Bernanke Saying He's Dispensable Suggests Tenure Ending … Federal Reserve Chairman Ben S. Bernanke said he's "spoken to the president a bit" about his future and that he feels no personal responsibility to stay at the helm until the Fed winds down its unprecedented policies to stimulate the economy. "I don't think that I'm the only person in the world who can manage the exit," Bernanke said when asked at a news conference in Washington if he's discussed his plans with President Barack Obama. – Bloomberg
Dominant Social Theme: This man, this modest, irreplaceable man, must be prevailed upon to stay.
Free-Market Analysis: Ben Bernanke is making the noises of escape. As we pointed out in another article in this issue, stock and bond markets are up tremendously as a result of central banking stimulation, not just in the US but around the world. But in the US performance is remarkable.
Stock and bond markets have moved up hard even though there is no real evidence that economies are improving, either in the US or elsewhere. In fact, given what is taking place in Cyprus, it might even seem that the world's economic trouble spots – the EU being a big one – are getting worse.
No matter, stock markets are hitting new highs in the US and bond prices are being bid up as well. After five years the Fed has managed to create the beginnings of mania.
So why would Bernanke at the height of what would seem to be a significant triumph, the expression of the will of central bankers over market gloom, want to leave now?
There is probably an answer to this question, and we will provide it. First a little more from the article:
Bernanke's comments yesterday meshed with the views of some of Obama's economic and political advisers who said Bernanke, 59, after spending most of his seven years on the job battling a financial crisis and its aftermath, is exhausted and wants to return to private life. The current and former administration officials asked to not be identified to describe the private conversations.
… Yesterday, Bernanke said, "I've spoken to the president a bit, but I really don't have any, I don't really have any information for you at this juncture." Bernanke, a former Princeton University professor, also said he didn't feel personally responsible to lead the Fed …
Bernanke said yesterday that one of the things he hoped to accomplish and was "not entirely successful at, as the governor or as the chairman of the Federal Reserve, was to try to depersonalize to some extent monetary policy and financial policy and to get broader recognition of the fact that this is an extraordinary institution."
"It has a large number of very high-quality policy makers, it has a terrific staff, literally dozens of PhD economists who've been working through the crisis, trying to understand these issues and implement our policy tools," Bernanke said. "And there's no single person who is essential to that."
We can see in these statements that Bernanke is trying to make it clear that the Fed is an institution not simply a kind of high-level facility designed for economic manipulation. Conversations about Ph.Ds, policy makers and a "terrific staff" are indications about how Bernanke and others want people to see the Fed and central banks generally.
But it is difficult to avoid several conclusions here. First, it will seem if Bernanke leaves that he is going only to avoid the trap that he and others have placed the Fed in, and the country as well.
Rates have been low for so long that they have continued to facilitate rash borrowing. Now rates literally cannot be lifted without causing extreme pressure on US disbursements. Higher rates and the entire US budget might end up going on interest payments.
Second, to keep rates down, Bernanke has virtually doomed the Fed to perpetual monetary debasement. No matter what happens, boom or bust, the Fed will need to promote huge inflationary programs.
Finally, it is inevitable that the huge stimulation that Bernanke has presided over will cause an equally huge bust just as such machinations have caused market meltdowns in the past.
Only this one will likely be even larger because of the literally tens of trillions that central bankers have dumped into bank coffers to try to prop up the corpse of the dollar reserve currency.
Perhaps it is unfair to Ben Bernanke, but anyone examining the totality of his actions and their likely result would be tempted to come to the conclusion that he wants to leave before the proverbial house of cards comes tumbling down.
This cannot end well. He must know it.