Will Fed Vice Chairman Donald Kohn replace Ben Bernanke? It's certainly possible, because Bernanke currently has four Senate holds on his nomination. In other words, there may not be a vote by January 31st when his term as chairman expires.Take a look at what Senators Judd Gregg and Chris Dodd had to say on CNBC's Squawk Box Monday morning:
Gregg: I think a point which listeners might be interested in is what happens to Bernanke’s position if he’s not confirmed by the end of January?
Dodd: By the end of January, if we don’t confirm him, then he could not serve as chairman. He could serve as a member of the board, but you’d then have to have the vice chairman become the chairman.
Bottom line is Bernanke's got trouble because of the four senators who have placed a hold on his nomination. That means a floor debate about Bernanke that will require a 60 vote cloture roll call even before they get to vote up or down on the actual nomination. In other words, they’ve got to vote on closing down the debate. So it could delay a full vote well past January 31st when Mr. Bernanke’s term expires.
A key point in all this is that many believe Donald Kohn—a brilliant economist—is nonetheless, even more dovish than “Helicopter Ben.”
Adding fuel to the flames, in yesterday's Wall Street Journal, distinguished Stanford economist John Taylor who joined me on the Kudlow Report last week, pushed back against Bernanke's Taylor Rule criticism from two Sunday's ago, when Bernanke attempted to absolve the central bank from any easy money bubble culpability earlier in the decade.
The Taylor Rule clearly shows that the Fed's target interest rate was way too low in 2002-2005. Too low, too long. In fact, real interest rates during that period were negative. As far as Wall Street trading risk and borrowing leverage is concerned—that was of course all part of the meltdown—negative real interest rates are like throwing gobs of bloody red meat to a pack of hungry sharks.
This Bernanke reconfirmation story gets trickier and trickier with each passing day. More to be revealed.
