Why Bernanke to succeed Tim Geithner? Several reasons.
First, he is probably the most influential and credible person in official Washington who is not part of the echo chamber on deficit reduction. By his speeches and actions, Bernanke has made it clear that he considers the most serious threat to the economy to be a continued deflationary drag, and not worries about the public debt.
Bernanke's Fed has poured money into the economy by buying bonds by the trillions of dollars. He's driven interest rates about as low as they can go using this method, and he has repeatedly said that it's not enough. He's open to even more drastic measures, such as selective purchases of certain kinds of bonds to get bank lending and mortgage refinancing moving at the scale necessary.
In his "fiscal cliff" speech of last August 31, Bernanke pointedly refused to join the austerity posse. On the contrary, he all but asked Congress to use fiscal policy to stimulate the economy in the short run.
Second, Bernanke and his colleagues have been sounding the alarms on the continuing downward drag of the housing collapse. Last January, he commissioned a staff report on the perils of the mortgage meltdown and called for stronger action. If he were Treasury secretary, you can bet he'd break the current log-jam and create a far more effective program of mortgage refinancing and relief.
Disclaimer: I have not spoken with Bernanke or any of his associates, and I have no idea if he wants the job.
Wait a minute. Isn't the undemocratic, Wall Street-dominated Federal Reserve the very essence of the problem? Have I gone over to the dark side?
Not at all. The fact is, Bernanke is playing against type. A careful student of the Great Depression, he knows a prolonged deflationary trap when he sees one. And, as he keeps telling whomever will listen, we are stuck in a doozy of a debt deflation.
For some terrific writing on Bernanke's unlikely odyssey, see my friend Bill Greider's recent pieces in the Nation.
It's the rest of official Washington that's mired in its own echo chamber, President Obama included. The president has been admirably tough in drawing a bright line on whose taxes will go up. He's also been better than some of his critics feared in defending Social Security, though all signs point to a cave-in on Medicare. But on the question of whether the economy needs a big budget cut, Obama is with the deficit hawks, the only fight is over the details.
Bernanke as Treasury secretary would be very hard for Senate Republicans to oppose. Except for a few hard-core monetarists, most Republicans recognize that he kept a recession from turning into a depression. He's even a Republican, first appointed to the Fed by George W. Bush.
Bernanke is respected in financial markets, even though he is not a Wall Street guy. The appointment would be hailed around the world.
Bernanke would also be far better than the current front-runner to succeed Tim Geithner, Jack Lew, the former Obama budget director and current White House chief of staff. Not only is Lew a charter member of the austerity grand bargain club. He is yet another protégé of Robert Rubin.
Lew was OMB director late in the Clinton administration and in 2006 went to Rubin's Citigroup as chief operating officer of Citi's Alternative Investments Unit, which ran hedge funds and other proprietary investments. Under questioning from Bernie Sanders at a hearing in 2010, Lew said he didn't believe that financial deregulation was a proximate cause of the financial collapse and that the problems in the financial sector proceeded deregulation. As John Kennedy said, we can do better.
Bernanke's term as Fed chairman expires in January 2014, and there have been reports in the financial press that he doesn't want another term.
Moving Bernanke to Treasury now would allow Obama to continue Bernanke in public life.
Obama could elevate to Fed chair either Janet Yellen, the talented and progressive deputy chair (she'd be the first woman Fed chair) or the equally talented Daniel Tarullo, the governor in charge of financial regulation. Both enjoy a close working relationship with Bernanke.
Appointing someone like Bernanke, with an independent constituency, might give Obama pause. But think again. Once the deficit deal is done, Obama will need to worry about how all that budget cutting will be a lead weight on the economy. He will need to be concerned that his legacy is not the chief executive who presided over an eight-year slump.
A Treasury secretary concerned more about recovery than austerity is just what Obama needs. And because the Fed, almost by definition, is assumed to be conservative, Bernanke would provide some cover for an expansionary program.
I can think of people who'd be even better than Bernanke -- I wrote about this in a previous post -- but I can't think of anyone as good who stands a prayer of being nominated.
It's nothing short of weird when the most reliable progressive in town around turns out to be the chairman of the Federal Reserve. But such are the reactionary times in which we live.
And hey, count your blessings. The Fed chair could be Larry Summers. And still may, if Summers' friends are to be believed. (Thanks, Larry, but you've done enough.)
So -- Bernanke for Treasury, and Yellen for Fed.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos.