Bernanke to replace Greenspan as Fed Chairman
Everyone knew that Greenspan could not go on
forever as Fed chairman. He would be eighty next year, and it is clear that
another four years at the Fed might be more than an octogenarian can handle. So
Greenspan plans to retire at the beginning of next year. He will be replaced by
Ben Bernanke, a former Princeton economist.
No one expects Bernanke to be able to fill
Greenspan's shoes. Although, as far as anyone can tell, his economic views are
fairly similar to Greenspan's, what he undoubtedly will lack is Greenspan's
ability to create a cult of personality around himself. Greenspan was adept at
the political game. For eighteen years he managed, in his public pronouncements,
to balance a refreshing candor with a beguiling obscurity, thus creating the
image of someone who was both his own man and a lickspittle of the powers that
be. This enabled him to get along with politicians from most party. During the
Clinton era in particular, when the Presidency was occupied largely with
individuals at odds with the Fed chairman's personal beliefs, he managed to
become the virtual economic czar.
It's
hard to imagine that Bernanke will be able to duplicate such an achievement. He
probably does not have Greenspan's rare ability of getting nearly everyone
except a few extremists to respect him. This could make the Fed less of a force
a monetary policy, particularly considering that there will be rough years
ahead, and Bernanke will find himself reaping what Greenspan
sowed.
Concerns have already been
raised that Bernanke might be an inflation "dove." Again, the Greenspan mystique
is at work here. We are led to believe, despite his record, that Greenspan was
an inflation hawk. But it was largely this perception through which Greenspan
attemped, particularly in his later years, to keep inflation down. Because
everyone considered Greenspan an uncompromising warrior against the scourge of
inflation, no one expected inflation under his watch. This kept consumer prices
from skyrocketing despite the Fed's massive influx of money into the economy.
Bernanke, lacking Greenspan's mystique, will not be able to make use of this
method to keep the price level down. Bernanke looks to preside over a great
inflationary period in American economic history. This will happen regardless of
whether he is or is not an inflation dove. He could be the very hawk of hawks;
but the perception that he isn't a hawk, combined with the rapidly expanding
money supply, will bring about a great inflationary epoch.
Posted: Sun - October 30, 2005 at 04:46 PM