Federal Reserve Chairman Ben Bernanke

Ben S. Bernanke was appointed Chairman of the Board of Governors of the Federal Reserve System in 2006 replacing Alan Greenspan. Bernanke was chosen for his academic credentials, his expertise in the role of monetary policy during the Great Depression, and his advocacy of inflation targeting. During his tenure, he has overseen the Banking Crisis, a return of oil-price spikes which led to inflation, and the Fed taking on new roles, such as the bailout of Bear Stearns and AIG.

The Federal Reserve Chairman is responsible for guiding monetary policy for the U.S. economy. This has become more important over the years, as fiscal policy has been hamstrung by a $500 billion annual deficit, $700 billion in security spending, and a nearly $10 trillion national debt. He is also the spokesperson for the Fed, and must answer to the President and Congress. Due to his position, he is often seen as the country's premier economic expert, and his words can sway the stock market. For this reason, the Federal Reserve Chairman is the most important person in the U.S. and, therefore, the global economy.

Although it is the Board of the Federal Reserve that sets policy, the Chairman has traditionally taken a strong leadership role. Since the Chairman is appointed for four year terms, he is expected to be more independent than an elected official, who answers to voters. This is to allow the Fed to take a long-term view of the economy, and not react to short-term crises. That's because the Fed's tools, such as the Fed Funds rate, act slowly over six months. The U.S. economy is so large that, like a large ship, it needs gradual direction, without a lot of fine-tuning that could cause volatility.

Under Bernanke, the Federal Reserve has made very creative use of its tools. Prior Chairmen have primarily used the Fed Funds rate to either stem inflation or prevent recession. In 2008, a slow economy combined with creeping inflation, due to sky-rocketing oil prices, has prevented much change in the rate. The economy had slowed as a result of the Subprime Mortgage Crisis, in which banks had purchased subprime mortgages, repackaged and sold them in mortgage-backed securities that were so complicated that no one really understood who had the bad loans. When these loans defaulted, banks started to panic.

As a result, banks stopped short-term lending, which had been done routinely as a way to meet Fed's reserve requirement. In response, the Fed started relaxing the requirements, lowering the discount rate, and then finally providing credit itself via the discount window.

In December 2007, the traditional Fed tools were no longer enough to stem the loss of confidence that banks had in each other. Therefore, the Fed created the Term Auction Facility, which lent billions of dollars to banks and took on their possibly bad debt as collateral. The Auction was meant to be temporary, until the banks marked down the bad debt and started lending to each other again. However, this didn't happen, and the Auction grew larger and larger. By June, the Fed had auctioned over $1 trillion, and the Auction Facility had become a permanent fixture.

In September, the Fed took over AIG, which insured trillions of dollars of mortgages throughout the world. If it had fallen, it would have disrupted every bank, hedge fund and pension fund that had mortgage-backed securities as an asset.

Bernanke received a B.A. in economics from Harvard University in 1975, and a Ph.D in economics from M.I.T. in 1979. He taught at Stanford Business School until 1985, when he became a professor at the Economics Department at Princeton University, becoming chair in 1996. In 2002, he joined the Federal Reserve Board of Governors and become chair in 2006. He was Chair of the President's Council of Economic Advisors in 2005.