THE FEDRAL RESERVE (& TREASURY) EXPLAINED

http://www.youtube.com/watch?feature=player_embedded&v=mII9NZ8MMVM
THIS VIDEO LINK ABOVE illustrates in a modern day language of how the federal reserve was created and confirms the 100 years on December 23rd 2013 of the Federal Reserve System which is how long it was designed to be operating.
GNS+RESEARCH
Here is a diagram picture and text layout below:
http://goldsilver.com/news/why-the-bullwhip-effect-all-but-guarantees-another-poorly-handled-liquidity-crisis/?utm_medium=email&utm_campaign=Gold++Silver+Weekly+7+-+2+-+2013&utm_content=Gold++Silver+Weekly+7+-+2+-+2013+CID_ab3b6eb3e7a7e6ad4218298c54207d84&utm_source=GoldSilver%20Email%20Marketing&utm_term=read%20more

The Monetary Supply Chainhttp://www.peakprosperity.com/blog/82260/why-bullwhip-effect-all-guarantees-another-poorly-handled-liquidity-crisis

All right, so what does this have to do with the Federal Reserve?

Well, the Fed also operates a "forecast-driven distribution channel." It makes forecasts about the health of the U.S. economy and determines how much money should be in supply to best meet its goals for price stability, financial system health, and employment.

With the lessons of the Bullwhip Effect fresh in your mind, you might be wondering: How simple is the system that the Federal Reserve uses to manage the money supply? 

Well, the Fed would like you to think it's as simple as can be. Look at this easy-to-understand schematic:

(Source)

The Fed gives money to banks to then lend to people. Pretty darn straightforward. What could go wrong?

Oops, but wait a minute. It turns out it's a little more complicated than that. If we dig a little deeper, we see that the U.S. Treasury plays a role in "conduiting money" into and out of the system, and that the Fed (via the FOMC) also interacts with corporations, in addition to banks:

(Source)

Hmmm. Okay. So there are a few more folks in the pool than we originally realized. Still, the players all fit nicely onto a single chart. It's probably all very tightly coordinated and finely controlled, right?

But wait; each of those boxes in the above chart is actually a vast organization (or collection of organizations). Let's look at each briefly:

The Federal Reserve

The Fed is actually a confederation of private banks, headed by a board of governors composed of both banking executives and political appointees (not the most efficient or effective of combinations):

(Source)

Treasury

The U.S. Treasury has more than 100,000 employees. Of course, they don't all interface with the Fed, but multiple departments within the Treasury do.

(Source)

Member Banks

More than one third of all U.S. commercial banks are members of the Federal Reserve System. That's thousands of banks. They are managed by the 12 Federal Reserve Banks, each of which has oversight of its district. 

(Source)

Complexity vs. Resiliency

So, the "simple" structure of the Fed providing banks with money actually encompasses the coordination of various departments within the Federal Reserve system, its thousands of member banks, and at least some part of the U.S. Treasury behemoth. Oh, and private corporations, too.

In this context, the near-death experience that the financial system experienced in 2008 due to liquidity issues comes as little surprise. When things begin to get volatile, with this many parties involved, the Bullwhip Effect tells us that those responsible for forecasting are almost guaranteed to be wrong. Especially when additional parties, such as Congress and the Executive Branch, get involved – as they do in crises like we saw in 2008.

It doesn't help that even during times of relative stability, the Fed's forecasts are poor at best:

(Source)

As central banks around the world conduct the greatest monetary experiment in human history in real-time around us, it's important to keep the Bullwhip Effect in mind. The mathematical odds that the world's many central planners, with their manifold partners in distributing fiat liquidity, are going to have the finesse to successfully steer their ships to safety through the shoals of inflation and deflation that threaten on either side, are very low. And that's before taking into account the unintended consequences of their more extreme measures.

Bottom line: If another liquidity crisis hits (which Chris is warning may be at our doorstep), the one thing we can count on is that the response from our leaders will be ill fitting to the situation. Prepare accordingly.

~ Adam Taggart