In a recent article in Bloomberg, reporter Jeannine Aversa gives some history and advice for Ben Bernanke, Fed Chief from Ben Bernanke the scholar.
Ben's advice in a nutshell? "Be bold."
Ben Bernanke began his 4 year appointment as Fed Chairman and 14 year term on the Federal Reserve Bank's Board of Governors February 1, 2006 by President George H.W. Bush. He was appointed to a second term as the Chairman on February 1, 2010 by President Barack Obama. Dr. Bernanke received his B.A. in economics from Harvard in 1975 and a Ph.D. in economics from the Massachusetts Institute of Technology in 1979 (Federal Reserve, 2011).
The article in Bloomberg hits on a few key spots where Bernanke has had to be bold in his actions in an effort to keep the U.S. economy out of a depression and major financial crisis. The stakes were very high with not just the U.S. economy hanging in the balance but also economies around the world.
Since taking over his position as Fed Chairman, Bernanke has had to deal with some pretty major shocks to the economy. The housing bubble burst in 2007, spurring a financial crisis that could easily have cast the country into a depression period without swift action. In April of 2010 he said that "policy makers must respond forcefully, creatively and decisively" and "crises that are international in scope require an international response." In his two terms as Fed Chairman, Bernanke has had the difficult task of steering the country clear of another depression while avoiding possible inflation and deflationary periods.
"He is, by far, the most activist chairman we've seen in modern history," said former Fed Governor Lyle Gramley. "No other chairman has had a crisis of this magnitude to deal with, other than the people running the Fed in the late 1920's and in the 1930's, and they didn't do a good job."
Bernanke and his board of governors have had to create new systems to test whether the biggest banks in the country could hold up in the event the economy weakened. On his watch, the Fed has also had to purchase mortgage securities as well as government debt in an effort to revive the housing market and promote spending by Americans (Aversa, 2011). Another effort to promote spending by consumers was a payroll tax cut called for by Bernanke along with buying up $600 billion in bonds through an open market operation.
When the Federal Open Market Committee (FOMC) wants to increase the money supply, they buy up government bonds from the public on the bonds markets (Mankiw, 2009). The result of buying bonds puts money in the pockets of the public, if the Fed wants to decrease the money supply, they sell off bonds. It is generally thought that when the public has more money available to them, they will consume more. This increased consumption should lead to an overall increase in Gross Domestic Product (GDP) and expansion of the economy.
GDP is the market value of all final goods and services produced within a country...