Appearing before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on Sept. 23, 2008, Federal Reserve Chairman Ben Bernanke deployed the skills he’d once used in teaching economics at Princeton University. He walked through the $700 billion bailout clearly, methodically, and as repetitively as his questioners needed. He was the Buddha of central bankers, as former Treasury Secretary Tim Geithner would later call him, but more activist. Also: fuller beard, smaller belly.
Two years later, the U.S. economy was staring at another threat—of settling into a pattern of deflation and stagnation. Bernanke was under intense pressure in the summer and fall of 2010 to do nothing. There was a sense of activism fatigue in the U.S. and around the world; the Tea Party, with its anti-Fed stance, was at a high-water mark, and it would soon take control of the House. Many economists were convinced it was beyond the Fed’s capacity to do anything about the slowdown, including some in Bernanke’s inner circle at the Fed.
Bernanke weighed those arguments and ultimately cast them aside, launching a second round of quantitative easing, what would be known as QE2. (Its $600 billion in money printing seems downright quaint in hindsight.) The backlash was loud and global. The Fed in 2011 started shifting its portfolio into longer-term bonds and pledging to keep its target interest rate near zero for years hence. In 2012, as the economy slowed yet again, the Fed fired up the printing presses for a new, open-ended round of quantitative easing that’s grown to around a trillion dollars and counting.
The Fed’s balance sheet had $2.3 trillion in assets the week Bernanke was confirmed for a second term in January 2010. When he steps down in all likelihood on Jan. 31, 2014, it will be about $4 trillion.
These later decisions lacked the jaw-clenching, world-on-edge fear of September 2008. They were made over months, not hours. But they will prove as important to how the U.S. economy looks in a decade as anything done during the crucible of the crisis five years ago. What is clear now is that history’s judgment of Ben Bernanke will be as much for what the professor did to try to keep the recovery on track as his steps to fight the great panic.
Irwin is author of The Alchemists: Three Central Bankers and a World on Fire.
