Tags: Yellen | Fischer | Fed | bubbles

Economist Jesse Colombo: New Fed Vice Chair Stanley Fischer Favors Fresh Asset Bubbles

By John Morgan   |   Monday, 16 Jun 2014 12:18 PM

The Federal Reserve's new vice chairman could be a disaster for the U.S. economy because of a bloated monetary philosophy he follows that helped expand Israel's money supply by 250 percent, according to Forbes guest columnist Jesse Colombo.

Stanley Fischer, a former Bank of Israel governor, was confirmed by the U.S. Senate last week as the Fed’s new vice chair, the second most powerful position after Fed Chair Janet Yellen.

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“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,” wrote Colombo, an economist who was recognized by the Times of London as having predicted the 2008 global financial meltdown.

Colombo said that during Fischer’s tenure as governor of the Bank of Isreal from 2005 to 2013, his policies caused that nation’s M1 money supply to skyrocket. The result was hikes in Israel’s consumer prices by about 25 percent according to that nation’s Consumer Price Index, but the real inflation figure was actually higher, according to Colombo.

Israeli real estate prices have soared by 80 percent since 2007, while outstanding mortgage debt has surged 78 percent, mostly during Fischer’s tenure, which sounds to some observers a lot like the run-up to the 2008 U.S. housing debacle.

“The fact that rapid increases of the money supply lead to inflation and bubbles is obvious to nearly everyone but heavily indoctrinated Keynesian and neoclassical economists like Stanley Fischer, who are greatly overrepresented on the boards of central banks, unfortunately,” Colombo wrote.

He predicted Fisher will encourage Fed policies that are already causing new bubbles to form in the stock market, technology startups, college and auto loans and other financial instruments.

“Unfortunately, no action is likely to be taken nor will there be much of an outcry while the bubbles in the U.S., Israel, and elsewhere are still inflating and making their creators look like geniuses.”

Reuters noted that Fischer is joining five current governors who are all appointees of President Barack Obama and hold terms that extend until at least 2020 and as late as 2028.

Fischer is widely expected to share Yellen's focus on keeping an easy monetary policy in place to raise wages and employment. He has been “outspoken in arguing that the fallout from the economic crisis showed the need for aggressive central bank actions,” Reuters said.

The New York Times predicted the appointment of Fischer and two other new appointees to the Fed board will strengthen Yellen’s hand in conducting fiscal policy.

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