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The Perfect Fed Chairman?

PH2009082500782.jpgThe perfect Federal Reserve chairman, writes Simon Johnson, would have had both the right jobs before the crisis and the right opinions before the crisis. "Unfortunately," he says, "there is essentially no one who meets both criteria." The people with the right opinions weren't given the right jobs. And the people with the right jobs, almost by definition, didn't have the right opinions.

I'd add one thing: It also seems that the perfect Federal Reserve chairman would publicly announce that he will not seek, nor accept, reappointment after this term. By all accounts, this is not going to be an easy few years for the Federal Reserve. Daniel Gross put it best in a — sorry to do this to you — tweet. "A reward or a punishment?" He asked. "Next 4 yrs will be ugly, painful ones for Fed chairman. Removing $1 tril in liquidity is no fun."

Flooding the market with money is a lot more popular than pulling that money back into the Federal Reserve's coffers. For that reason, the chairman of the Federal Reserve is supposed to be politically insulated. But he's not really politically insulated if he's seeking another term, and he knows that, the administration knows that, and, arguably most importantly, the markets know that. Whatever comfort they're taking from Bernanke's reappointment, I imagine they'd take a lot more if he announced that this was his final term.

More: Paul Krugman has another take.

Photo credit: By Gerald Herbert— Associated Press

By Ezra Klein  |  August 25, 2009; 3:39 PM ET
Categories:  Federal Reserve  
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Comments

So it would be better that he spend the next 4 years schmoozing in order to get his next job? You need to think these things through. Until you understand monetary policy and reputation don't try to opine on this stuff.

Posted by: endaround | August 25, 2009 8:02 PM | Report abuse

I do not believe Bernanke is dumb enough not to understand that the greatest President of this country lasted little more than 4 years (Lincoln) and one of the longest serving Fed Chairman has his legacy totally in tatters (Greenspan).

People are simply making way too much of these Fed Chairman Terms. Bernanke is generally beyond that and whatever influence this tenure business may have on his decisions, it is unlikely to be critical.

It will much easier if Fed simply makes a rule that any chairperson can be at the most on two complete terms and one incomplete terms (which can be only the first term because the predecessor terminates abruptly). This way there will be an upper bound of around 12 years.

Posted by: umesh409 | August 25, 2009 10:18 PM | Report abuse

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