January 30, 2006. Copyright 2006, Graphic News. All rights reserved

Bernanke will have to hit the ground running

By Joanna Griffin

LONDON, January 30, Graphic News:  If the U.S. has been relying too heavily on credit in recent years, it is Ben Bernanke who will decide who picks up the tab. And, as if steering the worldÕs richest economy through troubled times was not enough of a challenge, the Federal Reserve BoardÕs next chairman will head an organisation that is coming under increasing scrutiny.

Bernanke, 52, is slated to succeed Alan Greenspan, who retires on Tuesday after more than 18 years at the helm. His first challenge at the Fed will be deciding when to end the central bankÕs nearly two-year-old rate-raising campaign. If he waits too long, he could cripple the economy. If he stops too early, inflation could get out of hand. His decision will affect the financial lives of millions of consumers, businesses and investors.

Bernanke has already pledged to Òmaintain continuityÓ and introduce more transparency. He appeared to sail through his Senate confirmation hearing after a speech in which he said: ÒA more transparent policy process increases democratic accountability, promotes constructive dialogue between policy-makers...and reduces uncertainty in financial markets...and helps to anchor the publicÕs expectations of long-run inflation...which leads to growthÓ.

BernankeÕs liking for openness has been attributed to his long years in the pristine corridors of academia as opposed to the murky ones of financial institutions. But, while many welcome his distance from the world of politics, this independence has alienated some Republicans.

Born in 1953, in Augusta, Georgia, to a pharmacist and a schoolteacher, Bernanke was raised in South Carolina and took his BA in economics at Harvard. After completing his doctorate at the Massachussetts Institute of Technology, he taught at Stanford University before becoming Professor of Economics at Princeton in 1985. From 1996-2002 he chaired the universityÕs economics faculty.

In 2002 he left Princeton to join the Board of Governors of the Federal Reserve, where he remained until mid-2005, when he was selected to head President George W. BushÕs Council of Economic Advisers -- a position seen as preparing him to take over from Greenspan. From the start, Bernanke was front-runner to head the Fed, the worldÕs most powerful central bank.

Bernanke is well known for his advocacy of Òinflation targetingÓ -- the idea that banks set a numerical figure on inflation and stick with it. This concept was opposed by Greenspan, whose policies are credited for two decades of growth, employment and stable prices. Since his nomination, Bernanke has said that he will not take any Òprecipitate actionÓ on inflation, but he takes over the Fed at a critical moment in U.S. economic history.

To some extent, however, the chickens now coming home to roost were also hatched by Greenspan, who was reappointed to the job for an unprecented fifth term in 2004. The government and U.S. citizens have borrowed heavily to maintain spending, and the housing market looks fragile. At the same time, rising oil prices are putting pressure on inflation, and President Bush has notched up record deficits to pay for the war in Iraq.

Some experts point out that BernankeÕs presence on BushÕs advisory council means he shares at least some of the blame for the situation. Others say his lack of hands-on experience could be a problem, and urge him to be more circumspect than in the past once he is in the hot seat.

Bernanke is married to a schoolteacher, Anna and they have two children.

He has written numerous books and articles, including three textbooks on macroeconomics and a number of essays on the economic causes and worldwide propagation of the Great Depression.

/ENDS