The Case Against Bernanke

The Washington establishment is rallying behind Ben Bernanke, so that probably means the Fed Chairman will get confirmed for another term. But this is precisely why he is the wrong man for the job. As the Wall Street Journal opines, Bernanke is guilty of two sins. His track record on monetary policy is weak, indicating an insufficent commitment to protecting the value of the dollar. And his willingness to resist political pressure is even weaker, suggesting that America could be headed back to 1970s-style inflation:

The White House said yesterday it has damped down a political revolt against Ben Bernanke and now has the votes to secure the Federal Reserve Chairman's second four-year term. Whether or not Mr. Bernanke is confirmed, the lesson we draw is that overly political central bankers will eventually be undone by politics. ...When we opposed Mr. Bernanke's reconfirmation on December 3, the facile consensus was that the Fed chief was a master of the universe who had saved the world from depression. But after Scott Brown's victory in Massachusetts last week, Senate Democrats are suddenly looking for a financial political sacrifice. ...The Democrats' loudest complaint, moreover, is that Mr. Bernanke and the Fed haven't been easy enough in printing money. ...The Fed has already kept interest rates at near zero for more than a year, and it is buying $1.25 trillion in mortgage-backed securities to refloat the housing bubble, among other interventions into fiscal policy and credit allocation. Is the Fed going to buy another $1.25 trillion, or promise to keep rates at zero for another 14 months? Mr. Reid's declaration of a confirmation quid pro quo will not reassure global investors who already fear that the Fed lacks the political will to withdraw its historic post-crisis liquidity binge soon enough to avoid new asset bubbles. ...Mr. Bernanke is already far too susceptible to political pressure. As a Fed governor, he was Alan Greenspan's intellectual co-pilot last decade when their easy money policies created the housing mania. When Congress later put political pressure on the Fed to direct credit toward housing, and even to student loans, Mr. Bernanke (who was then chairman) also quickly obliged. More ominously for the next four years, Mr. Bernanke continues to deny any Fed monetary culpability for creating the mania. Shortly after the New Year, even with his nomination pending, Mr. Bernanke issued an apologia that was striking for its willingness to play to the Congressional theory of the meltdown by blaming bankers and lax regulators. ...Yes, much of Wall Street wants to see Mr. Bernanke confirmed. The Street is currently making a bundle off Fed policy, as it borrows at near-zero rates and lends long, and the banks don't want that to end. The banks also loved negative real interest rates in the middle of the last decade, and we know how that turned out.