The good news about Bernanke

By Felix Salmon
August 25, 2009
re-nominating Ben Bernanke as Fed chief now, in August, despite the fact that his term doesn't end for another five months. It's one of the few sources of potential uncertainty which the White House can address and resolve unambiguously, and it's good that it's happening.

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It’s a sign of the severity of the financial crisis that Barack Obama is re-nominating Ben Bernanke as Fed chief now, in August, despite the fact that his term doesn’t end for another five months. It’s one of the few sources of potential uncertainty which the White House can address and resolve unambiguously, and it’s good that it’s happening.

Obama is following Bill Clinton’s lead in reappointing a Republican Fed chairman who was appointed initially by a Republican president. In fact, by the time Bernanke’s second term expires, it will have been 28 years since a Democrat, Paul Volcker, held the post. But the good news is that Bernanke isn’t party-political: it’s pretty unthinkable that he would ever pull a stunt like Greenspan testifying before Congress in favor of tax cuts, on the grounds that things get a bit complicated when the government reaches zero debt. (Ha!)

It’s also good news, in its own way, that Bernanke has some opposition in Congress: it’s right and normal that the Fed chief should upset lawmakers. But now that he’s been renominated (and his confirmation is a slam-dunk), maybe those noises about the central bank losing its independence might die down a little.


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Emmanuel Saez is the only option for Fed chairman,with Bernanke inequality will explode even higher, and then all the polite arguments about the “independence of the Fed” will sound a bit trivial

Posted by Fred Engels | Report as abusive

Last year at this time, I was pretty sanguine. I believed that the policy of our Govt was to Guarantee Everything. In my mind, this had been a bipartisan policy since the eighties ( I include Greenspan’s actions in this ). I didn’t like it, but that was our system. I was feeling even more confident on Sept. 8 because of Fannie/Freddie. Here’s a very good post from Reuters on Sept. 8: dUSN0527106320080909?pageNumber=2&virtua lBrandChannel=0&sp=true

Because of this:

“Large holders of the two companies debt, including overseas central banks, had shown increasing nervousness recently, dumping more than $27 billion in agency securities in just the last two months. China and Japan, the biggest buyers of the two companies’ bonds, welcomed the bailout.”

I couldn’t imagine our Govt letting any major financial institution fail. Paul Krugman believed the same thing, as he said on Sept. 14th:

“But Henry Paulson, the Treasury secretary, was adamant that he wouldn’t sweeten the deal by putting more public funds on the line. Many people thought he was bluffing. I was all ready to start today’s column, “When life hands you Lehman, make Lehman aid.”

I didn’t believe that there was any real possibility of Lehman being let loose. I also thought that we were not in the 1930′s, which was a hellish period in world history. As well, to be fair, I was happy that the Bush Admin. was ending. Their main quality being making an egregious mistake and sticking with it come what disaster. Of course, I’m a Democrat.

When Lehman fell, and we learned that investors agreed with me about govt guarantees, I feared the worst. Bernanke and Paulson being Bush appointees, they would add gasoline to a fire. Thankfully, I was wrong. Even Paulson did a good job in my opinion by changing course ( and changing course, and… ). I don’t think that the response was strong enough, but that criticism is only from within general agreement with Bernanke about what to do when a Debt-Deflationary Spiral threatens. I can only be thankful that people who disagreed with Bernanke and thought his actions were radical were not at the helm after Lehman.

So, there were lots of mistakes, but, when we faced a disaster of immense proportions ( just look at private job losses since Lehman and imagine it much worse ), Bernanke proved to be an excellent man for the job. And, as I say, given the past behavior of the Bush Admin., Paulson did a good job as well.

We’re still not out of the woods yet, so keeping Bernnake in place makes sense. We just need to keep in mind how bad things could have gotten, even in comparison with the disaster we’re facing. I’m not a fan of an Independent Fed, but this was a good decision in the real world.

“it’s good that it’s happening.”

Ugh, really Felix? Bernanke is the ultimate crony-capitalist, flawed monetarist. Proponent of moral hazard.

“But the good news is that Bernanke isn’t party-political”

He dismisses political parties (and taxpayers) in favor of his shareholders. That’d be JPM, BK, GS, BAC, C.

It’s good because to replace him (or leave it uncertain for 5 months) might cause instabilities.

Really any Bozo in the position will be both loved and hated for whatever he does.

More Uncertainty is the last thing we need right now.

I would bet on him testifying at some point in favor of some tax increase, or at the least, in favor of deficit reduction. Greenspan’s tax cut testimony seemed to ignore the deficit or the temporal factors on taxation. Bush was pretty much anti-Keynesian because his initial tax cut was premised on ‘returning the surplus to its rightful owners’. Keynes would advocate tax increases in economic expansions, certainly not decreases. I wonder the Keynsian impact of capital gains taxes. In economic contraction, most of the CG tax base is wiped out, while it is is times of expansion it rises quickly.

Posted by winstongator | Report as abusive

Greenspan also testified in favor of Clinton’s 1993 tax hike, on deficit reduction grounds.

It’s also worth noting that Reagan had reappointed Volcker. It’s nice to think that the position is considered primarily non-political, even though in reality that will never be entirely true.

I think Bernanke has made mistakes, but he’s also taken a lot of phenomenal steps that I currently assume have been valuable. I think he deserved reappointment, but to be honest, I’m mostly just relieved it’s not Summers.

Nice summary, Felix, and I like the swat at Greenspan. Other cash- and asset-strong institutions issue debt all the time; their current ratio is sweet. I’m not sure who is more foolish on this: Greenspan, for his statements, or Congress, for not questioning the balance sheet assumption.

Good Move Obama keep up the good work..