Obama Picks Bernanke For Second 4-Year Fed Term

President Obama has nominated Ben Bernanke for a second term as the chairman of the Federal Reserve. Bernanke has been seen by some as a forceful and decisive chairman, taking extraordinary measures to save the economy from another Great Depression. But critics say he has exceeded the authority normally wielded by a Fed chairman.

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RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning.

And let's listen for a few seconds to President Obama, who said this morning he wants his Fed chairman to have another four years on the job.

President BARACK OBAMA: The man next to me, Ben Bernanke, has led the Fed through one of the worst financial crises that this nation and the world has ever faced. As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage and his creativity, that's exactly what he has helped to achieve.

INSKEEP: That's the president, speaking this morning at Martha's Vineyard. NPR's economics correspondent John Ydstie is here in our studios. He joins us to explain what a second Bernanke term could mean if he is confirmed by the Senate. John, good morning.

JOHN YDSTIE: Good morning, Steve.

INSKEEP: And I suppose we just heard from the president there the reason you'd give the man four more years, because of the crisis he's been through.

YDSTIE: Yeah, I think so. The president says that he played big role in pulling the economy back from what might have been another Great Depression, and he was forceful and creative in doing so. As the president also said this morning, Bernanke approached a financial system on the verge of collapse with calm and wisdom and with bold action and outside-the-box thinking that helped put the brakes on our economic freefall.

INSKEEP: Isn't that outside-the-box thinking, though, as you put it, one of the reasons that Bernanke faces some criticism in Congress?

YDSTIE: Well, it's true. He did some really remarkable things. First of all, he took interest rates right down to zero, but he went beyond that, lending money to financial institutions like Bear Stearns and AIG, who were collapsing and threatening the financial system. And then when credit froze up, Bernanke instituted a number of unique programs to support lending for businesses and student loans and real estate and a number of other things. These are things the Federal Reserve had not done before. He's rewritten the playbook for the Fed, and he's received some criticism in Congress for that, for going too far.

INSKEEP: Going too far, meaning that he maybe should have done a little less, even in this crisis situation?

YDSTIE: Well, yeah. There are certainly voices in Congress who think he has basically set the stage for a very difficult economic time, that we could end up with a big inflation as a result of the - all of the stimulus that's been injected into the economy, and, indeed, the Fed putting its hand deeply into the economy in ways like, you know, telling Ken Lewis of Bank of America that it might be in his interest to actually go through with a deal to buy Merrill Lynch.

INSKEEP: Well, let's talk about some of that, because you talked about inflation. Of course, one thing the Fed has done has just injected unbelievable amounts of cash into the economy, which is something that can create inflation. You create more money, you basically devalue it. You risk devaluing it, and you create inflation. If Bernanke is confirmed for four more years, he's the guy who would have to clean up after this. Is there any sense that he knows how he wants to do that?

YDSTIE: You know, he's been pretty clear that he thinks he knows how to do it, and he has the tools to do it. Certainly, timing is the issue. He wants to pull the stimulus back before a big inflation starts. On the other hand, if he pulls it back too fast, we could end up with a double-dip recession, so very…

INSKEEP: Which has happened in other places when they've pulled back stimulus.

YDSTIE: It certainly happened in other places. And one of the real key tests will be coordinating with the rest of the world, because there's a lot of stimulus that's been put in by a lot of governments, and we'll need to coordinate it to get it back and keep the world economy going.

INSKEEP: John, thanks very much.

YDSTIE: You're very welcome.

INSKEEP: That's NPR economics correspondent John Ydstie.

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