Reuters Reports Bernanke as Fed Chair

If true, a very good choice:

Latest Business News and Financial Information | Reuters.com : WASHINGTON (Reuters) - President George W. Bush was expected to announce on Monday that he has picked top economic adviser Ben Bernanke to succeed Federal Reserve Chairman Alan Greenspan, a knowledgeable source said.

An announcement was to come at 1 p.m. EDT. Bush told reporters there would be "an announcement soon" on his choice to replace Greenspan, whose 18-year tenure at the Fed runs out on January 31.

Bernanke is chairman of Bush's Council of Economic Advisers. He served on the Fed's Board of Governors for nearly three years before moving to the White House in June.

His move to the White House was watched with interest on Wall Street because of the belief that he was on the fast track to replace Greenspan...

Comments

[Barry Ritholtz]

Two immediate thoughts come to mind about this, one economic and one political:

1) Ben Bernanke is a safe, strong choice, sure to be liked by both the Bond and Equity markets. He has already shown a gift for Jawboning, which has evolved into a key aspect of the Fed Chair's job. One can only hope that his infamous "printing press" comments -- essentially threatening hyper-inflation as a response to Deflationary concerns -- was just so much Jawboning.

2) The Fed chair replacement comes amid the tumult of the Harriet Miers Supreme Court nomination, the previous black eye of the FEMA chief Brown -- and not even discussing the problematic appointments of the poor planning in Iraq post-War period -- this is one appointment that the pro-market White House wouldn't dream of risking on anything less than a stellar candidate, and that have one in Bernanke. We should expect an easy confirmation.

As a side note, I continue to be stunned by the breadth of the Princeton Economics department continues -- not just Bernanke, but Burton G. Malkiel, Alan S. Blinder, Paul Krugman, Alan B. Krueger, Daniel Kahneman (and I have no affiliation with Princeton).

[ken]

Brad, explain why Bernanke would be a 'very good choice'.

Would he, for example given his closeness to the Bush administration, be any better than Greenspan in Congressional testimony regarding fiscal policy?

I know that is not the fed governors baliwick, but still, they get asked about it all the time and they have an enormous bully pulpit from which to speak with a great deal of authority.

I blame Greenspan, a lot, for paving the way to the irresponsible fiscal policies of conservative policy makers in general and of the irresponsible fiscal policies of the current admininstration in particular.

Would Bernanke continue giving aid and comfort to those willing to cut taxes ahead of spending cuts? And if he does how can we ever expect an elected official, those who actually make fiscal policy, to stand up for sane fiscal policy? I am not talking about wishful thinking policy, but real honest to god enacted policy.

[Matthew Huff]

Given Bushes current weakness with his base, I'm very suprised he didn't pick someone that's a known supply side economist. National Review hates him, so he can't be that bad. He will have a cakewalk and be confirmed easily.

[Rob]

What proof do you have that the White House is pro-market? I see alot of oligarchs running the place but very few actual pro-market types.

[Brad R.]

I'm shocked. I thought it'd be Andy Card for sure ;-)

[Ken Houghton]

The White House is anti-entrepreneurial, not pro-market.

I admit my only two problems with Bernake are (1) that the pitch was that they would make an interesting choice and they went with a safe one and (2) that this selection will ruin the reputation of Yet Another Economist.

Since those are both matters of perception, not reality, cautious kudos to the Administration, which may FINALLY have come up with an example of something they didn't screw up.

[mds]

Here is Dr. Bernanke bouncing up and down, because the economy is great right now:

"When thinking about where the economy is now and where it is heading, it is useful to keep in mind just how far the U.S. economy has come in recent years."

Here is Dr. Bernanke's enthusiastic take on the Bush tax cuts...every single one of them:

"Yet, in the face of all these shocks, together with new challenges such as the recent sharp rise in energy prices, the American economy has rebounded strongly. Policy actions taken by the President and the Congress were important in helping to get the economy back on track. Notably, beginning with the President’s 2001 tax cuts, multiple rounds of tax relief increased disposable income for all taxpayers, supporting consumer confidence and spending while increasing incentives for work and entrepreneurship. Additional tax legislation passed in 2002 and 2003 provided incentives for businesses to expand their capital investments and reduced the cost of capital by lowering tax rates on dividends and capital gains."

Here is Dr. Bernanke's delight in the awesome growth in the job market:

"Since the labor market bottomed out in May 2003, more than 4 million net new payroll jobs have been added."

Here is Dr. Bernanke's optimism about the interest rate outlook:

"However, the stability in core inflation and inflation expectations does suggest that overall inflation is likely to return to levels consistent with price stability in coming quarters."

Here is Dr. Bernanke waving off any possibility of a housing price bubble:

"Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas."

Now, to be fair, here is Dr. Bernanke boldly raising a note of caution about deficits:

"The current account deficit presents some economic challenges. At 6.3 percent, the ratio of the current account deficit to GDP is now at its highest recorded level. Gradually reducing the current account deficit over a period of time would be desirable."

Then again, we have such big deficits because our economy is so terrific:

"While the current-account imbalance partly reflects the strong growth of the U.S. economy and its attractiveness to foreign investors, low U.S. national saving also contributes to the deficit."

All the above was from Dr. Bernanke's testimony before the Joint Economic Committee last Thursday.

So given that it was inevitable that "Bush selection" would equal "whore" by definition, I suppose we can consider this a "very good choice." Of course, once he's Fed chair and no longer required to quaff Kool Aid by the gallon, he can go back to being an honest, responsible economist. Just like Dr. Mankiw.

[tante aime]

mds - you mean, like Dr. Mengala, don't you? operating on our detention camp, wage slave,
indentured servant American populace with his blunt edge shears and his monetary injections?
how, exactly, is this good, except for the markets and investor class. are we not men?

[dryfly]

Bullish for UTC stock as well...

http://www.sikorsky.com/sac/Home/0,3170,CLI1_DIV69_ETI541,00.html

;)

[dilbert dogbert]

Welcome back Tante. You have been missed.

[PaulC]

> I'm shocked. I thought it'd be Andy Card for sure ;-)

I figured he'd pick his personal accountant.

[bakho]

So did BushCo bring hiim into the WH to check him out up close and get him accustomed to BushCo Econothought? Does bringing him into the WH let him see what happens to those who cross BushCo?

[Ari]

Please do not use Nazi metaphors in context of any such discussion. Such metaphors are hurtful and tend to end discussion. We are all fortunate guests on this splendid blog, and have a responsibility as such.

[Kosh]

America has the finest electronic printing presses in the world and Bernanke won't hesitate to use them. Helicopter money for everyone! Yay!

[AllenM]

Well, the long bond is going downhill. The key is in the phrase "... continuity with the current Fed policy..." Ummm, higher interest rates anyone? They will keep going until they choke the housing market back down to neutral. I predict 6.0-6.5% on the 30 year tbond by Xmas 2006, the real 30 not the ersatz 25 year that is quoted everywhere as a "real" rate. Anybody want an ARM- it will cost you a bit more, but the Chairman won't get the blame;-}

[Dave Hanson]

Note that today's online NYT uses Brad's endorsement here as evidence of BB's bipartisan support:

He is widely respected by liberals and conservatives. Brad DeLong, an economist at the University of California who is a frequent critic of the Bush administration, called Mr. Bernanke "a very good choice" on his Web site today.

http://www.nytimes.com/2005/10/24/business/24cnd-fed.html?hp&ex=1130212800&en=22688e93d9f681c3&ei=5094&partner=homepage

[Eddy]

"My proposal that Fed governors should signal their commitment to public service by wearing Hawaiian shirts and Bermuda shorts has so far gone unheeded."

-Ben Bernanke

That's enough for my vote.

[phil]

At least Bush respects the Fed more than the SCOTUS or FEMA enough to appoint what appears to be a competent professional to the job. It's sad that this is proving to be the exception rather than the rule.

[Jim Harris]

Big sigh of relief. Confetti being swept up. It's not Andy Card. Imagine the market reaction if it had been.

[kharris]

Nobody never threatened nobody with hyper-inflation. The monetary policy makers only available response to falling prices, threatened or actual, is monetary expansion. Since central bankers engage in monetary expansion far more often than contraction, running the printing press is a question of calibration, not a threat of hyper-inflation. Bernanke's comment was made during a disinflationary scare, so was pretty understandable.

I'd like to guess that Bernanke's time at CEA served a very special purpose (similar to bakkho's view, I think). Given that the bond market scares the crap out of everybody (or whatever the quote is), even the Bush minions couldn't misunderstand what had to be done. Bush had to be made comfortable with somebody who is able to run the Fed. That someone had to be a Republican, which narrowed the field by one (Ferguson). Bernanke was among the favorites in the markets, so up he went. Bush got a look at him, and said OK. So this may have been less a case of turning Bernanke than of turning Bush.

Otherwise, Ken's point is a big worry, rather than a little one.

[CBBB]

I new he'd appoint someone competent. I was hoping for Kohn personally but I'm glad it wasn't Hubbard like I was expecting. Hubbard seems like he's way too much of a Bush Cheerleader.

[IBID]

On the current account deficits, don't blame the sinner:

"Although domestic developments have certainly played a role, I will argue that a satisfying explanation of the recent upward climb of the U.S. current account deficit requires a global perspective that more fully takes into account events outside the United States. To be more specific, I will argue that over the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global saving glut--which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today. The prospect of dramatic increases in the ratio of retirees to workers in a number of major industrial economies is one important reason for the high level of global saving."

--- Bernanke

http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/

[piotr]

I guess that a qualified hack can be an improvement at the Fed.

What did Greenspan did? Checked inflation. Was somewhat complacent about a stock bubble and now, very complacent about the housing bubble. Was much more aggressive about increasing interest rates when Clinton was President than when W was -- a bit of an undestatement.

Most damagingly, perhaps, Greenspan gain stature as inflation fighter and co-architect of Clinton boom, and then used it to support excessive tax cuts.

Bernanke can do everything Greenspan did, but his pronoucement will be more readily discarded in future debates on taxes etc. In this sense his stint as a hack is a plus.

Most importantly, next time around, the chance is that Bernanke will agree that DeLong is a very good choice.

[Randolph Fritz]

Brad, do you think this man is going to be able to say "no" to Bush administration or the Congress when it comes down to inflating the dollar to lessen the national debt? Do you think Bernanke will be able to refuse the scam artists that have come to dominate the US capital markets and regulatory systems, when he has after all worked for one of the chief scammers?

I have a very bad feeling about this one; it looks like another damn crony--a smart and skillful crony to be sure, but a crony.

[Charles]

When Greeks offer gifts, Trojans check every orifice.

If Bernanke is not a complete disaster, it will be the only thing Bush has done right.

But since Bernanke has happily sat through the bungling of this Administration without making himself a stench in their nostrils, the odds are he has been in some way co-opted. Sorry, Brad. It happens to even basically good people.

[Barkley Rosser]

I have previously stated preferring Bernanke over the other leading candidates, but a fear that the hacks would get Hubbard in. Clearly, Bush has listened to the markets, which strongly prefer Bernanke (according to all the polls anyway). He has certainly been burned on some of his recent appointments and is probably tired of it, plus probably scared of messing up on this one, which everybody and his brother has pronounced as the most important appointment he would make.

If I have a problem with Bernanke it is that I am not all that big a fan of inflation targeting. Remain a bit mystified why Tayor with his better rule (in my view) got dumped from the list. However, I suspect that Bernanke will not be too rigid about it. I am pleased to see the appointment.

BTW, it is not just Brad, but Max Sawicky over on MaxSpeak, who is well to the left of Brad, who approves also. The far right wing guys like him as well, see Arnold Kling and Bryan Caplan over on econlog. This is a very safe pick, and he will breeze through the Senate, possibly unanimously.

[realist]

as i predicted in every blog i could, when bernanke got the cea job, a.g.'s job was a done deal. now, bushco's apologist has only one job, to make sure republicans are re-elected next year. when the voters finally realize that the housing market is tanking, bernanke will drop money from his helicoptor and monetize the bond market, if he has to.
increase that liquidity, and the only thing that will keep republicans from re-election, will be jail cells.