U.S. 'recession and regulation'

So far on the government side, Treasury Secretary Tim Geithner has been most prominent, after President Obama himself. Less visible players are also important, and likely to become more influential over time. Notable among them is long-time senior public servant Paul Volcker, who heads the Economic Recovery Advisory Board.

Fed Chairman Ben Bernanke, already very prominent, assumed stage center this week in Congressional hearings. Complaints that he along with Treasury Secretary Hank Paulson in effect forced Bank of America to buy Merrill Lynch without proper public disclosure predictably were raised. Beleaguered Republicans sought partisan traction, but Bernanke acquitted himself well.

Bernanke comes up for renewal in his post next year. Characteristically Presidents do not telegraph this decision in advance and Obama played the part predictably in this week's press conference.

Political leaders have both fed and mitigated public anxiety. Unpersuasive optimistic declarations by President George W. Bush conjured up the eerie image of unfortunate President Herbert Hoover, in office when the Great Depression struck. Congressional hearings regarding economic problems also recall the Depression era in addressing even while at times reinforcing public anger.

The economic challenges we face are very significant but relatively subtle — and ultimately far more manageable than during the 1930s. First, the Federal Reserve System no longer controls the money supply but retains other powerful leverage. Since World War II, the U.S. , dollar has been freely convertible, reflecting basic strategy to encourage global trade. The dollar system has been fundamental in building world prosperity, reducing barriers to commerce and facilitating liquidity.

One byproduct has been growth of dollar holdings overseas, beyond direct control of the U.S. Fed. In the 1950s, low-profile Fed Chairman William McChesney Martin held great power simply through direct control of the money supply, which Bernanke lacks.

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