End of the Bernanke Era

The official announcement has been made. Ben Bernanke, chairman of the United States Federal Reserve, will serve until January 31 of 2014 and then step down. At the end of the Bernanke era Janet Yellen is expected to take his place as President Obama’s nominee for the top spot. Mr. Bernanke is widely credited with saving the United States if not the world economy in the dark days following the 2008 market crash and onset of the worst recession in 75 years. Ben Bernanke is one of the acknowledged experts on the causes of the Great Depression. His policies of lightening credit and providing economic stimulus have helped bring the US economy back from the edge of the abyss. The US president said that “[Bernanke] took bold action that was needed to avert another Depression.” When faced with an economic disaster of global proportions. Under the Fed chairman the US Federal Reserve created innovated solutions aimed at keeping interest rates low. Most visible has been the quantitative easing program in which the Fed has purchased mortgage backed securities and US treasuries currently to the tune of $85 Billion a month. Bernanke has been likened to a brain surgeon who arrived just when brain surgery was needed. This is the legacy of man at the end of Bernanke era. The broad effect on foreign currency rates of his policies have been to raise the value of the US dollar as the economy recovered and raise it again at rates rose in response to anticipated cooling off of the quantitative easing program.

What Bernanke Knew

What the Fed chairman and former Princeton professor knew was that tightening credit in the wake of the 1929 market crash was one of the primary reasons for the Great Depression. Thus he spearheaded programs by the Fed to lighten credit, keep rates down, and pump money back into a global economy that saw $7 Trillion in value disappear with the market crash of 2008. At the end of Bernanke era most believe that his presence at the Fed was a God send although others still nip at his heels with criticism about the details of his actions.

What is Next?

Mr. Obama’s choice to replace Mr. Bernanke is Janet Yellen. She is already a Fed VP and was an integral part of the team that developed current policies. As usual the market has its own set of opinions and the USD fell on the announcement that she would be Mr. Obama’s choice to replace the current Fed chairman. The stated policy is that as the US economy improves the Fed will taper off on the quantitative easing program. But now the USD falls as default approaches and it may be that all bets are off the table. The havoc that US debt default will wreck on the USD and global currency markets may be so severe as to last for decades and undo the work of the Fed at the end of the Bernanke era.