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Bernanke’s Back as Head of the Fed

As expected, President Obama reappointed Federal Reserve Chairman Ben Bernanke to another term today today, noting in remarks delivered in Martha’s Vineyard that Bernanke led the nation, and the world, through one of the worst fiscal crises it has ever faced, Bloomberg reports.

“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”

But a second term for Bernanke didn’t inspire the same reaction from everyone. Via Real Time Economics, here’s Andrew Leonard at Salon:

Maybe Obama realizes that the really hard part is only just beginning. Unwinding the vast expansion of the Fed’s balance sheet and figuring out how to tighten the screws on the money supply without plunging the country into an another economic contraction will be a tremendous challenge. Why saddle that grief on some up-and-coming Democratic economist? It’s Bernanke’s mess. Let him clean it up.

Michael Shedlock was much harder on Bernanke, contending that he launched a self-promotional media blitz that led to his successful reappointment. He also included a video compilation of inaccurate statements Bernanke has made about the economy in the past.

Unfortunately, Bernanke’s win is everyone else’s loss.

Many economists included in the Real Times Economics roundup generally supported Bernanke’s reappointment, however. One of the more balanced views came from Calculated Risk, summing up the pros and cons of Bernanke’s tenure:

As Fed Governor Bernanke supported the flawed policies of Alan Greenspan – he never recognized the housing bubble or the lack of oversight – and there is no question, as Fed Chairman, Bernanke was slow to understand the credit and housing problems. And I’d prefer someone with better forecasting skills.

However once Bernanke started to understand the problem, he was very effective at providing liquidity for the markets. The financial system faced both a liquidity and a solvency crisis, and it is the Fed’s role to provide appropriate liquidity. Bernanke met that challenge, and I think he is a solid choice for a 2nd term (not my first choice, but solid).

Bernanke’s nomination still requires Senate approval, and he’s likely to get tough questions from senators about the Fed’s actions and its expansion of power during the crisis, Bloomberg noted. But Bernanke will very likely be approved, given the almost universal agreement that while he may not have been perfect, he probably did enough to stave off an even more severe financial meltdown. And in a crisis like this, keeping things from getting even worse than they already are is considered a measure of success.

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