Who's Ben Bernanke? (1 Viewer)

[Billo_Really]

Alan Greenspan has just stepped down and
Ben Bernanke will be his replacement.
Any thoughts or comments on the new Fed Chairman?
Will this be good for the US? Bad for the US?
Where are we going with Ben?

 

[oldreliable67]

Bernanke is an eminently qualified economist. You can find many of his papers and speeches at the Fed website. In discussing some of the causes of the Great Depression and how the Fed did or did not contribute to it, I posted the following a while back on another thread...

...I was perusing some of new Fed Chairman Bernanke's speeches and papers, and what did I find but his 2004 comments (when he was still on the Board) concerning the Great Depression! I'll cut n paste a couple that illustrate the points that I made earlier. Note his comments that, for quite a long time, there was considerable disagreement among economists as to the causes of the depression...

"During the Depression years and for many decades afterward, economists disagreed sharply on the sources of the economic and financial collapse of the 1930s. In contrast, during the past twenty years or so economic historians have come to a broad consensus about the causes of the Depression."
...
"Deflation, like inflation, tends to be closely linked to changes in the national money supply, defined as the sum of currency and bank deposits outstanding, and such was the case in the Depression. Like real output and prices, the U.S. money supply fell about one-third between 1929 and 1933, rising in subsequent years as output and prices rose."
...
"While the fact that money, prices, and output all declined rapidly in the early years of the Depression is undeniable, the interpretation of that fact has been the subject of much controversy. Indeed, historically, much of the debate on the causes of the Great Depression has centered on the role of monetary factors, including both monetary policy and other influences on the national money supply, such as the condition of the banking system. Views have changed over time. During the Depression itself, and in several decades following, most economists argued that monetary factors were not an important cause of the Depression."
...
"To support their view that monetary forces caused the Great Depression, Friedman and Schwartz revisited the historical record and identified a series of errors--errors of both commission and omission--made by the Federal Reserve in the late 1920s and early 1930s. According to Friedman and Schwartz, each of these policy mistakes led to an undesirable tightening of monetary policy, as reflected in sharp declines in the money supply. Drawing on their historical evidence about the effects of money on the economy, Friedman and Schwartz argued that the declines in the money stock generated by Fed actions--or inactions--could account for the drops in prices and output that subsequently occurred."

The entire text is at...
http://www.federalreserve.gov/boardd...22/default.htm

 

[Billo_Really]

Will Ben be better than Alan, in your opinion?

 

[oldreliable67]

We won't know that for a while, until something comes along and provides the same kind of test that AG faced with the Oct '87 meltdown.

My expectations are that Bernanke will acquit himself quite well. He has outstanding academic credentials in addition to several years under his belt as a member of the Board of Governors. I am acquainted with a couple of people who know him and have worked with him and one person who is currently at the Fed is a director on my board - they are universally pleased at the prospect of Bernanke as chairman.

 

[Billo_Really]

Originally posted by oldreliable67:
We won't know that for a while, until something comes along and provides the same kind of test that AG faced with the Oct '87 meltdown.

My expectations are that Bernanke will acquit himself quite well. He has outstanding academic credentials in addition to several years under his belt as a member of the Board of Governors. I am acquainted with a couple of people who know him and have worked with him and one person who is currently at the Fed is a director on my board - they are universally pleased at the prospect of Bernanke as chairman.

I don't think people realize just how important or critical this issue is. Is that wrong?

 

[oldreliable67]

I don't think people realize just how important or critical this issue is. Is that wrong?

Not necessarily, but a bit exagerrated perhaps. There is no denying that the Fed chairman is one of the few people in the world capable of almost single-handedly influencing economic activity worldwide. The US economy is still the main engine of world economic growth: if we sneeze, many economies of the rest of the world catch cold. Not as much as it was a couple of decades ago, but still an impact.

Where you may be correct is that Greenspan was so successful that we have all begun to take that success for granted. If Bernanke's big test comes along (and it will, ultimately) and he performs somewhat less than successfully, it may be a rude awakening.

 

[Billo_Really]

Originally posted by oldreliable67:
Not necessarily, but a bit exagerrated perhaps. There is no denying that the Fed chairman is one of the few people in the world capable of almost single-handedly influencing economic activity worldwide. The US economy is still the main engine of world economic growth: if we sneeze, many economies of the rest of the world catch cold. Not as much as it was a couple of decades ago, but still an impact.

Where you may be correct is that Greenspan was so successful that we have all begun to take that success for granted. If Bernanke's big test comes along (and it will, ultimately) and he performs somewhat less than successfully, it may be a rude awakening.

Thank you. I'm actually learning something here.

 

[oldreliable67]

Caroline Baum is a talented writer for Bloomberg.com on the Fed, bond market, and general economy. Her column today contains these observations on Bernanke and his likely differences from AG...

On transparency:
"Bernanke is certain to push for the adoption of a formal inflation target now that he's in a leadership position at the Fed. He devoted a good deal of academic research to the benefits of a target, wrote a book on it and, much to Greenspan's chagrin, advocated one every chance he got when he was a Fed governor.

The transparency playbook starts with a stated numerical rate or range for inflation. It features numerical forecasts in place of boilerplate language. And it precludes leaks to select reporters from unnamed Fed officials, one of the more unseemly characteristics of Greenspan's tenure that often left markets wondering which newspaper had the story right."

As an advisor to Congress & Presidents:
"The second difference between the outgoing and incoming Fed chairman is in how they view their job descriptions. Unlike Greenspan, who cultivated the image of an uber adviser to Congress on all issues economic (and many non-economic), Fed Chairman Bernanke will stick to his knitting. He already committed himself to the practice of not commenting on specific tax and spending policies.

Greenspan advised Bush pere to raise taxes and Bush fils to lower them. He made a deal with the first President Bush, dangling the promise of a rate cut if the president and Congress cobbled together a credible deficit-reduction package. They did, and Greenspan delivered in October 1990. He was a maestro at maintaining his credibility in the face of some highly politicized acts.

Bernanke will confine his comments to the subject of monetary policy and the economy. They will leave little room for guesswork or interpretation."

In response to financial crises:
"Greenspan has been accused of creating a moral hazard, of encouraging risky behavior by putting a floor under the stock market.

The Greenspan ``put'' may retire with the chairman. Bernanke will be less of an interventionist in the case of a financial market crisis -- if a big hedge fund got into trouble, for example.

On the other hand, the self-described Great Depression buff would be more aggressive in the case of banking crisis. His research into what was perhaps the Fed's biggest policy failure convinced him that the credit squeeze converted a severe but not unprecedented economic decline in 1929-30 into a protracted depression.

If a burst housing bubble impaired banks' ability to lend, Bernanke would respond more quickly and aggressively than Greenspan did in the early 1990s."

Bernanke's first significant public appearance is set for Feb. 15, when he will deliver the Fed's semi-annual monetary policy report to the House Financial Services Committee.

While he has been appropriately silent on Fed policy questions since his confirmation hearing in November, there is no reason to think Bernanke wouldn't have joined yesterday's FOMC consensus had he been a voting member. At his hearing, he promised to continue Greenspan's risk management approach to policy.