Ben "Helicopter" Bernanke Could Land At The Fed Chair - Shares Soar - UPDATED

Monday, October 24, 2005

President George W. Bush will hold a press conference at 1 PM Eastern Time and speculations are running high that he will announce that Ben "Printing Press" Bernanke (click for bio) will succeed Federal Reserve chairman Alan Greenspan, Bloomberg TV reported, citing a DowJones news report. Greenspan will step down in 99 days. Bernanke, famous for his comments made in 2002 that he would drop dollar notes from a helicopter in order to keep the economy going has been groomed in the White House as the head of Bush's Council of Economic Advisers for the past couple of months. In this post he missed the chance to caution the current administration against a continuation of the explosive growth of US public debts that has surpassed the $8 trillion mark last week. In an initial reaction gold and silver surged on the news while equities retreated from the day's highs reached just before this piece of news came out, despite a further fall of crude oil prices. The dollar fell on the news as well from his day's highs as did treasuries.
For more facts on Bernanke and the two other contestants for the world's second most important job read this earlier post.
Bernanke Would Be A Blunt Signal For Ever More Easy Money
Having been close to Bush for the past months Bernanke cannot be seen as an independent policymaker as this administration is well known for its ways to silence critical voices. Getting dyed in the White House just before climbing the Fed chair would be a very blunt signal to the markets that the administration is not willing to accept any dissent in monetary policy. Looking at the soaring debt Bush has been creating since he took office and considering the dovish stance of Bernanke one does not get the picture that the US is serious about reducing soaring deficits which will put inflationary pressure on the greenback.
Story developing...but if it is going to be Bernanke I will first have a stiff Gin and Tonic.
NOTE: Bloomberg TV lines up one commentator after the other on this issue. Tune in if you can. I am experiencing streaming problems.
UPDATE 1: Marketwatch has conflicting reports, saying that Greenspan's successor will be named next Monday.
APOLOGY FOR MY ERROR: The Marketwatch story meant this Monday. My error.
The Wall Street Journal stays with its bet that the announcement will be made at 1 PM.
Share markets are back up to the day's highs.
UPDATE 2: Gold soars above $468, silver is up at $7.69 and the dollar falls to 1.1996 Euros after having hit a daily high of 1.1920 Euros.
UPDATE 3: Reuters quotes a knowledgeable source that Ben Bernanke will indeed become the new Fed chairman.
From the Reuters story:
President George W. Bush was expected to announce on Monday that he has picked top economic adviser Ben Bernanke to succeed Federal Reserve Chairman Alan Greenspan, a knowledgeable source said.
An announcement was to come at 1 p.m. EDT. Bush told reporters there would be "an announcement soon" on his choice to replace Greenspan, whose 18-year tenure at the Fed runs out on January 31.
Bernanke is chairman of Bush's Council of Economic Advisers. He served on the Fed's Board of Governors for nearly three years before moving to the White House in June.
His move to the White House was watched with interest on Wall Street because of the belief that he was on the fast track to replace Greenspan.
Bernanke, a highly regarded monetary economist, has advocated steps toward greater policy transparency at the Fed and is a long-time advocate of inflation targets.
At the Fed, he argued the central bank could help cement its inflation-fighting credibility by putting a number on its definition of price stability.

While commentators consider Bernanke a hawk who will fight inflation I wonder if the White House can afford a Fed chairman that would further strain the US budget with higher interest rates.
But my opinion is contradicted by bond markets which are turning lower, adding 5 basis points to the 10-year Treasury yield. Thrilling moments of history indeed. Gotta look for that bottle of Tanqueray.
Transcript Of Bush And Bernanke Remarks
UPDATE 4: Marketwatch presents us with the transcript of the presidential announcement and Bernankes first words following the official nomination:
Bush: Good afternoon. One of a president's most important appointments is chairman of the Federal Reserve. In our economy, the Fed is the independent body responsible for setting monetary policy, for overseeing the integrity of our banking system, for containing the risk that can arise in financial markets, and for ensuring a functioning payment system. Across the world, the Fed is the symbol of the integrity and the reliability of our financial system, and the decisions of the Fed affects the lives and livelihoods of all Americans.
To lead this institution, a chairman must be a person of impeccable credentials, sound policy judgment, and character. Today I'm honored to announce that I'm nominating Ben Bernanke to be the next chairman of the Federal Reserve.
Over the course of a career marked by great accomplishment, Ben has done path-breaking work in the field of monetary policy, taught advanced economics at some of our top universities, and served with distinction on the Fed's Board of Governors. He's earned a reputation for intellectual rigor and integrity. He commands deep respect in the global financial community. And he'll be an outstanding chairman of the Federal Reserve.
Ben will replace a legend, Alan Greenspan, who will retire when his current term runs out at the end of January. For nearly two decades, Chairman Greenspan has shepherded our economy through its highs and its lows. Under a steady chairmanship, the United States economy has come through a stock market crash, financial crises from Mexico to Asia, two recessions, corporate scandals, and shocks ranging from devastating national disasters to a terrorist attack in the heart of America's financial center.
Through all these challenges, Chairman Greenspan's prudent judgment and wise policies have kept inflation low. He's played a major role in America's strong economic growth. He has dominated his age like no central banker in history. He has contributed to a better life for all Americans. And I thank him for his service.
Ben Bernanke is the right man to build on the record Alan Greenspan has established. Ben graduated from Harvard with top honors, earned a doctorate in economics from Massachusetts Institute of Technology. He's built a record of excellence as both an academic and policymaker. He is the author of several scholarly books and is one of the most cited economists in the world. As Fed governor, Ben advocated greater transparency in communication with the public and markets. His speeches were widely admired for their keen insight and clear, simple language.
Ben's career has also been distinguished by leadership. He was chairman of Princeton's Economics Department, founding director of Princeton's Bendheim Center for Finance, and a founding editor of the International Journal of Central Banking. Since June he has served as Chairman of the Council of Economic Advisors.
Ben is also a kind and decent man who is held in high regard by all those who have worked with him. He has the support of a strong and loving family. I'm pleased to see that Ben's wife, Anna, and his two children, Alyssa and Joel, are with us today.
I want to thank Ben for his willingness to serve in a position so important for world markets and so vital to the well being of the American people. I urge the Senate to act promptly to confirm Ben Bernanke as the 14th chairman of the Federal Reserve.
Ben, thanks for serving.
Bernanke: Thank you. I'd like to express my deep appreciation to President Bush for the trust he has shown in me in asking me to lead the Federal Reserve System. If I am confirmed by the Senate, I will do everything in my power, in collaboration with my Fed colleagues, to help to ensure the continued prosperity and stability of the American economy.
In light of the announcement the President has just made, it's especially gratifying to have Chairman Greenspan here. In more than 18 years at the helm of the Federal Reserve, Alan Greenspan has set the standard for excellence in economic policymaking. I am personally grateful to Chairman Greenspan for his collegiality and support during my time as a member of the Fed's Board of Governors.
Our understanding of the best practice in monetary policy evolved during Alan Greenspan's tenure at the Fed, and it will continue to evolve in the future. However, if I am confirmed to this position, my first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years.

And me? I gotta give it all a long thought, second-guessing all my assumptions about Bernanke, listening in to more comments on his nomination. Will try to come up with "The Big Picture" (as long as Barry Ritholtz does not mind copycatting his trademark) tomorrow.
Just one initial thought: There is an awful lot of economic indicators coming up this week, culminating with Q3 GDP growth on Friday, all of them expected to be on the weaker side. Today's relief rally does not look like a genuine change in sentiment. See it confirmed in the developments in bond markets.
Bloggers Initial Reactions
For initial reactions to today's sudden announcement in blogosphere surf to the Wall Street Journal's Econoblog (no subscription needed.)


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