This one is going to hurt. Stanley Fisher 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. – Larrry 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. – Stanley Fischer, June 27, 2017
These are smart guys 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 dot.com bubble popped?
Of course, he knew it was a bubble ready to burst, and that is why, we believe, the Clinton administration didn’t spend the federal budget surplus as they knew it was only temporary — windfall revenues from a stock market bubble and economy.
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 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 we program ongoing expenditures, such as public pension raises, with our windfall tax revenues, which collapse with the asset bubbles, leaving gapping budget deficits.
The 2000 episode eventually cost Governor Gray Davis his job.