Personality cult out of step in march of time

Ben Bernanke

There's something disturbing about the cult of personality that's grown up around Federal Reserve chairman Alan Greenspan. Ben Bernanke, just named as his successor, has an opportunity to redefine the role of US central bank governor.

Central bankers should be like sports referees: at their most effective if you don't know their names or haven't noticed their interventions by the time the game has ended.

Instead, handicapping who would replace Greenspan after his January 31 retirement has been one of the hottest games in town.

Typing "next Fed chairman" into Google last week produced more than 6 million results.

Bernanke, 51, was the runaway favourite to succeed Greenspan.

A betting website run by Tradesports.com had him leading with a 36 per cent chance of success at the end of last week. Fed governor and second-favorite Don Kohn was ranked with a 15 per cent chance.

By running the Fed as a one-man show since taking charge in 1987, Greenspan has undermined the value of his seminal contributions to the black art of central banking.

When Fed governor Mark Olson opposed the September 20 decision to raise interest rates for the 11th consecutive time, it was the first instance of dissent since Robert Parry voted for a bigger cut than his peers in June 2003. Anyone who's ever sat through a meeting trying to reach a consensus knows how incredible that is.

More important than the paucity of disagreement is the market reaction - or lack of it - to Olson's impudence. Traders and investors were comfortable dismissing this hint that the Fed might be poised to pause in its relentless campaign to drive interest rates higher. That's because there's only been one opinion that matters at the Fed and it isn't Olson's.

Policy-making has certainly become more transparent under Greenspan. The days when analysts pored over the Fed's activities in the repurchase market, trying to work out whether the US central bank wanted to move rates are thankfully over, as archaic as studying Soviet-era photographs to work out who was running the Politburo.

There's still work to be done, though. The modern equivalent of Fed Kremlinology involves parsing the statements accompanying Fed monetary policy decisions until every noun, verb, comma and semi-colon has been weighed and assayed.

That has to end. There's something faintly ridiculous about global financial markets swaying this way or that based on whether a particular sentence construction changes from one meeting to the next. It would be nice if Bernanke could find a way to unshackle the Fed from its self-made linguistic handcuffs.

The declines in US Treasury bonds and the US dollar that greeted news of Bernanke's appointment are a worrying confirmation of the difficulty of taking Greenspan's place.

Imagine trying to prove to a Martian that the most important person in global finance since 1987 has been a 79-year-old guy who looks a bit like Woody Allen's grandfather and earns US$172,000 ($245,000) a year.

Your alien friend might ask why this person was so vital to the functioning of the world economy. Picture the confused look as you detail how Greenspan headed a committee that, every six weeks, determined a target for overnight bank loans. That interest rate, you explain, along with setting reserve requirements and buying and selling in the bill market, is how Greenspan ministered to the financial system by steering the world's largest economy.

As your extraterrestrial interlocutor raises whatever passes for an eyebrow in a different galaxy, you might find yourself muttering something about price stability, noting in passing that there isn't actually a specific objective for what US inflation rate is acceptable. Well, so far there hasn't been, though Bernanke has spoken favourably in the past about inflation targeting.

The march of time and the shifting sands of history may yet diminish the Fed chairman's role. Waiting in the wings is someone with the potential to overshadow Bernanke, wielding even more influence over the global economy than Greenspan ever did.

Step forward Zhou Xiaochuan, China's central bank governor.

- BLOOMBERG