James Pethokoukis

Politics and policy from inside Washington

Bernanke nomination in more trouble than you think

Dec 22, 2009 15:48 UTC

Ben Bernanke’s close escape from the Senate Banking Committee sets him up for a record number of final “no” votes on his renomination as Federal Reserve chairman. A second term is still overwhelmingly likely. But such unprecedented disapproval suggests Bernanke will be a 2010 campaign issue. That could make the Fed ever more susceptible to political pressure when it comes to tighten the easy money spigot.

Fed nominations typically glide through committee. When President Jimmy Carter nominated G. William Miller for the post in 1978, the lone dissenting voice was that of gadfly William Proxmire of Wisconsin. He called Miller a joke and said putting him on the Fed would be like sending ballet star Rudolf Nureyev against the heavyweight boxing champ. And despite widespread public blame for the recession in 1981-82 Paul Volcker received just two no committee votes in 1983.

So seven negative votes out of 23 is historically high – nor was it just a few cranky contrarians dissenting. The ranking Republican voted “nay.” So too did Kay Bailey Hutchinson, a soft conservative running in the Texas GOP gubernatorial primary against a hardliner. That’s a strong hint that baseline conservative Republicans plan an anti-Fed platform in midterm elections. And pro-Bernanke votes will be wielded by challengers to incumbents.

So expect many GOPers to abandon Bernanke next month when his job along with a smattering of nervous Democrats facing re-election. Maybe a fifth to a third of the full Senate could vote no, a startling number considering that the high-water mark is 16 final votes against Volcker in 1983. A simple voice vote was enough for Alan Greenspan in 1992 and 2004, and Bernanke himself in 2006.

Congress is already nibbling at Fed independence. An audit of the central bank could even be inserted into financial reforms. There’s also an effort to toss the hawkish regional bank presidents off the group that sets monetary policy. Bernanke’s tepid support in the Senate is another crack in the Fed’s political heat shield. It is also one more reason to question whether the Fed will have the institutional guts to withdraw monetary stimulus when it should, despite stubbornly high unemployment.

Ben Bernanke, 2009 Person of the Year

Dec 16, 2009 13:37 UTC

Or so says Time. With the vast array of unprecedented Fed actions, it is hard to argue with the selection.  But this might not be Bernanke’s last selection if inflation picks up. Remember, the award goes for the person who had the most impact, for good or ill.

COMMENT

too true. remember Time’s 1938 man of the year? That ‘stache was all the rage.

Posted by Bill York | Report as abusive

The coming assault on the Fed

Dec 11, 2009 15:09 UTC

This piece by Paul Krugman reinforces my feeling that the Federal Reserve is going to be hit hard for not doing even more to boost the economy. He wants the Fed balance sheet expanded even more to promote faster growth.

The most specific, persuasive case I’ve seen for more Fed action comes from Joseph Gagnon, a former Fed staffer now at the Peterson Institute for International Economics. Basing his analysis on the prior work of none other than Mr. Bernanke himself, in his previous incarnation as an economic researcher, Mr. Gagnon urges the Fed to expand credit by buying a further $2 trillion in assets. Such a program could do a lot to promote faster growth, while having hardly any downside.

So why isn’t the Fed doing it? Part of the answer may be political: Ideological opponents of government activism tend to be as critical of the Fed’s credit expansion as they are of the Obama administration’s fiscal stimulus. And this has probably made the Fed reluctant to use its powers to their fullest extent. Meanwhile, a significant number of Fed officials, especially at the regional banks, are obsessed with the fear of 1970s-style inflation, which they see lurking just around the bend even though there’s not a hint of it in the actual data.

Me: The Fed is going to get hammered if it starts clearing the balance sheet and raising rates while unemployment is still elevated. Expect more attacks by Congress like Barney Frank’s wish to depower the regional Fed presidents, kicking them off the FOMC. Yes, the Fed is getting his in Congress by this audit bill. But the worst is yet to come.

COMMENT

More reason to be short the dollar!

Posted by Johnba | Report as abusive

The case against Bernanke

Dec 4, 2009 18:33 UTC

Some self-incriminating evidence (Bernanke in his own words) supplied by David Leonhardt of the NYTimes:

* July 1, 2005 (responding to a CNBC question about whether there was a housing bubble and whether it could cause a recession): “It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

* May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

* July 18, 2007 (a month before the subprime mortgage market began having problems and five months before the recession began): “Employment should continue to expand. … The global economy continues to be strong. … Financial markets have remained supportive of economic growth.”

* Feb. 28, 2008: “Among the largest banks, the capital ratios remain good, and I don’t expect any serious problems … among the large, internationally active banks that make up a very substantial part of our banking system.”

* June 9, 2008 (six months into the recession and three months before the financial panic began): “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

* May 5, 2009: “Currently, we don’t think [the unemployment rate] will get to 10 percent.” (Five months later, the rate reached 10.2 percent.)

COMMENT

The truest words I have heard in weeks, gotthardbahn! Ever consider running for office? lol

The Bernanke Dilemma

Dec 3, 2009 18:45 UTC

BB’s effort to be the charming professor has failed. Only a  fifth of the public supports his renomination. It’s now almost gospel in the GOP (at least outside DC) that the Fed should be abolished. And Democrats are picking their spots for attacks, such as Dodd’s idea for a single regulator and Frank’s idea to neuter the regional bank presidents.

Certainly more transparency is needed. Among other things, Federal Open Market Committee minutes could be released days after a meeting rather than weeks. Like Jean-Claude Trichet, his European Central Bank counterpart, Bernanke could even hold press conferences right after FOMC meetings.Bernanke should also consider backing off the idea that the Fed should be the U.S.’s systemic risk über-regulator. He might win the case on the Fed’s credentials, but accumulating power while resisting accountability is a political loser. For Bernanke, a bit less authority might mean a lot more support in Washington and on Main Street.

If not, then expect a continued push for an audit bill along with other efforts to increase congressional influence.

COMMENT

Here is Ron Paul and Jim DeMint in the WSJ:”The Fed has also, for the past three decades, been required to engage in monetary policy with the goal of maintaining stable prices and full employment. Since the natural trend over time is for prices to decrease, a mandate to maintain stable prices is a mandate to pursue an expansionary monetary policy and inflate the money supply to counteract the lower prices we would expect from increased productivity.”http://online.wsj.com/arti cle/SB1000142405274870478230457454228097 1009044.htmlCentral banking is inherently unstable and supremely complex. It fails for the same reason as central planning failed in the Soviet Union. Abolish it and bring back free-market capitalism.

Posted by Austrian School | Report as abusive

Bernanke goes to Capitol Hill

Dec 2, 2009 20:19 UTC

The Bernanke confirmation hearing should be a great show, especially after BB’s “speaking truth to power” WaPo op-ed where he went all Michale Corleone on Fed critics: “Senator? You can have my answer now, if you like. My final offer is this: nothing. Not even the Fed audit bill, which I would appreciate if you would kill personally.”  Former Feddies are split on whether that was the right move or if he should have been more conciliatory ….

COMMENT

15 must-ask questions for Bernanke:http://cunningrealist.blogspot. com/2009/11/rewarding-failure.htmlhow about reading these verbatim in the hearing??

Posted by Michael | Report as abusive

Corker: Bernanke confirmation may not be a done deal

Dec 1, 2009 20:44 UTC

From The Hill:

Sen. Bob Corker (Tenn.), a GOP member of the banking committee holding hearing on Bernanke’s nomination to a second term in charge of the Fed, said he wasn’t sure yet whether the chairman had the votes on the Banking committee or in the Senate as a whole.

“I don’t know where that sits,” Corker told reporters when asked if Bernanke would have the votes to get a second term, adding he wasn’t sure whether Bernanke would have the votes in the 23-member Senate Banking Committee, either.

On gold and asset bubbles and inflation

Nov 17, 2009 18:56 UTC

The great David Goldman. First on the US asset bubble:

BOTH bond and stock prices are driven by the dollar. 17.5% unemployment by the broad measure keeps wages down and keeps the CPI low, despite the surge in commodity prices, while the cheap dollar makes US assets a bargain. Well, not exactly: the enormous reserve growth on the part of Asian central banks means that the Treasury’s debt-buying program has been outsourced to America’s Asian trading partners! No-one dares pop the bubble. It’s like what Woody Allen said about death. He wasn’t afraid of it; he just didn’t want to be there when it happened.

Now on gold:

What’s the price of the last ticket on last train out of Paris on the night the Germans march in? Whoever is carrying the most cash will get it, and that will be the price.  … As I have tried to show in several recent articles, most recently this Sept. 15 essay at Asia Times, gold is a hedge against the collapse of America’s central role in world affairs.

What is the correct price? Central banks alone own about 4.8 million tons of gold. The world produces about 2,200 tons. Suppose that central banks wished to increase their gold holdings by 1 percent. That’s 48,000 tons or so, or more than 20 times annual mining production. What’s the price elasicity on that sort of thing?  How badly do you need that ticket out of Paris? … If the whole world, including the Asian central banks, man the bucket brigade–except with kerosene in the buckets rather water–the prices of real assets are going to rise. The best real assets to hold are the ones most sensitive to the degradation of the dollar.

Who stabilized the U.S. economy, Obama or Bernanke?

Nov 17, 2009 14:15 UTC

Ed Yardeni votes for The Chairman, but now he thinks the Federal Reserve need to change course:

I believe that the Fed did in fact avert a financial meltdown and an economic depression by flooding the financial system with liquidity, and by lowering the federal funds rate to zero. I believe that all the efforts to deal with the financial crisis by the White House and Congress–including TARP, PPIP, and ARRA-were counterproductive and offset some of the effectiveness of the Fed’s responses. On PBS NewsHour last Friday, Sheila Bair, the level-headed head of the FDIC, said that TARP was a huge mistake: “I think at the time it sounded like the right thing to do…but I just see all the problems it’s created.” She implied that had she been consulted by Hank Paulson and Ben Bernanke, she would have tried to dissuade them from pursuing this approach.

I think that the Fed should raise the federal funds rate to 1.0% to demonstrate some confidence in the economic recovery. A zero rate was justified by the effort to avert a financial meltdown and a depression. Now it may be doing more harm than good.

COMMENT

What are you smoking? Our Economy is tubed and Obama and his cronies are throwing it lead weights.. Everything Obama is doing despite what he says is to tank our economy to usher in George Soro’s plans for a new world economy…

Posted by Ballistic45 | Report as abusive

Barney Frank’s wrongheaded assault on the Fed

Nov 3, 2009 18:20 UTC

When you’re a nation getting ready to borrow $10 trillion or more over the next decade, you don’t want markets questioning your central bank’s commitment to controlling inflation.

But Congress continues to risk just such a scenario, whether through aggressively questioning Federal Reserve Chairman Ben Bernanke or pushing a bill to audit Fed monetary policy.

Now Representative Barney Frank, the chairman of the House Financial Services Committee, has suggested curbing the authority of the 12 Fed regional bank presidents.

As Frank sees things, monetary policy should not be influenced by “inappropriately placed private businessmen — or women, occasionally — picked by other private businessmen, and occasionally women.”

Drill down a bit and it’s clear that what really bugs Frank is not so much that regional bank presidents are selected by a nine-person panel, six of whom are elected by bankers. He just thinks they’re too hawkish.

Frank even commissioned and publicized a study that found that 97 percent of the hawkish dissents at Federal Open Market Committee meetings during the past decade were from the regional bank presidents.

Of course, higher rates would have been a good thing, given that the Fed’s extraordinarily easy monetary policy was a huge contributor to the financial crisis. And going forward, the Fed will face the economically and politically challenging task of withdrawing monetary stimulus when economic growth may well be sluggish and unemployment high.

But such medicine may be necessary to prevent an inflation outbreak. Congressional threats and bullying will make a hard job even more arduous.

Moreover, one reason the Fed has a decentralized structure is because of historic concerns about monetary policy serving only Washington and Wall Street.

Yet citizen concerns about the concentration of financial power are as alive today as they were in 1913 at the Fed’s creation. Monetary policy set solely by a presidentially-appointed and Senate-confirmed Board of Governors should certainly set off alarm bells with bond vigilantes concerned that Washington may try to inflate its way out of its debt problems.

If Congress wants to look at how the Fed conducts its  business, better to focus on better ways to make monetary policy reflect forward-looking market gauges such as commodity prices rather than the unemployment rate or output.

Ultimately, though, the Fed’s problem isn’t too much influence from bankers in Kansas City or Atlanta or Chicago. It’s too much influence from politicians in Washington.

COMMENT

The Federal Reserve & its system of usury is the greatest scam in world financial history & I can’t understand why highly educated people & economists fail to see the bare truth for what it is. As an irony, not too far into the future, the common masses may well become more aware of what the Fed truly stands for, while educated MBAs continue to argue in vain.

Posted by Mike | Report as abusive
  •