One of the most important positions in the United States today is the Chairman of the Federal Reserve. While very few people may know who holds the position, or even what the Fed does, it is a position that is more vitally important in today’s economic conditions. With current Fed Chairman Ben Bernanke’s eight year term coming to an end on January 31st of next year, President Obama has arguably his most important task to date: naming his successor. There have been several names floating around but two are the most common and most likely, Janet Yellen and Larry Summers.
Janet Yellen is the current Vice Chairman of the Federal Reserve and would be the first female to ever hold the position of Fed Chairman. She is a monetary policy dove who supports the idea of the Fed being a tool to help ratchet down unemployment, something most Republicans say is not the job of the Fed. She would most certainly continue the QE (quantitative easing) program that the Fed is implementing, which currently has them buying up $85 billion in bonds and assets each month.
Larry Summers is viewed by many to have an inside track because of his close relationship with President Obama. Summers served as one of the top economic advisors for President Obama and many feel his appointment could give the president a friend at the Fed that could force Republicans into accepting his economic policies. But many people, including me, are critical of Summers. I personally feel he should never have been picked as an economic advisor and should not even be in the running for Fed Chairman. As Treasury Secretary, Summers was horrible. He helped advocate for deregulation on Wall Street, and the elimination of the Glass-Steagall Act, which restricted banks from gambling with their depositors’ money. This gambling by banks was one of the primary contributions to the derivatives-based bubbles that started this economic downturn. As president of Harvard, Summers lost two billion dollars of the school’s funds by gambling it on the stock market. The guy should be in jail. Instead, he’s up for a job as the leading banker of the country.
Certainly Ben Bernanke is leaving unparalleled shoes to fill. Bernanke is a former professor who studied the Great Depression in depth. He was truly the right man at the right time for the position. When the recession reached its’ height, the economy went in a downward spiral, the Congress was gridlocked, and President Obama was more concerned with healthcare. Bernanke stepped in and took dramatic action never before seen by the Federal Reserve. He introduced a way to help restore credit and confidence in the economic community. He infused more than a trillion dollars (QE) into lending programs which helped troubled financial firms, primarily banks. Debt from corporations was bought by the Fed and distressed mortgage assets were transferred to the Fed’s books. Doing this allowed him to manipulate prices and keep policy interest rates into the floor, almost to the point of being non-existent. He also pushed central banks and bankers around the world to pursue expansion programs as well. And when people questioned his moves, he made it clear that the Fed would not hesitate to take even further action if needed. These decisive actions helped to build a floor for the economy to hit and begin its climb back to recovery.
However the recovery is going slower than expected. Bernanke’s plan was to help bring the unemployment down to 6.5 percent and then begin to unravel this complex web that he has weaved. Unfortunately it does not appear that the US will reach that low of an unemployment rate by the time he leaves, barring some miraculous events. This leaves his successor with the unenviable task of unraveling all of this. And that is why I believe Janet Yellen is the right person for the job and will be the picked by President Obama. She obviously has been involved with Bernanke and the Fed throughout this crisis and will easily slide into the Fed Chairman position, continuing Bernanke’s programs. It will be a smooth transition that will not shock the system. If Summers is nominated however, you could see a bit of a shock wave. He is not as big of a proponent of QE, and this could cause a loss of confidence in the system. Whoever it is, they will have to make the important decision of deciding when it is time to begin selling off bonds and assets, letting up on the QE program, and bringing the Fed back down into its’ normal role. This is why I say this is one of the most important positions in the country and it is extremely important that President Obama makes the right decision.