We were delighted to see that Dr. Ben Bernanke was chosen as The Person Of The Year by Time Magazine. He certainly was. Kudos to Time for recognizing this fact.
We have been passionate supporters of Ben Bernanke. In our opinion, Dr. Bernanke single handedly saved America & the World from going into a depression. Think back to November 2008. America was in the midst of an executive transition. The Bush Administration was a lame duck and Hank Paulson, the Bush Treasury Secretary, essentially became powerless. The Obama Administration was in no condition to step in and decided to back away arguing that America can have only one President at one time.
Ben Bernanke, the Chairman of the US Federal Reserve, was the only man in charge. It was up to him to succeed or fail. Upon him rested the fate of America’s Banking System and the Global Financial System. Dr, Bernanke took bold steps, launched innovative liquidity programs and protected the Banking System.
If Bernanke had failed, the result could have been a depression. Today, we have a recovery simply because Bernanke stepped up. Frankly, Ben Bernanke should have received the Nobel Peace Prize.
But will this accolade by Time prove to be the top for Dr. Bernanke. History suggests it might. We also know that the most difficult task for Ben Bernanke lies ahead.
Today, we see the Inflation Taleban marching again. You see them everyday on TV demanding Bernanke increase rates. You see them raise specter of runaway hyper inflation when the average American family is struggling with decreasing incomes and deflating declines in their largest assets. They are strident, ferocious and unrelenting, these Inflation Taleban. So much so, that the Pakistani Taleban could take lessons from them.
Dr. Bernanke needs to summon all his courage to remain steadfast and protect the American economy by keeping rates low as long as necessary. This, we are confident, he will do. He also needs to remove the innovative liquidity measures that were necessary during the depths of the recession. This he promised last week and we are confident he will do as he said.
But his greatest challenge will come when he thinks it is time to finally raise rates. At that time, he needs to raise rates rapidly and in large increments.
The financial markets still think he is “Helicopter Bernanke“. They believe that he will follow the 2004 Greenspan approach of raising rates in small increments in a predictable manner to prevent damage to financial markets. That would be a disaster in our opinion and create even a larger bubble than the one Greenspan created.
No, Ben Bernanke would need to use shock & awe tactics to demonstrate his resolve. He would have to convince the Inflation Taleban that he is deadly serious about raising rates swiftly to the level necessary to stop resurgence of inflation. He would need to create market instability and perhaps market panic the way Greenspan did in 1994. There is no doubt that the Congress would explode in rage and he would face tremendous pressure from all sides. But if keeps his courage and acts the way he should, he could kill budding inflation and launch a period of long non-inflationary growth in America.
Will Ben Bernanke meet this challenge? Time will tell. We fervently hope he will. If he does, he will be remembered as the Greatest Fed Chairman ever.
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Ben Bernanke – Time Magazine’s Person Of The Year
