Just as the recovery train is about to pull into the station, the passengers want to fire the engineer.
Ben Bernanke is facing reconfirmation as the Federal Reserve Chairman, and his continued tenure is in doubt.
Now that Bernanke has guided the economy through its toughest stretch of track since the Great Depression, senators on both sides of the political aisle are saying it is time to find someone else to run the train.
Inflation hawks and doves alike are trashing him for unbalancing the Fed's “dual mandate” to stabilize prices and maximize employment.
The mostly right leaning hawks have dubbed him “Helicopter Ben” or “Zimbabwe Ben” for creating a monetary policy that they believe will lead to hyperinflation.
The Left’s Complaint
There is no question Bernanke drove interest rates down to zero and tripled the Fed's balance sheet to avert a depression. He has also bought more than $1 trillion worth of mortgage-backed securities to lower mortgage rates, boost housing prices and pull us out of recession. But now that the recession seems to be tailing off, hawks are harping him to tighten the money supply to avoid inflation and an overheated economy.
In response to these demands, Bernanke has shrugged his shoulders. With unemployment still hovering in double digits, Bernanke sees inflation as a distant threat for which no action is currently needed.
On the flip side, the primarily liberal-minded doves believe that as bold as Bernanke appeared to be during the height of the crisis, they want him to do even more to stimulate the economy. They want the Fed to buy more mortgages and pump even more liquidity into the economy. They welcome a little more inflation because they believe it will encourage banks to lend more rather hoarding what they've already gotten in bailouts through the U.S. Treasury and the Fed.
The outward dispute over Bernanke's reconfirmation however, is more a referendum about the President and a populist attack on Wall Street than an issue about his leadership qualifications.
Proof He Is Doing a Sound Job
Democratic Senators like Majority Whip Dick Durbin of Illinois have excoriated Bernanke for his failure to be more transparent about inter-workings of the Fed than his predecessor Alan Greenspan. As crisis rose to a crescendo almost a year ago, Bernanke pledged to pull back the curtain on the otherwise secretive machinations of the Fed. Yet when he was pressed to reveal which Wall Street banks benefited the most from the money giveaway at the Fed's Discount window or the role the central bank actually played in the AIG counter-parties payout to Goldman Sachs and other investment banks, Bernanke balked.
Despite the fact that Bernanke was a Bush appointee, Republicans like John McCain oppose his reappointment because it's another way to snub the President and undermine his political agenda. President Obama was an earlier endorser of granting Bernanke another term because he thinks the Chairman has exhibited a steady hand. He doesn't want to take a chance that a change at the top of the Fed may upend the fragile confidence that has begun to creep back into the economy.
It's true, as Democrats charge, that Bernanke was at Greenspan's elbow when the former economic icon crafted the policies that led to real estate bubble. In his defense, however, Bernanke was one of many passengers on the Clueless Express. Several Democrats now calling for his head were enablers. They were sanguine about policies that increased the rate of home ownership among their constituents.
He was in the room with former Treasury Secretary Hank Paulson and his successor Tim Geithner when the bank bailout strategy was hatched. But charges that Bernanke was a stooge for Wall Street is thin.
Bernanke never has worked on Wall Street, and he never has demonstrated an allegiance to any of its key players. Rather, he is the son of a small town pharmacist, an academic who has written extensively about the Great Depression.
Since the position of Fed Chair is supposed to be apolitical, the fact that Bernanke has garnered strong detractors on both ends of the ideological spectrum is further evidence that he must be doing a good job.
The real fight is not about Bernanke, but rather about a seemingly populist President and future direction of economic policy and regulation.
The last thing the economy needs at this point is a radical shift in monetary policy. If the markets and the Chinese bondholders start to lose confidence in the U.S. dollar, this could trigger a cascade of events that could derail the tenuous stability that has been achieved in the global economy.
Bernanke may not be the best man or woman for the job. But at this point in our recovery, steadiness is more important than politics.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
