Recession puts central bankers in the spotlight

By contrast, the US Federal Reserve, the Bank of England and the European Central Bank likely will remain hunkered down on the sidelines until the end of 2010, unable to boost rates.

The “lucky country”, as author Donald Horne once dubbed Australia, has made its own luck, mostly by allowing public coffers to fill with cash reserves during the previous decade of prosperity. That enabled the government to spend freely without building up debt during economic turmoil, helping to ensure a relatively easy run through the crisis.

Unlike Stevens, his counterparts at the US Federal Reserve chose not to prick any asset bubbles. As a result, the United States ran huge budget deficits before the financial crisis struck -- and is now paying the price.

Eight months before Australia’s Stevens took office, Bernanke, 56, assumed the US Fed’s helm in February 2006. He brought from his previous life in academia several strong convictions.

One was not using monetary policy to tackle asset price bubbles, arguing it is too blunt an instrument -- an approach also taken by his predecessor, Alan Greenspan.

The consensus among economists and others is that the American central bank kept credit costs too low for too long. And that, most agree, helped lay the groundwork for the 2008 crunch.

Bernanke -- who once joked that as chairman of the Princeton Economics Department his major decisions included whether to order doughnuts or bagels for staff meetings -- was criticised for his initially sluggish reaction to the crisis.

“The U.S. let the housing bubble get out of control and paid a very heavy price for it,” said IHS Chief Economist Nariman Behravesh.

Though he suddenly finds himself facing a tough time in the Senate, Bernanke has won over some critics with his overall decisive response. A student of the Great Depression, he once famously told Milton Friedman that he was right to blame the Fed for aggravating the 1930s crisis through a lack of support for banks, and he was determined not to repeat the same mistakes.

In a Reuters poll in mid-2009, economists gave him very high marks -- an 8 out of 10 -- for his performance during the past year, which was as difficult a year as a central banker can ever expect to meet.

But the hard part comes next.

And if Bernanke needs a reminder of what’s at stake, all he need do is visit his boyhood home in small-town Dillon, South Carolina. Last year its new owners joined the ranks of those who lost their homes to foreclosure, one of a record 2.8 million U.S. homes to meet such a fate.