History is accelerating, the American economy is slowing and Fed Chairman Ben Bernanke is the accelerant.
Seems like just yesterday his mentor Alan Greenspan admitted to Congress that he “found a flaw” in the “free market ideology” that drove America’s monetary policy for his tenure as Fed chairman. Yes, “flawed;” it took him and America to figure out that self-regulated free markets did “not work.”
Unfortunately, nothing’s changed: Greenspan handed off to Bernanke. And that same flawed ideology is still misleading America’s central bank and the world’s 192 central banks headlong into another disaster bigger than 2008. And the chain of command over the evidence is clear: Greenspan starting with Reagan. Then Bernanke with George W. Bush, adding another eight years of failed monetary and fiscal policies.
Now, Bernanke and Obama policies continue, favoring banks with their high-speed, cheap-money printing presses. And if America’s accelerating debt is the metric, historians are already judging Greenspan harshly. In the future, history will be even harder on Bernanke: He never learned the lesson, that Greenspan’s failed free-market ideology severely damaged the American economy.
Ultimately, however, history will be harshest on Obama. As we wrote four years ago, the reappointment of Bernanke was Obama’s “biggest domestic policy blunder.” “Black Swan” author Nassim Nicholas Taleb was “stunned … I cannot believe that we, in the 21st century, can accept living in such a society. I am not blaming Bernanke, he doesn’t even know he doesn’t understand how things work.”
“The world has never, never been as fragile,” Taleb wrote in HuffingtonPost, and we’re stuck with another economist, Bernanke, who, like his flawed mentor, Greenspan, relies on wishful thinking, dogma and ideology.
Too late to fix 24 years of Bernanke-Greenspan’s failed policies?
Warning: Hiding behind the illusion of today’s latest stock-market records is an economy and markets that are peaking, near crashing. Yet our leaders are in denial. A new bubble is blowing, bigger than the 1990s dot-com mania, bigger than Wall Street’s credit meltdown, both driven by the same flawed monetary ideology that’s now a virus spreading across America’s political system.
This new bubble was captured recently on the Washington Blog and Barry Ritholtz’s Big Picture. Listen:
“Top Bankers: Too much central bank easing is becoming dangerous. And the stock rally is due to money printing. Everyone knows that ‘too big to fail’ banks are bad for the economy.” Agence France-Presse reports that “central banks are pumping out too much easy money and markets risk becoming dangerously addicted to ultra-low interest rates.”
Their source: “The Institute of International Finance, which groups 450 banks, said that if central banks continue to flood money into the global economy then any future bid to get it under control could itself destabilize the financial system. … quantitative easing, very low interest rates, cannot last forever, but the risk is that financial markets have become addicted to them,” warned the institute.
World’s central banks ‘doing whatever it takes’ but making it worse
Get it? We’re approaching the point of no return. Now 450 banks are warning us that the world’s 192 central banks are screwing things up by “doing whatever it takes” to compensate for the “prolonged political stalemate” on fiscal solutions. The institute warns: “The longer central bank liquidity is relied on to hold things together, the more excesses and distortions are being accumulated in the financial system. An eventual unwinding of these excesses will become a destabilizing risk event.”
Ritholtz’s summary: “The problem in 2008 was that the big banks became insolvent because of stupid gambling.” And it’s happening again. “The government’s whole approach to the 2008 financial crisis was entirely wrong. And the easy money policy (quantitative easing) of central banks doesn’t help, but instead hurts the economy and the little guy.”
Why? Because the Dow Jones Industrial Average “hit an all-time high … more because of relaxed international monetary conditions than thanks to any recovery in the real economy.”
America’s worst-case scenario: If Obama reappoints Bernanke
As de facto leader of the world’s 192 central banks, the Fed’s Bernanke, remains stuck in the past, a clone driven by Greenspan’s failed policies. Bernanke’s learned nothing from Greenspan’s failures. We saw this coming back in 2009. Our headline read:“Dismantle Benanke’s Happy Conspiracy, Now!”
Bernanke had become “America’s (and the world’s) most dangerous man, acting like the supreme dictator of that larger conspiracy Jack Bogle called the Happy Conspiracy in “The Battle for the Soul of Capitalism.”
Here we are four years later: And Bernanke’s ego has morphed into a messiah complex. Read between the lines of IIF’s releases and there’s a man with the self-image as savior of the world economy, overcompensating for political gridlock.
That led to my recent updated warning: “Out with Bernanke. In with Bloomberg as Fed Chairman.” Why Mayor Bloomberg? Because “America needs new blood … we need a decision-making powerhouse like Bloomberg, Wall Street visionary, high-tech innovator, philanthropist and proven government leader focused on what’s best for the country and all people.”
6 traits for new Fed chairman … a CEO … or the next pope
For the moment, let’s set aside any deep worries about extending the flawed Greenspan-Bernanke legacy. Set aside all political concerns about Bloomberg, that he might be too strong. Set aside all preconceptions. So what’s the ideal profile for the next Fed chair?
Step outside the box. Let’s go into an alternative reality for guidelines on the kind of leader America needs to best guide our monetary polities into the future. CNN did just that recently in “To pick the next pope, learn lessons from the business world.” CNN asked Brian Frawley, an expert in executive assessment, leadership development and organizational effectiveness, to outline the traits the new leader needed.
Frawley is a principal at the Hay Group, an international management consulting firm. He is also a former priest.
Frawley’s criteria, modified from a corporate context might read: The Fed “is at the brink of its own transition at the top that could have an enormous impact on its future vitality and direction. It represents a moment filled with opportunity and fraught with challenge. In that light, here are” the six essential criteria slightly adjusted for the selection of the next Fed chairman:
- Visionary. What kind of strategic-thinking ability has this leader demonstrated that suggests he will be able to pull together and communicate a compelling and unifying vision for America’s future?
- Manager. Has this leader demonstrated an ability to effectively govern a large and complex bureaucracy? Is he a good judge of talent and willing to delegate critical management roles to the right people?
- Communicator. Is this leader an extraordinary communicator, willing and able to utilize the electronic and social media to reach out to people across cultures and generations?
- Relationships. Has this leader developed strong relationships with other leaders, internationally and domestically, that can be leveraged to break down barriers and forge new and dynamic partnerships?
- Courage. How courageous and forceful will this leader be to push for changes that will cultivate broader ownership and participation in decision-making among all members?
- Integrity. Is this person seen as a leader of unfailing integrity who has not in the past and will not in the future succumb to the temptation to compromise core values?
Bottom line, these are the six essential traits America needs in our next Fed chairman. As a management consultant, Frawley notes these are similar to criteria used with leading corporations “confronted with compelling challenges and a need for new direction” when deciding “who should fill their top role.”
The same applies in selecting the new leader of our Federal Reserve Bank, especially at such a crucial turning point in American history after 26 years of failed monetary policies under Greenspan and Bernanke.