As the nation’s central bank, the Federal Reserve has its fingers in all aspects of policy.
Even with that, a statement by the Fed last week was exceedingly strange.
“The summary describes how these banks are using climate scenario analysis to explore the resiliency of their business models to climate-related financial risks. Participating banks took a wide range of approaches in this exercise to consider the possible implications of different physical and transition risk scenarios. The exercise highlighted data gaps and modeling challenges that arise when estimating the financial impacts of highly complex and uncertain risks over various time horizons. The banks that participated in the exercise were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.”
What might be going on here is the same thing we see in all major institutions, a bureaucratic effort to study and understand some impending danger from climate catastrophe wreaked by our terrible tendency to keep using fossil fuels and otherwise misbehave according to the ethics of the Great Reset. So everyone seems to be making some plan to respond.
In other words, “climate change” is the best grift around, with governments and foundations spreading money everywhere. Everyone now wants a piece of it, regardless of the truth claims or empirical reality either way.
Let’s be clear. The Fed has only one tool. It pushes for the creation of more money and credit. It does this through a variety of paths, but the result is always the same. It is a liquidity provider, a funding scheme, a way to invent and manifest fake new resources when the real ones aren’t there. It is an alchemist and very popular for being so.
Just as it has one tool, the results of its actions are also entirely predictable. It fires up inflation, meaning that its money-creation schemes lower the purchasing power of the existing money stock. Its interventions with the interest rate cause distortions in the production structure. That’s their purpose. And they are always unsustainable because market forces over the long run prevail over planning by the Fed.
You can see that credit expansion is precisely what the Fed has in mind.
Every conclusion of the climate-change story ends in the same thing. There could be defaults, fire sales, business disruptions, explosive liability claims, and needs for refinancing. In each case, the policy is the same: Create more money and credit. When all you have is a hammer, everything looks like a nail.
Let me ask you this. Do you trust the Fed to manage climate-related efforts?
If so, you should not. The Fed has presided over nothing but disaster. The past four years have shown this. We don’t have a firm figure on just how much purchasing power has been wrecked by the Fed in this short time. It could be 20 cents on the dollar. That’s the low-end official estimate. But once you include interest-rate costs and a more accurate accounting of health insurance and rents, and reweight the index for what people actually buy, you get numbers that are close to 30 cents or 50 cents or even more.
The great inflation of the 1970s came in three bouts that ended up gutting savings and the capital stock. That had to be entirely rebuilt in the 1980s. If we go further back in time, the Fed is the reason for the bust of 1929 and the prolongation of the depression. Before that, it made possible the U.S. entry into World War I, which would have likely been settled diplomatically except that governments were excited to deploy their new central banking toys.
And that’s precisely the problem. The very existence of the Fed’s power creates a moral hazard to look for problems to solve that otherwise would be solved on their own. This is precisely what happened with COVID-19. If government had done nothing at all about the new virus and left it to doctors to deal with using known methods, we would have been far better off.
But in mid-March 2020, the Fed signaled that it was ready to provide government all the resources it needed to embark on a war on the virus. That’s when all hell broke loose. It was the spending backed by printing that caused the states to keep their economies closed up. Otherwise, they never could have afforded the fiscal meltdown. After all, states don’t have central banks, so they have to balance their budgets or float bonds that are rated according to normal market standards.
Absent the Fed, there would have been no prolonged lockdowns in the United States. You can say the same for Europe with the European Central Bank and the Asian countries too. The inflation was global as were the lockdowns. This is the moral hazard in operation.
Let’s say that climate change is real. The market would deal with it just fine. Having a Fed ready to print as much as necessary only feeds the crisis rather than forcing an adjustment in pricing signals that would come anyway. Our whole experience with central bank interventions is that they worsen the problem, whatever it is. And yet the institution just keeps volunteering to “help” even when every bit of evidence suggests that they don’t help but rather hurt.
The founders of the Fed would have been astonished to see the Fed mucking around with climate modeling in preparation for another round of inflation. In fact, the initial promise is that the Fed would tighten money availability in ways that were not possible under a more decentralized system. It didn’t turn out that way. Central banking was and is yet another god that has failed us.
But these days, it is the regular mode of operation in most countries that the more large government-connected institutions fail, the more we use them to produce more failure. Humanity needs better strategies for course correction. Top of the list for abolition is the power of central banks. Their use in solving social, economic, and political problems has been sheer folly from the beginning.
The absurdity of the enterprise is beautifully on display as the Fed, of all things, now promises that it is going to be there for us as climate change takes over our lives. Truly, the entire machinery needs to be unplugged before these pompous monetary bureaucrats wreck even more than they already have.
