Ben Bernanke's Dog and Other Vexing Fed Dilemmas

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By Caroline Baum

When Federal Reserve Chairman Ben Bernanke sat down today for a "conversation" with Dean Susan M. Collins of the University of Michigan's Gerald R. Ford School of Public Policy, the questions were as easy as his chair.

Q: What keeps you up at night?

A: A dog this big (hand gesture) that sleeps with us.

Collins started with fiscal policy, then asked about the Fed's dual mandate, unconventional policies -- long-term asset purchases and communication -- at the zero bound, and the lessons learned from the Great Depression.

Q: Is there anything else in the Fed's toolkit?

A: If there was, don't you think we would have tried it by now?

Bernanke didn't say exactly that -- what he said was, "there's no completely new method that we haven't yet attacked" -- but I had to keep myself interested by imagining what he was thinking.

The students in the audience probed a bit deeper. One asked about the Fed's role in asset bubbles. Bernanke said they are "difficult to anticipate" but the Fed can and has done some things to strengthen the financial system, such as increased capital requirements and improved oversight. He admitted that the Fed's role in asset bubbles was far from settled.

"We need to be open-minded about it," he said. No doubt he's relieved he won't be around to clean up after the next one.

(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)

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-0- Jan/14/2013 23:23 GMT