Ben Bernanke: His Tragedy is that Not Everyone Sees His Greatness

The New York Times on how everyone who matters knows Ben Bernanke is the champ, and yet various doofuses still worry that even his genius won't be enough. Some excerpts with interpolated crumbled cup tosses from the gallery:

As central bankers and economists from around the world gather on Thursday for the Fed's annual retreat in Jackson Hole, Wyo., most are likely to welcome Mr. Bernanke as a conquering hero….

He has been frustrated that many in Congress do not give the Fed what he believes is enough credit for what it has accomplished. Indeed, Mr. Bernanke has met privately with hundreds of lawmakers in recent months to explain the Fed's strategy. Fellow economists, however, are heaping praise on Mr. Bernanke for his bold actions and steady hand in pulling the economy out of its worst crisis since the 1930s. Tossing out the Fed's standard playbook, Mr. Bernanke orchestrated a long list of colossal rescue programs: Wall Street bailouts, shotgun weddings, emergency loan programs, vast amounts of newly printed money and the lowest interest rates in American history.

It's not that it hasn't occurred to many thoughtful people that the moral hazard of knowing the government indulged in bailouts and previous low interest rates were primary causes of the problem we're in right now, but hey, at least he's taken advantage of the fact that such policies can put a little bounce in an economy before it comes crashing down again.

Even one of his harshest critics now praises him.

"He realized that the great recession could turn into the Great Depression 2.0, and he was very aggressive about taking the actions that needed to be taken," said Nouriel Roubini, chairman of Roubini Global Economics, who had long criticized Fed officials for ignoring the dangers of the housing bubble.

And how is it that we got a dangerous housing bubble, Mr. Roubini? Did the Fed's low interest rate policies of the first few years of the century have anything to do with it?

….Mr. Bernanke faces two major challenges. On the economic front, the Fed has to decide when and how it will reverse all its emergency measures and raise interest rates back to normal without either stalling the economy or igniting inflation.

That's quite a challenge, and really the nub of the matter. It is way too early to credit him with any genius, other than the political one of frantically kicking the crisis down the road a smidgen, until we see how he manages that. 

Mr. Bernanke and other Fed officials now concede they failed to anticipate the full danger posed by the explosion of subprime mortgage lending. As recently as the spring of 2007, Mr. Bernanke still contended that the problems of the housing market were largely "contained" to subprime mortgages…..

Yes, the Fed wizard had a hard time seeing the fingerprints of his own agency and its loose credit policies on the crisis. And that bodes ill for the future. See via Wilson Burman in the American Conservative these examples of Bernanke's perspicacity:

A Fed chairman's job has two broad parts: performance and predictive ability. The former depends in large measure on the latter. The existence of "green shoots" is still open to debate. Bernanke's prescience is not. Consider his track record:

March 28, 2007: "The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."

May 17, 2007: "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

Feb. 28, 2008, on the potential for bank failures: "Among the largest banks, the capital ratios remain good and I don't expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system."

June 9, 2008: "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."

July 16, 2008: Fannie Mae and Freddie Mac are "adequately capitalized" and "in no danger of failing.

But back to the paper that really matters, the New York Times:

As the credit crisis deepened, Mr. Bernanke urged Fed officials to devise proposals that had never been tried before. They responded with a kaleidoscope of emergency loan programs to a wide array of industries.

"He has had tremendous courage throughout this episode," said Frederic S. Mishkin, a professor at Columbia University's business school and a former Fed governor

It does not actually take a great deal of courage for a government official to flail about with huge power grabs and giveaways to try to save his institutional ass.

But economists say Mr. Bernanke's most important accomplishment was to create staggering amounts of money out of thin air.

All told, the Federal Reserve has expanded its balance sheet to $1.9 trillion today, from about $900 billion a year ago. Analysts now caution that Mr. Bernanke's job is only half complete. He will eventually have to reel all that money back. He has already laid out elements of the Fed's "exit strategy," but Fed officials have been careful to say it is still too early to pull back any time soon.

I imagine it will keep seeming too early to these jokers until it's too late, because reining in inflation means imposing a little short term economic pain, usually, and that's one thing Bernanke seems to see as his Prime Directive: don't let that happen on his watch or that of the president who has to re-appoint him.

I wrote on Bernanke's frantic re-election campaign for Reason Online last month.