Yahoo Finance Terence Corcoran: The ‘Avatars’ of banking and climate crises
Two great forces from the policy universe are clashing across the skies of the global economy, spreading like a giant celestial explosion in a scene from a sci-fi blockbuster. Call it “Avatars of Interventionism,” the saga of two conniving cultures with plans to reshape the world economy.
Sorry about the movie metaphor, but I’m taking my cue from António Guterres, secretary general of the United Nations and one of the protagonists in the mighty effort to prevent the fossil fuel-caused destruction of the planet. On Monday, Guterres uttered another of his Darth Vader-style warnings: “Humanity is on thin ice — and that ice is melting fast.… Our world needs climate action on all fronts — everything, everywhere, all at once.”
Guterres fired his rocket blast — incorporating a dumb-as-hell reference to an Academy Award-winning film — as part of the UN campaign to reconstruct life on earth into the blissful wonderland inhabited by Adam and Eve before they succumbed to the original sin of using fossil fuels for energy.
Guterres has been working on his one-liners for some time. “We are on a highway to climate hell with our foot still on the accelerator,” he said in November. On another occasion, he warned that, “Monstrous consumption habits are degrading our world. Humanity has become a weapon of mass extinction … with a million species at risk of disappearing forever.… Humanity’s war on nature is ultimately a war on ourselves.”
Guterres’ new line was delivered on Monday to hype the latest report from the Intergovernmental Panel on Climate Change (IPCC), a 36-page summary of a massive document to be released later this year. The summary contained nothing that has not been said before about the risks of climate change.
We need to act now to prevent the world from hitting a temperature level 2 C above pre-industrial levels. We are already 1 C above that level and to prevent future increases, interventionist governments and corporations need to do, as Guterres said, “everything, everywhere, all at once” to get the world economy down to net-zero emissions by 2050.
This do-everything-at-once science fiction will require what the IPCC report refers to as finance, technology and international co-operation. “If climate goals are to be achieved, both adaptation and mitigation financing would need to increase many-fold,” it reads, claiming that “sufficient global capital” is available “to close the global investment gaps, but there are barriers” that need to be broken down to “redirect” that capital to climate action.
There is no mention in the report of financial crisis risks that could stall the climate money flows for years. The IPCC’s understanding of the state of world capital and banking markets obviously dates from the cheap-money world of 2020-22. It says more “public finance” will be needed to “leverage” private finance from banks and investors, implying that an abundance of cash is floating around the world’s capital markets waiting to move into batteries, solar power and carbon capture.
According to the IPCC’s sci-fi financial world:
“Average annual modelled mitigation investment requirements for 2020 to 2030” to limit warming to 2 C or 1.5 C “are a factor of three to six greater than current levels.… Total mitigation investments (public, private, domestic and international) would need to increase across all sectors and regions.”
“There is sufficient global capital and liquidity to close global investment gaps, given the size of the global financial system, but there are barriers to redirect capital to climate action.”
“Reducing financing barriers for scaling up financial flows would require clear signalling and support by governments, including a stronger alignment of public finances in order to lower real and perceived regulatory, cost and market barriers and risks and improving the risk-return profile of investments.”
At the same time, “financial actors, including investors, financial intermediaries, central banks and financial regulators can shift the systemic underpricing of climate-related risks, and reduce sectoral and regional mismatches between available capital and investment needs.”
These are actual words from the IPCC report, which was obviously written by scientists who were unaware of the other plot line in the “Avatars of Interventionism” — the role of monetary, fiscal and banking warriors who have been messing up parts of the financial and economic system.
One of the reasons for the financial star wars now taking place has been the eagerness of monetary and bank officials — and government agencies — to follow the do-everything-everywhere UN climate push. Both Credit Suisse and Silicon Valley Bank were active players linked to the climate issue.
Climate and finance were joined in the battle of the “Avatars” following the breakdown of rational monetary and fiscal policy. Despite warnings that U.S. and other central bankers had lost the script and were flying blind into the chaos, the financial system was swamped with government spending and monetary expansion. The scenes were complicated by the emergence of modern monetary theory and a belief that inflation could be easily brought under control.
The new thinking, not explicitly endorsed by central banks, is certainly part of the motivation for the massive expansion of government debt in the United States, Canada and elsewhere. Importantly, the merging of monetary and fiscal expansion was hailed in activist circles as the “Magic Money Tree for the Climate Crisis.” That’s the basic plot behind the “Avatars of Interventionism”: magic science fiction.
• Email: tcorcoran@postmedia.com | Twitter: terencecorcoran
Financial Post
