The New Fed Chief
By Erick Posted in Breaking News — Comments (24) / Email this page » / Leave a comment »
The Washington Prowler is reporting that Ben Bernanke is most likely the next Federal Reserve Chairman.
Update [2005-10-24 14:13:25 by Adam C]:
Ben Bernanke was an unsurprising choice by the President. Let's take a look at the man who will replace The Economist. Mr. Bernanke is distinguished as a well regarded Professor at a top university (Princeton), a former Federal Reserve Governor, and most recently as the Chair of the Council of Economic Advisors for President George W. Bush.
The major issues that have Mr. Bernanke's name stamped on them while he was at the Federal Reserve include a vigor in fighting the threat of deflation and leading the "too much world savings" camp. This viewpoint is gaining adherents, including The Economist:
Trade deficits have continued to soar even as budget deficits have come down, which tends to support a theory advanced by Ben Bernanke, the chairman of Mr Bush’s Council of Economic Advisers. He has suggested that a global savings glut is flooding America with cheap money, and that the government deficits may in large part have been mopping up surplus capital that would otherwise have been borrowed by America’s already debt-ridden consumers.
He also has advocated for an inflation target (differing with Mr. Greenspan on this issue) and pushed for more openness about the Fed's decision making process (which Mr. Greenspan has pushed as well).
Following Mr. Bernanke to the White House, here is his most recent Outlook for the Economy and for Policy Report from September 2005. It mostly focuses on the effects of Katrina, but also provides a feeling for Mr. Bernanke's view on economic policy that is unrelated to monetary issues.
For the longer term—I am speaking now of the outlook over the next few decades—budget discipline will require controlling entitlement spending, notably spending on Social Security and Medicare. The President has called for reforms to Social Security to make it permanently solvent, to do so in a progressive manner that will keep the system an effective safety net for lower-income retirees, and to give all workers, including low-income workers, the opportunity to build retirement wealth by investing a portion of their payroll taxes in voluntary personal accounts.
This sounds almost Greenspan-esque except more straight-forward. It is likely that Mr. Bernanke will continue a push for personal accounts, low tax rates, and other growth-oriented policies. Whether he will have the same sway as Mr. Greenspan in making those arguments is not predictable.
Finally, it should be noted that Mr. Bernanke is eminently qualified for the position. This is a man who has worked in a myriad of high level academic and public policy positions, including as a Governor at the Federal Reserve Board. This is an appointment that should be confirmed easily and bipartisanly.
Congratulations, Mr. Bernanke.
"One school of thought, led by Ben Bernanke, a prominent American central banker, suggests that the world suffers from too much rather than too little saving. Mr Bernanke, who was nominated to be head of George Bush's Council of Economic Advisers on April 1st, points out that long-term interest rates are extremely low across the globe. He attributes this, in large part, to high saving by Asian economies. If this “savings glut” argument is correct, then presumably there is little need to worry about falling thrift in the rich world."
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I think this is a weak choice made by President Bush. It is readily apparently that the most sane and rational pic for Chairman of the Federal Reserve Board is none other than Jim Cramer of Mad Money :)
I enjoy the thought of the Fed Chair actually throwing a chair. It seems appropriate.
Well, New York Times columnist Paul Krugman predicted Bernard Bernanke would be the next fed chair in a column writ last January.
The New Economist blog quotes from a Wall Street Journal article of last April:
In 2000, as chairman of Princeton's economics department, he [Bernanke] hired star economist Paul Krugman, now a vociferous Bush critic, from Massachusetts Institute of Technology.
So that's some of his baggage, but academics is not the real world, and Bernanke probably would not want Krugman at the Fed.
Bernanke recently weighed in with his opinions on the economy in the Journal, and while he lauded tax cuts, free trade, and legal reform, a supply-sider he is not. His views on how tax cuts impact the economy, his odd interest in demand charts, and not to mention his discredited beliefs about "limits" to growth and "full" employment, should have Bush supporters concerned.
About taxes, Bernanke spoke of "fiscal stimulus" that has diminished "in the past few quarters." Bernanke is clearly in the Keynesian camp on taxes, holding that they should be reduced during times of slack demand and increased when economic growth reaches its natural "limits." While Keynesians see tax cuts through a demand-driven, short-term stimulus prism in which their impact gradually recedes, supply-siders encourage marginal rate cuts for their long-term (and continuous) incentive effects on economic activity. The distinction between the two schools of thought is crucial, particularly given the growing influence of the Fed on Capitol Hill.
It is likely that Mr. Bernanke will continue a push for personal [Social Security] accounts ...
Considering this:
This is an appointment that should be confirmed easily and bipartisanly.
The above will probably garner a few nay votes.
What does that have to do with his nomination as Fed Reserve Chair? And which Senator would vote against his approval on those grounds?
But I can live with this.
"I advise raising the overnight borrowing rates by 25 basis points. BOOYA!"
I assume that you are joking, if so that's funny. But if not, I can assure you that that litmus test on anyone nominated by a GOP president will eventually confine the party to permanent minority status..but since you are just kidding, then the point is mute!
that the Left is generally accepting of him. I for one don't see a huge problem with him. He never seemed to be part of the political machinations at CEA.
Most of my major Left blogs are supportive of him.
Glenn Hubbard would have been a GREAT pick. He pushed through the 2003 tax cuts.
Feldstein would have been oklay, but he is awfully outspoken which does not work well as Fed Chair.
Thank GOD he did not pick Lawrence Lindsay!!! Would have been 1,000 times worse than Miers.
However, the new Fed Chair will be tested early in the bond market. Could be wild times.
thing I want to hear from Beranke is "I promise to be an exact clone of Greenspan".
It would be hard to duplicate Greenspans record.
PS. for those of you too young to remember Paul Volcker, let me assure you, the Fed Chairman can almost single handedly destroy whole continents.
The realistic problem with private accounts is that they increase of money being saved, which would run against his issue of a savings glut.
By transferring wealth directly from those producing it to those using it is actually economically efficient. It is like the electric industry, where it would be prohibitively expensive to store the amounts of energy in question, so it has to be used as it's generated. Given the glut of wealth driving asset prices up and interest rates down, more saving would cause serious inflation in the investment markets.
The irony is that Volcker's efforts didn't make any sense.
Inflation is a surplus of currency in circulation. Presumably he cured this by reducing the growth of the money supply. The problem is that by raising interest rates, he slowed the economy, which reduces the need for the money!
It seems far more likely that inflation was brought under control by the rapidly expanding government deficit. Not only would it draw out surplus money, but govenment spending tends to increase private sector spending, thus the effect is multiplied.
I suspect the stock market seizure of 10/87 was the sign this surplus currency had been fully absorbed and so Greenspan replied by opening up the money supply again.
I contacted our local economics expert here in Colorado Springs, Dr, Paul Prentice, who is a UCCS Professor, and President of Farm Sector Economics, for a reaction and comments to Dr. Bernanke's nomination. I happen to be one of his Graduate economics student.
Dr. Prentice suggested I check out Dr. Bernanke's website for insight into his qualifications through his c.v. and his publications. (http://www.princeton.edu/~bernanke/)
He commented to me that a good indicator of Dr. Bernanke's nomination is the market's reaction -- favorable. Dr. Prentice writes that "the most important qualification for Fed Chairman is understanding that the Fed's primary job is long run price-stabilization."
You can read more about Dr. Prentice's thoughts on the nomination at Latino Issues where I have posted the full email response.
There's no "savings glut" in this country--Americans save a much smaller fraction of their income than Japanese, and most of our Federal debt is bought by foreign bond-holders.
Low interest rates do discourage investment in bonds and money markets, but they do favor investment in stocks, which also gives businesses more money to invest.
The private Social Security accounts proposed by President Bush earlier this year were really a very GOOD idea, but they were poorly marketed and spun to death by the Democrats, who resurrected the old "evil Republicans push Grandma over the cliff" canard.
What might have worked was selling the private Social Security accounts as a means for low-income people to invest (and profit) using money they're forced to pay to the government anyway. They can't afford IRA's or 401K's now used by middle- and upper-income people to save for retirement.
Low-income people tend to vote for Democrats, who, by refusing to allow private accounts, condemned them to retire in poverty. This idea needs to be sold clearly to low-income voters, who might then favor private Social Security accounts.
especially the part with the massive NASDAQ bubble and subsequent collapse.
Steve Z.
Obviously the great majority of people in this country(and the world over) don't have much in the way of savings, but to a large extent that's beside the point. Only as much wealth can be saved as can be effectively invested, whether it's in the hands of the few or the many. Consider government debt; If it wasn't being recycled through the public sector, where would this money be going? The stock market? Real estate? Beyond a certain point, the productive effect of more investment slows and it becomes asset inflation. So beyond that point, it is more productive to spend the money and increase demand. Whether is fits either political philosophy, you need both the supply and the demand sides of the economy to grow together, or the resulting imbalances slow the over-all economy.
he's DOA. thats all