The economy, as a great big thing, is mysterious. The lives of millions of people connect into one big system that has its own ways apart from any one of them. But there are people who have positions of power and influence, those whose job it is to keep it all keepin’ on.
Chief among them is the Chief, Ben Bernanke. Who is this guy?
More people every day are asking that question. The press, for its part, gave his introduction a long time ago – and rarely go back over the same ground. That’s a shame because now we have a track record to examine.
Bernanke was born in 1953 to one of the few Jewish households in North Augusta, South Carolina. His dad was a pharmacist and his mom a schoolteacher. As a kid, young Ben worked many odd jobs, even waiting tables at the classic tourist trap “South of the Border” in Dillon, SC. He was the class valedictorian and went on to Harvard, eventually earning his PhD in economics at MIT in 1979. After that he became a professor at NYU and later Princeton.
As an economist, Bernanke has always been particularly concerned with the Depression of 1929 and the Federal Reserve’s inability to prevent it. His most famous work is a 2000 book, Essays on the Great Depression, which is credited with landing him a spot on the Federal Reserve Board of Governors in 2002. When Greenspan retired in 2005, Bernanke seemed like a natural choice to replace him and the nomination was quite uncontroversial.
If it sounds to you as though people in government were thinking about the last Depression over the last decade, even if the press and public were not, you are far from alone. Bernanke’s expertise was clearly considered valuable.
Over the last six years the public has been able to see what this quiet professor can do, and the record is interesting. Far from theoretical in his approach, Bernanke has been pragmatic but apolitical – fitting the model of a very independent Fed. Given that his most famous work outlined in great detail how paralysis at the Fed led to the Great Depression of 1929 as we know it, Bernanke’s willingness to try nearly anything to keep the economy running is very much in character.
His real test came in March 2008, a crisis many people didn’t even know happened. Brokerage houses were in big trouble because the overnight loans that kept them in money were not being made the whole system was starting to fall apart. Bernanke made the call to allow them to borrow from the Fed at rates normally reserved for big banks, and take just about all they wanted. It wasn’t enough. Six months later the failure of Lehman and subsequent collapse of much of the system showed why the Fed had been panicking for much of 2008.
After that event, Bernanke quickly steered the Fed to a zero interest rate policy which has been in place ever since. He directed the Fed to start buying us Treasury debt and, for the first time ever, shares from the stock market. No one was going to say that Ben Bernanke sat back and watched another Great Depression happen on his watch.
As we all know, it more or less worked and we’ve avoided the soup lines and hobo camps of the 1930s. Yet this was still not quite enough, even with zero interest from the Fed. That’s where Quantitative Easing comes in, the direct injection of first a trillion dollars and later 600 billion, done by buying even more US public debt with money created from nothing. And that gets us to today.
The personality of Ben Bernanke is important not just because he has more control over our economy than anyone. He has hard-working roots that propelled him into academic excellence, a quiet demeanor that leads him to be outspoken, and most importantly a careful read of history that biases him toward action. Bernanke is a man who might seem to be full of contradictions outside of one essential aspect of his character – he clearly has a desire to serve more than to selfishly promote himself.
But is this enough to get us through today? The current inability of the Fed to promote stable currency and prices has to be just killing Bernanke by now, but it is far from his fault. He’s been out there, doing what he can, but it hasn’t been enough. Where this latest crisis takes us is something we’d all like to know, but where it takes the most powerful man in our economy is another very telling and compelling story on its own.
What do you think of Bernanke? Is trying just about everything his proper job, or should he be more cautious and careful?