Ben Bernanke We Hardly Knew Ye
Just three short days until Ben Bernanke’s out and Janet Yellen’s in.
Here at The Daily Reckoning, the changing of the chair at the Eccles Building is a spectacle we take seriously. About as seriously as tonight’s State of the Union address, in fact.
So with a sentimental twinge, we tune out the daily grind and use the occasion as a springboard for the good professor’s roast. Despite years of endless mockery, odd looks, raised eyebrows and low blows, we admit we’ve formed a soft spot for “Helicopter” Ben. Deep in a small crevice of our heart of hearts. He was such an easy target… we will be sad to see him go.
When we first met “the Bernank,” his beard was dark and his resolve never stronger. Ben was just a Fed governor at the time. A student of the 1930s, he knew what made the world tick… or at least thought he did.
With his Essays on the Great Depression (Princeton University Press, 2000) in tow, he preached the gospel of ever-so-slight-but-consistent price increases; 2% would be swell (though more would certainly be forgivable).
“I would like to say to Milton and Anna,” he famously toasted the late Milton Friedman and Anna Schwartz, “regarding the Great Depression: You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
That was in 2002. Twelve years later, what the Fed will and won’t do again remains unseen.
At writing, the scary narrative has moved precisely nowhere. The Fed is still holding $2.4 trillion in excess reserves. Banks, if so inclined, could extend up to 10 times that credit — $24 trillion. Alas, be it because of new capital requirements, skittish lenders or other regulations, they aren’t.
Meanwhile, the Fed pledges to twist, turn, push, pull and poke interest rates to their lower bound. But it’s there, at the lower bound, that the Fed’s powers of repression are meeting their upper bound. It can nudge and coerce interest rates, but not control them.
We could go on… but we produce the following spread of the Bernanke years (much thanks to Paul Sparwasser on our production team) instead. (Simply click the chart to the right to enlarge in full detail.) We’ll leave you to form your own opinions…
Bernanke’s legacy, however, will be written long after he’s gone — if only because the data above will be revised many times over. For what it’s worth, our educated guess is he’ll go down among Fed chairmen as a serial bubble blower… one of the most long-winded ones, too.
Interestingly, William McChesney Martin bequeathed no crisis to Arthur Burns in ’70.
Too, Arthur Burns handed G. William Miller no crisis in ’78 (though inflation).
In turn, G. William Miller, that devil-may-care, gave Paul Volcker the double-digit inflation in ’79.
Paul Volcker handed off to Alan Greenspan right as the stock market would crash in ’87.
Alan Greenspan turned tail and passed the housing barm to Ben Bernanke in ’06.
And come Friday, Ben Bernanke leaves Janet Yellen “the mother of all financial bubbles” (and a handful of smaller air pockets, to boot).
How, in anno 2014, could the Federal Reserve be anything but the center of the universe? Like Atlas, if he hailed from Brooklyn, Janet will hold the weight of the world economy on her shoulders. There’s a good chance her knees will buckle under it too. But with no solid idea of what’s to come, we simply point out the hard-to-ignore…
The Fed has bubble solution on its hands, yet is still in vogue…
The dollar is doomed, yet still king…
Gold is badly battered, yet for the same reasons it ascended…
Inflation is subdued, yet only the headline kind…
The unemployment rate’s lower, yet no one really believes it…
And there’s no financial crisis… well, yet.
Plenty a chairman-past left a curious case in their wake. But never one so curious.
More to come…
P.S. If you find yourself tearing up at the thought of “Helicopter” Ben stepping down… not to worry. Janet Yellen will likely give us plenty to reckon with in the years ahead. We hope you’ll join us for every mind-boggling thing she’ll inevitably do to help right the U.S.S. Economy. Sign up for the free Daily Reckoning email edition to make sure you get the full scoop – including specific chances to discover real profit opportunities no matter what Ms. Yellen decides to do. Don’t wait. Sign up for FREE, right here.