Ben Bernanke did not hesitate when asked whether he was confident that his signature response to the Great Recession would work.
"Well, the problem with QE is that it works in practice but it doesn't work in theory," the head of the U.S. Federal Reserve quipped earlier this month during his last public appearance.
He was referring to his decision during the darkest days of the financial crisis to launch an unprecedented program of massive bond purchases, a policy known as quantitative easing, or QE. The aim was to push long-term interest rates lower given that overnight rates, the Fed's main economic lever, were already near zero.
The purchases Bernanke kicked off in late 2008 have continued, off and on, to this day. They have already led to a quadrupling of the Fed's balance sheet to $4 trillion.
On Wednesday, Bernanke, 60, quietly adjourned his final policy-setting meeting after an unusually tumultuous eight-year stint atop the world's most influential central bank.
When he steps down on Friday, the Fed's bloated balance sheet will hang over his legacy. Critics have warned it contains seeds that could lead to inflation or asset price bubbles.
Early assessments have been mostly positive. The former Princeton professor has been praised as the steady hand who helped steer the United States and world economies clear of a far more painful recession.
He flooded financial markets with liquidity from an alphabet soup of programs set up on the fly; he printed trillions of dollars through three rounds of QE; and he made bold promises to keep stimulus in place for years to come, tying low interest rates to particular economic outcomes in an approach emulated by other central banks.
As a leading scholar of the Great Depression, Bernanke had a deep theoretical understanding of what to do in the face of a fast-moving banking panic. He put that knowledge into practice when the financial crisis struck.
"Bernanke was willing to do creative and aggressive things," said Laurence Meyer, a former Fed governor who co-founded the forecasting firm Macroeconomic Advisers. "He put a lot of balls in the air and likely thought that not all of them will work - but some of them will. That was the kind of spirit and leadership and willingness to take risks."
But like his predecessor, Alan Greenspan - who was showered with accolades when he stepped down in 2006 only to later be labeled a main architect of the subsequent crisis - Bernanke's legacy will only become clear over time.
$4 TRILLION AND COUNTING
A good part of that legacy will be written by Fed Vice Chair Janet Yellen, who takes the central bank's reins on Saturday.
She inherits the job of dialing down the bond-buying and deciding when to raise rates.
Yellen will also need to figure out how to smoothly shrink the Fed's balance sheet to a more comfortable size of around $1 trillion without knocking the economy off the rails.
To Allan Meltzer, a leading Fed historian, no outcome looks good for Bernanke. "If they go too fast, we're going to get a recession. If they go too slowly, we are going to get serious inflation. If they do neither, we could get both," he said. Read more.
"Well, the problem with QE is that it works in practice but it doesn't work in theory," the head of the U.S. Federal Reserve quipped earlier this month during his last public appearance.
He was referring to his decision during the darkest days of the financial crisis to launch an unprecedented program of massive bond purchases, a policy known as quantitative easing, or QE. The aim was to push long-term interest rates lower given that overnight rates, the Fed's main economic lever, were already near zero.
The purchases Bernanke kicked off in late 2008 have continued, off and on, to this day. They have already led to a quadrupling of the Fed's balance sheet to $4 trillion.
On Wednesday, Bernanke, 60, quietly adjourned his final policy-setting meeting after an unusually tumultuous eight-year stint atop the world's most influential central bank.
When he steps down on Friday, the Fed's bloated balance sheet will hang over his legacy. Critics have warned it contains seeds that could lead to inflation or asset price bubbles.
Early assessments have been mostly positive. The former Princeton professor has been praised as the steady hand who helped steer the United States and world economies clear of a far more painful recession.
He flooded financial markets with liquidity from an alphabet soup of programs set up on the fly; he printed trillions of dollars through three rounds of QE; and he made bold promises to keep stimulus in place for years to come, tying low interest rates to particular economic outcomes in an approach emulated by other central banks.
As a leading scholar of the Great Depression, Bernanke had a deep theoretical understanding of what to do in the face of a fast-moving banking panic. He put that knowledge into practice when the financial crisis struck.
"Bernanke was willing to do creative and aggressive things," said Laurence Meyer, a former Fed governor who co-founded the forecasting firm Macroeconomic Advisers. "He put a lot of balls in the air and likely thought that not all of them will work - but some of them will. That was the kind of spirit and leadership and willingness to take risks."
But like his predecessor, Alan Greenspan - who was showered with accolades when he stepped down in 2006 only to later be labeled a main architect of the subsequent crisis - Bernanke's legacy will only become clear over time.
$4 TRILLION AND COUNTING
A good part of that legacy will be written by Fed Vice Chair Janet Yellen, who takes the central bank's reins on Saturday.
She inherits the job of dialing down the bond-buying and deciding when to raise rates.
Yellen will also need to figure out how to smoothly shrink the Fed's balance sheet to a more comfortable size of around $1 trillion without knocking the economy off the rails.
To Allan Meltzer, a leading Fed historian, no outcome looks good for Bernanke. "If they go too fast, we're going to get a recession. If they go too slowly, we are going to get serious inflation. If they do neither, we could get both," he said. Read more.
Source: Hindi News
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