He leaves. Words of praise come. “The best management in the history of the Fed”, “The greatest central banker in history”, “The man who saved the world”, “A genius”. The savior of the country in question is Ben Bernanke, number one of the Federal Reserve who is now handing over the scepter to Janet Yellen. The accolades, which come from former bank governors and Standard & Poor's economists, are all cited by the Wall Street Journal, which dedicates a last article to the outgoing governor, just hours before the last Bernanke-era Fed meeting.
The flood of compliments, in reality, is a photocopy of what I heard eight years ago, referring to the twenty years of Alan Greenspan. Just two years later, views on Greenspan's monetary era have changed a lot, with the sudden transition from the credit boom to the recession.
One way to reflect on Bernanke's management – comments the Wall Street Journal – is to divide this period into three parts: before, during and after the financial panic. Before the crisis, the judgment is negative. But the good grades come with his moves in the eye of the storm. And as for the monetary efforts made since the recovery has come, the results are yet to be seen.
The thing is, Bernanke was there when the chaos started. In 2002, he made a famous speech warning of a deflation that didn't actually exist. And both he and Greenspan encouraged the housing bubble to offset the dot-com crash.
With the crisis coming, Bernanke and the Fed deserve the benefit of the doubt. In hindsight, it's easy to forget how quickly the financial panic spread. And then there is the end of the crisis and the recovery, with the purchase of bonds and the almost zero interest policy.
But the real test will come when Bernanke's successors are forced to soften his policies. If the Fed can end its bond buying and return to normal interest rates, its great monetary experiment will be considered a success. But if the attempt goes badly, with below-expected growth, or the bursting of asset bubbles, or inflation that requires a rapid take-off in interest rates, Bernarke's Fed will have failed the test.
The other major cost of these post-crisis policies is the Federal Reserve's meddling in politics and the taxman. Bernanke helped finance a federal borrowing spree by masking future costs. Taxpayers will only see the bill when interest rates rise. And then Bernanke effectively made the Fed a stand-in for the Treasury Department in regards to regulation and sometimes government spending and taxes. An event that compromised his independence.
And that could be the biggest risk going forward, especially when the Fed has to raise interest rates. Politicians – even some conservatives – have adopted Bernanke's idea that the Federal Reserve's duty is to reduce unemployment and manage the business cycle. Her successor, Janet Yellen, is fully convinced and will try to prove it. And the thing about the Bernanke-Yellen legacy is that the real text of any money cycle is not at the beginning, but at the end.
