Israel’s Chief Banker Warns Against Complacency

“Nobody should be relaxing,” warned Stanley Fischer, governor of the Bank of Israel. We must keep asking what might go wrong next, he said. “Something will go wrong somewhere, sometime,” he added.

Fischer, the classical mentor of central bankers, makes connections to financial happenings that others just plain miss. Not a man easy to hornswoggle, Fischer connected the Lehmann Brothers bankruptcy and Bernie Madoff’s $20 billion swindle to the world nearly falling off the financial cliff in 2008.

These are signs that investors missed, Fischer said.

He fears that a fatal complacency could be lulling people to sleep. He warns that investors must learn to anticipate where something might go wrong.

Investors are swimming in optimism around the world, watching the Dow climb to 13,000, while the price of crude has jumped to a nine-month high. Citigroup economists celebrated this week by forecasting that the world economy would expand 2.4 percent this year. That’s up a tick from the previous 2.3 percent forecast.

Fischer, who oversees Israel’s $245 billion economy, insists that it’s too early to throw confetti and wear party hats.

“There remains the problem of restoring European growth, which hasn’t been dealt with yet, and it’s very hard to see how to deal with it,” Fischer said in a Business Week interview.

Fischer has four decades of banking, money management and policy decisions under his belt, so investors and countries hush up and listen when Fischer talks.

He acted as Ben Bernanke’s thesis adviser while a professor at the Massachusetts Institute of Technology, and he taught the central banking ropes to Mario Draghi, president of the European Central Bank. In the 1990s, as the No. 2 man at the International Monetary Fund, Fischer tiptoed through the financial minefields to end the money crisis in Mexico, Asia and Russia.

The U.S. economy, he says, is looking better. Greece, however, is in a “tough situation,” even after a $174 billion bailout this week.

During his tenure in Israel, the Israeli stock market was lifted to developed-market standing by MSCI Inc. Israel was also awarded with acceptance into the Organization for Economic Co-operation and Development. In addition, more than 60 Israeli companies are traded on the NASDAQ stock exchange.

The Bank of Israel bought foreign currency to moderate shekel gains, which supported exporters. This buying helped Israel’s economy to recover faster from the 2008 financial fiasco. Israel had an estimated 4.8 percent GDP growth last year, much better than 34 OECD countries.

Fischer’s connection to Israel dates back decades. As a member of the youth group Habonim, he met his wife Rhoda Keet. In the 1960s, he joined a kibbutz on the coast of the Mediterranean where he engaged in hard physical labor and learned Hebrew. He studied at MIT under Nobel laureate economist Paul Samuelson.

He’s now set his sights on asking ultra-orthodox Jewish men to jump into Israel’s economy and help make it prosper. It’s estimated that about 60 percent of these men don’t hold jobs but instead study religious works.

Although the Israel Tel Aviv TA-25 Index showed a 7.6 percent return over 10 years, Fischer said that he’s discouraged that the global economy is not responding to repair the present problems.

He looks to the U.S. to meet the challenge because it has always responded in the past. “The U.S. has always risen to the occasion when it has had to,” he said. Fischer’s term at the Bank of Israel ends in 2015.

Filed Under: BusinessJewish business News

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Menachem Greenfield About the Author: Menachem was previously a feature article writer for the Milwaukee Journal. He currently runs a small publishing business in Michigan focusing on books and magazines for the tourist industry. He is looking forward to writing for Jewocity and connecting with its readers. More about Menachem

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