Time Magazine has proclaimed Ben Bernanke to be PERSON OF THE YEAR!
Unlike some of my friends, I am underwhelmed. Bernanke got this award for being well known, extremely powerful, and merely competent; not for doing anything extraordinary, or even particularly insightful. C'mon - he's supposed to be an expert on the Great Depression.
Bernanke was either at the helm, or at least a hand on deck, during the biggest financial meltdown since the BIGGEST financial meltdown. Besides being complicit in the various miscues late in Alan Greenspan's term as Fed Chairman, Bernanke has had an impressive streak of his own major screw-ups. In an article praising Benanke, Nouriel Roubini says:
Mr. Bernanke, a Fed governor in the early part of this decade, supported flawed policies when Alan Greenspan pushed the federal funds rate (the policy rate set by the Fed as its main tool of monetary policy) too low for too long and failed to monitor mortgage lending properly, thus creating the housing and credit and mortgage bubbles.And we're not out of the woods, yet, either. Meanwhile, there are clear courses of action, that Bernanke is studiously avoiding:
He and the Fed made three major mistakes when the subprime mortgage crisis began. First, he kept arguing that the housing recession would bottom out soon (it has not bottomed out even three years later). Second, he argued that the subprime problem was a contained problem when in reality it was a symptom of the biggest leverage and credit bubble in American history. Third, he argued that the collapse in the housing market would not lead to a recession, even though about one-third of jobs created in the latest economic recovery were directly or indirectly related to housing. Mr. Bernanke’s analysis was mistaken in several other important ways. He argued that monetary policy should not be used to control asset bubbles. He attributed the large United States current account deficits to a savings glut in China and emerging markets, understating the role that excessive fiscal deficits and debt accumulation by American households and the financial system played.
While real interest rates are too high, however, the short-term nominal rate is as low as it can go. So there are only two ways real rates can be reduced. Either the Fed has to buy long-term assets, driving down the wedge between short and long rates — the Gagnon proposal, which comes out of Ben Bernanke’s own work — or it needs to raise expected inflation. Or it could and probably should do both.
But it is, in fact, doing neither. Why? Because of fear that the Fed would lose credibility as a staunch inflation-fighter.
Update: Bernanke continues to fight the battle that Paul Volker won decades ago.
The Bottom line: Benanke does either too little, too late, or not at all. That's why he is the JazzBumpa MEH! of the year. YMMV.
Image from http://top-people.starmedia.com/business/ben-bernanke_17257.html