How should history judge the head of the Federal Reserve?
This week President Barack Obama gave a clear indication that he intended to follow a new path within the Federal Reserve. On the American interview show, Charlie Rose, Obama claimed that Ben Bernanke had been in his position “longer than he wanted or he was supposed to.” This signalled that the end is coming to a close for the current Fed chairman, with Bernanke’s term due to officially end in January 2014. Of course, it surprised many people when Obama, promising “change” in his administration, was to keep Bernanke, the man who chaired the Federal Reserve through the economic crisis of the Bush era. With the dollar still very much in position as the world reserve currency, this decision would prove to have ramifications, not only for the United States, but within the global economy.
It is no secret that austerity has been vilified by certain groups in the United Kingdom. Even those who mildly disagree with the Coalition’s current economic plan are being persuaded to not support a Tory re-election. A telling example was the recent ComRes survey showing that 58% of people believe the government’s plan had failed and a need for change must subsequently come. Perhaps these same people should direct their attention to the state of the U.S. economy. With the motions set in place for Bernanke to quietly walk into the sunset, his legacy should be looked upon negatively, contrary to the President’s claims that Bernanke has performed an “outstanding job.”
Bernanke’s approach has seemingly appeased liberal economists, disrupting chances for committed austerity. However, has his initiation of “quantitative easing”, or in plainer terms, stimulus, been all that more successful an option? Under Bernanke, interest rates on U.S. treasuries have fallen to record lows; astonishingly nearing zero percent. This, in turn, has lured the government to further increase its astronomical debts, which is now over $16.7 trillion. Mortgage rates are also lowering, causing a steady recovery in this market. However, such short term implications seem to be the only considerations that Bernanke has ever taken, thus disregarding the inevitability that interest rates will eventually rise again. When this does arrive, sales in cars and homes will suffer. In fact, the short term strategy of Bernanke, driven home by low interest rates, has put the U.S economy in a position where it can no longer afford to increase these rates. Under Bernanke the Federal Reserve has blown the economic bubble to unprecedented proportions and the implications may prove to very painful. As Andy Haldane, the director of financial stability for England, recently admitted, “We’ve intentionally blown the biggest government bond bubble in history.” This can ultimately be attributed to men such as Bernanke for demonstrating a real sense of stubborn neglect towards anti-stimulus proposals.
Bernanke’s tenure has not solely revolved around economic naivety, though. The chairman was responsible for a major blunder following the banking crisis of 2008, which proved to be an indication of things to come in the Federal Reserve. The $700 billion TAARP bailout coincided with the Fed lending $2.2 trillion to banks. It proved to be a public relations disaster for the Fed when Bernanke refused to disclose to Congress what banking institutions the money went to. This was symbolic of Bernanke’s tenure, employing further erratic behaviour with American tax dollar money and showcasing a disregard to rising calls for transparency within the Fed, which subsequently ignited an audit campaign within Congress.
Yet, in spite of this all, perhaps one positive can come from Bernanke’s tenure. The push towards mass inflation may very well lead to a future restoration of a gold standard. Currently sitting at above $1300 per ounce, gold has the potential to increase further in value and surpass the $2000 dollar threshold. It has thrived off the Bernanke era, allowing investors to take advantage of the constant devaluation of the dollar through the Fed’s continuous money printing. The legacy of Bernanke may, ironically, provoke the resurgence of this now dormant approach.
Bernanke’s tenure has often left the libertarian movement in the United States in outrage. To the libertarian cause, his time as chairman has been characterised by obstructing transparency and towing the Keynesian line of producing large stimulus and high inflation. Price controlling has been the epitome of Bernanke’s tenure, restraining the U.S from thriving as a free market. Cheap money has become a drug for the American public, yet Bernanke has, without hesitation, continued to perpetually feed the economy with it. This has grossly distorted the financial system and, yet, it will soon no longer be Bernanke’s problem to handle. If one thing is to be expected, Obama’s chosen successor will not stray too far from Bernanke’s course and will likely continue desperate attempts to create artificial economic recoveries. Any predictions will be working off broad hypothetical scenarios, however a return to Labour and its gross overspending may very well replicate the problems Bernanke has produced in the U.S. Perhaps we, as a nation, should consider Bernanke’s failures as an important lesson.
Jak Allen is a student at the University of Kent. A geek of the U.S. Supreme Court and forever wanting to add an historian’s touch to affairs of the present.