The Bernanke Watch -- Part One
The Ben Bernanke sweepstakes is heating up. Sometime over the next few months, President Obama will decide whether to reappoint the Federal Reserve chairman to a second four-year term. The betting now is that Bernanke will be back, and he almost certainly helped himself on Tuesday with his Humphrey-Hawkins testimony before the House Financial Services Committee. In his prepared remarks, along with an op-ed in the Wall Street Journal, Bernanke answered the most strident questions posed by his critics. He does, in fact, have "an exit strategy" from the Fed's expanded balance sheet and loose monetary policy, he said. He's prepared to wield a wide array of tools to make that happen. "The extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed," Bernanke said -- in other words, of course I can deal with future inflation, it's just not going to be now. Compared to some past performances, Bernanke sailed through the day.
Still, there were a few signs of tension with the Obama administration, which could bode ill for Gentle Ben. Bernanke indirectly raised questions about the administration's fiscal policy, saying current spending is unsustainable, and he appeared to differ with Treasury Secretary Tim Geithner when he called for an activist counsel of advisors to oversee systemic risk. Perhaps that too was in answer to his critics, among them Anna Schwartz, the 93-year-old scholar who earned herself a permanent place in economic history when she co-authored, with Milton Friedman, the "Monetary History of the United States." In an interview, Schwartz accused Bernanke of being "very much influenced by the Treasury." Others, however, would say it is Bernanke that has pushed the Treasury. And even if Obama has reason not to want to reappoint Bernanke, he risks political disaster if he opts for his chief economic advisor, Larry Summers, as his replacement. Summers, at this stage, would be perceived as an Obamaite infringement on the Fed's independence, not to mention an confirmation nightmare.
All in all, it's looking as if Bernanke is making the case that he's got too many balls in the air right now to be shoved aside. And he may be right.
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Michael Hirsh covers international affairs for NEWSWEEK reporting on a range of topics from Homeland Security to postwar Iraq. He co-authored the November 3, 2003 cover story, "Bush's $87 Billion Mess," about the Iraq reconstruction plan. The issue was one of three that won the 2004 National Magazine Award for General Excellence.
Hirsh writes a column on Newsweek.com entitled "The World from Washington" focusing on foreign policy issues and serves as Washington Web Editor for Newsweek. He also edited NEWSWEEK's "Issues 2007" special issue, which explores all facets and issues of globalization.
Hirsh was the magazine's Foreign Editor from January 2001 to January 2002, and helped guide Newsweek's award-winning coverage of the September 11 attacks and the war on terror. Before that he was a Senior Editor/Chief Diplomatic Correspondent in the Washington bureau, writing about foreign affairs and international economics. Hirsh was also managing editor for the Newsweek International special issue "ISSUES 2001," the second in a series of three annual reviews of the global economy in the new century.
From September 1998 to December 1999, as Diplomatic Correspondent, Hirsh covered foreign policy, the State Department and the Treasury. He moved to the Washington D.C. bureau in May 1997, previously serving as a senior editor of Newsweek International, covering the same beat.
Prior to joining NEWSWEEK in October 1994 as a New York-based senior writer, Hirsh served as the Tokyo-based Asia Bureau Chief for Institutional Investor from 1992 to 1994. Previously, he was a correspondent for the Associated Press in Tokyo and a National Editor in New York.
Hirsh was co-winner of the 2002 Ed Cunningham Award for best magazine reporting from abroad for Newsweek's terror coverage and contributed to the team of Newsweek reporters who earned the magazine the prestigious 2002 National Magazine Award for General Excellence, also for the magazine's coverage of the war on terror. Hirsh also won a Deadline Club Award in 1997 for investigative reporting on his expose of the IRS's abusive practices, and was one of five finalists for a 1994 Gerald Loeb Award for Distinguished Business and Financial Journalism for his article, "China's Financial Revolutionaries." It profiled the new generation of mainland Chinese businessmen who are striving to build a capitalist financial system from scratch. Hirsh is the author of the nonfiction book "At War with Ourselves" (Oxford University Press, 2003) which explores America's foreign policy and its global role.
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