Federal Reserve Blog

Finance Blogs » Federal Reserve » History must still judge Bernanke

History must still judge Bernanke

By Mark Hamrick · Bankrate.com
Thursday, January 30, 2014
Posted: 5 pm ET

With then-President George W. Bush on hand for the swearing-in, Federal Reserve Chairman Ben Bernanke took office in February 2006. At that time, they had no idea that the proverbial wheels were about to come off the U.S. economy. The result was a global financial crisis unparalleled since the Great Depression.

During his comments that day at the Fed's stately headquarters building in Washington, Bush predicted that Bernanke would be "an outstanding chairman," and noted that the previous Fed chairman, Alan Greenspan, had achieved "rock star status."

Few knew then that the crisis would raise serious questions about Greenspan's stewardship of the central bank in the years before the meltdown. The man who had been the subject of a Bob Woodward book titled, "Maestro: Greenspan's Fed and the American Boom," would see his reputation become a casualty amid the economic carnage of the 2007-2008 crisis.

Jury out on Bernanke

Now, Bernanke's leaving; Janet Yellen will be sworn in as the next Fed chief on Monday. Will history take another dramatic turn and damage the current, generally positive view of Bernanke's eight years of service?  In short, it's much too early to say.

"We don't know what his legacy will be until we see whether or not Janet Yellen and other (Federal Reserve policymakers) can successfully unwind the Fed's balance sheet," says William Ford, former president of the Federal Reserve Bank of Atlanta. He adds that either an outburst of inflation or a recession due to rising interest rates could tarnish Bernanke's reputation.

The larger the Fed's balance sheet, which was recently pegged at $4 trillion, "the more dangerous it is as a potential source of inflation, or -- when interest rates have to be pushed up -- a potential source of the next recession," notes Ford, the Weatherford Chair of Finance at Middle Tennessee State University.

For the moment, however, he says it appears Bernanke "did OK."

But economist Joel Naroff says Bernanke deserves some blame for ignoring warning signs leading up to the financial crisis. "He started off poorly, thinking the housing bubble was slowly deflating and that the financing issues would not greatly affect either housing or the economy," says Naroff, president of Naroff Economic Advisors.

A mixed report card

Breaking the Bernanke era into three separate parts, Naroff gives Bernanke a "D" for the early years and an "A" for the period during and after the crisis. Overall, Naroff gives Bernanke an "incomplete," since we don't yet know how it all will turn out.

Over the past week or so, volatility in emerging markets has been an unnerving hint of the potential unintended consequences of massive interventions by central banks around the world. Bernanke's last meeting on monetary policy this week included a decision to further wind down asset purchases, starting down the path of reversing the extraordinary measures taken in response to the crisis.

If real trouble flares up anew, the Fed is currently trapped by record-low interest rates. It has no room to reduce the benchmark federal funds rate. One of the most effective tools in the monetary policy toolbox is not available until rates begin to rise. An increase in rates is not expected until late next year.

Little comment from the man himself

Reporters have pressed Bernanke about how history might view him. He has generally resisted answering directly. "I'll be interested to see. I hope I live long enough to read the textbooks," was all he would say at a December news conference.

Now the job falls to Yellen to steer the ship through uncharted economic waters. "If Janet Yellen pulls it off, as I expect she will, then Ben Bernanke will get a lot of kudos for the policy," says Naroff.

Follow me on Twitter: @Hamrickisms.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
11 Comments
Steve
February 01, 2014 at 8:40 pm

Ben Bernanke and Alan Greenspan will go down in U.S. history has being the two worst Federal Reserve Chairmen that ever served in office. They should both be ashamed of themselves for what they have done to this country. May God have mercy on their souls for all the lives they have destroyed. They will both have to answer for what they have did to this country and to their fellow countrymen. I don't care what political party they belong to. I just care about all the suffering they have caused this country.

Alma Rands
February 01, 2014 at 7:13 pm

As a senior and a widow,living on a meager income I have seen my life's savings dwindle because of the low interest rates on my CD's. You have totally ignored the burden you have placed on the backs of the poor and elderly who are too old to invest in risky ventures, and have had to rely on interest earned to supplement their meager income. I don't know how you can possibly justify your actions, and how you can sleep at night.
Your entire policy was to take from the poor and defenseless and give to the rich.

jc3494
February 01, 2014 at 6:52 pm

He will go down a one of the worse two in history. Hard to tell between him and Greenspan. All one has to do is look at the way economy has been tanking since 2006.

glesh
February 01, 2014 at 6:23 pm

I feel he will go down as one of the poorest members of the FED let alone chairman. Doesn't say much for congress for allowing him to stay or for the two presidents that appointed or nominated him as well. He hurt the workers and the poor and added to the debt with his policy.

Anthony Valkosak
February 01, 2014 at 5:59 pm

I don't have to state what he did wrong. He knows it and knew it was wrong for all the people that had depended on interest from their CD's and savings. Alot of retired needed that interest but you favored the banks and rich people and threw all the lesser under the bus. I have no respect for him and I'm sure he will have to answer for the wrong which shows greed.

James A. Kennedy
February 01, 2014 at 4:31 pm

To Chairman Bernanke:

I personally want to take this opportunity to thank you for making the rich richer and the poor a hell of a lot poorer. What I really think you should do is explain to the world how you supposedly 'saved' the financial system that is a scam. Explain how you printed trillions of dollars for people like Jamie Dimon. I would like to ask you when you were in Atlanta and Mr. Dimon chastised you about excess regulation after the London Whale incident, and you explained that you were trying to 'put a muzzle' on people like him, isn't that like the pot calling the kettle black? Also, with your idea of everyone getting into the stock market, if everyone had bought in and then decided to sell, what would happen? I hope your money is in there too. I used to be in the market and almost went broke, and am now only in CDs and earning almost nothing on my money. In closing, you owe me $100,000 in lost interest. I'm sure the check in in the mail.

Bill
February 01, 2014 at 3:35 pm

He sure took advantage of people who did not like to gamble in the stock market. If you put your savings in a bank or credit union even in CDs you lost money. Why I can hardly wait to tie up 5 thousand dollars for five years and get less then one percent per year on it. On the other hand, bankers made tons of money. There was no in between.

Governmentsuxs
February 01, 2014 at 1:39 pm

The back of a freshly printed three dollar bill!

Bailjumper
February 01, 2014 at 1:05 pm

The QE programs in theory are workable, except that the theroy does not work. The money did not flow down as it is supposed to, instead it was hoarded by those able to take advantage of the nearly free money, and kept it for themselves. Just another case of big business thumbing it's collective noses at everyone else.

Fred
February 01, 2014 at 12:32 pm

He served Wall Street and ignored the needs of retirees and workers throughout the land. Banks borrowed virtually free money, and many simply scammed as a result. His leadership was disgraceful.

Add a comment

(Comments may take 5-10 minutes to appear)