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Published: Thursday 01 August, 2013

outlet shopping online clothes outlet shopping online clothes ?Obama reappoints Bernanke as Fed Chief

President Obama nominated Ben Bernanke for another term as Fed Chairman yesterday, quelling any rumblings of imminent change at the Federal Reserve. The nomination comes amid growing criticism of Bernanke strategy.

Over the last two years Bernanke has been a key player in the widely criticized, and oft derided, government bailout. The Fed has taken on unprecedented risk. They have assumed a trillion dollars of troubled assets, slashed interest rates, bailed out financial industry titans and launched more than a dozen expensive lending programs. Some Republicans view it as a gamble of taxpayer money. Some Democrats consider him culpable in the initial efforts by the Bush administration to rescue banks without sufficient consideration for homeowners and smaller businesses hit by the financial crisis and credit freeze. American taxpayers know very little about where the money has been allocated. Congressional critics, particularly those facing reelection, are sensitive to the potential for voter backlash at the polls in the absence of economic recovery.

Bernanke has guided the Fed through uncharted territory since the current financial crisis began. As a student of the Great Depression, he has avoided a repeat of the 1930s panic thus far by leading the Feds eff outlet shopping online clothes orts to bring interest rates down to an unprecedented low range near zero and by conducting a wide range of experiments to keep the credit markets running. Whereas his tactics have been aggressive, the situation is unprecedented in complexity and the solution assuming there is a solution is likely to be unique to the situation.

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All of the Feds moves come at a cost. There is significant potential for inflation when t outlet shopping online clothes he economic recovery takes root. Whereas each positive economic repo outlet shopping online clothes rt sends bursts of glee through Wall Street, unbridled inflation or a new wave of loan defaults could be a wet towel that eradicates the progress made to date.

Though Bernanke is given credit for making aggressive moves to bolster the financial markets, he has also been at the epicenter of the most controversial decisions: determining which firms to save and which to let fail. He has been heavily criticized by lawmakers as well as market participant for rescuing Bear Stearns and AIG Inc. while allowing Lehman Brothers Holdings Inc. to fail.

Texas representative Ron Paul, a member of the House Banking Committee, has been particularly vociferous about the lack of transparency and mounting cost of the government bailout. He feels that the Federal Reserve System should be abolished and the economy should revert to Hard Assets. He has criticized Bernanke for continually lowering interest rates. Paul is concerned that this strategy will lead to drastic inflation and unnecessary growth of the money supply, leading to what he refers to as the inflation tax. Conversely, many economists have argued that failure to have lowered the Feds target rate would have contributed far more significantly to recession. They urged Bernanke, and the rest of the Federal Open Market Committee, to lower the rate.

Bernanke has acknowledged the potential for inflation, saying the Fed will begin to raise interest rates as the economy enters a recovery phase. I am concerned that he will not have the luxury of increasing in .25 increments. Larger changes could spike the interest rates. When the interest rates increase rapidly loan demand withers until consumers adjust psychologically.

When Greenspan raised the rate .25 in every session for two years straight, it was wretched in terms of decreased loan demand and locking in at the initial rate quote. The rate often changed multiple times daily. Though the headlines touted volatility at the time consumers didn understand that any specific interest rate quote as opposed to a range is a lie unless the person quoting is locking RIGHT NOW, because it will change by tomorrow even this afternoon. The period between the loan, receiving docs and being able to lock the rate evaporates revenue when the rates rise quickly.

I have concerns about Bernanke strategy. I don believe in using the printing press to feed a consumptionbased economic model, because of the potential hazard to the dollar, the direct federal intervention in market dynamics and, therefore, inefficiencies and due to a general distrust of human greed levels.

Whereas I recognize the merits of this approach in terms of achieving economic growth through cash infusion, it is like using steroids to achieve economic strength instead of exercise and discipline. The long term ramifications could be alarming if flooding the banks with low interest money encourages foolish risk and undercapitalization or if inflation necessitates rapid rate increases thereby stalling economic recovery or if credit markets remained constricted to all but a select few.

Changing the power structure at the Fed in the middle of a severe recession would be a bad move. A new person at the helm could upset markets as investors try to anticipate potential philosophy and policy changes to gauge possible market impact. Uncertainty and inertia in the markets during the transfer of power would hamper economic recovery. Change in strategy, policy and pursuit could potentially further erode consumer taxpayer confidence.

It is hard to gauge the true economic impact of Bernanke strategy of significant government intervention into the financial markets. The mess did not happen overnight. It cannot be fixed overnight. Policies discussed today are implemented six months from now and can take years before they can be effectively analyzed for effectiveness in an objective fashion. History may demonstrate that Bernanke aggressive intervention in the economy over the last 18 months has been much more effective than the handsoff approach his detractors would prefer. It too early to tell.. outlet shopping online clothes