Bernanke Favorite for Greenspan Successor

WASHINGTON (Reuters) - Federal Reserve Governor Ben Bernanke has the edge in the latest betting over who will succeed Alan Greenspan as Federal Reserve chief, but sources close to the Bush administration say it is still early in the decision process.

President Bush's decision earlier this month to nominate Bernanke to head the White House Council of Economic Advisers prompted speculation that the top White House economics job may be an audition for Greenspan's post.

"Bernanke is a strong Washington player with good insights," said William Beach, a scholar at the Heritage Foundation, a conservative think tank in Washington. "He's a nose ahead on this."

Scott Reed, a Republican political consultant, called Bernanke "the favorite of the month."

Many on Wall Street agree. A recent Lehman Brothers poll put him at the front of the pack, even before he was named to the top job at the Council of Economic Advisers.

Bernanke, along with Glenn Hubbard, a former CEA chairman, and Harvard economist Martin Feldstein have long been seen as the front-runners to replace the 79-year-old Greenspan, who must leave early next year when his Fed board term expires.

Bernanke associates say the Princeton University economist's interest in the council has more to do with wanting to try his hand at broad policy-making than with jockeying for the top Fed post.

Some analysts said the tight timing might be tricky for Bernanke, who still faces Senate confirmation for the CEA post and who will have logged less than a year in that job when Greenspan's position comes open.

Two sources with close administration ties played down the idea that any one candidate led the field, noting that the decision-making process appeared to be in the early stages.

Both said all three of the most cited candidates -- Bernanke, Feldstein, and Hubbard -- have a good shot.

One, a former administration official who spoke on condition of anonymity, said the White House could still turn to a prominent Wall Street figure, though it was likely to pick someone already in the mix.

"It's not like you're going to need to find some dark horse out of left field," said the source, who added that the decision-making will be a closely guarded process involving senior players like White House chief of staff Andrew Card and Vice President Dick Cheney.

Bush faces the more immediate task of replacing Bernanke at the Fed. Several Republicans said Richard Clarida, a Columbia University economist and former U.S. Treasury official, fit the profile the administration is seeking and one source said he is indeed being considered.

If Bernanke wins Senate approval for the White House Council of Economic Advisers, he will join the other top contenders, along with Greenspan, in having CEA experience.

Greenspan was CEA chairman under President Gerald Ford. Feldstein led Ronald Reagan's CEA and Hubbard headed it for the first two years of the Bush administration.

Bernanke, one of the country's leading monetary policy economists, has become well-regarded on Wall Street since joining the Federal Reserve Board in 2002.

He also has developed a rapport with Greenspan, despite his long-standing advocacy for inflation targeting, a publicly stated inflation goal by a central bank, at the Fed -- a move Greenspan has opposed.

The Heritage Foundation's Beach said Bernanke possesses one credential crucial for any Greenspan replacement: The ability to translate econo-speak into plain language.

"Bush is going to want to appoint someone who can sit down with him and speak in a language he understands," Beach said.

Of the three candidates most mentioned, Hubbard -- a public finance expert at Columbia University -- has the closest White House ties from his years in the administration and his stint advising Bush's 2000 presidential campaign.

Feldstein, who also was an adviser to the 2000 Bush campaign, is said to visit Washington frequently.

"He's pretty well-connected," said the former U.S. official, who pointed out that Feldstein would bring strong managerial experience to the Fed from his long tenure as head of the National Bureau of Economic Research.

One question mark, though, is Feldstein's role as a director of American International Group Inc., an insurer whose accounting practices are under investigation by the U.S. Securities and Exchange Commission and New York Attorney General Eliot Spitzer.

For some freepers background, Ben Bernanke was the author of a book dealing with the great depression and the new deal.

The book is pretty much one nasty hit on FDR but from a more academic and non personally opinionated way.

Thats when he got on my radar screen, there are alot of things I like about him, and some things I don't.

He's a mixed bag, but is a fairly positive economic figure and a believer in supply side economics.

I've noticed that everything is about numbers to them and they often lack "people skills".

Thats usually a accurate and fair generalization, but Bernanke and also Bob McTeer are massive exceptions.

Bernanke has people skills, is a natural on camera, and is a huge supporter of bringing transparency to the Fed. He's got charisma, and is very polished. He can be a very usefull asset if utilized right.

Bob McTeer is a personal favorite of mine. His personality is charming, he's folksy (and I don't mean that as a double speak for dumb) and has a good wit and a funny sense of humor which he knows how to inject into economic discussions. His best trait is his ability to translate economic talk into the most user friendly understandable way possible with metaphors and some texan twang (minus the stupid ratherisms).

Cicero,

Thanks for the reference on Bernanke's speech. I knwew nothing about him. It's rather short on the insight I'd like to see from the man who might direct the Fed.

Here's the operative quote:

"To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys."

The issue is, will they do it?

In the 1929-33 great contraction, the Fed failed to understand the problem, failed to act, and failed the nation, bringing in the collapse of both the American and world economies.

The rest of his comments, on interest rates and fiscal policy are thrown in for political reasons.

The real change in the system is the regular reporting of the Ms, the money numbers. We now know, on a weekly basis, exactly what the Fed and the banks are doing to the money supply. This is news, and is the direct result of Milton Friedman's monetary work.

Regular reporting allows the financial markets to adjust for both policy and economic effects on the stock of money. We now see money managers making quicker changes in asset and liability management, based on a clear knowledge and understanding of the effects of money on economic activity.

Money is king, and asset purchases are the key to understanding Fed action. Short term interest rates are a powerful force, and signal, but ultimately asset purchases, and the "printing press" is what determines money growth.

I just looked at money growth at www.economagic.com and can safely state that neither inflation nor deflation are in the cards in the near future. Money is growing slowly.

As for his comments on Japan, I sure wish he'd been clearer about the cause of deflation there. There's not enough money in their system. Their Fed should be buying assets and injecting money in the economy.

Here's his quote:

"Japan's deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has."

In my hubristic opinion, Greenspan is setting us up for another long business cycle, with the Dow ultimately going to 85,000. Long term interest rates will decline again when the Fed stops raising short term rates. Money growth is around 2.5% and will stay that way for quite some time. Get long and get rich.

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