Many Americans regard the Chairman of the Federal Reserve System as one of the nation’s most powerful officials, second only to the President. The influence of the Federal Reserve Chairman stretches beyond the borders of the United States, affecting the monetary policy and market conditions of nations throughout the world. Yet, to many Americans, the workings of the Federal Reserve System and the duties of the Chairman are mysteries. The purpose of this lesson is to:
- Examine the historical development of the Federal Reserve System.
- Provide background on Ben Bernanke, the new Federal Reserve Chairman.
In this lesson you will learn about the role of the Federal Reserve Chairman. You also will learn about the current Chairman Ben S. Bernanke and the former Chairman Alan Greenspan. You will complete a KWL (Know, Want to Know, Learn) chart while working through this lesson.
Start by printing the PDF file that contains the KWL chart. Then fill in the first two columns with what you know and what you want to know about the Federal Reserve System, Alan Greenspan, and Ben S. Bernanke. Finish working through the information in the lesson and complete the other activities before filling in the last column.
Alan Greenspan retired as Chairman of the Board of Governors of the Federal Reserve System on January 31, 2006. He served for over 18 years. He was originally appointed to the office as Chairman on August 11, 1987, by President Reagan. Mr. Greenspan was reappointed to the Board for a full 14-year term, which began February 1, 1992. He was appointed Chairman by Presidents Ronald Reagan, George H. W. Bush, William Clinton, and George W. Bush. Mr. Greenspan served the second-longest term in the history of the Fed. (Only William McChesney served longer.) Click here to view photographs and dates of service of the past Federal Reserve Chairmen.
Chairmen, Dates of terms:
Charles S. Hamlin Aug. 10, 1914-Aug. 9, 1916
William P.G. Harding Aug. 10, 1916-Aug. 9, 1922
Daniel R. Crissinger May 1, 1923-Sept. 15, 1927
Roy A. Young Oct. 4, 1927-Aug. 31, 1930
Eugene Meyer Sept. 16, 1930-May 10, 1933
Eugene R. Black May 19, 1933-Aug. 15, 1934
Marriner S. Eccles Nov. 15, 1934-Jan. 31, 1948
Thomas B. McCabe Apr. 15, 1948-Mar. 31, 1951
William McChesney Martin, Jr Apr. 2, 1951-Jan. 31, 1970
Arthur F. Burns Feb. 1, 1970-Jan. 31, 1978
G. William Miller Mar. 8, 1978-Aug. 6, 1979
Paul A. Volcker Aug. 6, 1979-Aug. 11, 1987
Alan Greenspan Aug. 11, 1987- January 31, 2006
Ben S. Bernanke January 31, 2006 - present
Whom did Alan Greenspan succeed, and in what year did this happen?
What did Greenspan do when the stock market crashed on October 19th, 1987?
What are some other highlights of Greenspan's tenure as Chairman?
Greenspan presided over for the longest period of economic expansion in U.S. history. When did this period of expansion occur, and how long was it?
- Who succeeded Greenspan as Chairman of the Federal Reserve? What challenges does he face?
How Is the Chairman Appointed?
Mr. Bernanke was appointed Federal Reserve Chairman through a process similar to the one used in other high level federal appointments. The Federal Reserve Act (FRA) of 1913 established the Federal Reserve System. The FRA explains who is eligible to serve on the Board of Governors and who may serve as Chairman; it also sets their term limits. The FRA states that to become Chairman a person must be a member of the Board of Governors. This might suggest that only current Governors can serve as Chairman, but in fact, as pointed out by Andrew Foerster of the Federal Reserve Bank of Richmond, a candidate can be simultaneously appointed Governor and Chairman. The President nominates people to serve as Federal Reserve Board Governors. Then the process moves to the Senate, where the nominee testifies before the Committee on Banking, Housing, and Urban Affairs. From there, the nomination moves to the floor of the Senate for a vote. The Chairman is appointed to a four-year term. The Chairman can serve several four-year terms, as did Alan Greenspan. These are a few of the "Most Frequently Asked Questions" about Mr. Bernanke. If you need some help, go back up to the information above.
What was Mr. Bernanke’s most recent appointment before becoming Chairman of the Federal Reserve?
What position did he hold before being appointed as Chairman of the President's Council of Economic Advisers?
What are Mr. Bernanke’s academic credentials for the Federal Reserve job?
Is Mr. Bernake regarded as a scholar?
- Does Mr. Bernake have any background as a leader in K-12 education?
The Chairman of the Federal Reserve System is widely considered to be one of the most powerful people in the world. You will now be familiar with the new Federal Reserve Chairman, Ben Bernanke, and you will have reviewed the history and structure of the Federal Reserve System.
Now complete the "Learned" column in the KWL chart. Include the following information:
- Alan Greenspan's place in Federal Reserve history
- The structure of the Federal Reserve
- How the Federal Reserve Chairman is chosen
- Fed chairman Ben Bernanke's background
If you need additional information to complete the chart, use www.federalreserve.gov for help.
Using the following information about the Great Depression, as written by Bernanke, have a discussion with your class or in small groups about the Federal Reserve's role in the Great Depression
In his book, Essays on the Great Depression, Bernanke refers to the Great Depression as the “Holy Grail of macroeconomics.” “I guess I am a Great Depression buff, the way some people are Civil War buffs," he wrote in the preface to the book. "I don’t know why there aren’t more Depression buffs. The Depression was an incredibly dramatic episode– an era of stock market crashes, bread lines, bank runs, and wild currency speculation, with the storm clouds of war gathering ominously in the background all the while.”
Between 1929 and 1933, the output produced in the U.S. plummeted by almost 30%. Further, the unemployment rate surged to over 25%, and more than 9,700 American banks failed. The huge number of bank panics occurring during this period was unprecedented, prompting President Franklin Roosevelt to make his famous statement, “The only thing we have to fear is fear itself.” The reasons for the onset of the Great Depression, causing unparalleled economic misery in the United States and around the world, have been widely debated. The Fed remained remarkably passive during the onset of the Great Depression. The Fed refused to perform its function as a lender of last resort (one of the major reasons for forming the Federal Reserve in 1913) for failing banks. The Board of Governors did not fully understand the negative impact that bank failures would have on the money supply and the economy in general. Milton Friedman and Anna Jacobson Schwartz discussed this in their influential book, A Monetary History of the United States, 1867 – 1960, reporting that the Federal Reserve “tended to regard bank failures as regrettable consequences of bank management or bad banking practices, or as inevitable reactions to prior speculative excesses, or as a consequence but hardly a cause of the financial and economic collapse in process.” Further, Friedman and Schwartz note, bank failures were concentrated among smaller banks while the Federal Reserve was controlled by big city bankers that “deplored the existence” of the smaller banks. In addition, the Federal Reserve System raised interest rates in 1931, which discouraged business borrowing and caused the money supply to shrink . With so much less money to go around, businesses could not get the loans they needed and were forced to stop investing.
What does Mr. Bernanke make of all this? He fully acknowledges the failings of the Federal Reserve System during the Great Depression. In fact, at a 2002 conference honoring Mr. Friedman’s 90th birthday, Bernanke, then a Federal Reserve Governor, told Friedman, “Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” The Federal Reserve ’s response to more recent financial crises, like the October 1987 stock market crash and the economic downturn following the attacks of September 11th, 2001, suggest that they have learned their lesson from the Great Depression and won’t let such an event happen again.