Ben Bernanke and his views on the economy

Ben Shalom Bernanke became chairman of the Board of Governors of the Federal Reserve System on 01.02.06, replacing Alan Greenspan. Congress so decided because Bernanke knew about how monetary policy contributed to the Great Depression, and believed in targeting inflation.

Crisis manager

To prevent global depression in the early stages of the banking crisis, he created many innovative tools for the Fed.

Bernanke led the US Federal Reserve System when it began to play a new role, for example, rescuing Bear Stearns and the insurance giant AIG, giving them $ 150 billion in aid. To stop global panic, the Fed lent $ 540 billion to financial institutions.

Ben Bernanke (photo later in the article) also pushed for expansion of operations in the open market, when in itself a reduction in interest rates was not enough to put an end to the 2008 crisis. He pursued a policy of simultaneously reducing long-term interest rates and increasing short-term interest rates.

Ben Bernanke resigned as Fed chief on January 31, 2014. He was replaced by former deputy head of the Federal Reserve, Janet Yellen, who is sympathetic to his policies.

Important for the US economy

Federal Reserve Chairman Ben Bernanke was in charge of leading the US monetary policy. The importance of the role of the Fed has increased significantly over the past decade, as a huge national debt has complicated the implementation of fiscal policy. As a representative of the Fed, Bernanke was the country's chief economic expert, and his words influenced the stock market and the dollar rate. During his tenure as chairman of the Federal Reserve System, he was the most important person in the US and therefore in the global economy.

Duties of the Chairman of the FRS

Despite the fact that the definition and implementation of monetary policy deals with the Federal Committee for open market operations, the chairman of the Federal Reserve traditionally holds a leading role. Since he is appointed for a four-year term, he is expected to be more independent than an elected official who is responsible to voters. This allows the Fed to work for the long term, rather than reacting to momentary political pressure. Federal Reserve instruments, such as federal funds rates, have been slow, for six months. The US economy, like a large ship, needs a gradual direction. The "stop-go" monetary policy leads to uncertainty, which was one of the main reasons for the stagflation of the 1970s.

The crisis of 2008

Under Bernanke, the Fed very creatively used the tools available to it. Previous chairpersons used only a federal funds rate - raised it to stop inflation or lower it to prevent a recession. In the period from September 2007 to December 2008, Bernanke decisively reduced the rate 10 times from 5.25% to 0%.

But this was not enough to restore the liquidity of banks that had panicked after defaulting low-quality mortgage loans. These loans were restructured and sold in the form of mortgage securities, so complex that no one really could understand who had bad debts.

As a result, banks stopped short-term lending, which was usually used as a way to meet reserve requirements of the Fed. In response, Bernanke weakened them, lowered the discount rate, and, finally, he himself provided a loan through a discount window.

When that was not enough, in December 2007 he established the TAF fund, through which the Fed lent to the banks billions of dollars, accepting bad debts as collateral. TAF was to be a temporary measure until financial institutions write off bad debts and again start lending to each other. When this did not happen, TAF became larger, reaching a peak of $ 1 trillion in June 2008.

Salvation of the world financial system

Bernanke worked with central banks around the world to restore liquidity when credit markets were frozen. He increased overnight and short-term credit swap lines, designed to maintain the US currency reserve when trading with other countries, at $ 180 billion. This was necessary, because the banks began to be in cash in a panic. They were afraid to lend to each other, because they did not want to stay with derivatives from subprime mortgages.

In April 2008, the Fed of Ben Bernanke held its first emergency meeting in the last 30 years to guarantee Bear Stearns loans so that JP Morgan could acquire them. This allowed to avoid a default of $ 10 trillion owned by Bear Stearns, and the banks were able to breathe a sigh of relief. In the II quarter. In 2008, the economy grew, and many thought that the disaster was averted.

But in September 2008, the world's largest insurance company AIG announced a possible bankruptcy. AIG around the world insured mortgage loans for trillions of dollars. If the company collapsed, it would hurt every bank, hedge fund and pension fund, which had mortgage-backed securities as an asset. Bernanke said that AIG's support angered him more than anything else during the recession. AIG has taken risks on unregulated products, such as default swaps, while using the money resources of insurance policies of the population.

Criticism

Many lawmakers and economists criticized the "Ben Helicopter" for injecting into the economy of many trillions of dollars, which could potentially cause inflation and increase in debt. Others blamed him for not anticipating a recession on time. He was charged with concealing information about banks that received up to $ 2 trillion of TAF loans. Representative of the House of Representatives Ron Paul and others called for an audit of the FRS with a view to disclosing the names of these financial institutions. Ben Bernanke, whose opinions about many legislators were not very flattering, risked not getting a re-appointment in January 2010. But Obama did it with ease.

Life after retirement

Shortly after his resignation, a book of memories of the crisis and its consequences was published, authored by Ben Bernanke. "Courage to act" describes the period of his stay at the head of the Fed, and also contains the recognition that he is no longer a Republican, as he was bored with the "predisposition of members of this party to the ignorance of the extreme right." According to him, today he is a moderate independent and thinks to remain so in the future.

In addition, he is the author of a number of books on economics, among which:

• "Non-monetary consequences of the financial crisis in the spread of the Great Depression,
• "Macroeconomics of the Great Depression"
• "Inflation Targeting: Lessons from International Experience"
• Textbook "Macroeconomics" (Ben Bernanke, Andrew Abel).

In February 2014, he became an honorary full member of the Brookings Institution. Advises the Hutchins Center on public awareness of tax and monetar policies, and also helps to increase its effectiveness.

Ben Bernanke: Biography

Bernanke was born on 13.12.53 in Augusta (Georgia), and grew up in Dillon (South Carolina). Ben's father was a pharmacist, and his mother was a teacher.

At the age of 12 he won a state contest for spelling. He independently studied the differential and integral calculus, since this subject was absent in his school. Ben also played on the altsaxophone.

He graduated with honors from the Faculty of Economics at Harvard University (1975) and received his Ph.D. in MIT (1979).

Ben Bernanke and his wife Anna registered a marriage on May 29, 1978. They had two children.

He began teaching economics at Stanford University, where he worked in 1979-1985. He became a full professor in 1985, when he moved to Princeton University, and also worked as a visiting professor at the University of New York and MIT. He was widely published on a variety of economic issues, including macroeconomics, monetary policy, the Great Depression and business cycles.

He received scholarships Guggenheim and Sloane, and in 2001 he became editor of the American Economic Review. The following year, he was appointed a member of the Board of Governors of the Federal Reserve and became known for his thorough research and diplomacy, when the opinions among the governors were different. The political influence of Bernanke became apparent in early 2005, when he was appointed chairman of the Presidential Council for Economic Affairs.

In 2009 Time magazine called him the man of the year.

Philosophy

Ben Bernanke was less frank than Greenspan, who regularly spoke on topics not related to monetary policy, including commenting on the budget deficit and tax cuts. He was also an active supporter of the more transparent Federal Reserve System, which clearly distinguishes him from Greenspan's "fedka", which he used to ensure that markets do not react too sharply to his remarks.

The source of information to get an idea of personal philosophy, which Ben Bernanke adhered to - books and comments of the economist.

Inflation Targeting

Ben Bernanke changed the course of the Greenspan Fed, beginning to set a specific numerical target for inflation. While many European banks, including the Bank of England and the European Central Bank, set specific targets, the United States did not do this, and Greenspan did not support such an approach.

In the early days of Bernanke's work, these basic philosophical and style differences with Greenspan stirred the markets. The possibility of moving to a targeting policy bothered some analysts, since Greenspan had never tried to keep a firm bet. This awkwardness was eliminated when Bernanke stopped sounding specific figures.

Since then, he continued the policy of greater openness of the Fed, especially when at the end of 2007 he increased the frequency of forecasts. The Federal Reserve System began to publish quarterly forecasts on economic growth and prices, compared with the semi-annual earlier. They also began to cover a three-year period, compared with a two-year period.

Deflation

The study of Ben Bernanke's Great Depression instilled in him a lifelong interest in the consequences of deflation and its impact on people's lives. He also acquired a strong dislike for deflation and made a strong emphasis on its prevention.

His feelings about it cleared up when, in November 2002, he delivered a speech titled "Deflation: How to Ensure Its Absence". He referred to the idea of economist Milton Friedman about dropping money into the economy from a helicopter. Increasing market liquidity by increasing the availability of money for borrowers and lowering interest rates to ensure the growth of borrowing helps to stimulate the economy and stop deflationary pressure. However, in the context of the meeting, this should illustrate a number of FRS tools that it has at its disposal, even in conditions of zero rate.

Inflation

Although curbing deflationary pressure by increasing the supply of money can have a clearly inflationary result, this does not mean that Bernanke underestimated inflation. He supported its targeting in order to maintain it at a relatively low and stable level in order to stimulate sustainable economic growth.

Ben Bernanke (virtual maps): reviews

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Ben Bernanke, an economist, was well versed in the consequences of the Great Depression, one of the biggest financial catastrophes in the United States, and his style was shaped by years of work in the Federal Reserve System. His appointment continued the course set by his predecessor, and was favorably received by the financial markets, since the continuity of the Fed chairman is the key to their stability.