Why Bernanke to succeed Tim Geithner? Several reasons.
First, he is probably the most influential and credible person in official Washington who is not part of the echo chamber on deficit reduction. By his speeches and actions, Bernanke has made it clear that he considers the most serious threat to the economy to be a continued deflationary drag, and not worries about the public debt.
Bernanke’s Fed has poured money into the economy by buying bonds by the trillions of dollars. He’s driven interest rates about as low as they can go using this method, and he has repeatedly said that it’s not enough. He’s open to even more drastic measures, such as selective purchases of certain kinds of bonds to get bank lending and mortgage refinancing moving at the scale necessary.
In his “fiscal cliff” speech of last August 31, Bernanke pointedly refused to join the austerity posse. On the contrary, he all but asked Congress to use fiscal policy to stimulate the economy in the short run.
Second, Bernanke and his colleagues have been sounding the alarms on the continuing downward drag of the housing collapse. Last January, he commissioned a staff report on the perils of the mortgage meltdown and called for stronger action. If he were Treasury secretary, you can bet he’d break the current log-jam and create a far more effective program of mortgage refinancing and relief.
Disclaimer: I have not spoken with Bernanke or any of his associates, and I have no idea if he wants the job.
Wait a minute. Isn’t the undemocratic, Wall Street-dominated Federal Reserve the very essence of the problem? Have I gone over to the dark side?
Not at all. The fact is, Bernanke is playing against type. A careful student of the Great Depression, he knows a prolonged deflationary trap when he sees one. And, as he keeps telling whomever will listen, we are stuck in a doozy of a debt deflation.
For some terrific writing on Bernanke’s unlikely odyssey, see my friend Bill Greider’s recent pieces in the Nation.
It’s the rest of official Washington that’s mired in its own echo chamber, President Obama included. The president has been admirably tough in drawing a bright line on whose taxes will go up. He’s also been better than some of his critics feared in defending Social Security, though all signs point to a cave-in on Medicare. But on the question of whether the economy needs a big budget cut, Obama is with the deficit hawks, the only fight is over the details.
Bernanke as Treasury secretary would be very hard for Senate Republicans to oppose. Except for a few hard-core monetarists, most Republicans recognize that he kept a recession from turning into a depression. He’s even a Republican, first appointed to the Fed by George W. Bush.
Bernanke is respected in financial markets, even though he is not a Wall Street guy. The appointment would be hailed around the world. (more…)