Posted on 02/04/2008 4:19:34 PM PST by TigerLikesRooster
February 5, 2008
The future may be bleak for Ben Bernanke
Gerard Baker: American view
Last week, in a rare sign that wise counsel can still prevail over political expediency, Mervyn King was reappointed Governor of the Bank of England. Unpleasant noises had been emerging from Downing Street as his reappointment was being considered over the past few months, but Mr King's evident mis-steps in the Northern Rock affair should never have been enough to counterbalance the remarkable contribution he has made to the performance of the British economy in the past decade.
As deputy governor and then as Governor, Mr King led the Bank through the first decade of its monetary policy independence. It was especially encouraging that in these difficult political circumstances for the Prime Minister and Chancellor, and at a time when central bank independence is not quite as popular as it was a few years ago, that they bit the bullet and reappointed him.
In the United States, as Mr King was celebrating a new lease, Ben Bernanke, his counterpart at the Federal Reserve, was marking the halfway point in his first term as Chairman. Mr Bernanke, a moderate Republican, was appointed to the job by President Bush and took office on February 1, 2006. His term expires in two years, but his prospects of getting another may be considerably dimmer than Mr King's.
Like Mr King, Mr Bernanke has come in for some stinging criticism in the past few months. The Wall Street crowd thinks that he has been “behind the curve” in cutting interest rates. Inflation hawks think that he is to blame for the weak dollar and rising prices. A growing number of critics point to his role as a Fed governor in the explosion of dodgy mortgage lending in the boom years of the housing market. Even his strongest supporters in the economics profession were baffled by some of his recent decisions, including the emergency 75-basis-point cut in the Fed funds rate two weeks ago.
Unfortunately for Mr Bernanke, Mr Bush will be gone when the time comes to decide whether to reappoint him. Alan Greenspan, his predecessor as chairman, demonstrated such remarkable deftness of political touch that he got himself reappointed by a Republican (President Bush Sr) then twice by a Democrat (President Clinton), then by another Republican (Mr Bush Jr).
It is unlikely that Mr Bernanke - more diffident, much less well politically connected than Mr Greenspan - will be able to move quite as smoothly.
His best chance of staying on will be, presumably, if a Republican wins the presidency in November. It now seems more or less certain (and could become just about conclusive after today's Super Tuesday primaries) that John McCain, the Arizona senator, will be the Republican candidate for president.
Mr McCain has not sounded very enthusiastic about Mr Bernanke. In an interview with The New York Times last month, he was asked if he thought Mr Bernanke had handled his job well. “Depending on the depth of this crisis that we're in, we'll find out whether he acted soon enough and whether he acted appropriately enough,” Mr McCain said. “I don't think it's clear yet.”
Mr McCain has surrounded himself with some serious economists. His principal campaign adviser has been Douglas Holtz-Eakin, a quietly effective former senior economist at the White House and on Capitol Hill, has been careful to observe the rule that you don't say anything controversial about Fed policy in an election campaign.
But Mr McCain is also likely to lean heavily on some big hitters, such as Phil Gramm, the former Texas senator and likely Treasury Secretary in a McCain administration, who is a fervent believer in supply-side economics and may not see eye to eye with Mr Bernanke. Another McCain ally is Jack Kemp, a former congressman who has been harshly critical of Fed policy. One of Mr McCain's academic economic advisers is John Taylor, the monetary economist, who literally wrote the book on central banking.
So Mr McCain, who seems sceptical about Mr Bernanke's performance, has no shortage of potential alternatives. And if a Democrat wins in November - which seems most likely - you would have to guess that Mr Bernanke is even less likely to keep his job.
Mr Greenspan was lucky that his job came up for reappointment in 1996 - right at the end of Mr Clinton's first term. Over three years he had a chance to establish a relationship with the new president and helped to convert him to the virtues of fiscal prudence.
By 1996 the American economy was thriving.
The next president will have to decide on Mr Bernanke within about nine months of taking office. There will be no shortage of hungry Democratic alternatives. Roger Altman, a former Treasury official and Wall Street investment banker, is Hillary Clinton's adviser. Larry Summers, former Treasury Secretary, might also still harbour ambitions - though his ignominious departure from Harvard University after his supposedly disparaging remarks about the intellectual abilities of women may have damaged his prospects - especially with Mrs Clinton. In fact, there will be a long line of academic monetary economists, former Fed officials and Wall Street types available should either Mrs Clinton or Barack Obama come calling.
Of course, mostly it will depend on how well Mr Bernanke is seen to perform in the next year or so.
If the US avoids a nasty recession and the Fed's actions these past few months come to look both bold and wise, then he may overcome the odds. If not, he will probably find himself, like millions of his fellow Americans, looking for a new job.
If I remember correctly, Phil Gramm was a big advocate for open border policy, and tangled up with Enron scandal.
On another note, I don't think it is bad for Bernanke to step aside sooner than later. I think nobody can fundamentally reverse the current situation. Why stay around and become a convenient scapegoat?
His wife got tangled in the Eron not Gramm himself.
This is an interesting tribute to him in National Review.
http://www.nationalreview.com/comment/comment-nadler090501.shtml
Greenspan dropped the load in his lap. He hasn’t done bad at all. Especially when you consider Greenspan actively campaigning against him to help secure his own personal legacy.
bernanke was a pretty bad pick. Greenspan also made mistakes but times were good when he acted like a supply sider.
We need Steve Forbes...I’m not saying he should actually run the system but he would know who to put up there.
Ping!
Mr Bernanke has come in for some stinging criticism in the past few months
Of course. It's an election year. The Dems and MSM have succeeded in steering the news from Iraq to the economy. No surprise that one of their targets will be Bernanke for some months to come.
We’re in a pretty big mess right now. Monetary policy is the real problem which caused the subprime meltdown and the high price of oil. It won’t be fixed by tax cuts or other legislative efforts.
You don’t want Ron Paul either because he would shrink the economy big time.
Ben has been much maligned, but in several months when the markets are back at record levels and the economy is still growing, Ben will be the toast of the town.
True enough, but Bernanke did invert the yield curve like all central bankers do, but shouldn't. Bernanke said it was irrelevant. He was wrong. Bernanke also said subprime was contained, and he was wrong about that, too. As far as being behind the curve, that's a common trait of all central bankers.
Greenspan is an attention whore. He should shut his mouth and retire with grace.
Yep, Alan needs to put a sock in it. It was on his watch when all these bad sub-prime loans were being made and Alan did nothing to curb overheated housing market.
they both messed up. Greenspan was doing pretty good until the mid 90’s
the basic basic problem is the same as in all command economies. You either get too much or too little when the government or fed decides for the market.
I think the dividing line would be his “ irrational exuberation speech.” Up to that point, he was doing fine. After that, he went to the “dark side.”:-)
Ben’s biggest problem is he delayed needed rate cuts hoping other things would work. He wanted the Treasury’s bailout plan to save the subprime crisis, so he only cut 1/4 point in December instead of 1/2. Then in January, he was hoping the ‘stimulus’ package would save the economy so he delayed cutting until the market was on the verge on a huge crisis. In both cases he was wrong, and the markets were not impressed. But at least I think he has finally rectified it with 1.25 point cut in a week. If he was a little more proactive, he would not of had to be that aggressive.
Self serving Fed Chairmen should be liable for prosecution.
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