I have mixed feelings about Ben Bernanke, the Federal Reserve Grand PooBa. On the one hand, the man was shrewd. He basically pumped so much money into the economy and kept Fed discount window interest rates so low that banks almost couldn't help but survive. His actions probably did save the economy from a financial collapse. The low interest rates have helped enormously. He's also been fairly transparent and predictable. All the money he's pumped in via open market operations and buying various instruments has helped in the short term. You could certainly argue that he did a wonderful job in the short term. Monetary policy is what is driving this short term "recovery" despite the daily barrage of nonsensical economic policies from our President.
On the other hand, it can be argued that he is artificially propping up a host of assets that need to come down to levels that reflect reality. The school of thought, which I subscribe to, is that the quicker prices adjust, the quicker we can truly recover. The fact remains that people are still borrowing too much and the housing market is still in serious danger. If and when interest rates rise, it will swamp a whole lot of people who borrow, which is most homeowners. His low interest rate gifts can only go up from here. And he can't essentially monetize the debt indefinitely. At some point the private economy has to lead the way out of the recession and not clever Fed policies designed at manipulating key variables.
My own sense is that this recession is different from previous ones. The reason is that some key variables and incentives are in place that likely will not last forever. Interest rates on 30 year mortgages are extremely low and inflation is extremely low. Where can they go? In addition, welfare benefits can't run out indefinitely, an $8K first time home buyers credit will end, and even gimmicks such as cash for clunkers aren't going to be funded for much longer. This is in contrast with 1981-82 where the rates were high and you could see how lowering them could prove beneficial. In that case, there were obvious barriers to growth and obvious remedies to remove them even if they were indeed painful during the cure phase. It's the opposite this time. The barriers are not as clear and the issues are a little more complicated given the breadth of the current crisis.
So while I applaud his efforts given the hand he was dealt, in which he had a part in dealing due to his tenure throughout the decade at the Fed, he cannot change the underlying substance of what's really happening in the economy. Consumers are horrified because of jobs and businesses, including my own, are making business plans that include cost containment strategies moving forward. I don't have a wealth of data sets to pore through as he does. From what I see and hear from people with money is that we will certainly get beyond where we were. How could we not given where we were? But we are not in the midst of a true recovery. That's not necessarily Ben's fault. What is Ben's fault, possibly, is that his policies delayed a true recovery because they were the artificial actions of a technocrat. I can't critique him too much because monetary policy is being conducted in a way that is at least recognizable to sensible people. Fiscal policy is another matter.
Ben seems between Barrack and a hard place.