Through it all, Bernanke retained a unique candor. He spelled out the costs and risks of these unconventional policies. He made it clear that the more the Fed had to persist, the more difficult it would be to get the world back into a state of normal balance.
To this day, the Fed has not yet been able to wind down his innovative policies – for good reason. The U.S. economy in the four years since the recession ended has been growing at less than half the rate of any other recession since World War II. We are still living with a real unemployment rate of at least 14 percent, punishing millions of a new "lost generation." Some 37 percent of the unemployed have been out of work for over six months. And we have failed to attain "escape velocity" to return to steady growth.
That is the justification – the imperative in Bernanke's view – for continuing to purchase Treasury and mortgage-backed bonds at the level of $85 billion a month, or a trillion dollars a year. He has managed this "quantitative easing" through three different phases and remains committed to continuing it to keep short-term interest rates at record-low levels at least until the unemployment rate falls to 6.5 percent.
And what did he receive for this from the president of the United States? A back-of-the-hand comment in a recent PBS television interview with Charlie Rose that the Federal Reserve chairman had stayed longer than he wanted or was supposed to. This made it clear that Bernanke's days as Fed chairman were numbered despite his unpredicted triumph. This was all done with just seven months left in his appointed term, thus depriving the chairman of the dignity of making his own announcement and even precluding the decision that he might not want to re-up for another tour of duty after eight exhausting years of the worst economic and financial crisis since the 1930's.
The market naturally reacted to President Obama's statement. The equity market lost hundreds of millions of dollars in the next two days. It was not the send-off that Bernanke deserved. The best the president could muster by way of complimenting this brilliant and courageous man was to describe him as an "outstanding partner" with the White House. Partner? The White House was the critical player here only in the sense that its economic policies had drained the confidence of the business community. (By the way, since the Federal Reserve is an independent agency overseen by Congress, no Fed chairman reacts well to the description of "partner," for it undermines the integrity and independence of the Federal Reserve and its leader.) And the stab in the back was carried out while Bernanke was conducting an important Federal Open Market Committee meeting.
It could be argued that Bernanke has made mistakes. He was perhaps a little loose in implying that the Fed might soon cut back its stimulus efforts. But his remarks were intended to minimize speculative activity that relied on the Fed's buying of these bonds, and calm was soon restored.
History will marvel at the role that he played in his seven tumultuous years, intervening so bravely and boldly in Wall Street in ways never before contemplated. As the only operator in Washington who was capable of juicing up the economy in the short term, there is now a fear that when Bernanke quits there will be nobody in Washington capable of leading us out of the unemployment and underemployment that is devastating millions of Americans.
But he leaves a legacy: Buying bonds without limits to their quantity or duration is now an acceptable policy. The financial markets have also adjusted to having the Fed as a key participant, which is a dramatically different role than that of monetary policymaking.