Tuesday, May 28, 2013

FT: Larry Summers Has an Edge in the Race to Head the Federal Reserve

FT's Edward Luce says there are plenty of money printers that could replace Ben Bernanke as Fed chairman:
When Wall Street predicts something will happen in Washington, it is often wise to bet on the opposite. Multiple polls show Janet Yellen, vice-chair of the US Federal Reserve, as the strong favourite to be named Ben Bernanke’s replacement as chair – an announcement that is likely by September.

Such certainty is puzzling: there is no evidence President Barack Obama sees Ms Yellen as a shoo-in. Nor does his likely shortlist – which includes two former Treasury secretaries, Larry Summers and Tim Geithner; and a former vice-chairman of the Fed, Donald Kohn – suggest Ms Yellen as the inescapable choice. Each is an impressive name, as are possible outsiders such as Stanley Fischer, governor of the Bank of Israel (who holds dual nationality). Mr Obama has a deep bench from which to choose.
Luce then says it will be Larry Summers that will take over money printing duties:
It is my bet he will settle on Mr Summers. The case for Ms Yellen is strong. Her economic credentials are a match for anyone’s, including Mr Summers. Having been head of the San Francisco Fed, her central bank experience is also deep. Yet Ms Yellen has a reputation as a dove at a time when the cycle may be close to turning. By next January, when Mr Bernanke’s successor takes over, the long phase of monetary easing is likely to be tapering off. Last week, Mr Bernanke assured Congress that the monthly $85bn of asset purchases in the third round of quantitative easing would continue as long as there was any question about the US recovery. Such doubt grows a little weaker with each Fed meeting. The US economy is picking up speed.

Mr Bernanke’s successor will need to reassure the markets that he or she is tough enough to raise interest rates when necessary. Much as a dovish president might feel under pressure to order air strikes, Ms Yellen’s reputation could push her to tighten too soon[...]

I should disclose that I once worked for him (and that he writes regularly for the Financial Times) but I have not spoken to him for this column. People’s chief concern is rightly about his emotional quotient rather than his IQ. No one has any doubt on the latter. Since the Fed chairman’s job is to build consensus among sometimes fragile egos, Mr Summers’ abrasiveness would count fatally against him, critics argue. Such worries are exaggerated. Even if he has greatly mellowed in recent years, as his friends insist, charm is overrated. He would make a bad choice as a mediator in Syria. Fortunately, a Fed chairman faces lesser diplomatic challenges. The most important quality is intellectual leadership – something Mr Summers would offer in greater abundance than the others.
Intellectual leadership? Has Luce forgotten that Summers wrecked the Harvard endowment because of the derivative positions he insisted on maintaining, even  after being warned about the dangers of those derivative positions by Iris Mack, who then worked at Harvard Management? If Luce is looking for intellectual leadership, with Harvard pedigree (She also has a Ph D in applied mathematics from Harvard), why isn't he promoting Mack for Fed chair? It's well known that Mack has admirers who travel the Wall Street-DC corridor. Is it because she is not a Keynesian? Could the problem be her open support for Ron Paul and her no fear willingness to speak truth to power?

1 comment:

  1. A deep bench? What is this guy smoking? They're all second rate political hacks masquerading as economists.

    Not that it matters, because this ship is going down regardless of who takes over. Head for the life boats while you can.