This one is going to hurt. Stanley Fischer is one, if not, our favorite economist.
As Larry Summers points out in his recent piece in the Washington Post,
The Fed and the international monetary system will be weaker for his departure from official responsibility. It is the end of an era. – Larry Summers, September 7
Our friend, Terence Reilly, over at the Wall Street Blog sums it up best.
When the pressure is on we like to have what we term “adults” in the room. The “adults” are not only the smartest people in the room but they are people who know how and when to make a decision. Stanley Fischer is one of those “adults”. Dr Fischer, former professor at MIT, vice chairman of CitiGroup, and chief economist of the World Bank, and former Governor of the Bank of Israel, resigned his position as vice chair of the Federal Reserve. Fischer played the role of intelligent hawk who we felt comfortable leaving in charge of the store. As this critical time approaches of the Fed removing stimulus his absence alone makes us less confident in the “adults” left in the room. In one of his last public speeches as part of the Federal Reserve Dr Fischer warned about historically high asset valuations.
Let me conclude my assessment of current financial stability conditions with a discussion of asset valuation pressures… In equity markets, price-to-earnings ratios now stand in the top quintiles of their historical distributions, while corporate bond spreads are near their post-crisis lows. …
The general rise in valuation pressures may be partly explained by a generally brighter economic outlook, but there are signs that risk appetite increased as well…So far, the evidently high risk appetite has not lead to increased leverage across the financial system, but close monitoring is warranted.
These guys, such as Mr. Fischer, are very smart and have pretty good timing.
Robert Rubin’s Exit From Treasury In May 1999
Remember, Robert Rubin, deciding not to finish out his term as Secretary of the Treasury and left the Clinton administration just a few months before the bubble popped?
Of course, he knew it was a massive bubble ready to burst, and that is why, we believe, the Clinton administration didn’t spend the federal budget surplus as they concluded it was temporary - windfall revenues from a stock market bubble and economy. Their administration was under tremendous pressure by their own party to open the checkbook.
They left a nice surplus for W. to stimulate the economy after the NASDAQ fell 80 percent, business capex collapsed, and we moved into, what in hindsight, was just only a “shallow” recession. Then 9/11 hit.
That was good governance on the part of President Clinton, Secretary Rubin and Summers.
Totally unlike what we do in California, where the pols program ongoing expenditures, such as public pension increases, with the windfall tax revenues, which collapse with the asset bubbles, leaving gaping budget deficits.