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Give the New Guy a Chance?

June 1, 2006
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For those of us who have experienced the stress of starting a new job, the recent experience of Ben Bernanke, the new Fed chairman, should help put that stress in perspective.

Like Atlas of Greek mythology, Bernanke is balancing the short-run fluctuations of the global economy on his modest human frame. To the phrase - "You look like you have the weight of the world on your shoulders" - the new Fed chairman can honestly say: "I do."

What has added to his stress was the recent attitudinal pivot by the market, provoked by a greater-than-expected rise in the inflation rate, from one of sanguine complacency to modest panic.

It has been less than a year since Bernanke wrote an article in The Wall Street Journal titled "The Goldilocks Economy," in which he stated: "America's economy is growing faster than that of any major industrialized country in the world."

A Lot of Clout

Too fast, perhaps? The chairman is now faced with a difficult choice - fight inflation with more rate hikes but risk causing a recession, or leave rates steady and risk more inflation.

Like an interconnected tapestry where you pull one thread and all others unravel, Bernanke's decision will have an effect on such disparate issues as the Chinese currency, the current trade deficit, South American debt, commodity prices, unemployment, inflation, growth, taxes and the outcome of political races.

And you thought your job was hard!

Standing on the sidelines like gleeful vultures, the pessimists, the short-sellers and the Democratic Party are hoping for the bear market they've been predicting for the last few years. Opposing them are the cocky optimists, the bulls and a Republican Party that, despite all the bad news, could always look to the economy as an antidote to its woes.

Everyone claims to want what's best for the economy, and everyone claims to be objective, but there are too many partisans with an enormous dog in this fight to know what the truth is and what the future will bring.

The Fed has made mistakes in the past, turning a recession into a depression in the 1930s, and turning a slow-down into stagflation throughout the 1970s. For better or worse, the Fed is run by smart but mortal men who, though well-educated about the economic past and able to spin complex economic models about the economic future, are facing uncharted waters as the economic world changes and evolves.

It would be nice if we could dump the whole job onto the type of computer that beat Kasparov at chess, but unfortunately, we have to rely on human beings. Nevertheless, Capt. Greenspan did demonstrate a "sixth-sense" ability to navigate the straits of inflation and growth.

It remains to be seen whether his successor Bernanke will develop an equally uncanny ability as to how to steer this massive ship.

We hope he will, but as any new employee, he deserves the chance to learn the ropes, make some mistakes, and learn from those mistakes.

In any event, we're part of this ship, too, and while our new captain learns the ropes, we can do our part by continuing to work hard, avoid the delusions of undue despair or excessive optimism, remember that there is no cure for the business cycle, and maintain a resolute belief in the ability of the country to weather the bad, as well as the good, times.

Some of our economic meteorologists look out on the horizon and see storms ahead. Others see mild sun showers. No one envisions an endless, bright-blue sky devoid of even a single cloud, but this does not mean that the sky is falling.

Be very skeptical of those proclaiming doom or triumph. There are problems out there, no doubt, but as to the duration, the magnitude and the resolution of these problems, no one really knows what will happen, now or in the near future.

No matter the oncoming and inevitable storms: We've got a good ship populated with talented people.

So let's keep sailing away.

Fred D. Snitzer is chief operating officer in the investment-management firm of Prudent Management Associates, specializing in high-net-worth and tax-deferred asset management.

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