Monday, February 18, 2013

Stanley Fischer for Head of the Fed

It appears that Ben Bernanke will not stay on as head of the Federal Reserve past his current term, which ends in January 2014.

Much speculation has centered around Janet Yellen as successor to Bernanke. This might be the case, she is a skilled political player and is talking up the idea that the Fed should be printing up new money for a very long time. This is certainly music to the ears of banksters such as Jamie Dimon and Lloyd Blankfein, so she has a very good shot.

But she can only play the cards she has been dealt and there is another potential candidate that she will be hard pressed to out play. That's Stanley Fischer. Fischer has announced that he will step down as head of the Bank of Israel in June. Pundits are falling all over themselves with praise for Fischer's leadership (read: money printing) while at the BOI.

David Warsh, who you can count on to always spout the mainstream line, writes:
His eight years on the job there [at the BOI] have been an unparalleled success[...] Having steered Israel’s economy with barely a scrape through the worst crisis since the Great Depression[...]

Fischer was appointed Governor of the Bank of Israel in 2005. He arrived at a time when the Israeli economy was recovering from a recession brought on by the second Intifada; the unemployment rate was 11 percent. He chose to live in Tel Aviv instead of Jerusalem, learned to speak Hebrew fluently on his long daily commutes, raised interest rate targets slightly to lean against the boom, and quietly combined the bank’s foreign exchange operations and domestic monetary department into a single markets group.

As the international situation deteriorated after August 2007, large sums of money began flowing into Israel, seeking safe haven.  The shekel appreciated 20 percent against the dollar and recession loomed – exports account for more than 40 percent of GDP.  But when Fischer began buying $100 million a day of foreign currency in the summer of 2008, the shekel fell against the dollar and Israel escaped the global recession with only a momentary pause.

When strong growth resumed, Fischer again raised rates slightly and reined in on house price speculation by mandating lower loan-to-value ratios for mortgages.  The economy has grown 15 percent over the past three years. The performance made him a folk hero in the fractious nation and earned him the sobriquet “The Responsible Adult” – a superhero, the newspaper Haaretz wrote last week, “with the power of trustworthiness.”

Bottom line: He was a typical money manipulator for a second rate currency. Here's what happened to the money supply (M2) under his watch. It increased by 23%. :

His timing was good in taking the job in 2005, with the economy just coming out of a recession. It enabled him a lot of leeway to launch a major new shekel printing spree in 2007, which he did.

But, the key thing to keep in mind about Fischer is that he taught at MIT and the Fed is currently loaded with MIT graduates, including Bernanke. (Fischer was Bernanke's PhD thesis adviser). The entire recent crazed Fed money printing, in other words, can be laid at the feet of Fischer and all those MIT graduates that he influenced. I don't see anyway the Fed gets out of its current mess with its dignity intact. The Fed either continues printing and price inflation picks up, or they stop and the markets crash again. 

The timing on when things will get bad is always difficult to pin down exactly. It may start in the second half of this year, which means it could start under the stewardship of Bernanke and that's why I'd love to see Fischer take his place at the Fed. Then the entire mess, that is sure coming, can be blamed properly on the MIT economists and their Keynesian econometric equations.


  1. My horse in the race would be Peter Schiff. Obama appoints him on January 15, 2014 at 10:00AM EST, after which, at 10:01AM EST Schiff announces the abolishment of the Federal Reserve Bank.

    1. Schiff in his most recent book said he would have voted in favor of the establishment of the Fed. Wenzel called him on it during an interview:

    2. I read his most recent book, and his point was that he might have fallen for the argument at the time, but now acknowledges that it cannot work in practice.

    3. Agree with the above. Schiff isn't perfect, of course, but I think his statement was a "what would I do if I were alive then" sort of thing.

  2. Another good infographic from Bloomberg. Summers and Romero are in there too:

  3. @Banacek
    Thanks for the pointer to the interview which I just listened to. 13:30 into it Schiff says the way the Fed. Act of 1913 was sold to the public was in a form much different than today. Little surprise the Fed's powers expanded exponentially since its charter. All government agencies do. Schiff does seem a little too eager to join the political class, creating a Rothbardian statist alert IMHO. Okay, let's run the same scenario only we swap out Wenzel for Schiff.