.) and then stick with them forever.


This understanding is the stock in trade of all con men. They gain the trust of Mark and Patsy and then as long as they don't get caught in a lie down the road they can create false reality in the heads of their Marks and Patsies however they like.  Why do you think so few people know that WTC 7 (a steel frame building that was not hit by any plane) collapsed into its own footprint at the free-fall speed of gravity surrounded by clouds of pyroclastic dust?  Simply because they heard the authority figure come out with an official explanation for it all (i.e. 911 was done by terrorists and the 911 commission did not even mention WTC 7).  Now, even more importantly:  why do you think so few of those that HAVE heard about this changed their minds one iota about the reality of what happened on 911?  This is how powerful it is to have been installed as an establishment figure (AKA "leader") by the herd.  Even facts pushed right into people's faces only "click" for a very small percentage of the population if such facts do not agree with the compressed version.

This is why I mock Yellen on this matter, so that my readership, small though it may be, will awaken to the reality that the fed doesn't control anything that the herd doesn't allow them to control.  Yes, the fed does say "I want lower interest rates" and YES that can brainwash the herd into following for a period of time just like a con man can convince Mark and Patsy to hand over their life savings.  But all cons eventually fail and in the case of interest rates there is even a term for it: the fed loses control (as in mind control) of the bond market.

While the herd was high on the societal drug known as credit, the standards for selecting leaders was greatly relaxed. A fraudulent two party system/single ideology (i.e the ideology of using debt to forward the agenda and to concentrate power) system was accepted.  As a result, assholes like Nixon, Bush(es), Clinton and Obama got elected while intelligent, data oriented historians and truth tellers who have been proven to be correct time and again like Ron Paul and Ross Perot were labeled as "out there" and essentially broadly discredited. Think back to Ross Perot's warnings of "that sucking sound would be American middle class jobs".  Was he right?  Hell yes he was right.  But nobody gave him credit and we just continued to vote in more assholes as long as the credit drug was flowing.

Now that times are hard and getting harder, that is going to change.  Questions, hard questions, will start to be getting asked and not just for current actions.  I am on record as predicting a resurrection of the old concept of investigative reporting that is nearly nonexistent in our public media today.  Bill Cosby just went down in flames for crap that happened 20 years ago.  Brian Williams' career-ending lies were from 2003.  There is a reason these things are happening now and not then and it is not because nobody ever heard the truth before today!  It was because the herd did not want to know the truth.  It selected leaders who would keep the credit drip going.  Now that things are slowing down the herd is going to be much more open to reconsidering those which it has anointed as trustworthy (i.e. compression worthy) leaders/establishment.