Bernanke Has A Hand In Setting Economy's Course

Beside Treasury Secretary Geithner, Federal Reserve Chairman Ben Bernanke is another major player helping to shape the nation's financial rescue plans. David Wessel of The Wall Street Journal, talks with Steve Inskeep about how Bernanke is perceived, and what the Fed is doing to stimulate the economy.

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STEVE INSKEEP, host:

Now, the other major player in the financial rescue is Ben Bernanke, chairman of the Federal Reserve. So, we're going to talk a little bit more about how his job is going. We've called David Wessel, as we often do. He is economics editor of the Wall Street Journal and working on a book about the Federal Reserve. Good timing, David.

Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Thank you. Good morning.

INSKEEP: Good morning to you. Geithner is facing a lot more criticism as we just heard. What about Bernanke?

Mr. WESSEL: Well, Bernanke's a little more popular, it seems. We at the Wall Street Journal poll economists on Wall Street once a month, and they gave Geithner a median grade of 60 out of 100; Bernanke got a median out of 80. Basically, three years into the job, Ben Bernanke had a chance to make his mistakes early while the economy was calm and markets were placid.

He's been plenty criticized. He was there at the conception of the AIG rescue. But one thing he has going for him, the Fed could put lots of money into the economy that doesn't need to ask Congress for permission first.

INSKEEP: Which is exactly what's happened this week. More than a trillion dollars - with a T - going from the Fed into the economy just like that?

Mr. WESSEL: That's right. So the Fed - the first thing they did was they cut interest rates all the way to zero, and then they put a lot of money into the economy - $2 trillion - with a T. And then this week they said they're going to do even more. They're going to spend up to $300 billion to buy Treasury debt and up to $750 billion more than they planned to buy mortgages.

And then they also said that they began lending in the credit card and auto loans market. The first bit of that was $5 billion that they lent out just yesterday.

INSKEEP: I think some people might want a little bit of explanation and reassurance of exactly what's going on here - where the Fed gets all this money. I mean, it's said that they simply print money; they create money out of thin air. Is that true?

Mr. WESSEL: That's absolutely right. They don't actually print it anymore. It's all done with a push of a computer keyboard. Basically, that's…

INSKEEP: So, they just say we hereby declare there are several hundred billion more dollars to buy a bunch of Treasury bonds and suddenly there are?

Mr. WESSEL: Exactly right. They have the power to create money - that's what a central bank does - and with a few keystrokes on a computer keyboard at the Federal Reserve Bank in New York, they put money into the account of some bank and it's there.

INSKEEP: Is there a risk to that, for the economy and for the Fed and for Bernanke?

Mr. WESSEL: Absolutely. The reason they're doing it now is because we're in an emergency situation. Economy's on fire and they're putting - they're turning on the hoses and they're putting as much water as they can onto the fire. And some people are saying they're putting on too much water. Well, what does that mean?

That means if you put too much money into the economy, eventually you get unwelcome inflation. And eventually the value of the U.S. dollar on the currency markets falls 'cause people think you're weakening the value of the currency. That hasn't happened yet. There are little bit of signs of the weakening of the dollar, but that's the big risk.

INSKEEP: David Wessel of the Wall Street Journal, we know that Ben Bernanke made his name, in part as an expert on what went wrong in the Great Depression, and he looked very closely at the relationships between financial institutions and the way those relationships broke down. And we assume that he's trying to avoid the same things happening again.

When you talk with people who know what Bernanke is thinking and understand what he's doing, do you think that Bernanke himself believes that he has his arms around this problem, fully understands what's going wrong, and has the power to do what's necessary to correct it?

Mr. WESSEL: Well, you're absolutely right that he's trying to avoid a repeat of the financial problems that made the Great Depression worse. I think he thinks he has the beginnings of a diagnosis of the problem and he's doing everything he can to fight it. He has made quite clear that in some respects this is a surprise to him. He didn't expect the subprime mortgage business to morph into this massive global financial crisis.

And he has also made clear that he doesn't have all the tools he needs. The government does not have a way to safely shut an institution like AIG or a Lehman Brothers or Bear Stearns, and that's one of the big problems that we've had in managing this particular crisis.

INSKEEP: David, thanks very much.

Mr. WESSEL: You're welcome.

INSKEEP: David Wessel is economics editor of the Wall Street Journal and regular guest here on MORNING EDITION.

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