Can banks fight climate change? Should the bankers attempt to change the future weather of the planet? The notion is farfetched, yet politicians are trying to get banks to do just that.
Several members of Congress recently urged the chairman of the Federal Reserve Board, Jerome Powell, to use the agency’s powers to reduce carbon dioxide emissions. Mr. Powell wisely is having none of it. It’s not the Fed’s job under the law to address the climate, he recently informed Congress. Legislation also has been proposed to require the Fed “manage climate-related financial risks.”
The Federal Reserve is a powerful agency that controls the U.S. money supply. Its mission established by Congress, most recently in 1978, is to pursue price stability and full employment. The Fed does this through its control of monetary policy, which includes determining the prime interest rate, and loaning banks money.
The Fed has a complicated and challenging mission to keep a lid on price inflation. Congress established the nation’s central bank a century ago as an entity run by a board of governors appointed by the president and with Senate approval for fixed terms of office in order to shield it at least somewhat from politics.
Just how would or could the Federal Reserve Bank influence CO2 emissions? The term follow the money is apt here, since the Fed controls its supply. The Fed also is a powerful regulator of banks and the financial sector writ large. It examines their holdings and investments.
Climate alarmists want the Fed to force banks and financial institutions to dictate how money is loaned and invested. Don’t like fossil fuels? The Fed ultimately could impede the ability of oil and gas companies to attract investors and obtain bank loans. If you think, as Congresswoman Alexandria Ocasio Cortez believes, that Miami will be flooded in a few years by a rising Atlantic Ocean, then the government, through agencies like the Fed, could discourage development in such coastal places.
Central banks in European countries already are getting deep in this fool’s errand of climate change and CO2 emissions. Even if you believe the Federal Reserve in the U.S. should add to its plate – beware, since its monetary policy track record includes some spectacular failures.
The double-digit percentage growth in annual price inflation in the late 1970’s was due primarily to an excessive expansion of the U.S. money supply by the Fed during that decade. High inflation has a broad, crippling effect on any economy, and the U.S. economy by the late ‘70’s experienced its worse condition since the Great Depression. To cure this high inflation, the Fed had to inflict more harm by raising interest rates that led to a deep recession in the early 1980’s.
The Fed also was a main culprit in the Great Recession of 2008-09, which resulted from its keeping interest rates too low for too long, which led to over-priced housing, commodities and company stocks. By late ’08, these bubbles burst and the Fed had to step in to keep the economy afloat with liquidity; again, fixing its own mistakes.
The Fed in its history has been mostly effective, but it is not the font of all wisdom, as these and other financial episodes demonstrate. However, that hasn’t kept politicians from trying to use it, and every other level of government, to control society in the effort to control climate, as if accomplishing the former would enable the latter.
When climate alarmists are in charge of powerful agencies, the absence of applicable laws or sound science is no impediment to using government to force climate policies on an unwilling public. Examples abound, such as the Obama administration’s Clean Power Plan to control carbon emissions by butchering the intent of the Clean Air Act. The U.S. Supreme Court put on hold on the CPP and the Trump administration has since replaced it with its Affordable Clean Energy rules.
The Federal Reserve doesn’t need to spend fruitless time and resources in some attempt to control the weather. It already is a full plate to preside over the U.S. economy. Yet, that won’t stop climate alarmist politicians from demanding such as another tool to reorder society to fit their political agenda.