Edward Hadas

For and against Ben Bernanke

Edward Hadas
Jan 26, 2010 22:33 UTC

By Edward Hadas and Richard Beales

It is easy to imagine a better candidate than Ben Bernanke to run the Federal Reserve. But actually finding one is another matter. The current chairman should get a second term, even though he does not unequivocally deserve it.

Bernanke has worried too much about deflation, and not enough about excessive leverage, trade imbalances, financial deregulation and fiscal irresponsibility. He has probably not paid enough attention to the global role of the dollar. He was arguably too soft on the financial industry when that industry was riding high — and he may now be too eager to consolidate regulatory power at the Fed.

In his defense, though, he did well in the thick of the banking crisis in 2008. Along with the New York Fed and the Treasury, he helped rescue and reshape the industry after the bankruptcy of Lehman Brothers.

That policy flexibility belies his reputation as an excessively pure academic and probably avoided a series of confidence-crashing bank failures. Moreover, for all its failings the Fed did a less bad job of financial regulation than most other U.S. watchdogs.

Overall, that’s no ringing endorsement. But consider the alternative. A new chairman would need experience in central banking — this is no time for an amateur. He or she should have post-crisis intellectual credibility — say, a long record of warning about the dangers of asset price inflation. The post-Bernanke Fed boss should command immediate respect from counterparts at other central banks. And both Democrats and Republicans should be keen.

Monetary policy needs tightening

Edward Hadas
Jan 25, 2010 23:00 UTC

A new Great Depression has been avoided. Gargantuan efforts from governments and monetary authorities have limited the damage of the credit crunch to a bad recession. But the world’s political and business leaders can’t spend too much time on the ski slopes at the World Economic Forum in Davos, Switzerland this week. It’s time for them to build a consensus for higher interest rates

There are too many signs of financial excess for anyone to be relaxing much. Chinese real estate, commodity prices and credit spreads are all worrying. Wall Street is overflowing with excess again. Bankers are making fortunes despite best efforts to rein in bonuses. And why not? When the bubble popped, all the borrowing that propelled asset prices to new highs hardly declined. It was just shifted from the private sector to governments.

If asset prices keep rising, they can just as easily fall suddenly. A renewed recession or a sudden loss of confidence in some doubtful currency or country could restart the downward spiral of losses and reduced lending.

Recovery leaves too many big problems unsolved

Edward Hadas
Jan 4, 2010 16:28 UTC

ed hadas.jpgThe economic worst is past. But there are many issues left to worry about.

Start with the good news. GDP is now growing almost everywhere, while the unemployment rate is hardly rising anywhere. Businesses and consumers are less fearful. As much as half of the 20 percent decline in international trade has been erased.

Perhaps the best news is what has not happened. There have been no national defaults, countries dragged into political chaos, bitter divisions among the great powers or, with a few tiny exceptions, massive declines in consumption. The global political-economic-financial system is still in business.

Still, little has been done to address the three underlying and interlocked issues that tripped the world into financial crisis and recession. Their persistence helps explain why the recovery has been frustratingly slow up to now. If anything, they are all looking more intractable than ever. Meanwhile an old problem, unemployment, is rearing its head.