The case against Ben Bernanke
Over at ClusterStock, former Merrill Lynch strategist Richard Bernstein tells us why it should be “one and done” for Ben Bernanke. (He compares BB to Burns and Miller from the 1970s. Ouch!)
1) He is a status quo chairman when big change is needed.
His policies both before and after the banking and credit crises have attempted to maintain financial market status quo. … Mr. Bernanke’s comments regarding his inability to proactively control financial bubbles, and the ease with which the Fed could manage a bubble’s deflation, were astonishing for their naïveté. The fact that the credit bubble’s deflation caused the worst recession of the post-war period seems to demonstrate that Mr. Bernanke has failed even according to his previously expressed expectations.
Wall Street thrives on financial asset inflation’s cheaper and more abundant credit. Mr. Greenspan and Mr. Bernanke made sure that the Street was not disappointed regardless of the longer-term detrimental effect on the US economy. The next Fed Chairman should be more concerned with the stability of the financial sector, rather than with the growth of the financial sector.
3) He doesn’t understand the dangers of financial asset inflation.
The future of monetary policy, in my opinion, will focus on the delicate balance between real and financial asset inflation. The US economy does not function well when there is excessive real asset inflation. The 1970s have proven that. However, the US economy also does not function well when there is excessive financial asset inflation. … Yet most central bankers, like Mr. Bernanke, do not yet appreciate this delicate balance. They continue to operate under the assumption that real asset inflation is bad and financial asset inflation is good. In this respect, Mr. Bernanke’s term as Fed Chairman seems to mimic those of Arthur Burns and William Miller during the 1970s.
The next Fed Chairman should probably come from one of the Federal Reserve’s district banks. The person should not primarily focus on Wall Street, but rather should fully understand how the optimal cost of capital in the financial markets drives efficient real investment and maintains a stable banking system. The next Fed Chairman should have a thorough understanding of small businesses lending (imagine if TARP money had gone to the Small Business Administration instead of to bank trading desks?) and how the future of the US economy depends on efficient real investment and not on financial engineering. That person undoubtedly exists somewhere within the Federal Reserve Board but, unfortunately, it is not Mr. Bernanke.