The New Ben Bernanke Era at the Fed

Discussion in 'Economics' started by SouthAmerica, Nov 16, 2005.

  1. .

    November 16, 2005

    SouthAmerica: Ben Bernanke was not my first choice to be the new Fed Chairman, but among the people who were the main candidates for the job - he might be the best one.

    I hope he will keep in touch with Paul Krugman, and listen to what he has to say regarding economic and monetary policy.

    Ben Bernanke hired Paul Krugman at Princeton University – that might give you a clue that he respects Paul Krugman’s opinions.

    Paul Krugman is one of the few economists that I enjoy reading his writings on a regular basis.

    I hope that Ben Bernanke will honor his pledge after his confirmation as Fed Chairman: "If I am confirmed, I will be strictly independent of all political influences and will be guided solely by the Federal Reserve's mandate from Congress and by the public interest," Bernanke said.

    I also hope that he has the guts to say to everyone in Washington that “tax cuts” are not acceptable when the country is in the middle of a war, and is running a humongous budget deficit year after year.


    “Bernanke Expected to Gain Senate Approval”
    Ben Bernanke Expected to Gain Swift Senate Approval to Be Next Fed Chairman
    By MARTIN CRUTSINGER AP Economics Writer
    AP – Associated Press – November 16, 2005

    WASHINGTON Nov 16, 2005 — Ben Bernanke used his Senate confirmation hearing to address doubts about his abilities to take over as chairman of the Federal Reserve from economic legend Alan Greenspan.

    From the reaction of the senators, he succeeded.

    For those in financial markets who worried that his previous writings made him sound too dovish about fighting inflation, he pledged that battle would be a top priority.

    For those Democrats who fretted that his support of establishing numerical targets for inflation made him too hawkish on inflation, Bernanke promised to follow the central bank's dual mandates of seeking low inflation and high employment.

    And for those who believed that his current job as President Bush's chief economist would make him too politically tied to the current administration, he vowed to uphold the Fed's long-standing independence.

    "If I am confirmed, I will be strictly independent of all political influences and will be guided solely by the Federal Reserve's mandate from Congress and by the public interest," Bernanke said.

    At the end of the three-hour hearing, Banking Committee Chairman Richard Shelby, R-Ala., told Bernanke he planned to move the nomination "as soon as possible."

    The goal is to get Bernanke confirmed so that he will be ready to step in when Greenspan's 18-year tenure as chairman ends Jan. 31.

    Bernanke would take over at the Fed after serving since June as chairman of Bush's Council of Economic Advisers. Before that, he had served for three years on the Fed board after a long career as a professor at Princeton specializing in the study of how central banks operate.

    Private economists said Bernanke's performance Tuesday confirmed their belief that his selection was the economic equivalent of Bush's pick of the widely respected John Roberts to be chief justice of the Supreme Court.

    "He gave a bravura performance. For people who wondered about his political skills, he certainly answered those questions today," said Lyle Gramley, a former Fed board member.

  2. .

    November 21, 2005

    SouthAmerica: The New York Times published a column by Alan S. Binder on November 20, 2005 – Are the Fed Fights Over? (He was a Princeton University professor and a member of the Fed Reserve Board)

    He mentioned on his article "that when Paul Volcker had his confirmation hearing in July 1987 The New York Times run a front page article on what was said. Eight years later, the article on Mr. Greenspan’s confirmation hearing appeared on the first page of the Business section – Mr. Bernanke’s hearing was on Page 4 of the Business section.

    Volker’s policies had a major impact to reduce run away inflation. In 1987, inflation had been under control for several years, and interest rates had barely changed for the last 15 months."

    Today, Ben Bernanke does not have a choice – he has to continue increasing interest rates in the United States – otherwise we will have a US dollar sinking like the “Titanic.”

    The US government still will run massive budget deficits in the near future, and Mr. Bernanke will keep increasing the interest rate level.

    The reality is Mr. Bernanke is inheriting a big mess from the Mr. Greenspan’s years: regarding the US economy and also the US government balance sheet.

    Mr. Bernanke has not much room to play when he takes over as Fed Chairman in January – other than keep increasing interest rates in the US – it will not be a pretty sight because it will turn into a catch-22.

    The lesson will be that eventually the pile of debt that the US government has been accumulating for many years - will give you lots of trouble in the future and will come back to bite you and it will be very harmful to the US economy.

  3. .

    January 31, 2006

    SouthAmerica: Maybe Ben Bernanke was chosen as the new Fed Chairman because of his expertise regarding the “Great Depression”.

    Is it possible that we are in the eve of another “Great Depression”?

    I would not rule it completely out – a global economic depression can happen at any time – the global economy is away overdue for another great depression – that is when the economic reality catches up with what people think is going on.

    Quoting from the article below:

    The economic era that Bernanke talked about most, the period that has occupied him academically for nearly 30 years, is the Great Depression.

    "To understand the Great Depression is the Holy Grail of macroeconomics," he wrote in a 1995 essay, calling it "a fascinating intellectual challenge."


    Los Angeles Times – January 31, 2006
    “Markets Could Test New Fed Chairman”
    By David Streitfeld, Times Staff Writer

    A new chairman of the Federal Reserve comes along about as often as a new pope, but the transition this week from Alan Greenspan to Ben Shalom Bernanke is remarkably devoid of ceremony.

    The Senate is expected to approve Bernanke's nomination today by an overwhelming margin. By Wednesday morning, Greenspan will have packed up the mementoes from his 18 1/2 -year reign and Bernanke will move into his office.

    Bernanke's parents are staying home in North Carolina because their son has told them there's nothing to see. They don't plan on being glued to the TV either. "We have a class at the synagogue," Edna Bernanke said. "We'll put a tape in the VCR and see if we caught something when we come home."

    If the changeover is low-key, that's partly because nearly everyone seems to agree that this level-headed, collegial academic is a worthy successor to the much-lauded Greenspan.

    Yet if the 52-year-old Bernanke is as qualified as anybody to serve as the 14th Fed chairman, with responsibility for keeping inflation in check while helping the world's largest economy continue to grow, there is a good deal of uncertainty about how he will act at a moment when the economy is entering a delicate phase.

    "Everybody says that they like the Bernanke appointment, but when asked why, they offer every possible combination of reasons, most of them in conflict with each other," said James Bianco, an analyst with Arbor Research. "They like him because he's going to stop raising rates, or they like him because he's not going to stop. They like him because he uses rules to target inflation or because he's pragmatic. He's bold, he's timid. He's all things to all men."

    Bianco's conclusion: "A lot of people who made assumptions about what he's going to do are going to be surprised."

    The markets have a way of testing a new Fed chairman, just as a dog tests a leash. Shortly after Greenspan took office, the stock market crashed. On Oct. 19, 1987, known as Black Monday, the Dow Jones industrial average lost nearly a quarter of its value, a greater loss than in the Black Friday crash of 1929.

    What seemed at the time to be the beginning of another Great Depression proved a relatively minor event, thanks to Fed actions to ease credit conditions. For that, Greenspan got the praise.

    Economists who have known Bernanke a long time say they're sure he will be tested too, probably soon.

    "Clearly he's going to have to earn his spurs," said Columbia Business School professor Frederic Mishkin.

    But Bernanke has advantages that Greenspan didn't have in 1987, Mishkin said. For one thing, as a former member of the Fed board, Bernanke's not coming into the institution cold.

    For another, "the credibility of the Fed is very high. The need for someone to be a maestro is not as important as it was 20 years ago," Mishkin said.

    Bernanke is pledging "continuity" with Greenspan, which presumably means that he'll raise interest rates if necessary to restrain inflation. But he also plans to be quieter than his predecessor, avoiding commentary on matters such as taxes that are external to the Fed.

    Such reticence comes naturally to this academic. "He's a keep-it-to-himself kind of guy," said Andrew Abel, a University of Pennsylvania economist and coauthor with Bernanke of an economics textbook.

    Abel and other friends and colleagues say they never knew Bernanke's politics until he went to work for the White House as chairman of the Council of Economic Advisors last June.

    "Some people are inclined to talk about politics and religion, and he was inclined to talk about neither," said Mark Gertler, chairman of the economics department at New York University. "He talked about economics and sports."

    The economic era that Bernanke talked about most, the period that has occupied him academically for nearly 30 years, is the Great Depression.

    "To understand the Great Depression is the Holy Grail of macroeconomics," he wrote in a 1995 essay, calling it "a fascinating intellectual challenge."

    It's a quest that took root when Bernanke was a child in Dillon, S.C., in the 1950s. None of his grandparents suffered unduly in the Depression — his father's father was a pharmacist in New York, his mother's father a schoolteacher in Connecticut. In a period when many had nothing, they could put food on the table.

    Somewhere, though, an interest was sparked in young Ben. Edna Bernanke remembers him questioning his grandmother, Marsha Friedman, about the devastating effect the Depression had on families and communities.

    "He got more interested when he went to college," Edna Bernanke said. "He was majoring in math, but that didn't have soul in it. He said economics is math with soul."

    Kenneth Manning, a native of Dillon who went to Harvard University a few years before Bernanke, became a sounding board for the young man.

    "He was fascinated by economics. It had to do with the real world; it wasn't just a theory," said Manning, now a professor at the Massachusetts Institute of Technology.

    Real people live in the real world, and their fears and hopes play a role in economics. Manning remembers once expressing to Bernanke his fears about having a mortgage — all that debt could ruin a man.

    "I may have been totally out to lunch, but he didn't make me feel that way," Manning said. "It was a sympathetic projection on his part."

    Bernanke could have had other careers. He was bright — he received near-perfect scores on his SATs — but he did much more than study during his childhood in Dillon. He played saxophone in the school band, wrote a novel about school integration, taught himself calculus, played basketball and helped his father at the family pharmacy.

    Dillon, near the North Carolina border, had no movie theaters, which means that Bernanke didn't see "The Sound of Music" when it came out in 1965. That meant he had never heard "Edelweiss," one of the movie's popular songs, which meant he had no idea how to spell the Alpine flower when asked to do so in the final rounds of the 1965 national spelling bee. He placed 26th.

    In the four decades since that disappointment, Bernanke's life seems to have skirted any public drama. He was not a rebel at Harvard, unlike many students of that era. As a new instructor at Stanford University in 1979, he shared a house with his wife, Anna, and two other economists. Gertler, one of the housemates, said it wasn't exactly "Animal House."

    "It was pretty boring," he said, at least for those seeking sensationalism. "Most of what we talked about was economics."

    Bernanke taught at Stanford until 1985, when he moved to Princeton. He became chairman of the university's economics department, usually a thankless job at any school.

    By all accounts, however, Bernanke was extremely good at it. He built consensus for department moves, a skill he is likely to employ at the Fed as well. Greenspan, for all his brilliance, tended toward the autocratic.

    Robert Frank, a Cornell University professor and coauthor of an economics textbook with Bernanke, said his co-writer had "a huge ego, obviously. You don't do what he's done without an incredible inner drive. It's a matter of presentation. He's very easy to work with."

    That confidence, along with Bernanke's much-cited brains, could come in handy. Frank believes there's a good chance the new Fed chairman is going to confront "some bad stuff," such as a currency run or a market meltdown.

    "Wouldn't you want the guy who knows more about this sort of thing than anyone to be running the Fed then?" Frank said. "I would."


    Ben S. Bernanke

    Born: Dec. 13, 1953, in Augusta, Ga.

    Education: Bachelor's degree in economics, 1975, Harvard University; doctorate in economics, 1979, Massachusetts Institute of Technology.

    Experience: June 2005-present, chairman, President's Council of Economic Advisors; 2002-05, member, the Board of Governors of the Federal Reserve System; 1996-2002, professor and chairman of the Economics Department at Princeton University; 1985-2002, economics professor, Princeton University.

    Family: Wife, Anna, and two children.

    Quote: "If I'm confirmed to this position, my first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years." — Oct. 24, 2005, when President Bush nominated Bernanke

    Source: Associated Press

  4. TGregg


    From a deleted thread:
  5. .

    January 31, 2006

    SouthAmerica: The above was the content of the deleted thread but,

    The title of that deleted thread is:

    Fed Chairman - Today there is only one "Legend".

    I guess the manager of this board did not like the title of the thread or he did not agree with the title - could it be that he considers Alan Greenspan to be also a "Legend"?

    The reality is: current Fed Chairman "Legend" there is only one - Paul Volcker.

    Many years from now, potential candidate to be considered also as a Fed Chairman "Legend" - Alan Greenspan.


  6. .

    January 31, 2006

    SouthAmerica: Quoting info from Yahoo Finance - NEWS AT A GLANCE –
    Tuesday, January 31, 2006

    “A nervous farewell”

    Federal Reserve officials are expected to raise short-term interest rates for the 14th consecutive time today in their last meeting under Alan Greenspan. His successor, Ben Bernanke, should sail through Senate confirmation and take over as Fed chairman tomorrow.

    Bernanke will be put to the test right away. With economic growth cooling, the former Fed governor must decide whether to push rates higher and risk squeezing the real-estate market, or hold rates firm and risk letting inflation creep up.


    SouthAmerica: Ben Bernanke will be forced to push the Fed Funds rate at least to 5 percent – at that point he will have to make up his mind what to do next.

    But I bet we will see the fed funds rate at 5 percent in the coming months in 2006 – I have no doubts about that - unless we have a major terrorist attack inside the US – that would change the entire ball game.

  7. .

    January 31, 2006

    SouthAmerica: Info from Yahoo Finance


    “Facts About Previous Fed Chairmen”
    By The Associated Press

    Facts About Some Federal Reserve Chairmen

    The Federal Reserve was created in 1913. When Ben Bernanke takes over he will become the 14th chairman of the central bank. Here are facts about some predecessors:

    WILLIAM McCHESNEY MARTIN: The longest-serving Fed chairman at 18 years, nine months and 29 days. He was selected by Harry Truman and also served under Presidents Eisenhower, Kennedy, Johnson and Nixon from April 2, 1951 to Jan. 31, 1970. Regarded as the creator of the modern Fed, Martin said it was the job of the central bank "to take away the punch bowl just when the party gets going."

    ALAN GREENSPAN: Second-longest-serving Fed chairman at 18 years, five months and 20 days. He was selected by President Reagan and also served under Presidents George H.W. Bush, Clinton and George W. Bush from Aug. 11, 1987, to Jan. 31, 2006. Greenspan made the Fed a more open institution and pursued policies that produced low inflation, low unemployment and the nation's longest economic expansion.

    MARRINER S. ECCLES: Third in longevity as Fed chairman at 13 years, two months and 16 days. He was chosen by President Franklin D. Roosevelt and served as chairman from Nov. 15, 1934 to Jan. 31, 1948. Roosevelt had been impressed with the skill Eccles displayed in helping draft the law that revamped Fed operations following the 1929 stock market crash and the start of the Great Depression.

    PAUL VOLCKER: Served for eight years from Aug. 6, 1979, until Aug. 11, 1987. He was picked by President Carter and renominated by Reagan. Volcker pushed interest rates to the highest levels since the Civil War in a successful campaign to end a decade-long bout of high inflation.

  8. .

    January 31, 2006

    SouthAmerica: Ben Bernake’s first day on the job as chairman of the Federal Reserve Board will be tomorrow - February 1, 2006.

    But a more appropriate date for this change based on the mess that Alan Greenspan is leaving behind – should have been April 1 (April Fool’s Day).