Has Bernanke Held the Keys to the Presidency all This Time?
I was just doing a radio interview with CNN Radio and Dan Stewart, the host, raised an interesting objection to my thinking that the Fed is trying to stay apolitical. He said the Fed might intentionally be getting political or at least doesn’t care because Ben Bernanke thinks he’s out of the job if Romney wins. It’s a bit conspiratorial, but a really interesting idea that I hadn’t thought of yet.
Generally, the Fed would avoid being political at any cost because they’re intended to avoid politics as best they can. But Bernanke has held a very powerful tool in swaying market optimism and pessimism. If he really wanted to tank the market just before the election he could certainly have an impact through his QE communications. But what he hasn’t done or even come close to doing, is downplaying the potential for QE even in the face of an environment that makes the need for QE highly questionable. So it’s an interesting thought. Does Ben Bernanke hold the keys to the White House? And does he even care what Mitt Romney thinks given the fact that Romney has explicitly stated he would fire Bernanke if he wins?
This was a very very close race just weeks ago, but the polls are widening and the stock market’s huge surge isn’t hurting at all (just like the collapse hurt McCain in 2008). The recent stock market performance along with the polling numbers would certainly seem to favor President Obama at this point. And while I hate to stoke the conspiracy theorists, I do have to wonder to myself – if I were in Ben’s position might I be inclined to spit in the face of being apolitical because I know that the Presidential challenger is guaranteed to fire me no matter what?
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
23 Comments
I doubt Ben is intentionally doing anything, but it’s an interesting thought. He might definitely give less than a damn about what he does since he’s getting fired by Romney. He has an incentive to be political. That’s for sure. Romney might have sealed his own fate by coming out against him.
I doubt Romney would fire Ben. It would be a minor flip-flop for him, and following through on the “popular” threat would risk God-knows-what, other than a Hillary win in 2016. Romney is a hot air balloon in search of a needle.
No. Romney would fire him all right. That was a very explicit promise with no wiggle room. Now, that isn’t to say that Romney wouldn’t appoint someone who adopts radical policies and prints money as fast or faster than Ben (like Mankiw), just that Ben would no longer be in power. I’ve said all year that the promise to fire Bernanke was the biggest strategic mistake that Romney ever made. Anyone who was paying attention in 1979-1980 should know that Fed Chairmen have the power to make or break Presidents. Much greater power than even the Supreme Court. Like it or not, the Fed is the 4th branch of government.
Bernanke not political? Is he not human? And thank Dog for that.
Not that I like Obama much. I just despise Mr. LBO/Offshore Accounts even more.
Doing QE is less political than not doing it, but of course this ends up pointing to more upside in stocks, so of course I’ll be spat on for suggesting as much…
Regardless, why is it that everybody refuses to envision the other side ot the coin here just because it doesn’t align with their bearishness?
Why is it that doing QE is political while avoiding QE is apolitical?
The reality is both could be viewed as being politically motivated.
It doesn’t matter if he does it or not – history says there’s a near 100% chance (91%) to be exact, based on 63 historical examples, that the SPX will be higher by August of next year, probably in the ~1,700 range.
I know SS (slim shady) will call me on this because I suggested 1,800 before, but that’s pry the upper end of a likely range (i.e., 1,650-1,800)…
Regardless, we rip from here on out no matter what – totally rip.
Good point. I think Bernanke is more educated and a better economist than almost anyone on this blog; a person of integrity who really believes that QE will be good for the country. I think Bernanke is more interested in how history will judge him rather than job security.
Disagree. At the fed and ny fed respectively Bernanke and Geithner were responsible for oversight when banks over leveraged, speculated, committed fraud and took the global economy over the cliff. They were also outspoken every step of the way about “no problems here”, “well contained”, etcetc….with all the info available to them they TOTALLY missed seeing this coming.
They are HIGHLY motivated to keep those banks propped up amid an APPEARANCE of solvency and health. All the QE programs, as this site and MR/MMT well knows, has NEVER been about jobs. It has been about propping up wall street……allowing mark to fantasy, gifting them profits to help balance sheets, and keeping interest rates low almost forever so that the banks STILL over leveraged interest rate sensitive derivative exposure can roll off…….and who gives a d……about the low and middle classes, retired, elderly, savers, debt averse that get run over in the process. It is quite amazing that our electorate, as dumbed down as we all may be, is willing to provide 4 mores years…….like “a little more of this, for a little longer, is all the economy needs to get going”…….this site and its followers, of all people, should know better. Its criminal. krb
I’ve been saying that the future will look favorably upon Bernanke.
Please write “sarc” after a comment like that. Some people will think you’re serious.
A person of integrity…that’s a good one.
Haha, The Supreme Court is a SUPREME Example of how Political,
A-political views of public officials Can NOT BE.
We should stop kidding ourselves as a society. We All Have An Agenda..LOL
It’s called Self Preservation and it’s based on how we view the world around us.
I can’t believe no one has stumbled on to this before now! Romney is only the most recent republican to rip Bernanke. Paul and others have been on him about audits, transparency, etc since the beginning of the crisis……Bernanke has known he is toast under a republican administration for at least 2 years. Out of no where he announces rates would remain at 0% until the end of 2014…..what is so magical about that date?…..other than the fact it is into the middle of the next presidential term……which locked up the wall street vote for Obama……why would they now want a republican win and an end to this gravy train! Followers of this site know that QE has no transmission mechanism to provide positive economic effects, it is ONLY an asset levitation tool……Bernanke isn’t stupid, he know this too…….his own NY Fed said as much when Brian Sack stated “the goal was to raise asset prices higher than they would otherwise be”. With economic indicators dragging along recession lows, imagine where Obama’s polling would be minus QE and the Dow still at 9000…..he’d be down 20pts rather than running with a lead. It’s been the elephant in the room for a year now! It’s ALWAYS been about politics. krb
No, people have posited this for months. And not having a direct monetary transmission mechanism doesn’t preclude indirect effects.
Oh, that’s right. The “wealth affect”…..please.
The market is going up because U.S. companies are performing well. Has this been missed in all the various pages of ECB/Fed/QE/etc analysis?
I love reading your blog but your failure to talk about company performance in ahy sort of detail I think is a glaring failure. There is so much focus on macro but very little on the micro…companies have been performing well and ultimately this is what drives share price performance believe it or not over long time periods!
The CAPE 10 yr adjusted PE ratios for US companies are much higher now than the long term norm, so according to the 10 yr view, the market has “priced in” a continuing good performance by US Companies. If in the future they fail even by a little bit to live up to this “priced in” good performance , the market will fall so fast it will make your head spin. @BD, the good performance of US companies is not so good relative to the high prices of SPX.
http://www.counterpunch.org/2012/05/18/the-true-costs-of-bank-crises/print
In March 2010 Andrew Haldane, Executive Director for Financial Stability at the Bank of England, estimated that the financial crisis that began in 2008 will ultimately cost the world economy between $60 trillion and $200 trillion in lost production. Those numbers are almost too large to comprehend.
The latest jobs data show that new jobs tend to be service oriented “low pay” type jobs.
The middle class was created and grew as innovation filtered through the economy, first by the capitalist/entrepreneur and then downward to the rank and file. The rank and file workers in the trenches of industry figured out how to improve through learning cycles of production. They had the opportunity to borrow credit, improve, and pay back the usury with improved productivity via wealth formation.
Today, the middle class is under attack by financialization schemes that are causing asset inflation. (QE) Also, millions of Aliens arrive yearly, who enrich Oligarchs with their labor, but cost shift onto the middle class through taxation i.e. social programs, schools, and medical. Wall Street also shifts jobs by dancing the China tango and reaping resultant wage arbitrage for captains of industry. Wall street looks like a hero but is really a zero. Just ask Michael Dell about Asus and how they created a competitor to save a little for today, but destroy the future. Today, those learning cycles of production go from innovation phase, then straight overseas, bypassing the American middle class.
There is a structural shift at work, and the financial markets are out of sync. I suspect the asset swaps are finding “new assets” in the stock market, and hence showing up as price/earnings inflation.
If you believe Bernanke is trying to increase the odds of an Obama re-election it means QE at the October meeting not now. 6 weeks is far too long for something to go wrong in Europe, Asia, ME and not have QE3 in the back pocket.
Plus QE3 would almost certainly send gas prices to the $5.00. That would not be a good way to get the president reelected.
The October meeting would be too obvious, i.e. too close to the election. If he’s gonna go, he’s gonna go now.
Not a conspiracy – not even to keep his job, but only choice – if he does not act, economy lags, Romney fires him and places blame on him and his legacy is failure, while next guy gets to play hero with nowhere to go but up. Only hope is to boost economy until he looks like savior and leave whenever timing is right.
Surprised you hadn’t thought of it, seems obvious.
It certainly would be a defensible arguement – particularly if Ben thought his successor would impliment drastically worse policies than the current Fed leadership.
There is no doubt that Romney has stated he would appoint a different Fed Chairman. With that in mind, I was thinking the same thoughts that Uncle Ben was trying to insure the election to save his job. It is unheard of that the Fed would act this close to an election considering the views of the opponent.
I just checked Intrade and Romney only has a 35% chance of winning.
I’m surprised I haven’t heard more of this. Bernanke is human. The Republicans are ripping into him (i.e. Rick Perry, Ron Paul, et al). And Mitt Romney very publicly states that he will fire Bernanke if he gets the chance. That certainly is not going to win Bernanke’s support. Romney was stupid for saying such a thing. So Bernanke has to make subjective decisions on Fed policy. Why wouldn’t he be influenced, even at a subconscious level? Even if Bernanke is doing his best to remain apolitical, this has got to be going on in the back of his mind somewhere.
On the other hand, the FOMC voted 11-1 for QE3, so its hard to make much of the conspiracy story. However, you have to think that Mitten’s words did not help him at all in this case.