Bernanke Reappointment and Artificially Low Rates
Despite criticism from both the left and the right of the political spectrum, Bernanke was reappointed by the Senate as the Chairman of the Federal Reserve. The vote, which was closer than most, came in at 16-7.
One of the most common criticisms and concerns of Bernanke’s reappointment was Bernanke’s hardline stance on weak dollar policy, putting unemployment before a strong currency which rattled many Republicans and a few Democrats. One issue of particular importance is Bernanke’s approval of TARP, which has fallen in disfavor across party lines as the economy recovers and many feel the money will never be paid back.
Weak Dollar Policy
Bernanke is best compared to his polar opposite, Paul Volcker. During the inflationary 1980′s Volcker moved to push interest rates past 20% in an effort to crush inflation and put a stop to dollar weakness. The unemployment rate eventually recovered as the economy shifted to become more capital-centric and less dependent on credit. Bernanke, on the other hand, has done just the opposite. Choosing to keep rates as low as he has, and for so long, has certainly given the economy a quick bounce however history questions whether it is sustainable. Remember, Greenspan’s low rates created the housing boom and the Great Depression and the New Deal are still up for debate. With Bernanke already gone so far to stimulate the credit markets, he can’t turn around now, even as the dollar treads weaker. Instead, he’ll have to tactfully guide the US dollar lower while providing ample credit and hope that inflation doesn’t rear its head before the economy recovers.