Ben Bernanke Faces Congress

I'm on the record as thinking Bernanke has done a pretty good job in a pretty scary crisis.  Nothing I've heard recently has changed my mind on that.  However, I have to say, watching his testimony to Congress today, I suspect that he's not going to be reappointed when his term ends next year.  Whatever happened between him and Paulson and Ken Lewis, he is now giving a very good impression of someone who is lying.  And Congress wants someone to blame.  Besides, firing Bernanke lets Obama portray all of the failures of this year as Bush errors in policy or appointment.

I think if he's pushed out it will be a real pity, for several reasons.  First, Bernanke really is the most superbly qualified economist out there to deal with this particular sort of crisis.  But perhaps more importantly, regulatory uncertainty is not what we need now.  Bernanke may be tempted to keep monetary policy loose in order to make the economy look better and save his job.  Obama may be tempted to appoint someone insufficiently interested in inflation, both to goose the economy ahead of the midterms, and to ease his debt problem.  And whoever it is will be getting his feet wet at exactly the wrong time.  There's a strong argument to be made that one of the reasons the Great Depression was so bad in America was that the Fed power vacuum left behind by the death of Benjamin Strong left the central bank too divided to take appropriate action.