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31 Jan 2014 00:00
US Federal Reserve chair Ben Bernanke. (AP)
When Ben Bernanke steps down as chairperson of the United States Federal Reserve this week, having presided over his final committee meeting, the sniping might stop.
Every time he makes a public appearance in his Fed role, there are dozens of pundits and politicians waiting to pour vitriol on his head.
Critics of his eight-year stint give vent at the mention of his name, such is their anger at his concern for the unemployed and families threatened with the loss of their homes.
His rescue of the US financial system in 2008, and his part in defeating a global banking collapse, is put to one side by those who argue that his policies since the dicey moments before and after the collapse of Lehman Brothers have undermined the dollar and slowed the recovery.
Like a patient given a strong dose of antibiotics, the US economy is considered by this vociferous group of right-wingers to be hooked on powerful drugs that, as time goes on, make it weaker, not stronger.
A measure of the criticism is former presidential candidate Mitt Romney's threat to sack him for the crime of zealously and recklessly printing money. Texas governor Rick Perry warned Bernanke against pursuing a monetary policy that would be "treasonous".
A South Carolina state senator called him a "traitor" bent on "rotting out our republic".
Bring back the gold standard, sound money and an end to excessive borrowing, they said, and still do.
On the left, he is accused of rescuing the banks without strings attached.
Bernanke has embraced a new role for the world's central banks – to be the canary signalling not just inflationary pressures but also potential asset bubbles. This dual role was one he rejected in his early years at the Fed, which dates back to his appointment to its board of governors in 2002 and elevation to the chair in 2006.
Before the crash he was an inflation watcher. Like his counterparts in the eurozone and Britain, he was deaf to fears that ballooning house prices and rocketing share values were bubbles ready to burst.
It ranks as the chief criticism of his early years in the post and reflects the dangers of group-think among those who sit at the policymakers' top table.
When trouble started to brew, he joined Geithner in the failed tactic of bolting together failed banks.
But once they had been rescued, banks still needed help to perform their basic function. Lending was their stock in trade and needed to be supplemented by central bank funds.
Quickly Bernanke adopted quantitative easing (QE), which saw the Fed entering the market to buy up US government and mortgage debt, hoping financial institutions would then convert the proceeds into additional loans to households and businesses. In the intervening five years he has thrown about $3-trillion at the US economy to maintain a flow of credit.
In the 1990s, while an economics professor at Princeton, Bernanke blasted the Japanese central bank for its timidity after the Tokyo property crash. He acquired the nickname Helicopter Ben for recommending it offset a large tax cut by buying an equivalent amount of government debt, a plan that he described as a "helicopter drop of newly printed money".
A right-wing Congress was never going to allow it and it was never formally proposed, leaving Bernanke to steer a course between right-wing accusations of profligacy and charges from the Keynesian left that his timidity restricted growth and depressed the jobs market.
Through it all he has refused to take on his critics in anything other than measured tones. As he leaves, the US is recovering strongly and the pace of QE expansion has slowed from $85-billion a month. His successor, Janet Yellen, is expected to bring QE expansion to an end and hand responsibility for expanding credit back to the private sector.
But Geithner's tactic of letting bankers resume business in a largely unreconstructed financial system – while asking the Fed to keep a watchful eye – is risky when banks refuse to adopt conservative strategies and workers rely on assets such as shares and property to pay the bills. The Bernanke years could lead inexorably to another crash. – © Guardian News & Media 2014
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