Yale University professor Stephen Roach said Federal Reserve Chairman Ben S. Bernanke shouldn’t be given a third term because of his role in managing the U.S. economy before the financial crisis.
“I think Bernanke tried his best post-crisis, but he’s part of the problem pre-crisis,” Roach said on Bloomberg Radio’s “Bloomberg Surveillance” with Ken Prewitt and Tom Keene today. “He and Alan Greenspan condoned asset bubbles at a time the economy needed more discipline.”
The comments come a week after Republican presidential candidate Mitt Romney said he wouldn’t reappoint Bernanke when the Fed chief’s term expires in January 2014. Romney also said he would seek someone with whom he shares economic views.
For Roach, Bernanke’s work to calm markets following the financial crisis doesn’t mean his part in inflating asset bubbles in previous years should be overlooked.
“To reward him for post-crisis, very valiant efforts of public service completely overlooks the role he played in getting the U.S. asset markets and an asset-dependent economy into this mess in the first place,” he said. “I would not be in favor of his reappointment.”
Roach doesn’t agree with Romney on China and he criticized the Republican candidate for his pledge to brand China a currency manipulator.
“This could trigger a series of cascading events,” Roach said, noting that any such statement would probably result in U.S. laws limiting imports from China that would be reciprocated by the Chinese. “We’d be back in recession by the end of 2013,” he said.
Roach warned that the U.S. has to be careful to avoid lost decades along the lines of what Japan has suffered since the 1980s. Japan’s Nikkei 225 index peaked in 1989 and is now at less than a fourth the level reached then.
“There’s nothing normal about post-bubble economies. Japan has had two lost decades and counting and if we’re not careful, that’s a template that’s going to apply to us,” he said. “We’re going to be struggling under the weight of de-leveraging for years to come. We’re still in the early stages of paring down the overhang of excess household debt and in rebuilding the savings rate.”