Two-term US Federal Reserve System Chairman from 2006 to 2014, Dr Ben Bernanke, shared his insights and analysis of the current global economic landscape — and challenges today.
here’s a summary of his key points:
- Bernanke spoke openly about the Lehman Brothers weekend, the decisions the US Government made, and the impact it had on the US economy and worldwide. He believes the way that period was recorded was not accurate. It said that the failure of Lehman was a policy choice, but the truth is the opposite.
- In the middle of the most intense financial crisis in US history, a meeting was set up at Federal Reserve Bank to discuss what to do. The choices made were different to AIG - AIG had the collateral and just needed cash to survive.
- The Troubled Asset Relief Program (TARP) was the most successful, the most profitable and yet the most unpopular system.
- Doing his historical research on economic depressions, Bernanke knew that the FED would be the lender of last resort to reduce the pressure of the run.
- Bernanke and the FED’s efforts to attack the crisis were international.
- US markets were disrupted by the tremendous demand for US dollars - particularly from 14 countries worldwide, including Australia. So the US decided to swap $US for foreign currencies to facilitate lending.
- The Federal Reserve stood ready to be the lender of last resort.
- Stress Tests were organised for corporations to see what would happen to the balance sheets if there was a new and more profound crisis. This was effective because companies showed they could remain solvent and lend if needed. The valuable aspect of the stress test was that it disclosed all their financial results to the public so investors could see who was strong and who wasn’t. It certainly helped with economic recovery and confidence in the markets.
- Bernanke agrees that we need risk-taking in the future to build a healthy economy – we need to monitor it closely.
the questions we should ask are:
- “Is the system itself at risk?”
- “Are there pricings that threaten the stability of the financial system?”
We need to try to strengthen the overall system or try to respond to specific problems.
We need to be more nimble in our response. We need to continue to experiment and see how new policies work.
what’s going to happen to productivity growth?
It’s a challenge due to the aging population and people living longer, fewer workers, and slower growth. And it’s even more extreme in Japan, where the labour force is shrinking.
- The financial system is much more stable than it was. Everything is better.
- US unemployment rate today sits around 5.5%, and it’s falling – but it was about 9% during the GFC.
- Bernanke jokes that ‘prediction is tough, especially about the future.’ According to him, there’s not much to indicate, at this point, any significant risks to the system's stability. Yes, growth has been slow, but it’s still growing and recovering. It’s not going great, guns, but we are in the middle of a growth period. There are still plenty of scopes to keep growing in the US, and we continue to see positive growth, just maybe not exciting.
- If there were to be a crisis, where it would come from? Bernanke believes it would be a geopolitical risk. Financially he says we are more robust, and there are more tools to address possible risks. So it’s difficult to know where shocks could come from. But a de-stabilising situation is less than it could otherwise be.
- Looking back at the GFC in 2008/9, economies went up and down together. Since then, countries have moved independently, doing different things. This may need to change.
Today, Ben Bernanke opens the Wall Street Journal and the Financial Times and says to himself, “Wow, that’s a serious problem. I hope somebody does something about that.”
Let’s hope we all look back at history to see what worked and didn’t to help make the right decisions for the future.
so what does Bernanke hope for the future?
Economically he says, “A lot of boredom. Boring is good, boring is excellent because that means everything is working well.”
Randstad was proud to be a major sponsor of the World Business Forum in Sydney on 27-28 May 2015.