Angry Bear will be posting writing by writers less well known and will usually be twenty and thirty years old as well. Here is another one:
by David Parkman
The End of an Era: Ben Bernanke Passes the Torch
After an eight-year term, Ben Bernanke arrives at Brookings Institution for his first day of work and Janet Yellen was sworn in as the first woman to chair the Federal Reserve on Monday February 3, 2014. Succeeding a term of great upheaval, Yellen has the four decade background in monetary and economic affairs to take the reins, but is unlikely to make a repeat performance of Bernanke. However, his work to stimulate the economy and lower interest rates will most likely continue under her authority. Always a staunch ally of Bernanke, it remains to be seen how she will apply her unique skills and ideas for Americas Central Bank.
Ben Bernanke is leaving a legacy of unprecedented actions; he was the first chairman to use emergency lending powers to rescue businesses since the Great Depression. He devised a monetary policy that curbed longer-term interest rates by lowering credit costs after the short-term policy rate bottomed out. His goal to declare an inflation target was met in 2012 at 2% and he made the Federal Open Market Committee meetings more of an open floor forum encouraging a sharing of ideas and policy views.
Unfortunately, the legacy that might be the most remembered is the $4.1 trillion balance sheet he left behind for Yellen. The drastic actions of purchasing $1.5 trillion in mortgage debt and creating $2.4 trillion in bank reserves have yet to fully show their impact and it is unclear whether or not these actions can be successfully retracted or unwound successfully. It is now the responsibility of Yellen to deal with the consequences and closing of Ben Bernanke’s legacy.
What she will continue:
An anticipatory decision, Yellen announced in her confirmation to continue the $85 billion-a-month quantitative easing, it appears that Bernanke’s groundbreaking work will continue to be seen during Yellens term. It can be expected by her statements that she will continue to nurse the economy back to health opening her confirmation speech with “We have made good progress, but we have farther to go to regain the ground lost in the crisis and recession”. The reforms that Yellen supports, cutting interest rates close to zero, the bond purchasing programs, and efforts to reduce longer-term borrowing costs seem to be working and can be expected to be utilized under her administration.
However, Bernanke did leave his post with a $4.1 trillion balance sheet and only just started the wind down by reducing the bond purchasing program to $75 billion-per-month. It will be her duty to continue this wind down and make the programs and efforts sustainable in the long run, reducing the stimulus efforts on par with the recovery of the economy; no easy task.
Forecast of change and innovation:
Until Yellen’s semi-annual testimony before the Senate and House, much is up to speculation about what she is looking to accomplish in her term as Chair of the Federal Reserve. She does have a responsibility to continue the pledge to keep interest rates low for an extended period of time to keep Federal Open Market investors soothed. Keeping these rates from spiking and causing a panic is essential to easing the Fed back onto normal monetary paths. However, maintaining them for too long can have adverse effects as well; much like a syphon, maintaining the low rates for too long may accelerate the depletion of reserves and become unsustainable and damaging quickly.
It is more clear what people, especially the Senate, want Janet Yellen to do. At her confirmation, Senators David Vitter, Sherrod Brown, and Elizabeth made it clear that they would like the Fed to have stricter policies for policing Wall Street. How their wishes are executed will be an issue of debate throughout Yellen’s tenure as Chair; to date the board has placed its supervisory role in the back seat and opted to focus on policy making.
It is safe to say that Yellen will conduct her term as Chair in the same manner that she has conducted herself throughout the years: with calm deliberate action. The combination of her four decades of experience, preparation for this position, and framework setup by Bernanke, Yellen will continue to work towards mending the economy and weaning the Fed stimulus actions to create a more sustainable financial structure and a prosperous American people.