29 Jan 2014

The Bernanke Legacy

Federal Reserve 25 Comments

The WSJ recently ran an interesting assessment of Bernanke’s legacy, as he chairs his final FOMC meeting this week. It opens with this provocative paragraph:

As the Federal Reserve Chairman prepared to step down, the encomiums rolled in. “The most successful tenure in Fed history,” said the S&P economist. Added a former Fed Governor: “He has been called, and I think justifiably so, the greatest central banker in history.” He was the man who saved the world, a genius, the maestro.

The trick here–as perhaps the term “maestro” gave away–is that these accolades accrued to Alan Greenspan upon his descent from power. When he handed over the keys to the printing press in 2006, it was not yet obvious to everyone just how much damage Greenspan’s easy-money policies had baked into the cake.

The WSJ piece points out something I hadn’t realized: “As Fed transcripts show, Mr. Bernanke was the board’s intellectual leader in its decision to cut the fed-funds rate to 1% in June 2003 and keep it there for a year.” Elsewhere I have made the case that this extraordinarily low interest rate policy helped fuel the housing bubble, but I never knew Bernanke had been instrumental in pushing it through.

Time will tell–perhaps sooner than many of us realize–just how much mischief Bernanke has, in turn, bequeathed to his own successor. But when reflecting back on his legacy, let us not forget the following string of systematic failures to understand just how bad things were unraveling before the crisis struck in 2008:

25 Responses to “The Bernanke Legacy”

  1. Gamble says:

    NPR was gushing Bernanke this afternoon. Whoever the blowhard economist was also added that inflation is significantly and chronically over stated in CPI. Is that some George Orwell stuff or what?

  2. skylien says:

    He definitely tries to preserve his legacy by using his two very last FOMCs by cutting QE3, so really nobody will be able to blame him for being too easy money, that he didn’t know when to stop. He even showed the way to go when he left. He can’t be blamed if Yellen will reverses course again.

    Does anyone really believe they would have done the same thing at the same time if he wouldn’t resign now?

    • Yancey Ward says:

      I am of the exact same opinion- Bernanke wanted history to look back at the end of his tenure and see both easing continuing and a timetable for easing to end so that historians and Bernanke biographers can play either side depending on how events unfold going forward. Had Bernanke’s term run another year, you wouldn’t have seen a taper until next December and January.

  3. joe says:

    Way to early to praise Bernanke. He was a mess before the crisis. It will take at least until 2020 to determine whether he handled the crisis well.

    • skylien says:

      OMG another good comment by joe. Though you forget that he isn’t in control from now on anymore which will give him lots of room to blame someone/something else.

      Even Greenspan who resigned just shortly before the housing bubble burst, doesn’t think he did something wrong. And if I am not wrong, even you think that right? (Don’t know why I ask, you won’t answer anyway…) Not even Krugman thinks he said something wrong when he joked around about what Greenspan could do in 2001…

      • Gamble says:

        Well at least Greenspan I snow saying any nuclear fallout he caused was worth the it because of the greater good(nosuchthing).

        So now he is kind of admitting he caused a boom/bust and he is kind of a socialist…

        • Major_Freedom says:

          It’s bizarre to read a former associate of Ayn Rand use the phrase “the greater good” favorably.

          • Gamble says:

            Greenspan did an about face. Maybe he is a sale out, possessed or maybe simply decided to make the most money from an unfree system?

            Maybe man is conflicted between logic and the lust for power?

            • Matt M (Dude Where's My Freedom) says:

              Yep. I saw this in the military all the time. Plenty of people in there who know what they are doing is wrong, but just can’t bring themselves to walk away from the giant piles of easy money you can make by compromising your moral values.

        • skylien says:

          “Well at least Greenspan I snow saying any nuclear fallout he caused was worth the it because of the greater good(nosuchthing).”

          Do you have a link for that?

          This way you can justify almost anything.

  4. andrew' says:

    Thanks Bob. I’ve posted in numerous places about the chart of fed funds, prime rate, and mortgage rates and the best response I ever got was Scott Sumner who basically said “huh?”

    • andrew' says:

      Bob, a leading question, what’s the npv of the housing stock versus marginal changes to the rates of interest? Might be a useful exercise.

  5. Scott H. says:

    Is this a bad analogy getting ready for Superbowl Sunday?

    The USA used to play a flying wedge. Now it plays a west coast offense. Our local, old school purists now evaluate west coast quarterbacks by flying wedge standards.

    And guess what? All the quarterbacks suck. The only way they could even hope to be any good would be to audible to a flying wedge — for every play.

    • Gamble says:

      I am not sure if I completely understand your analogy but I do sympathize. I believe America and the world practices MMT or a constantly evolving hybrid, not sound money. So of course everything Austrians say, looks stupid. However this does not mean we should abandon the goal of freedom.

      • Major_Freedom says:

        What does the existence of unsound money have anything to do with whether or not Austrianism is stupid versus not stupid?

        Also, Austrianism is value-free, so regardless of what you think is the opinion of Austrianism, there is no impliction to the ethic of individual freedom.

        • Gamble says:

          Sound money economics do not function/apply in a global digital fiat fractional reserve less system. I know Austrians do not want to believe this, but it is true. Don’t hold your breath for hyper inflation, correction or collapse, you will pass-out, they will win…

          • Gamble says:

            Not to make our current socialism sound great. What we have lost is freedom.

            The hyper inflation and collapse are instead spread evenly via fiat. Most of us recognize this as reduced purchasing power. We work longer hours, produce more, 2 incomes, invest more, yet we have similar purchasing power.

            So there is a lot at stake it just not like people think…

    • Andrew' says:

      That’s a horrible analogy. Power veer would be a better analogy.

  6. John Becker says:

    If historians consider FDR and Lincoln as the best presidents, it’s easy to see why they would think Bernanke was the best Fed chair. He certainly brought acclaim to the Fed in a way no one ever had before. He deserves terrible things.

    • Ken B says:

      “He deserves terrible things.”
      I sent him Bob’s Mac the Knife.

    • Gamble says:

      Good point. Just more of the same brainwashing.

    • Ken B says:

      There’s really one one correcxt response to stuff that recent. “Too soon to tell.”

      • Gamble says:

        Yes it is too soon to tell but I would bet you 50K I know what most history and student text books will say. Bernanke was great therefore central banking is great therefore Bernanke is great.

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