What is a good way for the Fed to deflect attention from the fact that after a decade of liquidity injections it has created the world's largest asset bubble? Why point to another, even bigger - in its view - threat. And with green bonds, unlimited fiscal deficits and MMT all the rage (if not today, then soon), what better bogeyman for the Fed to wave in front of the public than the hottest topic, so to speak, of the day: climate change.
Speaking at the GARP Global Risk Forum, NY Fed executive vice president Kevin Stiroh warned in his prepared remarks, that climate change - not, say, asset bubbles created by his employer - is a major threat that risk managers can't ignore.
"The U.S. economy has experienced more than $500 billion in direct losses over the last five years due to climate and weather-related events. In addition, climate change has significant consequences for the U.S. economy and financial sector through slowing productivity growth, asset revaluations and sectoral reallocations of business activity.”
That was how Stiroh framed the one danger that, according to the Fed, is emerging as the biggest threat to the US economy.
But why is the Fed, whose only concern should be the cost of money, suddenly preoccupied with the weather? Because as the EVP says in his speech, "as supervisors, we can consider climate-related risks in terms of both macroprudential and macroprudential objectives."
In other words, it's only a matter of time before the Fed blames the weather for the next great, "unexpected" crisis... which like the bubbles of 2001 and 2008 was entirely the Fed's doing.
Luckily, the Fed apparatchik did stop before providing advice on how to combat climate change - of which it is the primary enabler, as its loose money policy allows zombie corporations with outdated emissions standards to stay in business - and said that "supervisors should take a risk management perspective, not a social engineering one. It is beyond our mandate to advocate or provide incentives for a particular transition path." Related: Why Oil Companies Aren't Evil
Rather, Stiroh said, "supervisors should focus on the risks that emerge along the path decided by the public at large and their elected governments. Supervisors can use our tools to ensure financial institutions are prepared for and resilient to all types of relevant risks, including climate-related events."
It wasn't clear what tools he was referring to (the Fed certainly has plenty of those), but he did break down the climate change risk into two main categories for risk managers:
Physical risk is the potential for losses as climate-related changes disrupt business operations, destroy capital and interrupt economic activity.
Transition risk is the potential for losses resulting from a shift toward a lower-carbon economy as policy, consumer sentiment and technological innovations impact the value of certain assets and liabilities. These effects will be felt across business sectors and asset classes, and on the strategies, operations and balance sheets of financial firms.
But wait, in a world in which asset managers only care about their year-end bonus and anything that happens on Jan 1 of next year is someone else's problem, why should anyone on Wall Street give a rat's ass about the weather, unless of course it is to capitalize on it?
The Fed's response: "climate change is a long-term issue where actions today are likely to have an impact over many decades. This exceeds the typical life span of a bank exposure, as well as the typical control and planning horizon of a financial institution. Risk management tools, models and scenarios are not designed to capture the long-term nature of climate-related risks. Nonetheless, real impacts are already being felt and we must develop the tools to assess and manage them." Related: The One Metric That Matters For Electric Cars
One more thing: the Fed vice president's remarks did not venture into a discussion on another hot topic: green QE, or central banks boosting bond issuance by refocusing their asset purchase programs toward "green bonds", as the new ECB President Christine Lagarde suggested recently, when she hinted that the ECB might be open to the idea once she had more information.
It was not clear just how monetizing a "green" bond is any different than monetizing any other bonds. In fact, with the Fed already doing so to the tune of $60 billion in monthly Bill purchases as part of its "Not QE", the only question is how will the Treasury rebrand 10 or 30Y bonds as "green", in the process greenlighting even more debt and deficit monetization by the Fed, whose ultimate goal is clear to most by now: using "climate change" and "green bonds" as scapegoats behind a "Green New Deal" type of arrangement, in which the Fed basically adopts helicopter money, and becomes a de facto agent of the Treasury, monetizing almost every piece of debt sold by the US, making the Japanification of the US complete just as the final fiat currency devaluation experiment gets going.
At least Greta Thunberg will be happy for a few years before the social catalysm that results from the Fed's final act of idiocy means that eating the rich - and just about anyone else - will be more than just a figure of speech.
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