What the 5 takeaways show is that since there is little understanding of the economic predicament, likely the economy will continue to row ‘against the current’.
Fortified by his knowledge of the Depression and no doubt inspired by Franklin Roosevelt’s example of fighting the Depression with “bold experimentation,” he spearheaded an aggressive and creative mix of central bank policy interventions to restore normalcy to financial markets.
His knowledge of the Great Depression was ‘misleading’. The bank failures followed the steep drop in nominal spending, just as it happened now.
Many will remember Ben Bernanke for classic central bank stabilizing actions taken by the Fed during the fall 2008 panic, including emergency loans to banks and swap lines to foreign central banks. But historians might also consider actions the Fed took before and after that panic.
From 2003 to 2005, shortly after Ben Bernanke joined the Board stressing deflationary concerns, the Fed embarked on a very low interest rate policy. The policy was rationalized in part by these deflationary concerns, but it was a deviation from a policy that had worked well for two decades, and it exacerbated the housing boom and led to excessive risk taking.
The fact was that between 2001-2003 nominal spending fell below trend. The policy followed by Greenspan (and Bernanke) after mid 2003, when they introduced forward guidance, was the correct one.
Mohamed El Erian
Mr. Bernanke’s courageous actions in 2008-09 helped the world avoid an economic depression that would have devastated millions of lives, as well as harm the prospects of the next generation. His bold design and rapid implementation of new Fed facilities succeeded in stopping cascading financial market failures, thus helping to interrupt an economic implosion and buy time for the economic system to heal.
Having succeeded in stabilizing the economy, Mr. Bernanke pivoted in 2010 from normalizing markets to assuming primary responsibility for delivering significantly higher economic growth and more dynamic job creation.
Bernanke the ‘savior’ has become a popular, but misguided, meme. What he did was badly try to undo his original mistake!
The prelude to 2007-2008 was the tech-stock bust of 2001 when Bernanke was a governor on the Fed board. Concerned about the possibility of deflation, as happened in Japan in the 1990s, he advocated a low fed funds rate from 2002 to 2006. In retrospect, this fear of deflation was overblown and low interest rates contributed to the housing boom.
Bordo has his dates all wrong. The tech crash took place in 2000 (not 2001) and Bernanke only became Fed Governor in September 2002, more than two years after the crash!
He makes the same mistake as John Taylor about the “low” rates ‘advocated’ (here also he gets the dates wrong!).
Ben Bernanke most likely saved the US and probably the world from the Great Recession turning into the Great Depression II. Trusting his judgment, his previous research on the Great Depression and on unconventional monetary policy with the policy rate at its lower bound (such as his 2004 Brookings paper with Vincent Reinhart and Brian Sack on large-scale asset purchases), he led Fed monetary policy out onto a limb to save the US economy . Without this, U.S. and world economic developments would have been inconceivably worse.
Again the misguided “Bernanke saved the world” meme!