Reading a book can have a lasting impact. It can educate. It can provide new and vivid perspectives, even to events which have recently occurred.
The outstanding book The Alchemists, by Washington Post writer Neil Irwin is one such book. The Alchemists, Three Central Bankers and A World on Fire provides insight to the challenges that the world’s central bankers faced during the financial crisis since 2008 (and still face now). Irwin explains how they dealt with the non-stop issues, how they interacted with each other and how they developed new and innovative approaches to economic challenges.
I read and closely follow financial matters on a daily basis, through many types of print and electronic media. Still, I was amazed by how much I learned by reading this book. Irwin’s work reflects how perspective and information can sometimes only be gained through reading a book.
What did I learn from this book? How will it benefit my clients, as their financial advisor?
Irwin started the book by attributing central bank actions (or inactions) in previous time periods as causal factors to economic depressions and worldwide instability, such as wars. Irwin vividly showed that Bernanke and the other world financial leaders needed to be brave and take actions that were often “wildly unpopular.”
Bernanke’s academic background as a student of The Great Depression, his ability to build consensus and develop creative responses to unpredictable events helped to prevent further economic catastrophe. While some may disagree with the central bankers’ policy decisions, I agree with Irwin’s conclusion.
Will this book help me to predict the future of interest rates? No.
Will this book help me predict who the next Fed chairman will be? No.
Will this book help me to explain economic events more clearly to my clients? Absolutely yes. And that is one of our roles as their financial advisor, to provide clarity and explanations of complicated topics.(Note: Chapter 20 on the Chinese economy and their banking system are particularly worthwhile, as were sections on regulatory legislation after 2008-09.)
Having just completed this book, I was quite surprised to read the August 20th Op-Ed column in the New York Times titled Wanted: A Boring Leader for the Fed, by Amar Bhide, a professor at Tufts University. He said “we need to return the Fed to dullness and the chairman to obscurity.” Further, the author wants to “scale back what we can expect of” the Fed.
After living through the turbulence since 2007 and reading The Alchemist, I cannot disagree more with Bhide. While one can argue about specific decisions that the Federal Reserve and Bernanke have made, I do not want in the next Fed chairman to be boring. Boring is defined as monotonous, tedious (which implies dull slowness), tiresome, humdrum (commonplace, trivial, or routine) and uninteresting.
The Fed chairman should be the direct opposite of boring. The chairman needs to be strong, bold, innovative and a leader willing to take risks that he or she feels are necessary for the good of the country and world. While Bhide calls for the Fed “to return to dullness” and the chairman relegated to “obscurity,” the opposite is necessary.
The Fed chair has to rapidly deal with unexpected events, such as the collapse of Lehman Brothers and AIG, as well as set monetary policy. The Fed chair needs to effectively interact with world bankers, fellow Federal Reserve governors and staff, politicians and the media.
The Fed needs to continue to clarify and improve its communication to the financial markets. The financial markets react negatively to uncertainty. The chair needs to act with decisiveness and be willing to speak publicly, as Bernanke has done by adding press conferences after certain Fed announcements.
The term of Federal Reserve Chairman Ben Bernanke ends in January, 2014. President Obama’s naming of Bernanke’s replacement is surely one of Obama’s most important decisions. I hope it will be an effective and experienced appointment, who can lead with consensus. But not a boring choice.