# New Fed Chairman Bernanke **URL:** \ **Category:** Great Debates\ **Created:** [October 24, 2005, 6:41pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700 "2005-10-24T18:41:53Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![ShibbOleth](https://avatars.discourse-cdn.com/v4/letter/s/848f3c/32.png) [@ShibbOleth](https://boards.straightdope.com/u/ShibbOleth)\ **Post date:** [October 24, 2005, 6:41pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/1 "2005-10-24T18:41:53Z")
On the surface he seems to be a decent choice, has qualifications and credentials, and doesn’t seem to be an idealogue. His main strike against would seem to be that he is a trusted Bush advisor, which should NOT be a disqualification in and of itself. Wall Street has responded positively. What else do we look for in a Federal Reserve Board Chairman? What should we expect – a continuation of Greenspan’s slow but methodical approach or something more bold? I suspect the Street favors someone who doesn’t rock the status quo too much, particularly when the market is doing okay. Also, how long is a normal term for a Fed Chairman? Greenspan’s been there forever – since Reagan IIRC. Volcker preceded him and presided for 8 years. I have absolutely no recollection of who was out there before Volcker. ---
**Author:** ![Neurotik](https://avatars.discourse-cdn.com/v4/letter/n/91b2a8/32.png) [@Neurotik](https://boards.straightdope.com/u/Neurotik)\ **Post date:** [October 24, 2005, 7:04pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/2 "2005-10-24T19:04:06Z")
I was hoping for Kohn, myself, given his political independence and longtime practical experience, but I can’t argue with the selection of Bernanke. He’s definitely one of the top minds when it comes to monetary policy. His only weakness is his relative lack of policymaking experience. I’m not a big fan of his advocacy of hard inflation targets, which both Volcker and Greenspan tended to avoid. But again, there’s no doubting that he’s extremely qualified. ---
**Author:** ![AskNott](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/asknott/32/5790_2.png) [@AskNott](https://boards.straightdope.com/u/AskNott)\ **Post date:** [October 24, 2005, 8:15pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/3 "2005-10-24T20:15:02Z")
The thing that occured to me is that Indiana’s governor, Mitch Daniels, had been a top Bush financial advisor. If he hadn’t jumped ship to run for governor, he might have been the nominee for Fed chief. I wonder if he regrets his choice. ---
**Author:** ![What\_Exit](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/what_exit/32/10652_2.png) [@What\_Exit](https://boards.straightdope.com/u/What_Exit)\ **Post date:** [October 25, 2005, 2:51am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/4 "2005-10-25T02:51:52Z")
[Bernanke to head Fed](http://money.cnn.com/2005/10/24/news/economy/fed_bernanke/index.htm?cnn=yes) I am somewhat surprised, I think President Bush is making an excellent choice for Federal Reserve Chairman Alan Greenspan successor. Ben Bernanke is apparently a well respected economist. Wall Street liked the move and rallied on the news. I heard on NPR that at least one extreme right winger complained, “He isn’t a supply sider” (This is an excellent recommendation to me). From what I have heard he is not a Bush crony and is barely political. An academic more than anything else. So do you agree this a good choice? Do you think Bush is reeling from the Michael Brown appointment and the current Harriet Miers fiasco and wanted to ensure that a qualified person was appointed? Well what do you all think? ---
**Author:** ![Rico](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rico/32/3582_2.png) [@Rico](https://boards.straightdope.com/u/Rico)\ **Post date:** [October 25, 2005, 2:56am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/5 "2005-10-25T02:56:43Z")
\ I’m torn. First off, _Head of Fed_ sounds like an awfully good band name. Second, does this belong in IMHO or GD? It will probably turn into a debate, so off it goes. \ ---
**Author:** ![picunurse](https://avatars.discourse-cdn.com/v4/letter/p/7bcc69/32.png) [@picunurse](https://boards.straightdope.com/u/picunurse)\ **Post date:** [October 25, 2005, 2:57am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/6 "2005-10-25T02:57:52Z")
I think you’ve posted into the waaaay wrong forum. Otherwise, I just don’t talk about politics or people for that matter. Sorry. ---
**Author:** ![What\_Exit](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/what_exit/32/10652_2.png) [@What\_Exit](https://boards.straightdope.com/u/What_Exit)\ **Post date:** [October 25, 2005, 2:59am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/7 "2005-10-25T02:59:12Z")
> [@Rico](#): > > \ > > I’m torn. > > First off, _Head of Fed_ sounds like an awfully good band name. > > Second, does this belong in IMHO or GD? > > It will probably turn into a debate, so off it goes. > > \ Thank you Rico, I could not figure it out either and decided to just start it in GQ. Only becuase my posts had many questions and I really only heard about Mr. Bernanke today. BTW: You’re right, ‘Head of the Fed’ would make a good band name. 🙂 ---
**Author:** ![What\_Exit](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/what_exit/32/10652_2.png) [@What\_Exit](https://boards.straightdope.com/u/What_Exit)\ **Post date:** [October 25, 2005, 12:02pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/8 "2005-10-25T12:02:41Z")
I’m going to bump this once for the daytime crowd. Good Morning all, I guess I am hoping for more information on Ben Bernanke or if anyone thinks it is a good or bad choice. ---
**Author:** ![hawthorne](https://avatars.discourse-cdn.com/v4/letter/h/c89c15/32.png) [@hawthorne](https://boards.straightdope.com/u/hawthorne)\ **Post date:** [October 25, 2005, 12:23pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/9 "2005-10-25T12:23:37Z")
He’ll be fine. Unlike pretty much any central banker I can think of, I read some of his stuff (with Blinder) in Monetary Theory. I’m a little dubious about the extent to which his recent “savings glut” argument applies, but I wouldn’t be surprised if finds occasions to make noises about the US fiscal imbalance in spite of it. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [October 25, 2005, 7:42pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/10 "2005-10-25T19:42:57Z")
From [http://en.wikipedia.org/wiki/Ben\_Bernanke#Research\_and\_opinions:](http://en.wikipedia.org/wiki/Ben_Bernanke#Research_and_opinions:) > [@](#): > > He is known for his work on the transmission channels of monetary policy, particularly a 1992 paper with Alan Blinder arguing that expansion of credit was more important than the money supply. His work on the transmission of monetary policy also gave rise to an interest in the causes of the Great Depression, a period in U.S. history accompanied by substantial monetary deflation. > > He gave a speech in 2002 entitled “Deflation: Making Sure ‘It’ Doesn’t Happen Here” in which he discussed possible Fed actions to prevent deflation saying, “A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money”. Further describing several options in the government’s arsenal for fighting deflation Bernanke also said, “the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” These metaphors referred to the potential of the Fed to give money directly to citizens (as opposed to working through banks) as a last-resort possibility to stop deflation. Critics of Bernanke, calling him “Helicopter Ben”, argue that he is too worried about deflation and too sanguine about its opposite, inflation. > > In March 2005, a few months prior to becoming Chairman of the CEA, he gave a speech which argued that international savings rates were largely responsible for the American current account deficit. This was controversial among those economists who felt the trade deficit was due instead to excessive governmental spending. [1] > > Bernanke is widely regarded to be a proponent of the Fed adopting an explicit inflation target, as other central banks do. [2] So I guess whether Bernanke is a good choice depends on whether his economic assumptions are sound. Which is more dangerous, inflation or deflation? And can any economists on this board tell us something about the “transmission channels of monetary policy”? ---
**Author:** ![UncleBeer](https://avatars.discourse-cdn.com/v4/letter/u/977dab/32.png) [@UncleBeer](https://boards.straightdope.com/u/UncleBeer)\ **Post date:** [October 25, 2005, 7:48pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/11 "2005-10-25T19:48:56Z")
Greenspan was first appointed Chairman of the Federal Reserve by Ronald Reagan in 1987. Prior to that, he served under Prez Nixon informally as an economic advisor, and then formally under Nixon and Gerry Ford (beginning in 1974) as Chairman of the Council of Economic Advisers. He was re-appointed to the Fed Chair in 1992, 1996, 2000. The Fed Chairman is appointed (by the president and confirmed by the Senate) to a term of 4 years. G. William Miller was Fed Chairman prior to Paul Volcker - but only for slightly more than one year; Miller moved up to Sec. Treas under Carter in 1979. Arthur Burns was Fed Chairman (Feb. 1970 to Jan. 1978) prior to Miller. Nixon had an ongoing feud with Burns over Burns’ perceived independence and Keynesian practices. It looks like Bernanke will probably follow many of the same monetarist policies as Greenspan - who followed the monetarist policies of Volcker. Monetarism is the economic theory which holds that variations in a given economic systems (such as inflation) are most often caused by money supply. Monetarism seeks to control variations in economic conditions by regulating (most often expanding it) money supply in an incremental fashion - hence Greenspan’s seeming obsession with the interest rate. Keynesian economic theory, on the other hand, holds that overall economic conditions can best be controlled through employment; that unemployment signalled inefficient consumer spending. Thus, Keynes said that government spending, particularly deficit spending, was the valve by which the economic activity could best be regulated. ---
**Author:** ![BobLibDem](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/boblibdem/32/3149_2.png) [@BobLibDem](https://boards.straightdope.com/u/BobLibDem)\ **Post date:** [October 25, 2005, 8:02pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/12 "2005-10-25T20:02:22Z")
He seems to be a good choice, given that the market rally didn’t stall at the announcement. He seems to be a bit less fixated on inflation than Greenspan, and perhaps would be less trigger happy on the brake when the economy picks up steam. Given the month that Bush has had, he did remarkably well with this appointment from everything I’ve heard. ---
**Author:** ![Gaudere](https://avatars.discourse-cdn.com/v4/letter/g/e495f1/32.png) [@Gaudere](https://boards.straightdope.com/u/Gaudere)\ **Post date:** [October 25, 2005, 8:05pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/13 "2005-10-25T20:05:06Z")
[Moderator Hat ON] Merged the two Barnanke threads. [Moderator Hat OFF] ---
**Author:** ![hawthorne](https://avatars.discourse-cdn.com/v4/letter/h/c89c15/32.png) [@hawthorne](https://boards.straightdope.com/u/hawthorne)\ **Post date:** [October 26, 2005, 3:44am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/14 "2005-10-26T03:44:29Z")
> [@](#): > > _UncleBeer_ > Monetarism is the economic theory which holds that variations in a given economic systems (such as inflation) are most often caused by money supply. Monetarism seeks to control variations in economic conditions by regulating (most often expanding it) money supply in an incremental fashion - hence Greenspan’s **seeming obsession with the interest rate**. Greenspan’s seeming obsession with the interest rate rather than the money supply should give you a clue that he wasn’t a monetarist. To be fair, he did pretend that he was, but he never acted like it. Benanke’s work on why it’s the credit channel and not money as such that matters as well as his advocacy of inflation targeting (not monetary targeting) should tell you he isn’t a monetarist either. Both of them are advocates of price stability as the role of the central bank as a means to growth. This does not make them monetarists. ---
**Author:** ![UncleBeer](https://avatars.discourse-cdn.com/v4/letter/u/977dab/32.png) [@UncleBeer](https://boards.straightdope.com/u/UncleBeer)\ **Post date:** [October 26, 2005, 3:12pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/15 "2005-10-26T15:12:56Z")
> [@hawthorne](#): > > Greenspan’s seeming obsession with the interest rate rather than the money supply should give you a clue that he wasn’t a monetarist. To be fair, he did pretend that he was, but he never acted like it. Dozens of sources say you’re wrong on this. Even the vaunted ('round these parts anyway) Wikipedia says, “The current head of the United States Federal Reserve, Alan Greenspan, is generally regarded as monetarist in his policy orientation.” [AmericanChonicle.com](http://AmericanChonicle.com) even goes as far as calling Greenspan the “monetarist icon,” in a recent article. Loans are one of the most efficient methods known for “creating money.” By stimulating, or depressing, loan origination through manipulation of interest rates, Greenspan contolled the expansion and contraction of the money supply. > [@](#): > > Benanke’s work on why it’s the credit channel and not money as such that matters as well as his advocacy of inflation targeting (not monetary targeting) should tell you he isn’t a monetarist either. I might agree with this, however. But Bernanke, by everything I’ve heard, intends to continue managing the Fed through the same means as Greenspan. ---
**Author:** ![pantom](https://avatars.discourse-cdn.com/v4/letter/p/34f0e0/32.png) [@pantom](https://boards.straightdope.com/u/pantom)\ **Post date:** [October 27, 2005, 4:10am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/16 "2005-10-27T04:10:42Z")
Sigh. A certified ho gets appointed to the Fed, and this is all you guys can come up with? Geez. Yes, I’m here to stir the pot a little. A few years ago, Bernanke gave his infamous [helicopter speech](http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm) . In said speech, he earned his presidential kneepads through the following passage: > [@](#): > > In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money. The day he was appointed, stocks rallied and bonds dropped. The reason why? As the above shows, he is willing to a) inflate like mad (also known as debasing the currency) if prices should have the bad taste to actually fall (it should be noted that they actually did this as regularly as they rose from 1792 through 1920 without, apparently, retarding the growth of the US, since we ended that period as only _the largest industrial economy on the planet_), and b) do or say anything to get to be chairman of the Fed, since the above passage was so obviously a signal to the White House that they had a friend at the Fed named Bernanke. Then there’s this equally infamous passage: > [@](#): > > The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. I suppose it’s a good thing that he does actually realize that all those little green pieces of paper and flying electrons have only the value the Fed suffers them to have, as he will be cooperating with Our Illustrious Leader in his determined effort to stomp on the currency 'til it looks like the Turkish lira, or worse. I’ll be shuffling off to bed soon, but I promise to be around in the coming days to receive the appropriate punishments, should y’all be willing to offer them. ---
**Author:** ![hawthorne](https://avatars.discourse-cdn.com/v4/letter/h/c89c15/32.png) [@hawthorne](https://boards.straightdope.com/u/hawthorne)\ **Post date:** [October 27, 2005, 7:21am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/17 "2005-10-27T07:21:15Z")
I’ll leave **pantom** ’s post aside for the moment and reply to **UncleBeer**. To a fair degree this is terminology, and I wouldn’t want to get all Humpty-Dumpty about it. But I think asking whether these blokes are monetarists is a little bit like the question of whether today’s Chinese government is communist. In a sense they are, but not really. Let me explain my earlier > [@](#): > > Greenspan’s seeming obsession with the interest rate rather than the money supply should give you a clue that he wasn’t a monetarist. To be fair, he did pretend that he was, but he never acted like it. The bit I quoted from **UncleBeer** is indeed pretty much the heart of monetarism: 1. That the economy is pretty much stable 2. That prior excessive monetary expansion or contraction can be destabilising 3. That there is no long term trade off between inflation and unemployment 4. That monetary policy effects are subject to long and variable lags 5. That a steady and moderate expansion of the money supply is the best way to go about central banking. Now think of Greenspan talking about interest rates and the NASDAQ and growth and all that stuff: clearly he saw some potential for elements of the economy to be destabilising (due to irrational exuberance or whatever) and part of his role as central banker was to counteract these (perceived) destabilising forces, mainly by threats to raise interest rates if the boom got out of hand in some unspecified way. Notice this is quite different to a monetarist approach where the source of instability is _always_ the monetary authorities themselves. Threatening to choke off booms or stimulate the economy with low interest rates is not consistent with a monetarist view (as I’ve defined it). It is consistent with the view that the Fed should concern itself primarily with price stability, but under Greenspan, intervention and judgment were required to achieve appropriate policy outcomes. > [@](#): > > _UncleBeer_ > By stimulating, or depressing, loan origination through manipulation of interest rates, Greenspan contolled the expansion and contraction of the money supply. This is the transmission mechanism issue. How exactly does a monetary loosening work its way into the economy? I’m going to try not to get into this too much, because it’s a bit esoteric beyond a certain point. But the pretty much accepted idea these days is that central banks can control interest rates, but they can’t control the money supply (and that it works through credit rather than “real balances” - changes in the value of money people hold). The reason we think we know this is that when monetarism was all the rage in the late 70s and early 80s, central banks tried explicit monetary targeting. In Australia, the RBA would announce that M3 would be increased by 8% in the next quarter and then the figures would come back that it had increased by 30% despite the central bank’s efforts. This was because the quite stable relationship between the monetary base and broader aggregates breaks down as you try to manipulate them. If base money becomes more expensive relative to broad money or other liquid financial assets, people not surprisingly substitute towards them. Gradually the view became that central banks could influence the credit markets by changing the official interest rates. Again, not really consistent with a monetarist view because rather than a “set and forget” rule of predicable monetary expansion, the central bank has to review the interest rate and judge whether it remains compatible with continuing price stability. So how would I characterize these folks? Inflation targeters would be one term. Neo-Keynesian another. It’s the current orthodoxy. It’s got roots in both monetarist and Keynesian thinking: inflation control is the bank’s key role; no long term trade off between inflation and unemployment; but the interest rate and not the money supply is the policy variable and the real economy may need cooling or kicking from time to time. Inflation targeting - what we have here in Australia, and what you may well move to under Bernanke - is a combination of rules and discretion: the RBA explicitly states that it will keep underlying inflation between 2 and 4%, but it has no rule about how it will achieve that. Some disagree with the current orthodoxy. Real business cycle people think the expectations augmented Philips Curve (the trade-off between inflation and unemployment) is vertical even in the short run. Others think there is an excessive focus on inflation and that central banks could credibly promise to rein in inflation before it got going and run looser policy to help employment until then. Indeed, if you compare the US with New Zealand, that’s what you’ve got now. And that’s why some people see inflation in the US’s future: lack of fiscal discipline and a Fed that can backslide. ---
**Author:** ![UncleBeer](https://avatars.discourse-cdn.com/v4/letter/u/977dab/32.png) [@UncleBeer](https://boards.straightdope.com/u/UncleBeer)\ **Post date:** [October 27, 2005, 6:08pm UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/18 "2005-10-27T18:08:03Z")
> [@pantom](#): > > Sigh. A certified ho gets appointed to the Fed, and this is all you guys can come up with? Geez. > Yes, I’m here to stir the pot a little. A few years ago, Bernanke gave his infamous [helicopter speech](http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm) . That’s not been ignored here. BrainGlutton’s quote from Wikipedia included a passage about “Helicopter Ben,” and includes everything substantive in your post. I think the reason nobody has addrressed it is because it doesn’t really matter. At the time of Bernanke’s speech, deflation was a real worry. Hawthorne, thank you for elucidating your objections to my application of the monetarist label. There’s valuable information to be considered there and some important nuances entirely missing from the big brush of my posts. You are obviously far more informed and better equipped in matters economic than I. I’m a bit of a neophyte in economic issues, but am trying to learn. I will defer to your superior knowledge in this matter - which is more of a sidebar here anyway. ---
**Author:** ![hawthorne](https://avatars.discourse-cdn.com/v4/letter/h/c89c15/32.png) [@hawthorne](https://boards.straightdope.com/u/hawthorne)\ **Post date:** [October 28, 2005, 1:43am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/19 "2005-10-28T01:43:03Z")
Nah, don’t defer UncleBeer. It was a perfectly reasonable question and I certainly had to think about my reaction. If you look at the wikipedia article on [monetarism](http://en.wikipedia.org/wiki/Monetarism) you’ll see how deep this sort of thing runs: > [@](#): > > Greenspan, while still fundamentally monetarist in orientation, argued that doctrinaire application of theory was insufficiently flexible for central banks to meet emerging situations. Flexibility? Emerging situations? To me that just sounds like the oppositie of monetarism. I think what underlies this is that in the political domain “monetarist” means an advocate of “sound”, inflation first, small government, establishment types as opposed to people who adhere to a particular school of thought. ---
**Author:** ![pantom](https://avatars.discourse-cdn.com/v4/letter/p/34f0e0/32.png) [@pantom](https://boards.straightdope.com/u/pantom)\ **Post date:** [October 28, 2005, 4:03am UTC](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700/20 "2005-10-28T04:03:21Z")
I’ve been hangin’ out in this neighborhood for a long time, but I have to say, this is one of the strangest threads I’ve ever seen. Apparently, in this thread, we’re still living in a world where the head of the Fed is an independent authority whose opinion on matters outside of his narrow brief are of no consequence. Meantime, out in the real world, Greenspan blew that myth wide open when he sat between Tipper and Hillary at Clinton’s first inaugural, then spent the next eight years lauding the fiscal rectitude of that time, only to do a complete 180 degree turn when Dubya came in, spending the time since then praising his tax cuts. Most people would find this contradictory. But one need only consider the result: Greenspan retired when he wanted to, not when some President wanted him to. So, the question, hard as it is to face, isn’t whether Bernanke is this or that flavor of economist. The question, instead, is how far is he willing to go to keep the present occupant of the White House happy. Quite far, apparently. So no, **Uncle Beer** , the question isn’t only the helicopter speech. Let us continue with his views, as summarized in a neat little article on [TheStreet.com](http://TheStreet.com), [Rethinking the Bernanke Bonanza](http://www.thestreet.com/_googlen/comment/nickgodt/10249381.html?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA): > [@](#): > > Based on previous comments by Bernanke on the dollar and inflation, there were some reasons for dollar bulls to be jittery. In 2002, Bernanke was among the first and most vocal members of the Fed to warn of the dangers of deflation. > In a November 2002 speech that has since become famous, Bernanke advocated not only for looser monetary policy but also for the Bush tax cuts, both of which could generate “positive inflation” to prevent deflation… > He also famously said in the same speech that “a money-financed tax cut” is essentially the same as dropping money from a helicopter. Amid concerns that huge fiscal spending to rebuild Katrina-hit southeastern states would also spur inflation next year, the “printing press”, “helicopter” and “positive inflation” remarks may come back to haunt markets. > One could reasonably argue that these remarks were three years old and that the situation has now considerably changed, what with the surge in inflationary pressures after the most recent energy-price spikes. But in an interview with The Times of London last week but published Tuesday, Bernanke downplayed concerns that energy-related inflationary pressures would seep to core inflation. > “The evidence seems to be that it is primarily in energy and some raw materials and has not fed into broader inflation measures or expectations,” he said. “My anticipation is that’s the way it’s going to stay.” > Bernanke was also very dovish on the federal budget deficit. Noting that it was about 2.6% of GDP this year, he said “that’s not far above the long-term average.” > Then there are Bernanke’s views on the current account deficit. > Many economists believe that the historically low interest rates put in place by the Fed three years ago have encouraged borrowings at shorter-term interest rates for investments in longer-term and therefore “riskier” investments. > But in a March 2005 speech, for which Bernanke blames squarely “a global savings glut,” for the U.S. current account deficit. A shift that has transformed developing economies “from borrowers on international capital markets to large net lenders” to the developed world and the U.S. > This suggests that in Bernanke’s approach to reducing the current account deficit would not emphasize the need for higher U.S. rates to encourage more savings at home (the current savings rate in the U.S. is negative). That is, consistent with remarks he has made in the past few months while chair of the Bush administration’s Council of Economic Advisers. > Instead, he is more likely to pressure China to accelerate the process of delinking the yuan from the dollar, a move expected to boost U.S. exports and reduce the trade deficit over time, according to Tony Norfield, chief foreign exchange strategist at ABN Amro. > In order to finance the gap in the current account, which is the difference between imports and exports of goods, services and transfers (including financial flows), the U.S. has relied on foreign purchases of U.S. financial assets, especially Treasuries. But this leaves the economy vulnerable in case these purchases were to drop suddenly, which could send the dollar sharply lower and U.S. interest rates sharply higher. Such concerns were evident in the market earlier this year. Each of his views on each of the above issues, taken separately, are reasonable stances. But put them together as a package, and guess what? They happen to match exactly the views of the Administration. Coincidence? Maybe in this thread, but not in the real world. And a Fed chairman who isn’t independent of a President with as woeful a record as this one when it comes to spending other people’s money is a disaster waiting to happen. [Next page](https://boards.straightdope.com/t/new-fed-chairman-bernanke/327700.md?page=2)