There's big news from Washington today: Federal Reserve chairman Alan Greenspan will retire as planned in January and be replaced with Ben Bernanke. I like the choice, but that's only because we named our oldest son Ben and, really, the kid's a genius.
Seriously, there are plenty of reasons to like Mr. Bernanke. He's eminently qualified for the post, after all. According to The Wall Street Journal, he's a former Fed governor -- the Federal Reserve is a system of regional banks headed by governors -- and is chairman of the president's Council of Economic Advisers. He's also a noted economist who has taught at Princeton.
Obviously, there are some politics involved with the choice. But for the most part, Bernanke is likely to continue Mr. Greenspan's steady guidance on U.S. monetary policy. For those keeping score, that's the same policy that aided the remarkable bull run of the 1990s and helped blunt the 2001-2002 recession, which may go down as the shortest on record.
Bernanke will probably need the help. Several unfriendly forces threaten the U.S. economy as I write, including:
- An overextended housing market that's dependent on suspect loans. The larger concern here is consumers' expectations that their houses will yield high investment returns, sustaining their current levels of consumption. If their home equity loans can't keep up, the economy and the markets might suffer.
Record high fuel prices that threaten consumption in other areas of the economy.
- Inflation, which is neither a sustainable nor a good trend any way you look at it. A general increase in prices stops somewhere, with someone getting the short end of the stick.
- The troublesome current deficits in both our national budget and our foreign trade. The deficits might lead to higher interest rates if they persist long-term.
- A new bankruptcy law that could push already stretched consumers deeper into debt. This isn't entirely Bernanke's problem, since he's not able to change the law. But the very consumers burdened by current debt levels are those experiencing the greatest elasticity in purchasing habits.
The relevance of this from an individual investor's perspective really depends on whom you ask. Yet it's not like the tough job confronting Mr. Bernanke ought to change anything regarding how you view your portfolio. All the investing lessons from our Fool's School are still as relevant as ever. And stocks on sale today are still likely to be on sale tomorrow. Back away from the trade button, Fool. Slowly.
Finally, Mr. Greenspan, thanks for a most Foolish 18 years at the helm. You've done a remarkable job, and we hope you'll find retirement relaxing and enjoyable. If you don't, let us know. Rule Your Retirement editor Robert Brokamp is standing by.
Mr. Bernanke, congratulations and welcome to the party. You've inherited what may be the toughest second act since Bobby Murcer replaced Mickey Mantle in center field for the New York Yankees. But, you know, no pressure or anything.
Further macroeconomic Foolishness:
- Tom and David Gardner were among those who learned big lessons from the last recession.
- High fuel prices are doing their worst to the airlines.
- That's why I'm still high on dividends.
- See how Fools reacted to the bubble babble.
The Motley Fool has kicked off its ninth annual Foolanthropy campaign! Nominate your favorite charities on our Foolanthropy discussion board through Nov. 1. For guidelines on what makes a charity Foolish, visit www.foolanthropy.com .
Fool contributor Tim Beyers really does have a son named Benjamin. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.