Global markets had their roughest week last week since October-November last year, but it could get even tougher this week if Ben Bernanke’s nomination for a second term as US Federal Reserve chairman fails.
A combination of policy changes in the US on banking regulation, worries in Europe about the financial strength of Greece, concern that market valuations were ahead of earnings and unease about the rude health of the Chinese economy, saw financial and commodity markets sold off, along with equities.
The S&P 500 fell into the red for the year on Friday, joining the Dow and Nasdaq indexes.
Other equity markets in Asia, Europe and in emerging markets were sold off as well.
Gold and oil also fell.
Adding to this uncertainty Friday afternoon in the US was the emergence of rising doubts about the vote on the Fed chairman this week in the US Congress.
Worries about the Bernanke vote added to the selling pressure on Wall Street in late trading.
They made a weak day look even weaker.
Once a ‘good thing’, the vote this week in the US Senate could be in danger after two more Democrat senators revealed they would grandstand and oppose his Bernanke’s re-nomination.
With the US job market in continuing disarray and voters angry at Wall Street, nervous members of Congress, facing mid-term elections in November, have decided to take it out on the central bank and its leadership.
They say the Fed failed to prevent the worst financial crisis since the Great Depression, and combated the meltdown in a way that favored the financial sector at the expense of ordinary citizens.
(Actually the Fed saved the US from a recession that could have approached the Great Depression in its severity. But cocooned US politicians, who played a role in creating the credit crunch and then the recession, conveniently ignore what might have happened.)
Congress played a major part, from not reacting to warnings of a housing bubble (because many members were taking campaign funds from the housing and financial sectors).
None of the Congressional oversight committees attempted to question the Fed and other regulators and politicians on why the housing and financing bubbles (few could see a bubble was emerging) were not being controlled back in 2005/06 when the bubble was growing or in 2007 when it burst.
So it’s hard to understand why Democrat Senators Barbara Boxer and Russ Feingold want to oppose the re-appointment of chairman Bernanke, except for their own egos and avoid being forced to accept any responsibility.
They are both up for re-election in the November polls in the US.
Their opposition brought the total of known ‘no’ votes among the Democratic majority to four, while many others have said they were still on the fence.
Reuters quoted Boxter, a leftish Senator from California (where the housing crunch and recession have been deep) as saying, "Our next Federal Reserve chairman must represent a clean break from the failed policies of the past. It is time for Main Street to have a champion at the Fed."
"The unthinkable has become a very real possibility – risks are rising that the Senate will unseat (him)," said Michael Feroli, economist at JP Morgan and Reuters also said that Chris Krueger of Concept Capital, a private firm that tracks Congress for institutional investors, said he sees a 55% chance Bernanke will not be reconfirmed.
According to Reuters, In-trade, an online betting platform, now shows just a 68% chance the Fed chairman will be confirmed, down from 95% earlier in the week.
Several Republican senators have already come out against him and some have moved to block his confirmation, forcing senate leaders to secure a super-majority of 60 votes in the 100-member chamber to move the nomination.
Senate Majority Leader Harry Reid from Nevada, where the sub prime crunch hit hardest, said late on Friday he would back Mr Bernanke for a second term.
But he also couldn’t resist a bit of grandstanding, calling on the central bank chief to intensify efforts to pull the nation out of the worst recession since the 1930s.
“I will continue to impress upon Chairman Bernanke that his most important job as America’s central banker is to give families and businesses the peace of mind that their economy is working for them,” Reid said in a statement.
The Democratic Party’s loss of the Massachusetts senate seat of the late Senator Ted Kennedy last week seems to have been the catalyst for the outburst of ego driven grandstanding among fellow senators.
Senator Christopher Dodd, the about-to-retire chairman of the Senate Banking Committee (who proposes stripping the Fed of banking supervision authority) said he supported the reappointment of Mr Bernanke.
He said rejecting the Fed chief would send the “worst signal to the markets right now” and produce an economic “tailspin”.
“This is the most important central banker in the world,” Dodd, a Democrat from Connecticut, said in Washington.
That was the only comment on Friday that made sense.
Rejecting Mr Bernanke for petty political gain, would match the stupidity of the Republicans rejecting the first Tarp banking assistance package in late 2008 that knocked markets down and intensified the crunch.
Sending Mr Bernanke packing would see a sell off in markets.
Such a decision could even derail the recovery in the US and other developed economies, such as Japan and Europe.
