On Thursday January 28, 2010, the Senate of the United States confirmed Ben Bernanke into a second term as Chairman of the Federal Reserve. By a vote of 77:23 Senators voted to terminate a block on his reappointment, allowing Harry Reid to bring the re-appointment to a vote. By a vote of 70:30, the Senate voted in favor of reappointment. The vote was not along party lines. Democrats and Republicans are to be found on both sides of the confirmation vote.
Ultimately, the Democrats split 48 to 12 in favor of Bernanke, with 6 Democrats who are up for re-election in November 2010 voting no. The Republicans split 22 to 18 in favor, allowing an unaccustomed aroma of bipartizanship to float through the Senate, perhaps because Bernanke had once been an (inept) economic advisor to a Republican administration, perhaps because he had first been nominated to the Fed and then to its chairmanship by a Republican President. The fact that the President in question had been George W. Bush, the originator of most of their economic problems, conveniently was forgotten.
Unquestionably, this is a sad day for citizens of the United States. The vote itself indicates that Bernanke is the least popular Fed chairman since the Senate started to vote on the position 32 years ago. Paul Volcker’s 1983 nomination was opposed by 16 Senators, and that was the previous record But, there is an enormous difference in the nature of these two votes.
Paul Volcker met with resistance because he had honored his oath of office, had imposed monetary discipline on an inflation-riddled US economy, even at the price of significant unemployment. Those Senators who opposed his second term were seriously out of line. Ben Bernanke met with resistance because he had failed to honor his oath of office, had inflicted the US economy with house and stock market bubbles by his lack of monetary discipline, and then had breached his oath of office by taking the Federal Reserve well beyond its central bank remit in pursuit of an overt socialist financial and industrial policy agenda. The significant majority of Senators who voted in favor of Bernanke’s confirmation were seriously out of line.
The vote came after heavy lobbying by President Obama – yet another serious economic error in his deeply flawed administration – and by the Democratic leadership of the Senate. The signal that now goes out across the world is that the United States has no taste for monetary discipline, that it will surely attempt to inflate its way out of its debt once the income velocity of circulation of money returns to normal levels, and that the Fed has been set loose from its-strait-jacket to indulge itself in progressive financial and industrial policy interventions. The signal is clear that the world should be on the look-out for another financial crisis as Bad Ben continues in his weak-minded ways.
The People’s Republic of China most certainly will be reviewing the situation. Expect the price of gold to rise, and the price of the dollar to fall, as China quietly reshuffles its asset portfolio. This is one more small step on the road to economic ruin, one more clear signal that the Obama administration will not defend the international reserve status of the US dollar:
“Their Kings were serv’d but Knavishly
Cheated by their own Ministry;
Many, that for their Welfare slaved,
Robbing the very Crown they saved:
Pensions were small, and they liv’d high,
Yet boasted of their Honesty.
Calling, whene’er they strain’d their Right,
The slipp’ry Trick a Perquisite;
And when folks understood their Cant,
They chang’d that for Emolument;
Unwilling to be short or plain,
In any thing concerning Gain;
For there was not a Bee that would
Get more, I won’t say, than he should;”
Bernard Mandeville ‘The Grumbling Hive’, The Fable of the Bees Volume 1, 1732.
Unlike Bernard Mandeville, I do not see such behavior as ultimately working out for the best with respect to the economy of the United States.