Date: June 20, 2013

Bernanke’s Successor

First President Obama says that Ben Bernanke has stayed on longer than he planned. Then he slaps him upside the head by saying that he has stayed longer than he was supposed. And when given the opportunity to walk that comment back, the president not only declines but also doesn’t give Bernanke any real ringing endorsement. All very interesting to say the least!

Federal Reserve Vice Chair, Janet Yellen, is the odds on favorite to succeed Bernanke next year and what the market is discounting. Other names being floated are former Treasury Secretaries Tim Geithner and Larry Summers, Christina Romer and Roger Ferguson, none of which are favored by the markets. Long time readers know how little I think of Geithner (disaster would be a complement), but given his desire to be with his family in New York, I doubt that he is a serious candidate. From my seat (and others) Summers is an arrogant, condescending bully who does not play nicely in the sandbox with others. It also seems like he wants the job too much.

I believe that choosing the right Fed chief depends on the economic environment. During strong times, the markets favor more of a hawk who has laser focus on inflation. During crisis times and the aftermath like today, markets are more comfortable with a dove who is obsessed with fighting off deflation. Yellen falls in the latter camp, even more so than Bernanke.

As I have said more times than I can count since 2008, I am thankful every day that Ben Bernanke and Hank Paulson were in charge during the market crisis. I may not have fundamentally agreed with all of their actions, but I firmly believe that they successfully fought off another depression. They may have been late in realizing the contagion and gravity of the crisis, but once they did, it was all hands on deck. Not to be melodramatic, but I sincerely believed they saved the almost free market financial system around the world.


Paul Schatz, President, Heritage Capital