Why Did Obama Reappoint Bernanke on His Vacation?
The surprise isn't that Barack Obama reappointed Ben Bernanke. It's that he announced reappointing Ben Bernanke today. Obama is on vacation in Martha's Vineyard. It's a rare person who reappoints the Fed chairman in order to relax. Nor was this an urgent decision: Bernanke's term doesn't end till January. So why today?
Well, as the American Prospect's Tim Fernholz explains, it's about stepping on the other news stories that could dominate the morning. In particular, it's about stepping on the mid-session budget review, which will project a $1.5 trillion deficit in 2009 and $9 trillion in deficit financing over the next decade. That's a bad story for the administration, particularly at this juncture in the health-care reform debate (health care will be deficit neutral, but facts like that have a tendency to get lost in these discussions). Here's Fernholz:
[T]oday is the day that the Office of Management and Budget in the White House and the Congressional Budget Office will unveil their mid-session budget reviews, updating economic and other assumptions about future spending, revenues and deficits. The OMB has already leaked that it will be decreasing this year's deficit by about $250 billion thanks to unspent bailout money but increasing the 10-year deficit by about two trillion dollars, about 2 percent of projected GDP, as it updates its economic assumptions for the first time since last year. The CBO has already predicted similar numbers and most experts I've spoken to in advance of this morning's releases don't expect the CBO to be too far off from the OMB's projections.
Despite the fact that these results were expected, and in the case of the current-year deficit, unexpectedly better (more on the reviews later and in tomorrow's column -- briefly: ignore the panic), the bond markets love to freak out at the first sign increasing deficits. To counteract the deficit news that otherwise would put CNBC and the markets in a huff, the White House is pushing ahead the Bernanke announcement, putting a little honey in the bad medicine. Bernanke is "trusted" by the "markets," in the insane parlance of our times, and this should give them some confidence going forward.
In other words, the OMB is coming out with big deficit numbers today, which could rattle the markets and be used as a cudgel against health-care reform. To prevent that, the White House scheduled the Bernanke announcement for the same day. Fed chairmen may be insulated from politics, but the people who choose them sure aren't.
Photo credit: AP Photo.
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