When the Bureau of Labor Statisticsreleased the employment report last week the household survey told us that there were 14,860,000 Americans out of work. A lot of those people should not be looking for work right now. They were thrown out of a job primarily because of the actions of one man. Ironically, this man, the person most responsible for putting your (insert unemployed family member here) in your basement, continues to draw a paycheck and commands the highest respect of his peers. And he will remain employed by his current employer - if he chooses - until at least January 31, 2020.
His name is Ben S. Bernanke and the President should request his resignation immediately. We would all be better off if the ranks of unemployed Americans next month includes one more than last.
Whether you subscribe to a Keynesian view of the world or a more classic one, it is impossible to view the current state of the economy and conclude that the Federal Reserve has accomplished its goals.
In the Keynesian view - as described in the Employment Act of 1946or the Humphrey-Hawkins Full Employment Act of 1978- the Fed is tasked with:
- Full employment
- Price stability
- Maximum economic growth consistent with the first two goals
During Dr. Bernanke’s term as Chairman, the Federal Reserve has failed at all three of these basic goals.
Unemployment now stands at 9.6% if you take the most optimistic version of that statistic or 16.9% if you live in the real world. The definition of full employment is debatable but Humphrey Hawkins puts it at 4% and there is no definition that would count nearly 10% as full. During the time of his chairmanship, the year over year change in the Consumer Price Index has ranged from +5.6% (July 2008) to -2.1% (July 2009) and no matter how you define it that is not price stability. Since Bernanke also served as a member of the Board of Governors from 2002 to 2005 (and by all accounts had great influence with Alan Greenspan) one could consider a longer time frame than his term as Chairman - and one would get similar results. Lastly, there is no way that anyone can claim that we are anywhere near maximum economic growth consistent with the other two goals.
"No matter how you view the myriad other factors affecting the economy, the performance of Dr. Bernanke as Chairman of the Federal Reserve Board has been a monumental failure.."
In a more classic view, the goal of the Federal Reserve is simpler - stability of the purchasing power of the dollar defined as a weight of gold. Under this standard the bank has also failed. Gold during Bernanke’s term as chairman has risen 126%.
Obviously, Bernanke has failed in stabilizing the value of the dollar in terms of gold but not only has he failed over the entirety of his term, he has managed to fail in multiple ways and time frames. His inflation after the beginning of the sub prime crisis (August 2007) is obvious as gold rose dramatically from $650 to $1033 in a mere seven months. The drop to $681 at the peak of the crisis is the classic definition of deflation and the consequences were predictably severe. The inflation since then is no doubt creating new price distortions (possibly in Asia where many currencies are pegged to the dollar or other emerging markets which have seen capital inflows) the consequences of which are yet to be determined.
There are other goals which the Fed is uniquely positioned to achieve and the Bernanke Fed has failed on all accounts.
Interest rate stability? Exchange rate stability? Financial system stability? The Fed funds rate has ranged from 4.25% to 5.25% and now down to 0-0.25% during Bernanke’s term. The US dollar trade weighted index is essentially a mirror image of the price of gold with an initial drop of nearly 20% followed by a rise of 20% and then another fall of 18%.
Surely we don’t need to discuss financial system stability.
Fail. Fail. Fail.
No matter how you view the myriad other factors affecting the economy, the performance of Dr. Bernanke as Chairman of the Federal Reserve Board has been a monumental failure. As a failed Fed Chairman he certainly does not stand alone. There is a special place in hell reserved for Alan Greenspan and Paul Volcker, regardless of his reputation as a slayer of inflation, would be long forgotten if not for Ronald Reagan. Arthur Burns deserves special blame for agreeing to float the dollar and set all this in motion back in 1971.
Well, misery loves company and this is a miserable bunch.
Everything that has been done so far in response to the financial crisis is an attempt to control the consequences of bad monetary policy. There has been no attempt to improve the actual conduct of policy and if we want to avoid a similar situation in the future that will have to happen eventually. And it can’t happen with the man who presided over the meltdown still in charge.
If President Obama wants an issue that transcends party and can energize voters of all stripes, this is it. Fire Bernanke and immediately start Congressional hearings on reform of the Federal Reserve with an emphasis on how to measure and stabilize the value of the dollar. That is the path of good monetary policy and something all citizens can understand. Ben Bernanke, for the good of your country, resign now and return to your studies of the Great Depression. You should have enough new information that someday you may actually understand what damage you’ve done to the US economy. Alan Meltzer once said that capitalism without failure is like religion without sin.
Mr. Bernanke, it is time to repent.
Joseph Y. Calhoun, III has been in the investment business, in a variety of capacities, since 1991. He attended the University of South Carolina and is a graduate of the Naval Nuclear Power School. He started in the investment business as a broker with Dean Witter in 1991, but spent most of his brokerage career at Oppenheimer & Co. where he filled a variety of roles including several management positions. He left Oppenheimer in 2006 and opened Alhambra Investment Management, a registered investment advisor, where he is the Chief Investment Officer. His articles on the economy and markets are published regularly at Real Clear Markets.