Ben Bernanke Struggled to Boost U.S. Economic Growth

Bernanke's stepping down at the end of the month, and the Fed's supposed to ease off its economic stimulus policies, but we'll see. A report at the New York Times, "Fed Scales Back Stimulus Campaign."

And see the Wall Street Journal, "Meltdown Averted, Bernanke Struggled to Stoke Growth: Fed Chairman Fails to Engineer Robust Recovery, Even With Extraordinary Measures" (via Google):

After a financial crisis he didn't see coming, Ben Bernanke steered the U.S. away from a potentially devastating panic. Yet five years later, the recovery he helped engineer with extraordinary policies remains frustratingly weak.

As Mr. Bernanke prepares for his final days as Federal Reserve chairman, that legacy—a mix of failings, boldness, persistence and frustration—is coming into sharper focus, and with it a clearer picture of the power and limitations of modern central banking.

Fed officials meeting in Washington on Wednesday face another consequential decision: a close call on whether to start winding down their $85 billion-a-month bond-buying program.

At the root of the issue is a long-running debate between Mr. Bernanke and other Fed officials about how much more a central bank can or should do to try to spur an economy that hasn't been wholly responsive to its efforts.

It could be the last big Fed decision before Mr. Bernanke ends his chairmanship next month, eight years after taking the helm in what he expected to be a far-more-placid era.

"I will make continuity with the policies and policy strategies of the Greenspan Fed a top priority," Mr. Bernanke said at his first confirmation hearing in November 2005, citing predecessor Alan Greenspan. He talked broadly of the need to ensure financial stability, but made no mention in his statement of the threat from a housing boom that by then had begun showing signs of cracking.

How would you rate Bernanke's performance? How will history remember him? Weigh in here.
Fans of Mr. Bernanke say history will mark him most as the courageous economic steward who, once crisis struck in 2008 and 2009, flooded the financial system with loans and averted another Great Depression.

"This is like saving you from nuclear war," said Ray Dalio, founder of the giant hedge fund Bridgewater Associates.

Mark Gertler, a New York University economics professor and friend of Mr. Bernanke, said that "like Roosevelt, he was the calming influence, the grown-up in the room, during the darkest days of the economic turmoil."

Before then, however, came calculations that haunt the Fed.

Mr. Bernanke's first steps in office were to continue a succession of small interest-rate increases that some economists say were too late, and too timid, to curb a badly swollen housing bubble.

Mr. Bernanke has disputed that analysis, but acknowledged that the Fed failed to adequately supervise banks before the crisis or to see danger to the broader financial system—mistakes that have since led Congress to revamp Washington's approach to financial supervision.

Early on, Mr. Bernanke embraced only reluctantly the interventionist stance that has come to define his stewardship.

In December 2007, for example, he said he was "quite conflicted" about whether to cut interest rates sharply, according to transcripts of Fed's meetings. That turned out the be the month the recession began. At other times, he talked about wanting to avoid bailing out financial markets, institutions or people.

Timothy Geithner, the former Treasury Secretary and New York Fed president, saw the reserved former professor's worldview change in early January 2008 as financial turmoil deepened and started to bite the economy.

"That's when he decided that the risks were so great and he was going to have to be much more aggressive," Mr. Geithner said. "He kept at it."

It is widely accepted that the landmark policies Mr. Bernanke championed during and after the crisis—rock-bottom interest rates, loans to banks and controversial bond buying—averted an economic calamity. Their failure to spur a vigorous recovery, however, has created perhaps the biggest unanswered question about Mr. Bernanke's legacy.

"I wish I was leaving with the unemployment rate at 5% instead of 7%," he said wistfully during a November discussion with high-school teachers.

The Fed has promised to hold short-term interest rates near zero at least until the unemployment rate, currently 7%, falls to 6.5%. And in an effort to drive long-term rates down, the central bank has accumulated more than $3 trillion in Treasury bonds and mortgage securities.

In the process, it has flooded the U.S. banking system with money, funds available for banks to lend. These cheap-credit policies, in theory, should spur job-creating growth.

There's a fabulous graphic here, "Imperfect Tools, Imperfect Economy." Pay attention to the radical growth and scale of quantitative easing after 2009. The Fed flooded the economy with money, deflating the currency while staving off a collapse in growth. Seriously. Just take a look at the scale of the monetary stimulus. That's gotta be unprecedented.

See that New York Times piece at top for more.