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Climate Change, Central Banking And The Faustian Bargain

Politics / Climate Change Apr 16, 2014 - 02:36 PM GMT

By: Andrew_McKillop


Gunther Schwab's Dance With Death

A safe interval after World War II, in the 1950s, the former Nazi intelligence officer Gunther Schwab published his massive-selling book “Dance With the Devil”. In it, he fine-tuned what Nazi propagandists found to be the “interesting bits” of CO2 global warming theory first developed by Svante Arrhenius at the end of the 19th century, which is essentially unchanged today. By a massive irony, Arrhenius welcomed human emissions of CO2 from industry, and the possible climate warming they produce because he thought they could fend off – but not prevent – the next and coming Ice Age.

The Nazi interest was naturally more primitive and violent. Schwab's 1958 book mixed and mingled longstanding German fear and fascination with industry, automation and cybernetics – dating back to the iconic philosopher Wolfgang von Goethe (1749-1832) – with Nazi racism and arrogance. Schwab disguised this in the 1950s as an “appeal to Humanity”, drawing on Goethe's legend of Faust.

Al Gore, James Lovelock, James Hansen and the IPCC have themselves profitably peddled the same save-the-world line. Today, almost certainly, Schwab would have also woven peak oil and resource depletion into his Doomster tale, and could have delivered an even better script for Hollywood's serial idea-thieves and idea-killers. Adding central banking, Schwab could have scooped the market.

Goethe's Faust sequence of plays resulted from 35 years of writing and re-editing through 1795-1830, and hinge on our fear-and-facination of the human powers of the mind and the leaps of imagination it enables. Due to science, industry enables massive wealth creation, but the vast leaps of financial imagination, credit and debt creation that are part and parcel of industrialization can be evil and lead to a tragic end. Also, the created wealth tends to be fragile, uncertain and superficial – but the damage caused can be longstanding. Other spinoffs from the Faustian theme which exists in European myth and culture from long before Goethe or the 20th century Nazi ideologists, include the fear and fascination of man creating dangerous but powerful semi-human monsters, like Frankenstein. Heroic video game series of today continue this fear and fascination with the cult of robots.

In Goethe's time, simple-minded persons were fascinated with automatons or clockwork-driven figures able to chime church bells, saw wood and beat anvils – enabling them to launch flights of human fantasy. Goethe confronted our human fear that industry and science are a two-edged sword, partly satisfying the desire for total power, but generating an inevitably final recourse by human beings to blend magic, ritual, myth and fury – into what we can call New Age anti-rational thinking, today!

In any case, Schwab grotesquely exaggerated Arrhenius' theory, just like Al Gore, and forecast the swamping of the world's coastal cities by the programmed and inevitable melt of the planet's glaciers and ice caps. In his 1958 book, he reproduced the Nazi line of propaganda – that only Aryan industry would be permitted after the triumph of the Third Reich – by arguing that industry must be heavily controlled and limited “by Humanity”. If not, disaster is certain.

Goethe and James Law

Unknown to many, Goethe was fascinated by the “financial miracle” that Law worked in France through the period of about 1715-1721. Goethe used the already-old legend of Mephistopheles or Mephisto as a key player in his morality play, Faust. Mephisto certainly dates from Ancient Greek myth, and was for example heavily used by Shakespeare long before the year 1600, as a Modern Devil who works evil – but with the final objective of removing and recycling the souls of sinners. Translated to Wall Street and modern financial market regulatory parlance, Mephisto preached and then punished overreach, insider dealing and conflict of interest.

Goethe played on the basic human surprise, disbelief and rejection of the reality that industry, science and technology do not usher in a world of utmost wealth for all persons. James Law attempted his own, highly modern financial remedy to this drab reality through enabling and encouraging, with French royal patronage, massive speculation in worthless financial junk paper assets. These of course soon collapsed under the weight of their own idiocy.

James Law can readily be called the Father of Fractional Banking, and its inevitable twin of frenetic stock market speculation. In Faustian language, he was a Mephisto.

Drilling deeper into the human psyche, Goethe extracted and utilised the literal bases of the Mephisto legend, of deliberate and willed self-delusion as a primal sin or fault of the human being.  Obfuscation and double-think, the cult of ambiguity, are constant primal human faults as human society weaves its way towards destruction. With little surprise therefore, Germany's central bank president Jens Weidman has gone on record, several times, comparing the action of Mario Draghi and the Governing Board of Europe's ECB, to a Faustian bargain or set of moral choices.

In Goethe's long cycle of Faustian plays, Faust portrays Mephistopheles saying this to the Emperor: “Such paper, in the place of actual gold, is practical: we know what we hold … Wise men will, when they have studied it, place infinite trust in what is infinite.” Faust then switches to Biblical morality. He adds that if humans execute the bidding of Mammon “This is how we know it is the last hour”.

The Lure of Central Banking

The gospel of central banking started slowly, in Europe, but spread widely in the interwar period of 1918-1939. By 1980, over 100 were in operation. Today, with the rapid spread of globalization, there are over 170. China’s central bank is today the second largest in the world!

By and large, all central banks have adopted the same basic operating policy. They claim they can “fine tune” inflation, and both enable and control debt growth in the commercial banking system. But their Faustian power – and primal fault – is that technically, they can print and create money out of thin air. No private individual or company can do that.

The world's 8 largest central banks of today have a so-called “balance sheet” which has at least tripled from 2008, to around $16 000 billion today, or about 25% of world annual GNP. Much more dangerous, almost certainly, there is currently no way their “Quantitative Easing” can tail off or taper down without a collapse in paper equity prices. Necessarily, this has one very simple and baleful impact on that thing called the real economy - uncertainty is paramount, reflecting the Faustian paradigm of constant and creeping fear of overreach.

As a consequence, most of the “money printing” of the central banks sits idle as cash deposits and private bank reserves with the regional central bank. This itself is a prime reason why consumer price inflation has not yet risen sharply, but self-delusion prevails in the fond hope “that the economy will come right in the fullness of time”.
In Faust, Mephisto's alluring recommendations to the Emperor wreaked havoc due to no alternative being available. On the path of infinite money, there is no road back. As a US Federal Reserve banking chief, Richard W. Fisher, head of the Federal Reserve Board of Dallas recently stated, nobody on the US Fed's governing committee, nor among the USA's regional Fed boards “really knows what is holding back the economy”. So they have applied Keynesian lore and myth, and printed money to oblivion. In Faust, the inveterate gambler's urge to double his bets and try again, in the pathetic belief that this time he will win, is a major theme.
The ability to “create” unlimited money (either technically, temporarily or permanently) is an uber-powerful weapon. Yet it confronts the proven inability of governments to create wealth and growth. The central bankers' “Faustian bargain” only delays the consequences of unreal and bad policies, and cannot prevent the ultimate damage of their past excesses. Ultimately, the destruction of productive capital will come home to roost. In sum, the central bankers, like Faust are only buying time.

James Law discovered rather rapidly that there is no such thing as a free lunch. Wealth is only created through labor and savings. Ultimately, all money is owned by the Emperor – or someone or some entity. It is not faceless. As the Mephisto legend rewritten by Goethe, and its previous avatars concluded, the crazed human race for infinite wealth and power leads to infinite and total loss, but with that loss, redemption is possible.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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