Bernanke's successor gets leeway
The most interesting thing about the Federal Reserve Board's Open Market Committee meeting last week was not the widely expected announcement that it would keep interest rates low amidst signs of an improving economy. Rather, it was the vagueness of the committee's statement saying the Fed would hold interest rates low for an extended, indefinite period and tighten or loosen its monetary actions.
All that leeway suggests the Fed might be ensuring options are left open for a successor to Ben Bernanke, who likely won't seek reappointment as Fed chairman.
Potential candidates for replacing Bernanke include Fed board vice chairman Janet L. Yellen, former Fed board vice chairmen Alan S. Blinder, a Princeton professor, and Roger W. Ferguson Jr., who served under Presidents Clinton and Bush and is CEO of the Teachers Insurance and Annuity Association-College Retirement Equities Fund; and former Treasury Secretaries Timothy Geithner, who served from 2009 until January and is a distinguished fellow at the Council on Foreign Relations, and Lawrence H. Summers, who served from 1999 to 2001 and is current Harvard University president emeritus.
Yellen seems the most likely replacement if Bernanke steps down as expected.
Under well-known former Chairman Alan Greenspan and his successor Bernanke, the Fed has tried repeatedly to inspire business confidence by means of asset booms. But these “wealth effects” were financed not by savings but by the printing of more and more synthetic money. Continuation of this path risks eventual monetary collapse, yet pulling out now would not be without damage to the stock market and currency.
“At some point, there's a levitational problem,” said Nouriel Roubini, a respected New York University economics professor. When things come back to Earth, he said, the economy will suffer depression rather than a recession.
The Fed's ultra loose monetary policies under Bernanke led noted economist Ralph Benko to comment in Forbes: “Whether one supports it or opposes it, the gold standard no longer is seen by most serious thinkers as fringe.”
The attitude of the Fed's next chairman in dealing with these issues will be critical.
Not surprisingly, all five potential candidates are Keynesian monetary stimulators. Yellen, probably the most enthusiastic, studied at Yale University under professor James Tobin, who believed strongly that governments could mitigate recessions. Yellen and her husband, George Akerlof, worked together at the University of California at Berkley to highlight flaws in the economic theory that free markets operate efficiently and that governments are costly.
Like the other potential contenders, Yellen is a leading protagonist of central banking control. She believes fervently that a few theorists can fix the price of money better than the millions of active participants in the national and international markets.
These thoughts represent levels of academic arrogance that are hard to accept, particularly in light of the evidence.
John Browne, a former member of Britain's Parliament, is financial and economics columnist for Trib Total Media. Email him at firstname.lastname@example.org.