RSS Feed MenuOn the eve of his reconfirmation vote, Senators are blasting away at Ben Bernanke. Barbara Boxer for example released this statement:
I have a lot of respect for Federal Reserve Chairman Ben Bernanke. When the financial crisis hit in late 2008, he took some important steps to prevent what many economists believe could have been an even greater economic catastrophe.
However, it is time for a change — it is time for Main Street to have a champion at the Fed. Dr. Bernanke played a lead role in crafting the Bush administration’s economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past.
This kind of talk is wrongheaded and irresponsible. The Fed exists to protect the value of the currency, alike from inflation and from deflation. Main Street shares that priority as much as any other interest group in American life. To imply that Bernanke’s work to rescue the American economy was done at the behest of or for the benefit of something other than “Main Street” is a slur, and one especially unbecoming from senators who welcomed and championed the loose mortgage lending standards that generated the crisis.
Boxer of course is up for re-election in 2010. Never very popular, she may now be vulnerable. She is obviously seeking a self-protecting scapegoat upon whom she can divert her constituents’ anger: protecting herself by offering up an almost randomly designated victim; revving up the liberal base by playing on the most primitive instincts in their collective brain, “banking = bad.”
The ironic effect of Boxer’s exploitive language will be to strengthen Bernanke’s position. Over the next days, he will involve into something much more than a central banker who did a more or less good job. Bernanke will become a symbol of the independence and non-politicization of the currency against blatantly two-faced congresspersons who themselves led the demand for ever looser lending standards during the good times. The conventional and respectable will rally to him: Having lost Boxer, he’ll gain Feinstein.
As the sides took shape, the country will be denied something it badly needs: a non-self-serving, non-excuse-seeking debate over whether we have yet found the right monetary policies to lead the country out of the crisis. Some intelligent economists think that money remains still not loose enough. Why should that debate be sealed inside the Fed halls? Without casting recriminations over the management of the crisis, we do need a reckoning with the decisions made in 2008. Were the right calls made? Was anything done that should have been left undone, anything neglected that still might be done now?
WIth his job on the line, Bernanke will be more likely to see it as a question of principle NOT to answer such questions. If Fed chairmen believe anything, it is that Congress must never ever be admitted to a role in the setting of monetary policy. He’d rather lose his job than play politics with Boxer. Which is why the right course is to decide: Yes, we’ll confirm you – tomorrow. But we want some answers today. Yes we’ll respect your independence – but we are entitled to more information.
balconesfault // Jan 23, 2010 at 1:32 am
The problem with Bernanke is that he is tainted by being part of the bubble-promoting Greenspan cheap money policy of the 00’s that helped move the total income of the top 10% of the nation from 78 times that of the bottom 10% of the nation to 324 times over the course of Bush’s 8 years in office. I’m not sure he could have done anything to reverse the conditions before the bubble burst … had he even signaled he intended to, no doubt he ‘d have never been nominated by Bush … but we keep hearing calls for accountability. And Bernanke willingly let himself be coopted into a bad system. Perhaps it is time for him to go.
joemarier // Jan 23, 2010 at 8:43 am
Of course, the Fed is not simply responsible for protecting the value of the currency. It is also given the responsibility for ensuring full employment, and that would be the basis of Boxer’s complaint. Considering the fact that what remains of Wall Street is recovering nicely BUT the unemployment situation has severely worsened, it’s a valid one. If I were running against her, I wouldn’t criticize her too severely for her vote; there’s no point complaining against populism when you have to get the voting population on your side in a few short months.
That being said, Fed actions would do no good for California unemployment if the public sector union contracts are pegged to inflation, anyway. It would just preserve the second-class status of the private sector in California.
sinz54 // Jan 23, 2010 at 9:57 am
balconesfault: The problem with Bernanke is that he is tainted by being part of the bubble-promoting Greenspan cheap money policy of the 00’s
I think you mean the bubble-promoting policy of the 1990s.
By 2001, the nation was already reeling from a bear market caused by the collapse of the “dot.com” bubble. And then the 9-11 attack looked to drive us into a deep recession, as airline travel fell 25% and there were numerous bankruptcies among auto rental car companies, travel agencies, hotels, etc.
In fairness to Greenspan, reflation was the only way to get us out of that hole.
The problem wasn’t reflation alone. It was that combined with loose lending standards and the total deregulation of the financial industry. If Glass-Steagall hadn’t been repealed, and the Commodity Futures Modernization Act (which created the Credit Default Swap market) hadn’t passed, the economic collapse of 2008 would not have happened, loose money policies notwithstanding.
We’ve had loose money policies numerous times in the past to get us out of recessions: 1973-74, 1982, etc. But we didn’t have an economic collapse. That’s because we didn’t have things like THIS back then:
http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000
oldgal // Jan 23, 2010 at 10:07 am
“Boxer of course is up for re-election in 2010. Never very popular, she may now be vulnerable.” If the Republicans run a pragmatic moderate Republican they have a shot at this seat. Carly Fiorina is not the answer – she is seen as the incompetent manager who almost ruined HP.
balconesfault // Jan 23, 2010 at 11:23 am
I think you mean the bubble-promoting policy of the 1990s.
The average fed rate from 1993-2000 was 5.05
The average fed rate from 2001-2008 was 2.90
No – as far as the Fed was concerned – I meant the bubble-promoting cheap money policy of the 1990s.
By 2001, the nation was already reeling from a bear market caused by the collapse of the “dot.com” bubble.
You mean January 2001, when the unemployment rate was 4.2%, having increased by a whole 0.2% in the previous 12 months (as opposed to January 2009, when unemployment was 7.7%, having gone up by 2.8% in 12 months)
And then the 9-11 attack looked to drive us into a deep recession, as airline travel fell 25% and there were numerous bankruptcies among auto rental car companies, travel agencies, hotels, etc.
Really? Auto rental companies, travel agencies (who are all disappearing thanks to the internet anyway), hotels, etc?
We’ve had loose money policies numerous times in the past to get us out of recessions
Yes … but we didn’t have a recession to get out of. We had a desire to pump up the economy in order to cover for the massive fall in federal revenues that would have resulted from Bush’s tax cuts without the cheap money flooding the system.
balconesfault // Jan 23, 2010 at 11:25 am
No – as far as the Fed was concerned – I meant the bubble-promoting cheap money policy of the 1990s.
Ooops … of the 00’s. Damn lack of edit function!
James Cody // Jan 23, 2010 at 12:33 pm
“The Fed exists to protect the value of the currency, alike from inflation and from deflation…To imply that Bernanke’s work to rescue the American economy was done at the behest of or for the benefit of something other than “Main Street” is a slur.”
The first sentence, at least, is incorrect. The Fed has a dual mandate, the second one being full employment. My guess is that’s what Boxer was referring to when talking about Main Street: she was making the same criticism that many have made, which is that Bernanke (and Greenspan before him and the Fed in general) focuses primarily on inflation and does not give equal concern to the level of unemployment. I actually disagree with this position: I believe the Fed let’s unemployment go as low as it can before inflation becomes a concern, and hence appropriately balances the dual mandate. But the contrary conclusion is reasonable; for example, it’s reasonable to say that the inflation target should be 3%, not 2%, and 2% simply over-focuses on inflation concerns at the expense of full employment.
What is unbelievable, however, is that Frum is so ignorant that he doesn’t know about the Fed’s dual mandate and thinks the Fed’s only concern — its reason for existence — is the value of the currency. I think that’s why he went so wrong in his attack of Boxer: since he didn’t know about the full employment mandate, he thought the Main Street reference must be an accusation that Bernanke favors Wall Street interests, and Frum didn’t understand that the Main Street reference might instead be a charge that Bernanke has ignored his full employment mandate.
Now, maybe I’m wrong and Boxer really was alleging that Bernanke favors Wall Street over regular Americans. But what is certain is that Frum is entirely ignorant about the role of the Fed because he thinks the Fed’s job is only about the value of the currency. I mean, the dual mandate is written in black and white in a statute, for crying out loud.
JonF // Jan 24, 2010 at 8:23 am
Sinz54: We were not in a “deep” recession in 2001. It was a very mild downturn.
The one big question is why we did not recover from it normally. By that I mean, why was it that only real estate had a true recovery? The rest of the private sector never really did get going again. Why no non-real estate expansion later in the decade? In every other recivery real estate starts the process (fueled by low intetest rates), but then the rest of the private sector starts revving up too and things balance out. That’s the key question that we need to answer to figure out what happened and why our economy in such deep trouble now.
Mandos // Jan 24, 2010 at 12:45 pm
WIth his job on the line, Bernanke will be more likely to see it as a question of principle NOT to answer such questions. If Fed chairmen believe anything, it is that Congress must never ever be admitted to a role in the setting of monetary policy. He’d rather lose his job than play politics with Boxer. Which is why the right course is to decide: Yes, we’ll confirm you – tomorrow. But we want some answers today. Yes we’ll respect your independence – but we are entitled to more information.
What sudden, convenient contempt for democracy. Once he knows he is going to be confirmed, he loses all incentive to be straight with The People. If the Fed Chairman has so much power, he should be elected in a national vote.
James Cody // Jan 24, 2010 at 3:01 pm
“What sudden, convenient contempt for democracy. Once he knows he is going to be confirmed, he loses all incentive to be straight with The People. If the Fed Chairman has so much power, he should be elected in a national vote.”
Heh. The second the Fed Chairman is elected by national vote, you can kiss our democracy goodbye. The Fed is the last institution that defends our democracy against itself.
I know, I know. A bunch of you will go all rabble-rousing, self-congratulating populist about what an elitist I am or some other nonsense. I’ll let such bafoons pat themselves on their backs for being men of the people, while I deal with reality rather than poseur wishful thinking.
balconesfault // Jan 24, 2010 at 5:05 pm
By that I mean, why was it that only real estate had a true recovery?
Because much of that “recovery” was pure speculation that the price of real estate would always increase, in combination with people’s natural desire to want to live in as nice a place as someone will allow them to live in.
People don’t speculate that cars will always go up in value – so people weren’t overbuying cars to fuel a boom in the auto industry. People don’t speculate that food will go up in value, or that textiles will go up in value – and people now KNOW that their computers will be cheaper tomorrow than they are today.
But the idea that whatever home someone bought today they could sell for the asking price plus X in the future helped everyone become real estate speculators in the “ownership society”.
Mandos // Jan 24, 2010 at 9:10 pm
Heh. The second the Fed Chairman is elected by national vote, you can kiss our democracy goodbye. The Fed is the last institution that defends our democracy against itself.
I know, I know. A bunch of you will go all rabble-rousing, self-congratulating populist about what an elitist I am or some other nonsense. I’ll let such bafoons pat themselves on their backs for being men of the people, while I deal with reality rather than poseur wishful thinking.
The Fed corrodes democracy. Employment affects everyone, and policies that affect everyone are policies in which everyone ought to have a say.