Ben Bernanke
Ben Bernanke is an American economist and chairman of the Federal Reserve (the Fed) through January 2014. He was appointed chairman by President Bush and reappointed by President Obama. During his tenure as chairman, Bernanke has been responsible for overseeing the Federal Reserve's response to the financial crisis .
Ben Bernanke
Ben Bernanke (right) was appointed chairman of the Federal Reserve by President Bush and he was reappointed by President Obama. Throughout his time as chairman, Bernanke has influenced the financial crisis, the Wall Street bailout, and the economic stimulus.
The Great Moderation
Ben Bernanke was one of the first individuals to discuss "the Great Moderation" which is the theory that traditional business cycles have declined in volatility in recent decades because of structural changes that have occurred in the international economy. The primary structural changes include increases in the economic stability of developing nations and the diminished influence of monetary and fiscal policy.
The Great Moderation is important because while Bernanke was chairman of the Federal Reserve, it is speculated the the economic and financial crisis in the later-2000s brought the period of the Great Moderation to an end. The period was known for predictable policy, low inflation, and modest business cycles.
The Bernanke Doctrine
Ben Bernanke gave a speech in 2002, before he became chairman of the Federal Reserve. He emphasized that Congress gave the Fed responsibility for preserving price stability - avoiding inflation and deflation. He also identified seven specific measures for the Fed to reduced deflation. These seven measures were:
- Increase the money supply
- Ensure liquidity makes its way into the financial system
- Lower interest rates all the way down to 0%
- Control the yield on corporate bonds and other privately issued securities
- Depreciate the U.S. dollar
- Execute a de facto depreciation
- Buy industries throughout the U.S. economy with "newly created money"
Chairman of the Federal Reserve
As Chairman of the Federal Reserve, Bernanke sits on the Financial Stability Oversight Board and is also Chairman of the Federal Open Market Committee, the Fed's principal monetary policy making body. One of Bernanke's first main challenges was balancing his comments and how they were influenced by the media. As an advocate for more transparent federal policy, Bernanke stated clearer inflation goals, but his public statements negatively impacted the stock market. As a result, he did not continue to make public statements about the direction of the Federal Reserve.
The main controversies surrounding Bernanke's terms as chairman include how he handled the financial crisis, particularly failing to see the crisis, for bailing out Wall Street, and for injecting $600 billion into the banking system to give the slow economic recovery a boost.
Two areas that received prominent attention include:
- The Merrill Lynch merger with Bank of America: New York state Attorney General Andrew Cuomo wrote a letter to Congress in 2009 accusing Bernanke and the treasury secretary of fraud concerning the acquisition of Merrill Lynch by Bank of America. Cuomo stated that the extent of Merrill Lynch's losses were not disclosed to Bank of America by Bernanke or the treasury secretary. Bernanke was questioned in Congressional hearings as to whether he bullied individuals when the merger was invoked. Bernanke stated that the Fed did nothing illegal when they tried to convince Bank of America to not end the merger.
- AIG bailout: It was stated that Bernanke had overruled recommendations from his staff regarding the AIG bailout. The question arose as to whether it had been necessary to bailout AIG. Senators from both parties supported Bernanke and said that the AIG bailout averted worse problems. They stated that act of averting worse problems outweighed any responsibility that he had for the financial crisis.
In 2010, Bernanke also expressed his views regarding deficit reduction and reforming Social Security/Medicare. He favored reducing the U.S. budget deficit. He stated that reforming Social Security and Medicare entitlement programs would help reduce the deficit. He believed that a credible plan needed to be developed in order to address the funding crisis that is pending. He explained that without reform, the U.S. will not have financial stability or healthy economic growth. His comments were directed at Congress and the President since reform in fiscal exercise is not in the power of the Federal Reserve. He emphasized that deficit reduction would need to consist of raising taxes, cutting entitlement payments, and reducing government spending.