Bernanke to serve a second term
August 25, 2009 by admin
President Barack Obama today announced that he would extend the term of current Federal Reserve Chairman Ben Bernanke for an additional four years. Today’s announcement was not a dramatic surprise to experts who follow the Fed, but was a signal that the President has faith that the current chairman has helped to navigate the country through one of the toughest economic periods of record.
The Fed Chairman serves as a key figure in leading the countries monetary policy. Mr. Bernanke, in addition to the other Federal Reserve board members serve as protectors of the countries monetary system, and are primarily responsible for the lending of money between the government and lending industry, by setting the Fed discount and Fed funds rate, through the FOMC. The Chairman of the Federal Reserve also plays a key role as the primary point person who is called on to forecast economic growth, review economic conditions and frequently testifies before Congress as to the state of the current economy, both in the United States and globally.
The role of Chairman of the Federal Reserve became much broader over the last two years. During the peak of the credit crunch and economic recession, Ben Bernanke was called on to help create programs to keep the economy from further crashing. The Fed Chairman was involved in programs ranging from the TARP and TALF to the Fed’s commitment to purchase mortgage backed loan securities, which helped drop home mortgage rates to historic low levels. In addition, the Fed lowered rates on both the Fed discount and Fed funds rates to historic low levels, providing the lending industry access to cash to help them address their short term funding requirements.
Today’s announcement by President Obama will likely bring forth a good amount of criticism for the job the Fed Chairman has done covering his first tenure. The criticism is likely to focus on the Fed’s lack of oversight in allowing the banking and lending industry to create financial derivatives a key component to the collapse of the banking industry. Critics will also point out that the Fed Chairman allowed Lehman Brothers to file bankruptcy, yet provided a life raft to Bear Stearns and AIG, moves that caused billions of dollars in lost wealth and put the government on the hook for billions of dollars worth of emergency loans. The Fed’s decision to lower the Fed Funds/Discount rate can also be called into question, that the Fed was slow to react to proactively stay in front of the financial collapse, and responding in a reactionary position further escalated the problems that occurred in 2008.
The stock market has rallied sharply into 2009, from it’s March lows and the governments decision to subsidize the secondary home mortgage market has helped lift home sales for the past three months. These factors were certainly a strong endorsement that the policies enacted by the Fed Chairman are having a positive impact in helping to turn the economy in the right direction. The end result is that Ben Bernanke, having witnessed the collapse and playing a critical role in helping to find working solutions was the right candidate to help formulate a plan to balance growth over the next four years