The Life And Times Of Helicopter Ben
As the Constellation-class Federation Starship USS Ben Bernanke is about to land for the last time to be added to the mothball fleet, many are cheering, holding placards saying “the best Federal Reserve Chair ever”. I beg to differ, so permit me to justify this minority opinion.
THE PERFECT STORM
In 2008, the big 5 investment banks (MS, GS, BSC, MER, LEH) collapsed. The entire US banking system simply ceased to function. Thus began the Great Recession.
HELP US, HELICOPTER BEN
Faced with an unprecedented problems, he took unprecedented actions: the series of Maiden Lane Funds (scooping up the bad assets and taking them off of the banks' balance sheet; they turned out to be very profitable investments for the Fed, but were illiquid at the time), and opening the Fed's credit window to anyone (and not just certain big banks) who could post securities. This was Helicopter's finest hour.
LET'S ALL AUDIT THE FED
The problem here is a sloppy use of language. Technically, the Fed is regularly audited by the GAO: we do indeed know exactly what is on the Fed's balance sheet and how big it is. We also know what goes on at the Fed meetings, because the minutes are now being published. What riled some was the secret actions the Fed took, risking $billions of taxpayer dollars: propping up certain balance sheets, and currency swaps with the ECB to ensure the flow of dollars to the EU. These were indeed proper actions, but in the view of some, should not have been kept secret at the time.
Faced with an economy that refused to recover, ol' Helicopter did what others from the Roman Caesars to Weimar Germany to Venezuela did: debase the currency. It has been said that this saved the US economy from further disaster, but there is no way to know for sure if this is true. All we can do is use the EU as a possible example. The ECB was considerably more stingy, in contrast to the Fed. It is difficult to make the case that the US recovery is necessarily better or stronger than the EU one.
TAKE THAT, EVIL GLD
Here, Helicopter was 100% correct. In anticipation of inflation rearing its ugly head, GLD went through the roof. It never happened, and GLD plummeted.
KICKING THEM WHEN THEY ARE ALREADY DOWN
In order to prop up the housing market, Helicopter has kept short-term interest rates at nearly 0%. Problem: thrifty savers and the retired who rely on fixed income interest are suffering. This strategy has reduced their standard of living, so all is not well in Whoville.
So, let us find that ridiculously tiny pencil and add up the birdies and bogies.
Helicopter has indeed hit under par, but is far from setting a course record.