Inside Financial Services

Memo To GOP Candidates: Enough With The Bernanke Bashing

He's doing a great job. If you doubt it, check out what's going on in Europe.

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I continue to be amazed-appalled, really-at the lengths the Republican presidential candidates have gone to trash Ben Bernanke and the monetary policy the Fed is conducting. Ritual Ben-bashing has become a staple in all the GOP debates: Mitt Romney and Newt Gingrich have both said that if they’re elected, they’d fire him (which the president doesn’t have the power to do, by the way). Rick Perry says he thinks Bernanke should “be treated pretty ugly” by voters. And Ron Paul-well, let’s don’t get into how Ron Paul feels about Bernanke and the Fed. There aren’t many issues all the candidates seem to agree on, but the demonization of the Fed chairman appears to be one of them.

They’re all wrong. First, the politicization of central banking is never a good idea. It’s not for no reason that the Federal Reserve chairman doesn’t serve at the pleasure of the president or that the Fed is designed to be immune to the day-to-day meddling by re-election-minded politicians. Sometimes, for the sake of long-term economic stability, central bankers feel compelled to pursue policies that are unpopular with the public and elected officials. It’s a part of the job. Those policies may in the end turn out to be wrong-headed or not. But it doesn’t help matters if the central bank has to do its job while looking over its shoulder and worrying about retribution by Congress or the White House. Countries have tried that. It doesn’t work.

But more to the point, what alternative monetary policy would the Republican candidates prefer? They seem to think the Fed should ignore the fact that the economy’s weak and that businesses are operating in an environment of huge regulatory uncertainty, and that it should simply focus instead on controlling an inflation that’s already so low that nobody seems to notice it. That all sounds very prudent–except that it’s nuts. If you doubt it, look at what the European Central Bank has been up to amid the chaos in Europe. The ECB’s policies have been much closer to the sound-money, Ron-Paul-approved approach the Republican candidates seem to be pining for-which is one reason Europe is on the brink of collapse. If Bernanke weren’t being aggressively accommodative, it’s very likely GDP would be growing slower than it has been and unemployment would be higher. How would that be a good thing?

Critics of the Fed, Republican candidates included, seem to believe that the first, last, and only job of a central bank is to safeguard the currency. That’s wrong. In times of financial stress (like lately) central banks also have a duty to act as the ultimate providers of liquidity-the lenders of last resort-in order to prevent the system from coming tumbling down. Bernanke’s Fed understands that; its policies are a key reason why the economy came through the 2008 shock in relatively good shape relative to what might have happened. The ECB doesn’t, which is why Europe is staring into the abyss. The Republican candidates really ought to tone down their Fed-bashing.

What do you think? Let me know!

29 Responses to “Memo To GOP Candidates: Enough With The Bernanke Bashing”

  1. DLB

    Bernanke is just the face of a system hated by Republicans. Bunch of politicians/bankers sitting around a table in Washington “setting” the proper interest rate. Free market money is the answer. (gold,silver,oil, hell anything a bunch of politicians can’t manipulate) The central banks only role should be to provide easy credit at penalty rates (that’s right, high rates) on good collateral to help out solvent banks caught short when liquidity is tight.

  2. Mr. Magorium

    It’s nice to see that you have little to no knowledge of how the boom and bust cycle propagated by the Fed works. Yes the Fed was the only this that saved the US from a far worse recession, but that is only because of the governments web of rules and regulations that prevent free market from assuming this role, as it did for the hundred years before there was any Fed. Also the Fed, with its artificially low interest rates, and other government policies also created the recession in the first place. So you are giving credit for saving the economy to an institution that created the mess in the first place. How do you think that the Fed maintaining artificially low interest rates is good for the long term health of the economy? All this means is that the bad assets are never cleared from the system, this leads to malinvestment which in the end which just result in a another bubble being burst as soon as the interest rates are raised above the current rates. And the idea that inflation is nothing to worry about is laughable. Really do you not pay attention to the Fed at all? There is over 1.5 trillion dollars parked at the Fed that would normally be out in the market place, the only reason its there is that for the first time ever the Fed is paying interest on the excess reserves of banks, thus keeping inflation from skyrocketing. Once the Fed lets this money out of its parking spot boom that’s inflation on a huge scale. Given all of this why shouldn’t the candidates harp on Bernake, even though they probably don’t know what they are talking about either? Bernake and the Fed, with some help, caused the recession in the first place, and now the Fed is propping up a stagnant economy instead of letting the losses clear, which would open the way for actual growth not this BS 2% Obama keeps shoveling us. And on top of all of this Bernake is setting us up for another recession that is going to be worst than the one we’re in now. Interest rates have to go up eventually, and wh

  3. Mr. Magorium

    It’s nice to see that you have little to no knowledge of how the boom and bust cycle propagated by the Fed works. Yes the Fed was the only this that saved the US from a far worse recession, but that is only because of the governments web of rules and regulations that prevent free market from assuming this role, as it did for the hundred years before there was any Fed. Also the Fed, with its artificially low interest rates, and other government policies also created the recession in the first place. So you are giving credit for saving the economy to an institution that created the mess in the first place. How do you think that the Fed maintaining artificially low interest rates is good for the long term health of the economy? All this means is that the bad assets are never cleared from the system, this leads to malinvestment which in the end which just result in a another bubble being burst as soon as the interest rates are raised above the current rates. And the idea that inflation is nothing to worry about is laughable. Really do you not pay attention to the Fed at all? There is over 1.5 trillion dollars parked at the Fed that would normally be out in the market place, the only reason its there is that for the first time ever the Fed is paying interest on the excess reserves of banks, thus keeping inflation from skyrocketing. Once the Fed lets this money out of its parking spot boom that’s inflation on a huge scale. Given all of this why shouldn’t the candidates harp on Bernake, even though they probably don’t know what they are talking about either? Bernake and the Fed, with some help, caused the recession in the first place, and now the Fed is propping up a stagnant economy instead of letting the losses clear, which would open the way for actual growth not this BS 2% Obama keeps shoveling us. And on top of all of this Bernake is setting us up for another recession that is going to be worst than the one we’re in now. Interest rates have to go up eventually, and wh

  4. Mr. Magorium

    when they do boom we start the process all over again, except next time that 1.5 trillion (By this time probably much more) will be out in the market place leading to massive inflation. So again the Fed needs to be attacked for the carnage they are causing the economy, and don’t try to justify the bad behavior of the Fed with more bad behavior by the incompetent Europeans.

  5. Adam Cooper

    Your a fucking douche bag Tom. Ron Paul is wrong? Getting sick and tired of your bullshit emails anyways. Removing.

  6. Old time banker

    I don’t always agree with you, but you are right on this one! Despite many issues you have with Obama administration, they understand the role of the central bank and the terrific job Bernanke has done under the conditions we have faced.

  7. Oy

    For once, I whole-heartedly agree. He could have done a better job in foreseeing this mess and steering us clear of it, but once in it he’s been doing a creditable job under the circumstances – particularly when you consider the pack of clowns that are making a hopeless mess of the fiscal part of the equation.

  8. fogrover

    I agree completely with this, except that I don’t think that the economic mess we’re in has anything to do with “businesses … operating in an environment of huge regulatory uncertainty.” Let’s leave Bernanke and the Fed out of politics.

  9. Bill

    Most politicians on any side are ignorant about economics and the banking system. They tend to come out of legal backgrounds where confrontation is constant. They have probably read a little Adam Smith and like the idea of a “free” market. They fail to realize that there is no egalitarian “free” market, and individuals will behave more like Hobbes than Rousseau. So whenever I hear a politico talk finance or banking, I just laugh.

    And @ Mr Magorium, you are equally ignorant. You think less regulation of the financial sector is good? You’ve been sleeping longer than Rip Van Winkle. Or maybe you remember the good ol’ days of redlining.

  10. DAVID MILLER

    —TOM – There are MANY people who would agree with you — this is not a vote getter–but could well be costly as a vote looser among modern Democrats and Independent voters—–the republican party could well loose this election with this type of strateg

  11. rivvir

    Agreed. On this issue. I still think it was bernanke who didn’t learn from greenspan and continued tightening without waiting for prior rate raises to take hold that brought about the recession, at least contributed greatly to it. Just to show off his macho back then i think, to prove he wasn’t soft. Unfortunately he over-proved. But that’s water long over the dam, maybe he has learned how to do his job after all. Just loved the guy who argued the free market wasn’t allowed to do its job because of gvt’s web of rules and regs. Geez, i thought it was lack of same which allowed the free market to get into this mess in the first place.

  12. john usna58

    i agree with you. i think the 0% interest rate policy is correct. i imagine the fed would be delighted to be able to raise rates necessitated by a strengthening economy.

  13. CLIVE FOLLMER

    TOM’S COMMENTS ARE STRAIGHT FORWARD AND APPROPRIATE….YOU GUYS KEEP UP THE GOOD WORK….TELL TOM TO BE SURE AND PAY ATTENTION TO HIS FATHERS ADVICE…CLIVE FOLLMER

  14. FSDA

    Bernanke’s no Greenspan, not Volcker either. Not G. William Miller, in all fairness. He’s about average, which is far less than we need in today’s economic climate.

    It’s hard to buy your view that he’s doing such a great job. You’ll recall that he inverted the yield curve in 2006 and kept it inverted until late 2007, kicking the legs out from underneath U.S. residential real estate. He incompetently supervised the regulation of banks in the lead up to the financial crisis. Do you remember any criticism of affordable housing policy, ever? His Fed was unprepared for Lehman. He never did figure out the Frannies, or AIG, for that matter. He gave material support to Dodd-Frank. He’s a huge supporter of the re-regulation of the financial system, and can’t calculate the costs — it’s too hard. He’s currently mispricing credit to the point that MF Global saw advantage in $5.5 billion in net exposure to Eurozone sovereigns. And then declares MF “idiosyncratic”!

    Bernanke doesn’t get it. So, he’s eminently replacable. No big loss.

  15. FSDA

    Bernanke’s no Greenspan, not Volcker either. Not G. William Miller, in all fairness. He’s about average, which is far less than we need in today’s economic climate.

    It’s hard to buy your view that he’s doing such a great job. You’ll recall that he inverted the yield curve in 2006 and kept it inverted until late 2007, kicking the legs out from underneath U.S. residential real estate. He incompetently supervised the regulation of banks in the lead up to the financial crisis. Do you remember any criticism of affordable housing policy, ever? His Fed was unprepared for Lehman. He never did figure out the Frannies, or AIG, for that matter. He gave material support to Dodd-Frank. He’s a huge supporter of the re-regulation of the financial system, and can’t calculate the costs — it’s too hard. He’s currently mispricing credit to the point that MF Global saw advantage in $5.5 billion in net exposure to Eurozone sovereigns. And then declares MF “idiosyncratic”!

    Bernanke doesn’t get it. So, he’s eminently replacable. No big loss.

  16. Richie Rich

    I agree with most of your points – he’s doing a fine job. However, I disagree that the approach of the European way of central banking is what’s helping to cause the collapse. This is entirely because of profligate government spending. If I have one criticism, it’s that Bernanke is helping to mask the effects of Obama’s catastrophic government spending increase with his efforts. The real effects of Obamanomic would be 10x worse without Bernanke. I guess that’s a good and bad thing.

  17. Alfred M. King

    “Little or no inflation”? Have you looked at food, fuel, medical and service prices recently? We have substantial inflation, if you define inflation as rising prices. Milton Friedman told us clearly, expand the money supply and prices go up. Fed increased money supply and prices did go up. QED.

  18. jerele

    Bernanke and the Fed are doing what is necessary from a global economic perspective , but the Fed and other regulators along with the politicians created this mess. The typical american cannot understand what is going on and logically they blame our leaders and bankers. The current candidates for the nomination are speaking to this fear.

  19. On Board

    The current situation was created by public policy in the mid 90′s and the final collapse of the Glass Stegal act. Both parties are to blame. But that is old news. The issue now is how do we manage through the situation until we get to firmer ground in the economy. Basel III is putting lots of pressure on banks regarding their balance sheets and changing how they do business. This will take time. Why anybody pays attention to what the candidates say is amazing. They never do what they promise and we never hold them accountable for their failures, misrepresentations and outright lies. Maybe it is our fault afterall.

  20. Dr. Roberts

    Tom, apparently you don’t understand the overarching strategy. The Republicans do not want the economy to improve. They want Obama right where they have him cornered, in a high unemployment, slow growth economic environment. They want his presidency to end as a result of his failed economic leadership. Anything the Fed might do to undermine that strategy is detrimental to their overall goal of winning the White House. Thus, we hear all the trash talk of Bernanke. All except for Ron Paul of course who actually has some principles regardless of how wrong-headed he may be on several key issues.

  21. Lori

    Really Tom an inflation so low, nobody seems to notice it. You might be right about too much criticism of Bernanke, but I think you are out of touch with most Americans regarding inflation.

  22. sgrbear

    you are 100% correct here….without Bernanke we would now have 25% unemployment and a country in chaos…for the last 30 years thre Fed has had to be the last resort for fiscal sanity due to Congress abdicating the many decisions that had to be made with little time for Congresses delay tactics

  23. Paul Volcker

    I assume you’re joking, Brown. With inflation running at an annual rate of 3.5%, what are interest rates doing at ZERO ?

    This zero interest rate policy is PUNISHING THE PRUDENT, the LIQUID and the SOLVENT– which is exactly how we got in this mess in the first place ( thanks to the media-appointed saint Greenspan ).

  24. Paul Volcker

    When you artificially hold short term interest rates BELOW the rate of inflation as both Greenspan and now Bernanke have done, the government is effectively STEALING from savers and encouraging imprudent behavior. Greenspan created this mess and Bernanke is perpetuating it and making the outcome worse. This is a portrait of a crack addict.

  25. rsd57

    Well said. I think the Fed dropped the ball on regulation which is part of monetary policy under Greenspan. As ugly as TARP and some of the others post-Lehman it was the right policy under the circumstances. I have said exactly what you have been saying in this column- a central bank’s job is to monitor the price level but also to act as a lender of last resort and a backstop to the banking system during times of market and economic stress. The single minded pursuit of price stability is a chimera. When we were on the gold standard and before there was a federal reserve the economy was highly prone to booms and busts and bank runs far more frequently and serious. The Germans and ECB are blinded by their single minded ideology and fear of inflation during Weimar. What the kooks in Germany won’t admit is that as ruinous as inflation was to Germany in the 20s and early 30s, it was the Great Depression and price deflation that equally helped Hitler come to power. Luckily there are some other folks in Europe who aren’t as crazy as the Bundesbank and their idealogues.

  26. Patreut

    Obama is soculust!! He hate America!! Democrat are comunists they hate America!! USAUSAUSA #1

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