Bernanke's legacy: A Fed that did too much?

Former Federal Reserve Chairman Ben Bernanke believes the central bank has been asked to do too much heavy lifting in getting the U.S. economy back up and running.

What perhaps will define his legacy, though, is whether the Fed did too much under his stewardship, going far beyond its central mandates and in doing so laying the groundwork for peril ahead.

In a high-profile promotional effort for his book, "The Courage to Act," Bernanke on Monday visited CNBC for a one-hour sitdown to explore how the Fed under his tutelage saved the financial system from certain disaster in 2008 and 2009, then used unprecedented expansive monetary policy to try to goose the subsequent recovery.

Focusing on the post-crisis measures, Bernanke, as he did on multiple occasions during his eight-year tenure, bemoaned the lack of coordinated fiscal policy to go with the ultra-easy monetary policy in place during his time at the helm.

"Clearly one of the issues is that we've have been relying too much on the Fed," he said. "The Fed is the only game in town. It has been doing much of the policy heavy lifting for the past few years. We need to see more action from other policymakers."

There can be little argument that the Fed has done some serious "heavy lifting."

Seven years of zero interest rate and a balance sheet at $4.5 trillion attest to that. In fact, there's an argument, pervasive in monetarist circles, that the Fed took its desire to buttress fiscal policy a little too far.

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"It's certainly true that the Fed was doing all of the heavy lifting. In fact, most of the fiscal policy was awful," said Fed historian and Carnegie Mellon professor Allan Meltzer. "What I would criticize is why he did it. Why did he continue to do it for years to finance the debt at very low interest rates, knowing that when interest rates rise the people who bought those bonds would take a big loss?

"Why didn't they say to the administration, say to the government, 'We did our jobs, you do yours?' "

Instead, the Fed plowed ahead on its policies, despite mixed results.

While the stock market is up nearly 200 percent — as measured by the S&P 500 (INDEX: .SPX) — from its crisis lows, economic movement has been considerably less impressive. No calendar year has registered gross domestic product growth of more than 2.5 percent, wage increases have been anemic and inflation, at least by the Fed's favored data points, remains below target.

Debt, though, has soared.

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Total national debt outstanding is at $18.15 trillion, nearly double where it started 2008. Corporate debt has jumped to $8.1 trillion, a nearly 50 percent gain over the same period, and household debt has passed $14 trillion for the first time ever, despite consumers deleveraging following the Great Recession.

"When they talk about fiscal policy, are they saying they want us to increase the national debt? We've increased the debt by $12 trillion. Do you want more of that?" said economist and Fed critic Michael Pento, founder of Pento Portfolio Strategies. "The central banks are the worst offenders. They take down interest rates artificially, and what does that encourage but for people to take on more debt."

To be sure, Fed critics such as Pento and Meltzer incorrectly predicted that Fed policy would create runaway inflation.

It's a bit of a Pyrrhic victory, though: The Fed, in fact, has been trying to drive inflation at least up to its 2 percent target, but with little success. The culprit: Much of the money it "printed" digitally hasn't gone anywhere.

Banks, which were the biggest direct beneficiary of the expansive monetary policy, have $2.46 trillion in excess reserves parked at the Fed now, compared to the required level of $107.1 billion required.

Where that money goes, and not whether Washington finally decides to pick up the policy ball, could be Bernanke's real legacy.

"I was wrong in predicting inflation. It was wrong because the reserves that he was producing with such abandon ended up on the balance sheet of the banks, so he never got the money growth that would have produced the inflation. But the reserves are still there," Meltzer said. "Until we get back to a normal banking system, we won't know whether (the Fed's) program was a success."

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