Monday, June 16, 2014

New Fed Vice Chair Will Be a Disaster for Economy

By Jesse Colombo

The U.S. Senate finally confirmed former Bank of Israel governor Stanley Fischer as vice chairman of the Federal Reserve on Thursday. As the second-most influential Fed board member, Fischer will play a key role in advising and assisting Fed chairwoman Janet Yellen. While many in the international economics community cheer Stanley Fischer’s appointment to the Fed, I view it as a disaster waiting to happen because of his role as the main architect of Israel’s little-known and still-unpopped bubble economy.

As the governor of the Bank of Israel from 2005 to 2013, Stanley Fischer earned praises for his management of Israel’s economy during and after the Global Financial Crisis. In 2009, 2010, 2011 and 2012, Global Finance magazine’s Central Banker Report Card gave Fischer an “A” rating. Bank of Israel was ranked the world’s most efficiently functioning central bank under Fischer’s leadership in 2010.

Contrary to popular belief, Israel’s so-called economic strength is the byproduct of a temporary economic bubble that Fischer helped to inflate rather than the result of sound and sustainable monetary policies. Stanley Fischer is a member of the New Keynesian school of economics – a group that is notorious for using incredibly stimulative monetary policies (also known as “money printing”) to create artificial economic growth, while virtually ignoring the existence of obvious economic bubbles and the risks of monetary policy-induced inflation.

During his tenure as governor of the Bank of Israel from 2005 to 2013, Stanley Fischer’s New Keynesian policies caused the country’s M1 money supply to surge by an astounding...

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