|
January 31, 2008 - 9:40 AM
Poor Ben Bernanke
Having read countless attacks against the Fed in recent days, it is time that someone stands up for poor Ben Bernanke. Somewhat safe in the knowledge that central banks will not prove a passing fad, I will answer the call. To begin with, there are some points that need to be made.
Number one: If Fed rate cuts fail to gain traction this would not be the fault of Bernanke, but a direct result of the credit polluted U.S. economy being unable to swallow more debt.
Number two: To contend that Bernanke being ‘behind the curve’ in recent months is the reason why the U.S. economy is slumping is nonsensical. To be sure, even if the Fed had been ‘ahead’ of the curve U.S. housing prices would still be falling, foreclosures would still be soaring, and the financial markets would still be in a funk due to the uncertain outlook surrounding not only subprime but also corporate earnings.
Number three: Last week Bernanke had the choice of either cutting interest rates to try and stop the stock markets from plunging or cutting rates after the Dow got dinged for a 600-1,000+ drop. It is easy in hindsight to contend that Bernanke made the wrong choice (especially since the unwinding of rogue trades may have embellished the crash in global markets), or that he didn’t need to move by 75 bps points. Nevertheless, Fed God Paul Volcker himself probably would have cut interest rates at some point last week…
If these points make it sound like I am applauding Bernanke’s performance as Fed boss I apologize (I happen to think that Bernanke will end up being little better than Greenspan). However, it is important to try and lay criticism objectively as events unfold.
An objective observation: In a world where central banks exist there is nothing wrong with Bernanke hacking interest rates aggressively lower to combat a recession or financial market meltdown, so long as he isn’t forced to panic and raise interest rates anytime soon.
Poor Ben.
Incidentally, and thanks again to hindsight, with stocks headed sharply lower this morning it looks like, at least from an investor psychology perspective, 125 bps worth of Fed goodness has been wasted...
|
