"There are lots of interesting things to work on and I look forward to writing and speaking and taking a little bit more time to contemplate some interesting issues"
- Ben S. Bernanke, Fed Chairman
With Janet Yellen on the deck, Bernanke leaving his position on January 31 and a lack of fundamental data from the United States, it is an appropriate time to understand the legacy of the Federal Reserve and Bernanke's role in the history of the U.S.
An idea of creation of the Federal Reserve was first introduced in 1910 at Jekyll Island, as politicians and economists were seeking for a more liberal monetary standard that would allow the bipartisan Progressive Movement to push for order in the financial system. Moreover, a flexible monetary policy will push credit affordability and outweigh shocks from transient spikes in demand for gold. Later, officials like Benjamin Strong claimed the key role of the central bank is to maintain price stability, and as a result muting or even eliminating business cycles. However, the excess liquidity will be inflationary, while too little credit will be deflationary. Subsequently, the Fed Chairman Alan Greenspan managed to bring inflation to a level of 2%, which is considered to be a healthy one. In 2002 Bernanke was the Fed Governor and he gave a speech saying the Fed actions in 1930s only deepened the Great Recession. The Fed has definitely succeeded in assuring price stability, even despite stubbornly low inflation now. However, Bernanke's efforts will probably lead to a prolonged period of soaring asset prices. For now, Janet Yellen should be ready to hold not only the legacy of ‘Helicopter' Ben, but of the Federal Reserve itself in her hands.
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