Ben Shalom Bernanke took over as Chairman of the Board of Governors of the Federal Reserve on 02/01/06, replacing Alan Greenspan. Congress decided this because Bernanke knew about how monetary policy contributed to the Great Depression and believed in inflation targeting.
Crisis manager
To prevent global depression in the early stages of the banking crisis, he created many innovative Fed tools.
Bernanke led the US Federal Reserve when it began to play a new role, for example, saved the Bear Stearns and the insurance giant AIG, giving them $ 150 billion in assistance. To stop the global panic, the Fed lent financial institutions $ 540 billion.
Ben Bernanke (photo posted later in the article) also pushed for expansion of operations in the open market, when interest rate cuts alone were not enough to put an end to the 2008 crisis. He pursued a policy of simultaneously reducing long-term interest rates and raising short-term ones.
Ben Bernanke resigned as head of the Fed January 31, 2014. He was replaced by former Deputy Head of the Federal Reserve Janet Yellen, who is sympathetic to his policy.
Importance for the US Economy
Federal Reserve Chairman Ben Bernanke was responsible for managing 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 conduct 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. During his tenure as chairman of the Federal Reserve, he was the most important person in the United States and, consequently, in the global economy.
Fed Chairman Responsibilities
Despite the fact that the Federal Committee for Open Market Operations is responsible for determining and implementing monetary policy, the Fed chairman has traditionally taken 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 accountable to voters. This allows the Fed to work for the long term, and not respond to momentary political pressure. Fed instruments, such as federal funds rates, are slow for six months. The US economy, like a big ship, needs a gradual direction. Monetary policy “stop-go” leads to uncertainty, which was one of the main causes of stagflation in the 1970s.
The crisis of 2008
Under Bernanke, the Fed very creatively applied the tools available to it. Previous chairpersons used only the federal funds rate — they raised it to stop inflation or lowered 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 turned out to be insufficient to restore the liquidity of banks that panicked after the default of low-quality mortgage loans. These loans were reformed and sold in the form of mortgage-backed securities, so complex that no one could really understand who had bad debts.
As a result, banks stopped short-term lending, which was usually used as a way to meet the reserve requirements of the Fed. In response, Bernanke weakened them, lowered the discount rate, and, finally, he provided a loan through a discount window.
When this was not enough, in December 2007 he created the TAF fund, through which the Fed lent billions of dollars to banks, accepting bad debts as collateral. TAF was supposed to be a temporary measure until financial institutions write off bad debts and start lending to each other again. When this did not happen, TAF grew larger, peaking at $ 1 trillion in June 2008.
Saving the global 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 supply of American currency when trading with other countries, by $ 180 billion. This was necessary because banks began to stock up cash in a panic. They were afraid to lend to each other because they did not want to stay with derivatives of subprime mortgages.
In April 2008, the Fed, Ben Bernanke, held its first emergency meeting in 30 years to guarantee Bear Stearns loans so that JP Morgan could acquire them. This allowed us to avoid a default of $ 10 trillion owned by Bear Stearns, and banks were able to breathe a sigh of relief for several months. In the second quarter The economy was growing in 2008, and many thought the disaster was averted.
But in September 2008, the world's largest insurance company AIG announced a possible bankruptcy. AIG worldwide has insured trillions of dollars in mortgages. If the company collapsed, it would hurt every bank, hedge fund and pension fund that had mortgage-backed securities as an asset. Bernanke said AIG support pissed him off more than anything else during the recession. AIG took risks on unregulated products, such as default swaps, using the funds of population insurance policies.
Criticism
Many lawmakers and economists have criticized the Ben Helicopter for injecting many trillions of dollars into the economy, which could potentially cause inflation and increased debt. Others blamed him for not foreseeing a recession on time. He was charged with hiding information about banks that received up to $ 2 trillion in TAF loans. Rep. Ron Paul and others called for an Fed audit to disclose the names of these financial institutions. Ben Bernanke, reviews of which many lawmakers were not very flattering, risked not getting a reappointment in January 2010. But Obama did it easily.
Life after retirement
Shortly after the resignation, a book of memoirs about the crisis and its consequences appeared, authored by Ben Bernanke. "The courage to act" describes the period of his tenure at the head of the Fed, and also contains the recognition that he is no longer a Republican, as he is tired of "the predisposition of the members of this party to the ignorance of the extreme right." According to him, today he is moderate independent and thinks to remain so in the future.
In addition, he is the author of several books on economics, including:
- “Non-monetary consequences of the financial crisis during the spread of the Great Depression”,
- Macroeconomics of the Great Depression,
- “Inflation targeting: lessons from international experience”,
- Macroeconomics textbook (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 monitoring policies, and helps improve its effectiveness.
Ben Bernanke: biography
Bernanke was born on December 13, 53 in Augusta (Georgia), and raised in Dillon (South Carolina). Ben's father was a pharmacist, and his mother was a teacher.
At age 12, he won a state spelling contest. He independently studied differential and integral calculus, since this subject was absent in his school. Ben also played the altsaxophone.
He graduated with honors from the Economics Department of Harvard University (1975) and received a Ph.D. from MIT (1979).
Ben Bernanke and his wife Anna registered their 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. It has been widely published on a number of economic issues, including on the topics of macroeconomics, monetary policy, the Great Depression, and business cycles.
He received scholarships from the Guggenheim and Sloan, and in 2001 became editor of the American Economic Review. The following year, he was appointed a member of the Fed's Governing Council and became known for his thorough research and diplomacy, when opinions among governors differed. Bernanke's political influence became apparent in early 2005, when he was appointed chairman of the Presidential Council on Economic Affairs.
In 2009, Time magazine named him the Person of the Year.
Philosophy
Ben Bernanke was less outspoken than Greenspan, who regularly spoke on topics not related to monetary policy, including commenting on budget deficits and tax cuts. He was also an active supporter of a more transparent Federal Reserve System, which clearly distinguishes him from the "federation" of Greenspan, which he used to ensure that the markets do not react too sharply to his comments.
A source of information that allows you to get an idea of the personal philosophy that Ben Bernanke adhered to is the books and comments of the economist.
Inflation targeting
Ben Bernanke changed the Fed course of the Greenspan era, starting to set a specific numerical inflation target. While many European banks, including the Bank of England and the European Central Bank, set specific targets, the United States did not, and Greenspan was not a proponent of this approach.
In the early days of Bernanke's work, these basic philosophical and style differences with Greenspan excited markets. The possibility of moving to targeting policy has worried some analysts since Greenspan never tried to maintain a firm bid. This awkwardness was eliminated when Bernanke stopped voicing specific figures.
Since then, he continued the policy of more openness of the Fed, especially when at the end of 2007 he increased the frequency of forecasts. The Federal Reserve began to publish quarterly forecasts for economic growth and prices, compared with six months earlier. They also began to cover a three-year period, compared with the two-year period before.
Deflation
Ben Bernanke's study of the Great Depression instilled in him a lifelong interest in the consequences of deflation and its impact on people's lives. He also gained a strong aversion to deflation and placed a strong emphasis on preventing it.
His feelings about this became clear when in November 2002 he delivered a speech entitled "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 to borrowers and lowering interest rates to ensure borrowing growth helps stimulate the economy and stop deflationary pressures. However, in the context of the meeting, this was to illustrate a number of the Fed's tools that it has at its disposal, even at zero rate.
Inflation
Although curbing deflationary pressures by increasing money supply may have a clearly inflationary effect, this does not mean that Bernanke underestimated inflation. He supported its targeting in order to maintain it at a relatively low and stable level to stimulate sustainable economic growth.
Ben Bernanke (virtual cards): reviews
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Ben Bernanke, an economist, was well versed in the consequences of the Great Depression, one of the biggest financial disasters in the United States, and his style was shaped by years of work in the Federal Reserve. His appointment continued the course set by his predecessor, and was favorably received by financial markets, as the succession of the Fed chairman is the key to their stability.