Money-Rx Blog

Sunday's New York Times Magazine contains an article from Roger Lowenstein, author of While America Aged, which has more to do with Bernanke's brief, and highly eventful, tenure as Head Honcho of the Federal Reserve, than his education at MIT. Bernanke’s attempt to improve the way the Fed communicates has misfired and often left investors confused, partly because he has repeatedly shifted course over the future direction of interest rates. His hero, Milton Friedman, is said to have warned against an indecisive Fed acting like a “fool in the shower” fumbling with first the hot water and then the cold. Bernanke has gotten close. Perhaps worst of all, he has failed to persuade investors that the Federal Reserve, which was formed in 1913 for the very purpose of halting market panics, is up to the job. “Bernanke is seriously behind the curve,” says David Rosenberg, chief North American economist for Merrill Lynch, one of many critics who maintain that the Fed has not responded to the crisis with sufficient vigor.

That brings up the question of whether the FED is supposed to react or be pro-active. And to define what exactly is the FED's mandate and the FED Chief's job. Which is what the article goes on to tackle. When Bernanke was nominated to be the Fed chief, a meltdown was not on many people’s radar. He was easily confirmed and pressed ahead on one of his main goals: to make the Fed more transparent....Bernanke must be regarded as one of the intellectual authors of the low-rate policy that fed the housing bubble....By cutting rates by a total of one point since August, Bernanke has clearly moved toward a policy of stimulus.

Summary of the seven page monster would be that the FED does not have any real power to affect or rectify the crisis, and Bernanke is behind the curve and still learning that he's part of the supporting cast, and not the main lead. The kind of role where he's required to hold hands and pass out the tissue.

Troubled future for the economy, which requires, more than anything else, an ability to inspire confidence and spread calm, rather than any actual solutions. Considering that Bernanke is more of a nuts and bolts technocrat who would rather analyze the situation and practice textbook economics, rather than embracing a more big picture approach and inspiring others to do the right thing, he may not be the right man for the job, at this juncture.