Bernanke A “National Hero”?

Apparently, the propaganda has begun to build around our current Fed Chairman, Ben Bernanke, as evidenced by this small blurb in the morning’s Financial Times:

Challenges Mount For ‘National Hero’ Bernanke

Of course, the gushing comments come from two prominent figures of the short-sighted, slash-and-burn corporate America that rules over our country: Jack Welch and Abby Joseph Cohen. Only in America could we forget the disastrous outcome of the immediate past to repeat the same mistakes in the present.

Until 2007, when the American housing bubble popped, former Fed Chairman Alan Greenspan was considered an economic maestro and the greatest Fed Chairman of all-time. Keep in mind, this was a few years after he handed the reins to Bernanke. The infamous “Greenspan put” had staved off many disasters:

  • the 1987 stock market crash shortly after he became Chairman
  • the S&L fallout & the related real estate crash in the early 1990′s
  • Long-Term Capital Management & the Asian currency crisis in the late 1990′s
  • the tech stock crash coupled with 9/11 & the war on terror in the early part of this decade

Ladies and gentlemen, that is a 20 year track record of warding off disaster, all undone by the belated recognition that Greenspan forestalled bad economic times by basically kicking the problem down the line via easy monetary policy while also helping to foster the conditions for an unsustainable economy based on financial engineering.

The moral of the story is that it may take decades to accurately judge the efficacy of economic policy. Steering an economy is a massive task, with unforeseen outcomes and ramifications that don’t manifest until years or decades later.

With that said, it is absolutely premature for anyone to be declaring Bernanke’s policies a success. Yes, he may have averted another Depression but so what? The U.S. survived the Great Depression which dovetailed into World War II and emerged as the strongest nation in the history of the planet. It remains to be seen how our country handles the long-term consequences of Bernanke’s helicopter policies.

What if Bernanke’s policies help sow the ground for the displacement of the US dollar as the global reserve currency? The Fed has shown a desire to buoy the economy based on the same economic principles as before, such as debt-fuelled growth and economic favoritism toward the financial sector. What if these policies only delay a much-needed transformation of the American economy and we eventually fall behind China as the world’s greatest economy?  These questions cannot be answered this year or next.

It figures that Jack Welch would be leading the cheer-leading brigade as he’s a charter member of the “someone-else-clean-up-my-mess” club. Under Jack Welch’s direction, General Electric (GE) morphed  from an industrial powerhouse to a stealth financial company that massaged earnings. His successor, Jeffrey Immelt, has spent a decade trying to dismantle this vision, an effort that gained urgency once the financial crisis exposed Welch’s creation as a liability.

I make no predictions as to whether Bernanke’s efforts will be successful or not. I only warn against falling into the trap, fostered by the media, of focusing too strongly on immediate term events. It was that type of thinking that got us in this mess in the first place.

One Response to “Bernanke A “National Hero”?”

  1. bobvis Says:

    This is a great post. Keep in mind that the media is interested in producing stories. If they do not, they go hungry. It isn’t that they are dumb people at all. The net result though is that most stories miss the long term effects. Those can’t be reported on because they haven’t happened yet.

    Second, another problem is that even after the long term effects are observed, what actually happened is rarely obvious. Even if the dollar loses its status, some may say that things would be even worse had Bernanke not stepped in. And we will be at a loss to prove them wrong without a parallel universe in which he is a blogger and one of us is Fed Chief.

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