10/23/12 8:38 AM – Bernanke Will Not Seek Another Term – NYT

Ben Bernanke will apparently end his tenure as chairman of the Federal Reserve in Jan. 2014 when his current term runs out, says the NY Times, quoting Bernanke’s friends. Of course, should Romney win (which I doubt) he has said he would fire Helicopter Ben.

Bernanke has been very creative and extremely accomodative. I give him high marks for his actions early in the financial crisis but I think he is erring now.

Interest rates are too low for banks to make much money, thereby not stimulating economic growth as is his aim but frustrating growth. Why should a bank loan money at 2% or 3% with its attendant risks in a sluggish economy when it can find much higher returns in the financial markets that have been goosed by so much Fed money?

On the other side, markets have been artificially pushed up the last four years, especially the bond market. The stock market, which usually reflects what it believes will happen in the economy six months out has performed entirely differently than the economy while Ben has poured money into the marketplace. My clients have benefitted from this, but I prefer markets not to be tinkered with by government officials, except by necessary regulations to ensure safety and transparency.

Then there is inflation. The US has not suffered from it but when Bernanke stimulated the economy giving trillions to banks they sent a great deal of it to their foreign subsidiaries where it caused inflation there. Other countries were justifiably sore at the US for that.

We have not had inflation here because banks are not loaning much of that money and so what economists call the velocity of money (the strength of the ripple effect) has remained low as economic activity remains sluggish.

Bottom line: Ben Bernanke’s time so far has been a mixed bag, very good in the early days and not so good in the past two or three years.

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