Thomas White Global Investing
Global Players

Global Players

August 2009

Ben Bernanke, Chairman, Federal Reserve, U.S.


Angela Merkel

“I was not going to be the Federal Reserve chairman who presided over the second Great Depression”

— Ben Bernanke, Chairman, Federal Reserve U.S., in defense of the Fed’s unprecedented actions over the past year.


In hushed and characteristically dignified tones, the bearded man answered the people’s questions. Looking more like a patient professor, Ben Bernanke, Chairman of the Federal Reserve of the U.S., faced the people gathered in the town-hall with one primary message – the central bank is there to always lend a helping hand.

In what has been a radical move from the time-honored traditions of the central bank, Bernanke has swathed himself in public focus to an extent that would have raised the eyebrows of his forerunners. Yet, these have been unusual times. Forced under the magnifying glass of the world, Bernanke has given interviews on television, held televised news conferences and more recently participated in a forum in a small town fielding questions from the locals. Bernanke has broken away from the conventional image of the Fed as a cloaked entity, to an institution that is more open and accessible to the common people.

Famously soft-spoken, Bernanke is an economics professor at heart lacking the smooth charm of a politician. Brilliant from the start, at the age of 11, Bernanke won the South Carolina state spelling bee competition and later on taught himself calculus, edited the school newspaper and achieved the highest SAT scores of that year in South Carolina. He trained as a saxophonist, worked in construction and waited tables at a restaurant before he entered college. He graduated from Harvard University and later earned a PhD from the Massachusetts Institute of Technology (MIT).

Bernanke was snapped up by the Stanford Graduate School of Business where he taught for a brief period of time before becoming a professor and later chairman of the Department of Economics at Princeton University. He resigned in 2002 in pursuit of public service posts and eventually became the Chairman of the President’s Council of Economic Advisers. On February 1, 2006, Bernanke was appointed as the Chairman of the Federal Reserve.

For more than a year after he was appointed as Fed Chairman in 2006, Bernanke adhered to the conventional duties of the bank, which is controlling inflation and maintaining employment. But rising to the occasion of the global economic crisis, Bernanke has enlarged the presence of the Fed by intervening in the economy in ways not contemplated before. He has slashed interest rates, established new lending programs, extended billions of dollars to troubled financial firms, bought debt issued by industrial corporations and even took over distressed mortgage assets. In the eyes of many economists, these measures stood out in bold in the Fed’s traditional annals. But Bernanke has faced congressional criticism that the Fed overstepped its limits by rescuing ailing financial institutions in the midst of the crisis.

One of the more severe criticisms against Bernanke has been that his overall response to the crisis was ad hoc and contradictory. According to Dean Baker, the co-director of the Center for Economic and Policy Research, a think-tank in Washington, Bernanke has been, “behind the curve at every stage,” failing to recognize the risks in the system before the financial meltdown, downplaying the risks involved and failing to present clear cut plans. Both Bernanke and Treasury Secretary Timothy Geithner have been under fire for steps they took – and didn’t take – to brake the speedy decline of the credit markets and resuscitate the economy.

Global investors, though, seem to have other thoughts, according to a recent Quarterly Bloomberg Global Poll. Interviewing a random sample of 1,076 influential decision makers in global finance and markets, the polling revealed that 75% of the respondents had a favorable view of the Fed Chairman and overwhelmingly support his reappointment when his term ends on January 31, 2010. Perhaps Bernanke’s efforts to communicate touched a chord. And no doubt, it also helped that the U.S. GDP in the second quarter tumbled a mere 1%, hinting that the monetary policies might be working.

Right now, positive earnings reports and climbing stock markets have all endeared global investors to the Federal Reserve’s actions. Currently, Bernanke is outlining the central bank’s strategy to sponge off the excessive liquidity in the U.S. financial framework. The challenge is finding a balance between sparking off an upturn in inflation and restricting a recovering economy. Against this backdrop, it might well be ten years before the world looks back and decides whether Bernanke was a genius or a madman.

 

 

 

 

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