Times are good. With the exception of multihousing’s visit from distant fair weather relatives known as condo flippers in Florida, developers and owners are basking in the sun of historically low interest rates, sinking inflation, lower fuel prices and increased personal income and spending.
Hats off to Fed Chairman Ben Bernanke. The Federal Reserve’s efforts to curb inflation seem to be working as the economy heads for a soft landing. If said trends persist, interest rates have a good chance of remaining steady, and word on the street is, perhaps even dip.
The line between Fed tightening and multihousing is a direct one. Higher interest rates would create liquidity issues for developers and owners. Bernanke must now consider the potential for reaction within the housing market throughout cities where realtor optimism and aggressive appraisals cultivated irrational pricing, such as California, Washington and New York.
Says Bernanke, “I estimate that slowing housing construction will probably take about a percentage point off growth in the second half of this year and probably something going into next year as well.”
Not a bad opening act for Bernanke, the once Princeton professor who faced the daunting task of following Alan Greenspan, the man some economists thought the greatest central bank chairman in history. While Bernanke did inherit an economy expanding since late 2001, with steady job growth and healthy business profits, some believe that what goes up, must come down, and wonder if the untested Bernanke can weather a crisis.
The accidental Fed Chairman?
First and foremost, Ben Bernanke is a regular guy. Shy, articulate, obviously intelligent, extremely down to earth. A marked difference from his predecessor, Alan Greenspan, who brought stardom to the Fed. Bernanke’s unassuming demeanor is charming. You wouldn’t know he’s one of the most powerful men in the world, except perhaps to talk with his mother, Edna, who’s saved bags of newspaper clippings on her boy and easily recalls that she sent his father, Phillip, to check on him in Kindergarten. Reading negative press still causes her to worry about her son.
The flanking Federal Agents might give hint that Bernanke is someone important, but you might not notice it otherwise.
A couple months ago, penciled into his high powered calendar of meetings and hearings necessary to run the world’s most powerful economy, was a special trip to pin dot on the map in South Carolina. It was there he was greeted by hand shakes from 50 of his former classmates and teachers, friends, proud parents and family, and a banner strewn across the main drag declaring it “Ben Bernanke Day.” This perfect homecoming was met with a deludge of “I remember when Ben…” stories crescendoed by the town mayor personally inducting Bernanke into the elite “Order of the Palmetto.”
Bernanke was raised in Dillon, South Carolina, population just over 6,300. It’s known for tobacco farming and the ever memorable “South of the Border,” a sprawling Mexican-themed souvenir stop on Interstate 95. Bernanke waited tables there during the summer while attending Harvard University. He also worked in construction for $1.75 an hour. Bernanke talks of coming home so exhausted from the construction site that he often fell asleep in a chair.
Jobs such as these, in addition to watching his father and uncle put in long hours at the family drugstore, Jay Bee Drugs opened by his grandfather in 1941, generated a strong work ethic in the young Bernanke.
“I was impressed by these experiences, and I think they were an important reason I went into economics,” says Bernanke “I know that if my colleagues at the Federal Reserve and I do our jobs right, we will help our economy prosper and give more people the economic opportunities they seek.”
Bernanke’s paternal grandparents immigrated from Austria in the early 1920s. Bernanke’s father was a pharmacist and his mother, a teacher. The Bernankes were one of the few Jewish families in the area. Young Bernanke learned Hebrew from his maternal grandfather who was a professional Torah reader and Hebrew teacher. The family kept what was likely the county’s only kosher household. A delivery truck brought their specially processed meat from Charlotte for years.
Ben was the oldest of three children, a brainy boy who skipped first grade, obsessed over baseball statistics, played the saxophone in the school marching band, and taught himself calculus. He was sports editor of his high school paper and class valedictorian. As a boy, he honed his math skills by pouring over baseball stats; his favorite book was The Universal Baseball Association Inc. by Robert Coover.
Bernanke was intrigued by the Great Depression even as a child. He once visited his grandmother, Marcia Friedman, and she described life as a young mother during the 1930s. Friedman was proud they could buy new shoes for their children each year. But many neighborhood children had to go to school in tattered shoes or barefoot.
“Why didn’t their parents just buy them new shoes?” young Ben asked. Because their fathers had lost their jobs when the shoe factories closed, she said.
“Why did the factories close down?”
She replied, “Because nobody had any money to buy shoes.”
The circularity of her logic, which he later recounted, bothered him: Why was there so much idle capacity when there were so many unmet needs?
Bernanke went on to earn his undergraduate degree from Harvard, where he won the award for best undergraduate economics thesis, and the prize for outstanding senior in the economics department. He attended college in the 1970s when high inflation was the major problem, so naturally inflation is his highest priority policy issue today.
After receiving his Ph.D. in economics from MIT, he began teaching at Stanford University’s Graduate School of Business.
He left Stanford for Princeton in 1985. There he spent 20 years on the faculty as a Professor of Economics and Public Affairs and was a visiting faculty member at other institutions, including MIT. Deeply rooted in academia, Bernanke believed he would be an academic lifer as it allowed him to “explore old ideas, develop new ones and avoid wearing suits.”
Prior to becoming Fed Chair, Bernanke was chairman of President Bush’s Council of Economic Advisers, which provides the president with analysis and advice on economic issues.
Because Bernanke has never worked in corporate America, investors and some economists argue that he is not suited for his position as Fed Chair. They fear that his lack of real life economic experience makes him more likely to institute theoretically attractive but practically untested policies.
Bernanke’s precise, explanatory prose could make him a more open communicator than the purposely oblique Greenspan. Others believe he could take openness too far, possibly impeding internal debate at the Fed. All agree. His is a brilliant mind and seems to be holding his own.