Ben Bernanke, the current Chairman of the Federal Reserve, has repeatedly stated that it is time for him to leave his post for “greener pastures.” Of course, who could really blame him as he led the charge on the most unprecedented economic and monetary bailout program in history? The question that should be asked is whether he is leaving because his “job is done” or rather “leaving while the gittin’ is good.” It will take some time yet to be able to fully answer that question as such endeavors take a long time to fully exert themselves.
However, his departure leaves a void at the head of the Federal Reserve. The current consensus among economists, and journalists, is that Janet Yellen, the Fed’s current vice chairman, will get the nod as Bernanke’s replacement. She has years of monetary policymaking experience from her time as a Fed governor in the 1990s and as president of the Federal Reserve Bank of San Francisco in the 2000s. On the surface she seems a ideal choice but in reality she is, for any Talking Head fans, “the same as it ever was.”
The chart below shows the history of the Federal Reserve’s policy changes as it relates to the financial markets. History is replete with evidence that suggests that the Fed’s ongoing monetary theories are creating the ongoing boom/bust cycles.
Just recently Federal Reserve Bank of Minneapolis President Narayana Kocherlakota warned:
“For a considerable period of time, the [Federal Open Market Committee] may only be to achieve its macroeconomic objectives in association with signs of instability in financial markets.”
In other words in order for the Federal Reserve to achieve its goals it must create market instability, or financial bubbles, which then leads to the next bust cycle. The chart above clearly shows that they have been repeatedly successful in these endeavors. He goes on to state the obvious:
“For many years to come, the FOMC will have to maintain low real interest rates to achieve its congressionally mandated goals. Unusually low real interest rates should be expected to be linked with inflated asset prices, high asset return volatility and heightened merger activity.”
In an environment where bubbles regularly threaten to form, and other markets see prices move away from fundamentals, the Fed will be confronted with difficult choices. The problem has been that they continue to address an ever changing financial, economic and political landscape with the same policy response each time expecting different outcomes. This is the problem of continuing draw upon the same pool of Ivy League economists who were all conceived from the same gene pool of economic theory.
While Janet Yellen is clearly the best choice when compared to Larry Summers, who is much to blame for the repeal of Glass-Steagall which sowed the seeds for the financial crisis, she is yet another offspring of a family tree with no branches. Maybe it is time to step outside the realm of aged economic theory and look for real experience in managing a business. Someone with a deep understanding of the impact of monetary policy on businesses who create real employment on “Main Street” rather than just on “Wall Street.”
If I was President Obama, who after repeated attempts and trillions of dollars of support is still struggling with a very poor recovery, I might want to consider a person with a deep business background, proven financial success and the ability to effectively communicate with the American people. In this regard someone like Steve Forbes, Jr. would be an example.
Steve Forbes, Jr., a conservative who has run for President twice on a reform based platform, has a deep understanding of history, runs a very successful publishing business under his family’s name, and has been involved in the political arena since being nominated to the Board of International Broadcasting in 1985 by Ronald Reagan. Through his publications, including his online platform, he has the ability to reach 20 million executive decision makers in the business community each month. His many years of successful business ownership gives him the ability to understand what policies lead to real employment and financial stability rather than relying on economic theory that has yet proven to be successful.
While his background is not steeped in economic tradition, and Paul Krugman would immediately dismiss such a thought as he believes only Ph.D.’s can understand economics, the reality is that history shows that the economic elite have not helped America as much as hurt it. In this regard, while you may not like my suggestion of Mr. Forbes, my real point is simply that maybe its time to try something different for the future of our economy and our country. Or maybe its really time to follow Ron Paul’s lead and just end the Federal Reserve altogether and allow free market capitalism to actually be free.
This piece is cross-posted from Street Talk Live with permission.