This week, central planners diligently pursued their main objective with unwavering determination. They carefully devised plans, nudged markets, and orchestrated the future to shield us from our own decisions. Some even managed to profit from these activities.
Meanwhile, others among the planners resorted to depreciating the dollar to maintain the federal funds rate within a restricted range. What exactly do they believe they are accomplishing?
Our daily experiences reveal that people consistently make choices—choices influenced by a multitude of factors and constraints. These decisions seldom occur in a vacuum.
For instance, one person might drive to work, another may opt for the train, and a third individual could choose to walk. While these preferences might seem personal, they are also impacted by various factors such as proximity to work, gasoline prices, and parking costs, among others.
Sure, central planners may factor some of these influences into their considerations. But they cannot possibly account for all of them—nor even for a significant portion.
People often behave in unpredictable and sometimes bizarre ways. Their decisions can appear irrational, driven more by emotion and ego than by logic and sound reasoning. Some will prioritize vanity over humility, while others may undermine their own interests out of spite.
How can a bureaucrat in Washington or Sacramento possibly account for all these unknown and illogical variables?
In the realm of credit markets, the planners excel at creating chaos. By artificially expanding the currency supply and providing major banks with easy and abundant credit, they encourage reckless risk-taking. They conceal mistakes and force financial markets and the broader economy into an increasingly precarious situation.
Consequently, when the credit market falters and the planners’ strategies fail, the inevitable outcome is collapse and devastation. We’ll provide further insights shortly, including the latest updates from the Fed. But first, let’s delve into a cautionary tale about collapse and its repercussions.
The Fall of Tubby
The Tacoma Narrows Bridge was a suspension bridge linking Tacoma and the Kitsap Peninsula, spanning the Tacoma Narrows strait of Washington’s Puget Sound. When it opened to traffic on July 1, 1940, it boasted the third-longest suspension span in the world. Unfortunately, the bridge was doomed long before any vehicle crossed it.
The original, conventional bridge design was replaced by a cheaper and more innovative approach. Years earlier, two ambitious engineers, Leon Moisseiff and Frederick Lienhard, had presented a groundbreaking theoretical advancement in bridge engineering.
Their novel theory of elastic distribution postulated that the main cables’ stiffness would absorb up to half of the static wind pressure exerted laterally on a suspended structure. This energy would then be directed to the anchorages and towers.
Based on this theory, a set of eight-foot-deep plate girders was chosen instead of the initially proposed 25-foot-deep trusses. This decision resulted in a flimsy bridge deck that was extremely sensitive to wind. Moisseiff and Lienhard underestimated the effects of horizontal bending under static wind load.
This oversight led to the bridge’s center span rising and falling several feet within short timeframes during moderate winds. Construction workers affectionately dubbed the bridge “Galloping Gertie.” Regrettably, Gertie wouldn’t gallop for long.
On November 7, 1940—approximately four months after it opened—wind-induced aeroelastic flutter caused the Tacoma Narrows Bridge to twist and collapse into the Puget Sound. Leonard Coatsworth, a Tacoma News Tribune editor, was the last person to cross the bridge:
“Around me I could hear concrete cracking. I started back to the car to get the dog, but was thrown before I could reach it. The car itself began to slide from side to side on the roadway. I decided the bridge was breaking, and my only hope was to get back to shore.
“On hands and knees most of the time, I crawled 500 yards or more to the towers… My breath was coming in gasps; my knees were raw and bleeding, my hands bruised and swollen from gripping the concrete curb… Towards the end, I risked rising to my feet and ran a few yards at a time… Safely back at the toll plaza, I watched as the bridge finally collapsed and saw my car plunge into the Narrows.”
Tragically, Coatsworth’s cocker spaniel, Tubby, lost its life when Coatsworth’s car fell into the Puget Sound. Notably, the same turbulent winds that caused Galloping Gertie to collapse also contributed to the Armistice Day Blizzard four days later, claiming 145 lives in the Midwest.
It is often only after monumental mistakes that officials candidly reflect on events. Othmar Ammann, a prominent bridge designer and member of the Federal Works Agency Commission investigating the Tacoma Narrows Bridge collapse, noted:
“The Tacoma Narrows bridge failure has provided us with invaluable information… It has demonstrated that every new structure venturing into uncharted territories presents unique challenges for which neither theory nor practical experience provides an adequate roadmap. Therefore, we must heavily rely on judgment, and if errors or failures arise, we must acknowledge them as an inevitable cost of human advancement.”
Indeed, the catastrophic collapse of the Tacoma Narrows Bridge imparted significant lessons. Today, civil and structural engineering students learn to integrate aerodynamics into their designs, and wind-tunnel testing is now a requisite part of the process.
Designing and constructing a suspension bridge is undoubtedly a complex engineering endeavor. Without the collective knowledge derived from past successes and failures, engineers would be forced to rely primarily on judgment once more, casting doubt on every new bridge project. Fortunately, lessons from history allow us to navigate future projects with greater foresight.
The Inevitable Collapse
Central bankers often regard their role with self-importance. They see themselves as scientists and engineers, assembling data and presenting it on vibrant charts and graphs. They formulate theories about how to manipulate these graphs to yield favorable results, often adorning them with arrows. At times, to enhance credibility, they even include footnotes.
This entire endeavor is absurd. Remember, the economy is a social construct, not a physical mechanism. What may function effectively during one period may fail during another, and vice versa. Conventional wisdom can transform into a liability over time.
When Alan Greenspan first instituted the “Greenspan put” following the 1987 Black Monday crash, financial markets were primed for this coordinates intervention. Interest rates had peaked in 1981 but were still high, with the yield on the 10-Year Treasury note hovering around 9 percent. There was ample room for borrowing costs to decline.
However, in a landscape where $17 trillion exists as negative-yielding debt and asset prices—including U.S. Treasuries—are inflated beyond reason, the Fed has constructed a financial system that relies heavily on extensive central bank intervention for survival.
Over the past two weeks, the Fed has injected hundreds of billions of dollars into the financial system through the overnight repo market. These operations are projected to continue every business day until October 10, with the potential to extend even further. Our prediction is that the Fed will persist until something breaks, which may occur sooner than we think…
Stormy winds are sweeping through the credit markets, distorting them much like the Tacoma Narrows Bridge. Despite its scientific pretense, the Fed is acting on intuition. Relying on its own instincts, it is doing what it knows best: creating credit and flooding it into the financial system.
Greenspan set us on this path… and there is no reversing course. A final collapse is inevitable.
Sincerely,
MN Gordon
for Economic Prism
