The Reappointment

Ben Bernanke's term expires on 31st January and President Obama is going to have to decide whether to replace him with somebody else. If one were to look at past reappointment history such events are more influenced by political rather than economic reasons. It was about whether the Fed Chairman is willing to do the president's bidding and coordinate monetary policies to aid him in the next elections. Though the Federal Reserve is supposed to be a political independent party, nobody really believed that.

Such was the reason why Paul Volcker, a former Fed Chairman whom I highly respect was made to give way to Mr. Greenspan. With the benefit of hindsight, Greenspan was severely over-rated, his era of prosperity was built on a bubble. He was more of a master politician and bubble blower than an economist or regulator. As the way things work in Washington, there is no point in doing the right things if the people are not going to get re-elected for it. Nothing can be worse than doing the right things, laying the foundations for the future, only to see your arch-nemesis getting elected and reaping the benefits of it. George Bush Senior can attest to it and that is also why you can witness the dramatic change in the way how his son handled politics.

Mr Bernanke's dovish approach to the markets is one that would be welcomed by market participants. The "Greenspan Put" analogy is now being replaced with "Helicopter Ben". An assurance that Ben will fly over in his helicopter to release huge amounts of cash and liquidity should the financial system ever get into trouble. Given his dovish approach, experience and now fame for acting early to help relieve the effects of this financial crisis he is highly likely to be re-elected again. Now it depends on whether Obama and his advisers trust him well enough to do the things that they need him to do. If all things were to happen according to the path of least resistance, then we might risk awakening the timeless evil of inflation in the future. Of course, to Obama and company, that is something for the next president to worry about.