Rating Mr. Bernanke (C-Minus) And Thoughts On His Successor

by: John M. Mason

I have never been a big fan of Mr. Ben Bernanke as Chairman of the Board of Governors of the Federal Reserve System. He missed the signs of impending financial disorder in August 2007. I thought he panicked in the fall of 2008 immediately following the AIG bailout. I was against his re-appointment to this position by President Obama. His approach to the Great Recession, something that many people applaud him for, was, at best, clumsy…just throw as much "stuff" against the wall as you can to see what sticks.

The use of quantitative easing, to me, represented the mistaken belief that what the banking system and financial markets needed in order to get the economy going was liquidity. In following the policy of quantitative easing I have accused Mr. Bernanke of just underwriting the wealthy. And, throughout his tenure as Chairman I felt that he was "tone-deaf" with respect to understanding how markets worked.

These opinions are fully captured in my blog posts beginning in early 2008. The second volume of my blog posts has just been released in book form (see "Living It: Interpreting the Great Recession and Subsequent Recovery") and I have just finished assembling material for a third volume.

Giving him the benefit-of-the-doubt and referring to him as "The Audacious Pragmatist" just covers up his many blemishes and shortcomings.

And, this doesn't cover his earlier experience at the Fed from early August 2002 until June 2005. Although Alan Greenspan was the Chairman during this time at the Fed, Mr. Bernanke seemed to play a major role in supporting and justifying the programs that were implemented during that time period…programs that created the housing market bubble that set the stage for the subsequent financial collapse that took place.

But, the measure that I have used the most in terms of grading Chairman of the Board of Governors of the Federal Reserve System is the one connected with what happens to the value of the dollar during the person's tenure at the Fed. In this, I agree with former Fed Chairman Paul Volcker who wrote:

"A nation's exchange rate is the single most important price in its economy…"

This quote is from page 232 of the book "Changing Fortunes: The World's Money and the Threat to American Leadership," by Paul Volcker and Toyoo Gyohten (Times Books, 1992).

Here are the records on the performance of the value of the U.S. dollar for all the Federal Reserve Chairman since the U.S. dollar was floated back in 1971. The specific series I am using is the Federal Reserve's Trade Weighted U. S. Dollar Index: Major Currencies.

Arthur Burns minus 6.5 percent

G. William Miller minus 6.4 percent

Paul Volcker plus 6.4 percent

Alan Greenspan minus 16.5 percent

Ben Bernanke minus 9.2 percent

If one accounts for Mr. Bernanke's time at the Fed, which began in August 2002 with one year out when he was Chairman of the President's Council of Economic Advisors, the value of the dollar declined by 27.2 percent during all the time he was associated with the Board of Governors of the Federal Reserve System.

The overall record here is terrible. The value of the U.S. dollar has declined by almost 30 percent since the early 1970s when the dollar was floated. The U.S. dollar had to be floated because of the federal government's economic policy of credit inflation, which was started in the early 1960s. This policy has been the primary economic policy of the Federal Reserve and the federal government even since. Mr. Bernanke, with his Keynesian heritage, has fit into this post-1960s mold and has proven a staunch implementer of this legacy.

One should point out that Mr. Bernanke had no "market" experience when he came onto the Board of Governors and that lack of experience, I believe, was evident in his performance.

But, one should add that Paul Volcker was the only Chairman that had "market" experience before coming to the Chairman's position. He is also the only Chairman to retire from office showing an increase in the value of the U.S. dollar during his tenure.

All the other Chairman listed above did not have financial market experience before coming into this office. "Bill" Miller ran a major manufacturing company, but his background when picked by President Jimmy Carter was absent of any real experience in financial markets…and it showed.

One could add that just previous to Arthur Burns, the person who was Chairman was one of the very best and who had, at one time, been head of the New York Stock Exchange: William McChesney Martin.

This gets me into discussions about who should be the next Chairman of the Board of Governors of the Federal Reserve System. Two names have dominated the discussions about who the next Chairman should be…Janet Yellen, who is vice-chairwoman of the Board of Governors…and Larry Summers, former Secretary of the Treasury.

Need I say that both of these individuals are primarily academics.

Need I say that I am not excited about either one of them to become the next Chairperson.

Neither one of them has as much financial market experience as I would like to see in the incoming Fed Chair. This market experience, I believe, is important for a Chairperson at any time. However, given the need to navigate the reduction of Federal Reserve security purchases and return Federal Reserve to more "normal" monetary operations, I firmly believe that it even more important at this time to have someone who really, truly understands financial markets. And, I really truly believe that we need a Federal Reserve Chairperson who will not just pursue more and more credit inflation, a policy that can only further weaken the value of the U.S. dollar.

Therefore, if limited to choosing between Yellen and Summers, I feel like I do in most recent Presidential elections…and, I base my decisions on who I don't think should be in the office. In this case, I don't believe that Janet Yellen should be the next Chairperson of the Board of Governors of the Federal Reserve System.

That leaves…

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.