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Friday: New Home Sales


An excellent review of Bernanke’s years at the Federal Reserve from Binyamin Appelbaum at the NY Times: Bernanke, the Audacious Pragmatist.  A few excerpts:

The recession, prompted by the collapse of the housing bubble that Mr. Bernanke — and most other experts — failed to see coming, ended an era of minimalism in central banking. And there is no better marker than the views of Mr. Bernanke, the world’s most influential central banker, who now argues that the Fed needs to consider a range of previously unthinkable actions, including trying to pop bubbles when necessary, because sometimes the cost of doing nothing is worse.

Mr. Bernanke, who plans to step down in January after eight years as Fed chairman, will be remembered for helping to arrest the collapse of the financial system in 2008. This shy, methodical economist who had been expected to serve as the keeper of Alan Greenspan’s flame — to preserve the Fed’s hard-won success in moderating inflation — emerged under pressure as perhaps the most innovative and daring leader in the Fed’s history.

But what Mr. Bernanke did after the crisis may prove to have even more enduring influence. For almost three decades, the Fed focused on moderating inflation in the belief that this was the best and only way to help the economy. In the wake of the crisis, Mr. Bernanke forged a broader vision of the Fed’s responsibilities, starting experimental, incomplete campaigns to reduce unemployment and to prevent future crises.

“The thing I think he’ll be known for, if it lasts, is depersonalizing the institution,” Professor Gertler said.

Some random comments: I think Bernanke was slow to recognize the problem, but once he did he was effective (see my post from Feb 2011: I come to praise Bernanke).

I don’t know about “most” experts missing the housing bubble, but clearly most people in government missed the bubble (I wrote Speculation is the Key in April 2005 – and housing was almost all I wrote about during that period – I was very worried).   There were quite a few other people warning about the bubble too (Tom Lawler, Dean Baker, Paul Krugman, and many others).

I argued in the ’90s that the Fed should try to “pop” the stock bubble by a combination of speeches, increases in interest rates, and increases in margin requirements.  I made similar arguments in the mid-00s about housing (I urged regulators to push for tighter lending standards).   Not all bubbles are obvious, but the stock and housing bubbles were pretty clear – and I’m glad to see the thinking at the Fed has changed.

Also as Professor Gertler noted, Bernanke did a good job of “depersonalizing the institution” (hopefully we won’t go back to a Greenspan type personality).  Also the changes at the Fed - to be more open, hold press conferences (I think there should be a presser after every FOMC meeting), setting a formal 2% inflation target, stress testing the banks - in addition to the monetary policy response, have all improved the institution.

There will be many more laudatory articles for Chairman Bernanke – well deserved.  The bottom line is we were lucky to have him as Fed Chair during the worst of the crisis (there is still work to be done).

• At 8:30 AM ET, New Home Sales for July from the Census Bureau. The consensus is for a decrease in sales to 487 thousand Seasonally Adjusted Annual Rate (SAAR) in July from 497 thousand in June. Based on the homebuilder reports, there will probably be some downward revisions to sales for previous months.

Calculated Risk

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