Hon. Ben S. Bernanke, Distinguished Fellow in Residence, Economic Studies, The Brookings Institution

so we're very honored to have been Bernanke as our special guest and while I don't think he really needs an introduction I think he deserves an introduction so let me give him an appropriate introduction obviously he served as the chairman of the Federal Reserve Board from 2006 to 2014 it was the 14th chairman of the Federal Reserve Board and before that he had distinguished career in academic life and also in public service so let me take you back to the beginning he is a native of Dillon South Carolina and how many people in though we're Dillon South Carolina is okay so you all know that's where south of the border is there in any of you ever driven down well if you drove down there in the 1970s your waiter during the summers might have been Ben Bernanke because he worked there as a waiter and he actually had a precocious career growing up there he was so talented and the first grade that after just two weeks in the first grade they skipped into second grade this is pretty impressive he was the Spelling Bee champion of South Carolina and came to Washington I think at the age of 13 to compete in the National Spelling Bee but he didn't win because he misspelled the word Edelweiss and that's because the sound of music had never played in Dillon South Carolina in high school he was valedictorian of his class not surprisingly he had the highest SAT score in the entire state got a scholarship to Harvard went to Harvard graduated summa laude and economics not surprisingly in 1975 in 1979 he got his PhD at MIT from that point he went to teach from 1979 to 1985 at the Graduate School of Business at Stanford and taught economics and then he was lured back to the East Coast by Princeton University which made him a tenured faculty member at the age of 31 and he taught at Princeton Economics Department for many years and became from 1998 and not 2002 the chairman of that department and then he got a call from Glenn Hubbard asking whether he'd be interested in perhaps government service he was recruited to serve on the Federal Reserve Board for several years in the Federal Reserve Board and then was recruited to serve as the chairman of the Council of Economic Advisers under President Bush and from that position he then became chairman of the Federal Reserve Board he is interested in many other things other than economics one of them is baseball he's a devoted was originally a devoted Los Angeles Dodgers fan then became a devoted Boston Red Sox fan as now as a devoted very committed Washington Nationals fan and I should say he's also a distinguished authors wrote written many great books on economics his specialty was the Great Depression he later became obviously a specialist in the Great Recession we'll talk about that as well but I would like to recommend this book that he's written and I have read and it's quite good the courage to act which he actually wrote himself everybody who writes a book these days doesn't write himself but he did and I highly recommend it if you want to get a picture of what happened during those days the Great Recession so let's start and thank you very much for coming that was an unbelievable recitation of my side pretty pretty accurate I don't know yeah so exactly so one day you wake up and you're the most powerful man in the financial world and the next day you're driving your car to Brookings so you really miss the power that you had at those days when you were running the Fed and running the financial world no not not at all because the power is the power over here the responsibility over here you know I like now I can get the newspaper in the morning you know and look at the story and say gee that's a significant problem somebody ought to do something about that well and thinking about that you ever say well geez maybe I'll just send an email to Janet Yellen say here's some advice or you stay out of that no I wouldn't do that did any of your predecessors ever call you with advice no no I mean I meant occasionally with with Alan and with Paul or as a courtesy than anything else the only advice they got from Alan Greenspan was the last day before he left we had breakfast together in his private dining room up by the cafeteria and at the Fed and he told me he said the one thing I would tell you he says it always sit at the table so you can see the clock because then you know when the meeting is over and you can get to your next your next meeting so that was pretty much all the advice oh that's good that's pretty good advice yeah so I do want to get into the Great Recession and so forth but I feel you have such an interesting background I just would like to go through some of the things I mentioned what was it like growing up in Dillon South Carolina it's not a big metropolis you were a very modest sized Jewish community there so what was it like and and did you really actually serve dinners and so forth that at the south of the border well sure so my my family had been there since 1941 when my grandfather moved and bought a drugstore there and my father and uncle where the town pharmacists they were known as dr. Morton dr. Phil because there was only like one doctor in the entire town and so people would come to them and ask them for you know medical advice of various kinds and it was a small Jewish community there you know we had I don't know about 50 people and within 20 mile 20-mile radius so it was it was in some ways it was like being a fish out of water in some ways and that made me want to look at the bigger world in other ways it was actually a very interesting formative experience because you know it's it's not a rich area a lot of people work really hard I worked construction I waited tables I did wait on tables that south-of-the-border I was even Pedro and Pedro was the de mascot right you could tell by my coloring in my beard you know I actually had the right the right look so I did that a couple of times who were the best tippers in those days the best tippers were the guys from Sol Sol south of the border south of the North Carolina South Carolina border it's halfway between New York and Miami and so you had the snowbirds coming down you know driving down and was two-day drive in those days people didn't fly and they would stop and stay overnight south of the border so these guys you know who you know New Jersey New York those were the best tippers southerners are wonderful hospitable people but they are lousy tippers okay yeah so I guess the private equity people they were good tippers right well they didn't identify themselves at the time do they have private equity huh no so okay so you do extremely well and I'm gonna make sure I got the facts right on Edelweiss did you never heard of the word ice no I did not and so you were but you were the Spelling Bee champion of South Carolina I was indeed I was indeed and I was very disappointed at losing the the the national finals was in the Mayflower Hotel not too far from here and I missed that word and I was very disappointed because the winner got to be in the Ed Sullivan audience and acknowledged from the stage by Ed Sullivan so that was like whoever won probably didn't wind up becoming chairman of the federal reserve spelling is not the major qualification so so when you went down you're in high school you got a 1590 out of 1600 on your SATs the highest in the state so that's one question miss one what do you ever wonder what it was a no idea so did you practice like today a lot of people have these tutors and so forth that you have a lot of tutoring and whatsoever no no I didn't know what was going on like what we're doing to Marge oh yeah we're gonna go over to take this down okay okay so I'm gonna taking tests actually but not everything in the world but some things I can do so it turns out you can reveal in your book that you going to Harvard was not something was on your mind but an african-american who was had befriended you who had going to Harvard he really persuaded you and I point that out because you know it wasn't actually the case that would say a lot of african-americans were mixing with white Jewish families in those days no how did this friend become so close to you well his name is Ken Manning and he's now a professor at MIT and his family knew our family through the drugstore where they where they traded and ken was and is very brilliant precocious man and he had gone several years earlier to some kind of program which got him eventually into Harvard and then he went to Harvard Graduate School and now he's an amazing professor as I said and he took it on himself you know to persuade my parents said I should go to Harvard and I was the time you know had no idea of how that might happen and he sort of pressed it and convinced everybody and so you applied and you got in yeah did you apply anywhere else sir yeah no I applied a lot of places yeah is it okay in everywhere of course okay and so you're the story is that your mother was afraid you might lose your Jewish identity if you went to Harvard didn't see know everybody at Harvard is Jewish or she didn't know that I don't know maybe it wasn't quite as true in okay I'm not sure all right so she was close she was most afraid that didn't have the right clothes so she had this image of like 1950s harbouring or people have old beanies and you know they're all dressed up and they have valets and everything you know but of course in the 70s at Harvard everybody was wearing blue jeans and smoking dope and all kind of stuff for them anyway so if she'd known that I wouldn't have gone at all probably but so you get to Harvard and you're a lot of keep kids from fancy prep schools and so forth so were you intimidated or not really sure sure I was and I didn't do that well at the beginning because I had never you know never had learned how to study never you know was way behind in all my classes and everything so so you graduated summa laude so you must have turned things around I did I did turn it around I found economics actually one of my problems was I had no idea what I wanted to study everything looked interesting to me so I would be taking all kinds of things all over the place and then I took some economics courses actually the professor in my econ course was Marty Feldstein who was still right you know a prominent economist and what I liked about it was that it was sort of a combination of humanities you know and how people live and how to help people and so out on the one hand on the other side of course it was quantitative and and so I took it I've thought of as a compromise between all other things I was interested in but I really enjoyed it right worked out okay and so then you had the choice do you go to get your PhD at Harvard or MIT and MIT was the place you chose how come you chose to go to MIT well Dale Jorgenson who was my senior thesis advisor at Harvard you know said go go to MIT it's the best place mit is very interesting because you know we wouldn't expect to see a topic and I most apartments amundsen the famous economist had come there as a young man and he had brought others there and and at the time when I was there it was a hothouse of talent and learned a lot from my you're just describing your your acquaintance Ken Rogoff who was a professor at Harvard and was the second ranked chess champion in the world or something at the time he was my my office mate at MIT and just sort of it that was sort of the kind of people that we were you never laid him in chess though right I did play him once he is Ken this we're really off topic here David but Ken Ken is and one time had the record for simultaneous blindfolded chess games 16 simultaneous blindfolded chess games so in a party we had at our house we decided to know at five six people here you know let him you know so he would sit in the kitchen and call out you know we would all be out in the other room you know moving her away and I was the last guy to fall but at the time I felt it was like being rolled over by a steamroller I mean it was just unbelievable so he's he was a terrific chess player he knew Bobby Fischer but he decided to be an economist and I think he probably made a good career choices higher calling so so you you got your PhD at MIT and then why did you decide to go to the West Coast the Stanford well it was a lot of exciting things were happening out there you know a lot of interesting people and it didn't hurt that they were offering a lot more money that wasn't that wasn't a bad thing matter you know about you know right so it was it was it was actually really good place to go because there was a lot of interesting work going on that was useful to me in thinking about the issues of credit and Finance that that I wanted to study so I should have said that while you were at MIT you met your wife on a blind date and you proposed they were just two months later yeah yeah well that's unusual is it I don't know two months a long time I waited about seven years but anyway I'm decisive guy okay yeah all right so it's you're at Stanford you have an opportunity to be a tenured professor there at the age of 31 you get an opportune why did you decide to move back east tough call a lot of good people there were some Princeton was a very good department but you know we'd been at Stanford California for six years my wife we had young kids my wife said Princeton to be a great place to raise kids which it was and so we ended up going back there but don't regret it I liked I liked both places quite a bit still visiting both and you say in your book that you Ultima came the chairman of the Economics Department and your big decision was whether you have doughnuts or bagels at the economic was very confident yes so how did you decide to specialize in the Great Depression as an area of expertise well it actually probably goes back to in graduate school you didn't mentioned Stan Fischer who all right I'm gonna get to Stan Lee all right he was my thesis advisor at pH a PhD advisor in at MIT he now people probably know he's now the vice chairman of the Fed and he was previously also the central bank governor in Israel but I went to see him and I asked him you know should I should I take up macroeconomics and monetary economics and he said he gave me a copy an 800-page book of Friedman and Schwartz his famous monetary history of the United States and he said take this book and if you can get through without falling asleep he should take this he should be should be a monetary economist that I read the book and it was about the history of monetary policy and monetary economics in the United States going back to the Civil War and including a lot of interesting you know stuff on the Great Depression and I just was so fascinated by and the thing about monetary economics is this is this is stuff that really matters it really affects people's lives and really palpable ways and the Great Depression just being one example where monetary policy and other issues related to the gold standard and the like helped drive the country in the world into a 12-year depression which in turn led to the World War two and so on so it was very exciting to me and the depression was a great puzzle trying to understand how that could happen and so I majored in these things and and began to write about history and I I must say that one of the great lessons I learned was that you know the world is complicated and history is a very important lens to look at you know what's going on okay so you rise up you're at Princeton you're doing well you're an expert in the depression that probably the greatest country for the nation's greatest expert in the great and then you get a call from Glenn Hubbard who I think was then the head of the Council of Economic Advisors for President Bush 43 says would you'd like to go into public service and and how did it come about that you got the meeting with President Bush and how was your meeting with President Bush well they were trying to fill a spot on the Board of Governors people probably know that the board has seven people who are appointed by the president confirmed by the Senate and the Chairman is one member of that seven person board and they had a two-year spot basically there and the question was would I be willing to consider being on the Fed board and I thought to myself well you know I've been studying monetary policy my whole career maybe here's a chance to do something with it and so I said I would I would interview and so I went down to Washington I talked to Josh Bolten the President Bush's advisor who was actually I saw here today but then I went to talk to the president and at one point he asked me a bunch of questions about you any question that stumped you and you know no he didn't ask me but eventually after we got through after we got through the sort of simple questions about inflation and so on he said so do you have any political experience and I said well sir it won't count for much in this office but I have served two terms as an elected member of the Montgomery Township New Jersey Board of Education and he said well that counts for a lot that's very important work and that was it that sealed the deal so he appointed me and I you know I explained to my wife that this is only a temporary thing couple of years I've come back and we kept our home in New Jersey and I would drive home every weekend and I again I had an opportunity to be on the board and to work with Alan Greenspan and the people that were there at the time so you're doing that and then all of a sudden you get a call and say would you like to be the chairman of the Council of Economic Advisers I guess Glenn Hubbard was leaving and did you have any second thoughts about that no see the the chairman of economic the Council of Economic Advisers which by the way to happen this week we're gonna have an event at Brookings you know commemorating the 70th anniversary of that institution it's like an internal consulting firm inside the White House and it what it does is it provides the president and the executive branch with with guidance on a whole variety of different issues related to economics and it's a great job it's just a really interesting job to be the chairman of that you get involved in all the policy discussions so I was delighted to have that I mean this was the far as I'm concerned this was one of the best jobs and Washington for an economist and so I expressed interest and I told Princeton you know three years not to but I promised me back and I went over and I and I and I was the council chairman for a while so when you were doing that your meeting with the president and I understand it from time to time he would point out that you you know warring a dork you wear a dark suit you had no brown socks and he said where'd you get those brown socks and you explained where do you got those brown socks well they were tan socks and historically accurate and I was in I was I was in a meeting in the Oval Office and I was trying to explain something you know and I was in my usual very high class way I was wearing a gray suit and tan socks and president you know I was nattering obey about the GDP or something and he leaned over and he pulled up my pants leg and he said you know man he says this is the White House he said we have certain standards here and why are you wearing tan socks with brown or gray suit as the case may be and I said mr. president well I got him four for ten dollars of the gap and this is a fiscally conservative administration so I so anyway so the that was basically the end of that part of the meaning and then we went on to some other things but over overnight I conferred with Keith Hennessy who was the deputy NEC director and the next day when the president walked into the Oval Office every man in the room including Vice President Cheney was sitting like this and wearing tan socks okay but you've given up TNS Oxford I have I can afford the black ones okay so after doing that for about two years obviously the president was impressed with your capabilities and he asks you if you'd like to be the chairman of the Federal Reserve replacing Alan Greenspan and you accepted and were confirmed so when you become the chairman is it much different than being on the Federal Reserve Board and how did you deal with the difference no it's very different I mean it's it's the same institution the same issues but the chair has obviously leadership responsibilities and and the the Fed is a consensus organization the chair has to lead that consensus building the other thing about the thing that surprised me and it shouldn't have surprised me so much was that being chair has a very heavy political component to it in the sense that the chair has to confer frequently with both the executive branch and the Congress I spend a lot of time you know not just testifying it's Janet Yellen is today but but meeting individually with congressmen on the phone you know trying to keep people apprised to what was happening and hearing from them what their thoughts were so that was a very big difference in my right so you're the chairman of the Federal Reserve Board a great job one you probably never anticipated getting when you were teaching at Princeton or so forth and then all of a sudden the economy begins to go south when did you realize we were heading into a really serious recession well the recession came after the crisis so we knew one thing I think one misconception about the crisis that was all about subprime mortgages subprime mortgages we saw that we understood that at least in 2006 you know shortly after became chair we talked about that 2007 we talked about that but you know the the subprime mortgage crisis was important but it was more like a trigger it was sort of like the pebble that started the avalanche so as late as you know spring of 2007 even though I was testifying and talking about subprime mortgages talking about foreclosures about these concerns about these issues you know we did not at that point think that the whole financial system was going to implode of course in the summer of o7 there were a couple of hedge funds that were closed by Bear Stearns and in August Oh a seven BNP paribas you know announced that it couldn't value its subprime securities and beyond that point you know in the fall of seven the stress and the financial markets began to get much more severe and at that point I think would have been sort of the end of August Oh seven we sort of switched our switched our focus away from worrying about inflation which was a problem toward trying to address the the budding crisis which was just spreading out it from the subprime into the whole credit market so one weekend the famous weekend I guess you're told there's a problem at AIG and a problem as well at Lehman Brothers so what was that weekend like well that's a year later already this is September of oh eight and by this time you know we had been through the acquisition of Bear Stearns and all the controversy that that spawned we had been through the takeover of Fannie and Freddie and it was clear at that point that the financial panic was building I mean one of the things that I learned from my studying of history was that was about the the importance of banking panics or financial panics which was something that plagued the US economy going way back into the revolution practically and that's that's what was building in the US creditors suppliers of funds were withdrawing was essentially a bank run and it was getting very bad and by mid September of 2008 we understood we were in a very serious situation it's worth noting that you know going into Lehman weekend that the strong prevailing opinion in the journal and by journalists and the media and by economic writers so on was that it was time to let have company fail you know the Wall Street Journal said you know if we believe in capitalism we have to let this company fail Financial Times said secretary Paulson ought to take the weekend off you know so it was that was basically the mindset at that point we just come from Jackson Hole which is the annual meeting of the Fed and other central banks in Wyoming and they're the very strong view had been you know we've got to stop this bailout stuff you got to let it go we didn't buy it we really didn't buy it we were afraid that if Lehman collapsed that that it would make the crisis much worse I would just create warm fear and we didn't know what consequences it would have so we did try very very hard to prevent failure we did we we had 12 Wall Street for a major Wall Street firms represented by their CEOs and the New York Fed and we had two potential buyers for Lehman Bank of America and Barclays and you know the story I basically we you know there were essentially three tools that we used through through the crisis to prevent firms from failing one was to put capital in from tarp that of course didn't come till later so we didn't have the capital second was to have the firm acquired by another firm as we did with Bear Stearns for example and but but you know Bank of America basically said there's such a big hole in the balance sheet we can't conceivably do this unless you give us you know a gift of a lot of money the third method which actually worked for AIG was was making a loan against good collateral and and Lehman was collapsing it didn't really have any going value concern and it didn't have enough collateral to to get you know to justify or or to sustain a loan so essentially we didn't have any way to save the company and and consequently it failed I think the consequences of it were or even worse than we thought but we were certainly aware that it was going to be very very but in hindsight is there anything that you could have done I understand what you said and I in the books to buy mr. Paulson and Tim Geithner they consistently say there was nothing you could do but and now in hindsight is there anything you think you could have done that I really don't think so I mean the ex post facto analysis of Lehman so that it really was a bankrupt company right and that indeed there were accounting issues repo 105 and things like that that turned out to make the problems even worse than we thought because they'd been disguised in various ways let me say you know you know in a broader sense I think it was kind of inevitable in the following way which was that after Lehman failed that's when the government when Congress said okay we got to do we got to take strong action and that's ultimately where the tarp book came from and so on I think if somehow or another miraculously we had saved Lehman the next thing would have gone hope so where we get the tarp for a moment on AIG that same weekend you are able to save AIG any regrets about that and now under the law as I understand it it's now not possible to do again what you did with AIG is that right that's right so no I don't have any regrets I think they've given that Lehman had already put the system into cardiac arrest I think AI geez collapse would have made things significantly worse although it was very tough it was a very tough experience I remember Paulson and I going to President Bush and you know and Paulson had talked to print the president and explained what was likely to happen but we had to go to him together and say you know we have to lend 85 billion dollars to a failing insurance company in the middle of a financial crisis how's that sound and his credit I mean whose credit President Bush you know said you got to do what you got to do you know and you you do it I'll explain it but you need to go talk to Congress so Paulson and I went to an ad hoc meeting of the senior members of the banking and finance committees from Senate house the leadership and we went over there and had about 20 people we were explaining you know what what was happening what we thought we had to do and we were taking questions you know you know will it stop the crisis we don't know will you get your money back well we hope so and after a while you know the question sort of petered out and and Senator Reid you know was had as sort of his face in his hands and he at this point he he looked at me and Paulson he said he said mr. secretary mr. Chairman says I want to thank you for coming over here in explaining this just has been very helpful and for taking our questions he said they said I want you to understand one thing nothing you've heard here tonight constitutes congressional approval for what you're about to do he said this is your decision and your responsibility and I was a very very lonely feeling I have to tell you but again I think that while while it a IG was the gift that kept on giving you know we had the bonuses and all these other things that were just such terrible political disasters but again I do feel that if we had not done it that would have been worse now you just answer the other part of your question the the changes had been made to the feds emergency lending Authority so-called 13-3 Authority would now prohibit that but importantly and we supported this that has been replaced by a more formal mechanism called the orderly liquidation Authority that would allow the Fed and the FDIC to put a failing firm into a receivership in a way that would take into account the implications to the rest of the system so I I personally am much more comfortable with us with having that because then the Fed wouldn't have to take all this responsibility to be a much more formal and pre-approved approach and so I know I'm not concerned at all about the loss of that authority after the Lehman AIG weekend ultimately you just you went to Congress for tarp authority were you shocked when the House voted it down the first time well very unhappy not completely shocked I mean obviously it was very unpopular I I talk in the book about calling a senator and saying you know how your constituent calls going on this tarp issue and the senator said well it's 50/50 said 50% no and 50% held no but I just have to say that you know while tarp is still poison and and you know on the campaign trail if you voted for tarp you know it's a terrible thing it's it it was one of the most successful programs the government's ever put in place it stopped the crisis it stabilized the financial system and it made a profit I mean what else you know I mean so obviously very unpopular and I'm glad that there are now better methods for dealing with these problems but I think it was when the end how much money was put up in the under tarp for well the the total amount was was seven hundred billion was allocated but I think in terms of banks I think it was on the order of 250 billion how much did you get back for that got it every penny back was the interest and profit yeah so when you first went up to Congress to explain the Congress affords harp actually passed that the economy was going to collapse what was the reaction of members of Congress when they you said might go into a depression well I have a pretty pale you know I know we went and we explained Paulson and I and Chris Cox who was the head of the SEC we explained and I I tried to be pretty I was the one who had to explain sort of what the economic consequences might be of a complete meltdown in the financial system and you know I tried to draw on my history and so as I talked about the depression but I also talked about other experiences like Japan and Sweden's crisis in the 90s and so on and I think and I shook him up pretty good I think but actually I sort of underestimated I think the the impact because the impact of course on jobs on on the economy was was enormous so after tarp was ultimately passed and was implemented and so forth later you at this as a chair of the Fed began another program which others have called you don't like the name quantitative easing and you don't like the name because it's too hard to understand well I mean it's not a big deal but but the quantitative easing was originally done by the Bank of Japan and it in many details which are not worth going into it was very different from the program we had and I wanted to emphasize that our approach was a different you prefer the name of credit easing because it was about trying to loosen up the credit markets trying to get mortgage markets working again for example in hindsight you think credit easing number one worked and credit easing number two worked and credit easing number three worked well I mean I don't think this is a really in serious dispute I mean all the academic studies have found that did affect financial conditions and in turn affected the economy I'm not saying it was a perfect tool it was obviously was something it was used used because we were essentially out of ammunition in terms of interest rate cuts but looking broadly around the world you see that the two countries that did the best in terms of recovery were the u.s. the UK that should the two countries who use this tool early on and other countries like Japan and and Europe have subsequently you know followed let's talk about the economy today what do you think the economy's status is today are you worried about a recession or are you worried about deflation what is your greatest concern well we have a very interesting situation which is in some ways analogous to where we were in the 90s which is that the domestic US economy looks to be in pretty good shape it's being driven by a fairly strong household sector you know people jobs have come back you know wages are beginning to rise debts have been paid down you know markets are stronger certainly compared to a few years ago so you have strengthening consumer spending you have the housing sector of course it's been relatively weak in the recovery but it's continuing to improve so overall you have a domestic US economy which it's got some momentum has been moving forward creating jobs there's the issue of very slow productivity growth which is a somewhat separate issue but in terms of the cyclical recovery you're seeing a good dynamic but but the risk and the threat of course is mostly coming externally we have a slowing Chinese economy and that in turn the combination of slower China weak commodity prices strong dollar is affecting emerging markets around the world which in turn is creating stress in financial markets and all this you know the strong dollar the weak export markets and financial stress is feeding back on our economy and and is becoming a significant headwind and so there you know that is that's what that's the battle in some sense that's going on now are you worried about deflation and very low growth in Europe now well Europe is an you know it's come moved from into a better policy situation I mean I do think that it took a many years but they have to you're central bank has adopted some of the unconventional policies that the Fed pioneered six years earlier and on the fiscal side you know the fiscal policy was very very tight in Europe much tighter even in the United States because of the austerity and so on that they were running and that austerity period seems to be over and budgets are more neutral now in Europe so between less resistance from fiscal policy and a better more supportive monetary policy you expect to see little bit more growth they are however also facing the international concerns that we have the United States and if anything they're exporters are even more exposed to emerging markets and we are where about China are you comfortable with that the numbers that the Chinese government publishes as their official numbers are accurate and are you worried about the Chinese economy's growth rate well the numbers you know they think they've gotten better chairman Greenspan used to laugh that they put out their quarterly GDP figures on the last day of the quarter you know they didn't actually have to wait you know collect anything the data have gotten somewhat better but you know what's what's happening there is that they are trying as we the United States have urged them to they're trying to make a transition to change their growth model for a long time their growth model was a very centrist top-down kind of model focused on heavy industry exports construction and they were trying to move from that to a more services consumer oriented type economy which is difficult to do I think they're making progress it was predictable so in some sense the slowing that we're seeing there was something that we all expected to happen maybe the timing is a little bit different but we expected to see that happen but that's the challenge they're going through and of course the services side of the economy is even harder to measure probably than the heavy industry side so there's a lot of I think one of the big problems is that between the fact that their policy makers are not always so transparent about what their objectives and and intentions are and the fact that the data and other information is is not at the standard we would see in the United States that a lot of the concerns that are rising and just because people are very uncertain about what exactly is happening there we know that the the outward facing part of China the heavy industry commodity using exporting sector is is declining but to some extent that's part of the plan they want to reduce their reliance on that sector and move to a more modern services oriented sector so let me ask you about that in the u.s. I realize you're not going to comment on your successor and what the feds doing no Chairman really does that once he leaves but if you were to be a betting person would you bet that interest rates might go up at some point this year or you wouldn't you wouldn't be a betting person no I don't I don't I don't make that's they've made pretty clear what their scenario is their scenario is one in which the labor market continues to improve as to my labor market improves that should put pressure on wages and prices and begin to create motion of inflation towards 2% and if that is the scenario that affects your inspires then they'll have to at some point you know tighten policy to to keep things to keep inflation near its target of course they don't know anymore than anyone else does you know what the effect is going to be of the global slowing and the financial stress that we're seeing and to the extent that throws things off course obviously they'll have to adjust to them so do you foresee a situation in the United States ever where we have a negative interest rates in other words is a way to kind of other other governments are implementing a policy where essentially you pay to have a bank take your money you see that possibility here well it's a possibility that that you know of course we didn't do we didn't do in in the recovery its possibility that a few members of the Fed have talked about it a little bit so it's certainly something that might be down the road possibly I don't think it's very likely I mean one of the issues is that a negative interest rate would have uninsulated consequences on the functioning of a money markets that you know and and perhaps make it difficult for those markets to to operate normally so there be a lot of technical issues to be addressed before that happened anyway I don't think that's a near tourney you were very well known for transparency at the Fed compared to some of your predecessors you had press conferences and so forth but you didn't think that the Fed should be so transparent as to be audited you can consider that different because auditing it be more interference with what the Fed does as opposed to transparency is that your thinking so audit the Fed has nothing to do with auditing so auditing everyone here thinks of auditing as you know going over the books right looking at all the financial statements and the Fed already does that completely I mean there's an outside private sector auditing firm that goes over all the books all of the securities that the Fed holds are on the website you can look up to the Q sub number everything the Fed owns the Government Accountability Office the GAO which is the arm the investigative arm of Congress has the authority to go in and look at basically anything it wants to and it has it looked at all the crisis era programs looked at everything and basically given the Fed a clean bill of health so what is already the Fed have to do what auditing the Fed would do is that currently in the law there is one area where the GAO is not allowed to do an audit do a review and that is in monetary policy decision-making okay so what is at stake here is whether or not Congress could ask the GAO to review the December policy decision and you know and look through get the papers get the documents and basically investigate whether or not the Fed should've raised interest rates in December I don't think that's a good idea and I guess the way I would put it slightly in a slightly jocular way would be if you like the way Congress is running fiscal policy why not put him in charge of monetary policy because that's what would amount to I really think that this would be that would be a bad it would be a really bad intervention of political considerations into what's supposed to be a technical nonpartisan objective policymaking decision now the Fed minutes of the FOMC meetings are released five years after the meetings occur in just recently the meetings and minutes have been released and they revealed that when you were considering things like quantitative easing and other there was a big discussion among members of the Fed and some we're very much against it though they went along with your policy do you have any comments on the releasing of these things after five years you think it should be sooner than five years you think it's a good idea to release them at all well there's a trade-off which is you know releasing those materials including every comment that everybody makes does inhibit the discussion at the meeting some because you know it used to be it used to be that there were the FOMC meetings were pretty much free-floating you know freeform discussions about every issue that could come up and since the transcript started being released in mid 90s people come with a written statement they read their statements so the the the the discussion has been inhibited by that that being said I understand the desire for transparency and I think five years is probably long enough that it doesn't really interfere with current policymaking so I don't object to the current situation but I there is a trade-off there there is some cost to to doing it that way and I would just note that no other central bank in the world does it okay and your press conference they used to hold press conferences that the Fed never did the Fed Chairman never did that before you think that's a good policy and should be continued yes absolutely I I came to the Fed me one of the few things you know the you know life hands you all different kinds of surprises obviously a million more than most people but when I came to the Fed in in 2002 as a governor and the main thing I wanted to do was to try and increase the feds transparency make the Fed more open about its goals its policies explain what it was doing why I was doing that that's why I wanted for example an inflation target the 2% target that the Fed has and so we did a lot of things along those lines I think the press conferences are one of the more successful ones and it's an opportunity for the for the chair to explain what the committee is thinking and to take questions from the media and you know it's I think it's a good step towards openness you said earlier the Fed has seven members but for a while it's only had five members because Congress doesn't the Senate doesn't seem to want to prove any more members can the Fed operate very long for just five members well we operated with five members I mean through a very difficult period we operate with five members from basically my entire chairmanship throughout the crisis so it can be done but it's you know it's unfortunate that there seems to be a habit now that in the last year and a half or two years of the president's term he can't get anybody through approved for you know for the Fed board and that that does leave the Fed short-handed and because the Fed besides making monetary policy has many other responsibilities and in regulation and supervision and and other areas and if you're gonna hold a Fed responsible for doing these things well you need to make sure they have the people in place to make those decisions and when you're chairman of the Fed it'd be very embarrassing the chairman of the Fed had a policy that he couldn't get the rest of Fed go along with so do you kind of talk to people in advance and say this is what I would like you to do or do you just kind of say here's what I want and they fall on line no you have to I mean Janet apparently calls pretty much everybody on the committee I used to call you know not everybody necessarily but I made a lot of phone calls a lot of discussions on the hallway where the other board members are the Fed is a consensus organization the idea long-standing idea is that the Chairman tries to bring along the whole committee or as many people as possible to create a central plan that that that everybody you know or most people can support in doing so there's a lot of consultation and and people of course individual members who are influential and can and can make a good argument you know eventually begin to bring people over to their side and it's a little bit of a little bit of inertia but over time you know influential members of the committee can shift the consensus did you ever call up a vote for something and you didn't know what the outcome was gonna be before you and your print you're pointing out in your book that I just say it's a good idea not to do that but and you point out in your book that your predecessor would start every meeting at the Federal Reserve by saying here is what his view was you used to wait until the end of the meeting to comment if what's the reason for that no there were two rounds the first round was the length year round where everybody sort of gave their view of what's happening in the that was called the economic go-round and the second round was called the policy go-around where you went around as everybody gave their opinion and what we should do today and the way greenspan ran it was that there would be the economic go around everybody would talk about how they saw the economy what was happening then and the policy go around the second round Greenspan would speak first and say I think that you know we should do this and the rest of the go-round was more or less people reacting to his initial discussion so I kind of thought little did I know but I kind of thought that that was sort of cutting off the discussion by too much and I wanted to foster a more collegial interactive kind of discussion and so what I would do is I would have that second go around and then I would at the end I would say here's what I heard and then I would you know talk about what I thought we should do I don't know how different it really was in terms of the actual outcomes but it gave everybody a more chance to lay out their views and and have a good discussion so any regrets about not seeking to stay longer as chairman the Fed or were you happy you left when you left no I was clear I told the president I don't know what would have happened I told the president I wasn't interested in staying any longer that eight years was plenty for me and as I said at the beginning but now to be a civilian again if you look back on your term as the Fed is there anything you wish you had done differently not taking the job I don't know okay but generally you're pretty happy with what happened or well I mean obviously I mean seriously I mean you know some very terrible things happen you know the the crisis and the recession and we always have to ask yourself you know what could have been done to avoid it I don't you know I I have difficulty identifying any obvious action but I hope at least that we can say we've learned a lot from what's happened that we make the system stronger and avoid such crises in the future now you point out in something you've said that your mother went it out but you left the Fed you were 60 years old and your mother was concerned you hadn't driven in 8 years and that you might not be able to drive a car again as that concern but you can see her level of interest is sort of constant over time you know it's always very mundane issues but now you drive your own I Drive my own car I drove home from home to Brookings the first day after I was out of office and so far so good you're out shopping or things like that people don't bother you ask for your economic advice or where interest rates in a while people say hello but I'm happy to again not to have all the all the paraphernalia so now that you're at Brookings and as the co-chairman of Brookings we're obviously honored to have you there and I hope you'll stay there for a long time but you have any career plans you'd like to reveal to the Economic Club of Washington uh only my therapist no uh no I'm very happy being at Brookings it's a great home base for me I'm doing a variety of different things of course I finished the book and did a book tour in October November very pleased with that had a good reception I've written some papers I have a whole series of lectures I got planned for the spring at different universities including Duke we were talking about so I have a lot on my plate and I'm happy to do that and your children have decided not to go into economics is that correct yeah I think there's some cause and effect there all right yeah they're both in medical areas so on behalf of the country I want to thank you for a great job you did his chamber the fete was very helpful to get our country through that very

Channel: The Economic Club of Washington, D.C.

Views: 74,230

Rating: 4.6554055 out of 5

Keywords: 2015 - 2016 Speaker Series, The Hon. Ben S. Bernanke, David M. Rubenstein

Id: HbQqs0U_5qs

Length: 48min 38sec (2918 seconds)

Published: Wed Feb 10 2016