For many U.S. politicians and commentators — the fiercely libertarian Ron and Rand Paul crowd in particular — the Fed’s powers now look frightening. Thirty senators voted against Bernanke’s renomination as chairman in 2010, the most ever. For mainstream economists, however, Bernanke’s willingness to use those powers to the full has come as a relief. “Counting the score from the days and weeks after Lehman until today, Bernanke’s performance as leader of the Fed has been superb,” says Alan Blinder, who was Greenspan’s top lieutenant from 1994 to 1996.
Bernanke wasn’t alone. The leaders of the world’s other major central banks morphed into the Avengers, the Marvel Comics band of champions that includes Captain America, Iron Man and Thor.
In Canada, near the depth of the downturn in April, 2009, Bank of Canada Governor Mark Carney dropped his central bank’s benchmark overnight rate to 0.25% — the lowest he could — and promised to keep it there for at least a year. In Britain, the Bank of England followed the Fed in essentially printing billions to buy troubled assets from banks. The Swiss National Bank bought euros with abandon, flooding currency markets with its francs to keep the value from soaring into the stratosphere.
When Carney went to London this past February for the mandatory parliamentary review that goes along with accepting the top post at the Bank of England, he said that he hoped his exit at the end of a five-year term would be “less newsworthy than my entrance.”
A man can dream, can’t he? It seems unlikely that the world’s central bankers are destined for the back pages any time soon.
The next big mistakes will not be the same as the last big mistakes
Jamie Dimon must be one of those dads who keeps work and home separate, because one of his daughters had to ask him one day after school, “What’s a financial crisis?” Dimon, the CEO of JPMorgan Chase and the undisputed Prince of Wall Street, responded, “Well, it’s something that happens every five to seven years.” Dimon recounted the exchange to the Financial Crisis Inquiry Commission in January, 2010, revealing a disconcerting level of fatalism.
Here’s a taste of what Fate has wrought. Four years after the U.S. economy officially stopped contracting and began a halting expansion, 136 million Americans now have jobs — 337,000 fewer than held jobs in September, 2008. So difficult has been the climb out of the crater left by the Lehman collapse that all the world’s major growth engines are now spent: The U.S., China, Japan and Europe are all sputtering below their potential output. Canada’s new central bank governor, Stephen Poloz, likens the uneasy state of the global economy to a period of “postwar reconstruction.”
The human toll can also be measured in an expanding gap between the richest and everyone else, and street violence in such cities as Athens, Madrid and Rio de Janeiro. In the U.S., the jobless rate peaked at 10% in October, 2009, and remains stubbornly high at 7.4%. (The Fed’s unofficial target is in the neighbourhood of 5.5%.) Canada’s unemployment rate ticked up in July to 7.2%. The political toll can be measured by tallying the number of leaders from 2008 who are still standing today. The count won’t take long.
Yet there’s a reason the downturn is called the Great Recession, not the Great Depression: The U.S. economy’s performance in 2008 and 2009 was stellar — relatively speaking. In the Depression, unemployment soared to almost 25% in 1933 (in Canada, the peak was almost 30%), and didn’t fall below 10% again until 1941. Compared to current unemployment rates in Europe, which average about 12%, and are more than 25% in intensive-care patients like Greece and Spain, the U.S. could have had it much, much worse.
Fortunately, some of the leaders in Washington who faced down the crisis don’t share Dimon’s fatalism. “I’m not a believer in the Old Testament theory of business cycles,” Bernanke said in November, 2011, during a visit to the Fort Bliss military base in El Paso, Tex. “I think that if we can help people, we need to help people.” Bernanke performed feats of monetary policy that few realized were possible. Some critics still think he did too little; others think he meddled too much. None of that matters. Bernanke will almost certainly retire next January a hero. He was the bulwark between recession and something worse.