Bernanke needs to clarify some truths of Congress

Like the traders and portfolio managers, Ben Bernanke is faced with severe tests during the financial crisis and the danger was prepared to receive a farewell pat on the shoulder from the White House.
Last week, however, President Barack Obama interrupted his vacation in Martha Vineyard to announce that nominated President of the Federal Reserve for a second four-year term.
The news barely moved the financial markets and failed to remove them from the stupor in August. Such a reaction can be interpreted as grudging support or as an expression of relief that there is a new and full of fresh ideas a candidate who would only give rise to market uncertainty.
So, Bernanke is tasked to clear the mess of the financial crisis and lead the transition to full economic recovery.
All this happens just before Congress to expand the powers of the central bank, which, after fierce debate, at least in theory, should help the Federal Reserve in dealing with future systemic risks to the financial sector.
The balance sheet of the central bank doubled to over $ 2 trillion. the beginning of the crisis, suggesting that the institution has played a key role in supporting the weakened financial system.
Exit strategy of the Fed policy ease of quantification and maturation battle on excessive government spending is likely to dominate the second term Bernanke after Congress ended the formal procedure for approving his appointment.
Of course there are sharp critics of Bernanke and the Fed’s monetary policy in his time – as manager between 2002-05, and as President from February 2006 onwards.
Aside from the familiar list of complaints about decisions of the Fed, while the bubble was growing, the main mantra of the markets is that Bernanke has drew important lessons over the past two years. Despite initial delays Fed cut the financial crisis with a creative approach, which speaks well for the institution itself and its chairman.
Now comes the hard part. The economy goes up because of the initial impetus came from the filling of the depleted stocks of goods, but this only makes the urge to retreat from the state policy of zero interest rate relief and quantitatively. Only time will tell whether American consumers are able to move the economy in 2010
There are strong indications that the United States entering a new era of much slower growth because of scarce consumer credit and the recovery of savings. Taxes will inevitably soar to reduce accumulated huge deficits.
After a failed emergency measures to avoid the financial apocalypse, Bernanke well understood that hasty tightening of policy could return the economy of the red.
Fed will need to demonstrate exceptional skill, to keep emotions under control market and simultaneously ensure that the next tightening cycle should not prematurely stifle recovery.
Besides the task to retain markets as the biggest battle before Bernanke seems to be dealing with the wasteful Congress. Chairman of the Fed should not leave any doubt in the minds of congressmen prahosnitsite that is exposed to risk the integrity of U.S. markets.
The growing wave of liabilities in combination with structural deficits of the retirement of the baby boom generation after 2010 will inevitably undergo a test investor demand for U.S. government bonds.
If the concerns of investors about the creditworthiness of the U.S. escalate, higher real interest rates will be the only way to sell government bonds to support the dollar. However, such an approach would harm the economy.
Bernanke’s critics see his new term as a reward for a job poorly done, but the markets are willing to give some air of the President. However, investors would react strongly if the next four years Bernanke fails to convince the Congress in some harsh truths.

Michael Mackenzie, FT