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Paul Kasriel on Bernanke, bank lending

Currently sinking my teeth into this new article from Northern Trust economist Paul Kasriel, entitled, "I Have Come Neither to Praise Nor to Bury Bernanke".

Kasriel begins with the question of whether Ben Bernanke might be re-nominated for a second term as Fed chairman, but moves on to discuss the current state of bank reserves and bank lending. Here's an excerpt:

"No one is indispensable. There are plenty of well-qualified candidates to replace Ben Bernanke as chairman of the Federal Reserve Board of Governors. So, the Republic will survive whether or not Ben Bernanke is re-nominated as Fed chairman. But let us be objective in assessing the job he has done as chairman. In my opinion, Anna Schwartz was
not objective in her July 26 NYT op-ed piece arguing for the dumping of Bernanke.

Ms. Schwartz asserts that Bernanke should not be re-nominated because of his sins of commission as well as his sins of omission. It is not clear to me to what Bernanke sin of commission Ms. Schwartz is referring.

She alludes to the flooding of the financial system with Fed credit, which drove down the overnight cost of funds in the interbank market to almost zero. But was that a policy sin? Did not Ms. Schwartz co-author with Milton Friedman, a Nobel economics prize winner, a tome (
A Monetary History of the United States, 1867 to 1960) of which one of the key conclusions was that the Federal Reserve was too timid in creating credit in the early 1930s?"

Now, I'm no economist or student of banking, and some of the charts and explanations in this article (and other Northern Trust econ. commentaries) may seem daunting at first glance, but Kasriel does a great job of laying out the details in a very understandable way.

Be sure to give this piece a look, especially if you're not already familiar with Paul's work; in my humble opinion, he's an economist worth reading.

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