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How the Fed’s Would-Be No. 2 Helped Wreck Russia

The news that President Obama will nominate former Israeli Central Bank Chairman Stanley Fischer to be the next vice chairman of the Federal Reserve was greeted with a chorus of approbation from the media. A Forbes headline exclaimed [1]: “The Markets Should Celebrate Stanley Fischer as Number Two at the Fed, A Perfect Ten Strike.” With the addition of Fischer to the Fed leadership “it’s almost like a central bank hall of fame” gushed [2] a Stanford economist to Bloomberg News, while a former colleague of Fischer’s noted [3], “The only area I can imagine where Stan will be attacked will be his roughly four-year period 10 years ago as a vice-chair of CitiBank.”

Fischer certainly brings impressive credentials to the job. An MIT-trained economist, Fischer served as the Chief Economist at the World Bank in the late 1980s before going on to serve as First Deputy Managing Director of the IMF from 1994 to 2002. But Fischer’s tenure in the latter position merits more scrutiny than we thus far have seen in the largely rhapsodic reaction his nomination has garnered in the media.

As the Center for Economic and Policy Research noted [4] back in 2011, when Fischer was floated as possible replacement for the disgraced Dominique Strauss-Kahn, “the IMF’s intervention in Russia during Fischer’s tenure led to one of the worst losses in output in history, in the absence of war or natural disaster.” Indeed, one Russian observer compared the economic and social consequences of the IMF’s intervention to what one would see in the aftermath of a medium-level nuclear attack.

Yet the IMF’s role in helping to create the conditions that pushed Russia into crisis in the 1990s seems to be missing not just from the recent coverage of Fischer’s nomination but from his own analysis during that period. In a speech [5] to the U.S.-Russian Investment Symposium at Harvard in January 1998, Fischer painted a rather rosier picture of the situation in Russia than was warranted at the time. “Six years after the start of the Russian economic reform process, much has been achieved and the continued progress of the economy towards economic normalization is not in doubt.”

While Fischer noted that “output is still well below the levels of six years ago, it has begun to grow again; inflation has been reduced to near single-digit levels.” He concluded his address with an upbeat assessment: “up to this point, the optimists on Russia have been more right than the pessimists. There is good reason to believe the optimists will continue to be right.” [emphasis added]

That speech was simply magical thinking disguised as policy analysis in light of the following. A mere six months after Fischer predicted the “optimists” would win out, the Russian government devalued the ruble, defaulted on its debt, and declared a moratorium on payment to foreign creditors. By August the Russian stock market lost 75 percent of its value and inflation jumped over 80 percent.  The following month saw Russia’s GDP collapse by 50 percent, while capital investment and meat and livestock herds fell by around 75 percent. By the time the decade was out some estimates had anywhere between 50 and 75 percent of Russians living below—or barely above—the poverty line.

The recovery was long in coming. In 2003—fully five years after Fischer’s speech—Russia’s GDP remained almost 30 percent below what it was in 1990 while capital investment remained a mere 10 percent of what it was then.

Neither the IMF’s performance—nor Fischer’s confidence in happy outcomes—were altered by the events in Russia, if his remarks [6] to the Argentine Banking Association in June 2001 are anything to go by. Touting “the impressive developments in the Argentine economy over the past decade,” Fischer acknowledged some of the economic difficulties that were facing Argentina but noted that the “situation is a result of the dependence of growth on too large fiscal deficits.” And so the answer lay in cutting the budget because “fiscal tightening can be expansionary—can lead to a virtuous circle…by producing a sustained reduction in the risk premium and domestic interest rates.”


Not long after, the Argentine government, acting on Fischer’s advice, imposed austerity measures with unsurprising results. By the time 2001 came to a close, the official unemployment soared to around 20 percent; protests rocked the country which forced President Fernando de la Rua out; and the government defaulted on $155 billion in foreign debt, which remains, to this day, the largest debt default in history. Argentina’s poverty rate increased by about 50 percent, while its GNP fell by 11 percent by the end of 2001.

And so the question remains: is there any reason to believe Fischer is the right person to help steer the Fed in light of the ongoing jobs crisis here in the United States? As the Roosevelt Institute’s Jeff Madrick [7] has pointed out, “His resume suggests that in his bones he is an austerian. Although he cut rates sharply during the crisis as head of the Israeli central bank, this is not proof he can manage an economy that is struggling to recover.”

If you consider the following, the U.S. economy still has quite a long way to go. There are, as of this writing, three unemployed people for every available job; the long-term unemployed (those who have been out of work for 27 weeks or more) account for well over a third of all unemployed; the labor force participation rate—at around 63 percent—is the lowest it has been since 1978. To make matters worse, on December 28th 1.3 million people lost their unemployment benefits.

In the final analysis, the trouble with the Fischer appointment stems not so much from the issue of his dual citizenship, which is an objection others [8] have [9] made [10], but from his long track record of implementing neoliberal economic “reforms” without paying due attention to their consequences for people of ordinary means. At base, the problem with the Fischer/IMF approach to political economy is that, as with ideologies generally, they are teleological in nature; the assumption that history or the “laws of economics” are on your side is a dangerous one, especially to people who aren’t in power, which is to say, almost everyone else.

President Obama would do well to reconsider the wisdom of this particular appointment.

James Carden served as an advisor to the U.S.-Russia Bilateral Presidential Commission at the State Department from 2011-2012.

30 Comments (Open | Close)

30 Comments To "How the Fed’s Would-Be No. 2 Helped Wreck Russia"

#1 Comment By spite On January 9, 2014 @ 3:11 am

I think that the gushing is not so much about whether Fischer is the right man for the job, but more to do with the fact that main stream financial outlets like Forbes or Bloombergs are cheerleaders for the financial status quo and Fischer very much represents that.

#2 Comment By DeepSouthPopulist On January 9, 2014 @ 10:57 am

Fischer is dual citizen of Israel and the United States. The implications speak for themselves.


#3 Comment By Johann On January 9, 2014 @ 11:27 am

Blaming the IMF, Fischer, or any other outside influence for the Russian or Argentine economic collapses is absurd. Those respective governments are at fault. Russia was mostly destroyed by the oligarchy. Argentina was destroyed by the Peronist Kirchner populist vote buying. To say the Argentine economic collapse was caused by austerity is hilarious.

And besides, Fischer is just another Ivy league economist clone that fits right in with almost all other western world central bankers, Germany being an exception, but Germany’s central bank is largely irrelevant anyway since the Euro and the ECB. They are all Keynesian nutcases that espouse loose monetary policies in good times and bad. These times will eventually become known as the age of economic stupidity.

#4 Comment By rebecca On January 9, 2014 @ 12:53 pm

Glad to know that one more fox is guarding the henhouse!

#5 Comment By Go Fisch On January 9, 2014 @ 1:00 pm

I agree with other posters that the idea of having a dual citizen – someone with explicitly and documented divided loyalty – at the Fed is absurd. Dual citizens have no place in government office.

#6 Comment By Hooly On January 9, 2014 @ 1:20 pm

Oh right, it’s all Stanley Fischer’s fault, all the fault of the IMF, the fault of neo-liberal economics, etc, etc. OH PLEASE!!, does the fact that both Russia and Argentina are amongst the most corrupt societies on the planet, and Russians and Latin Americans are amongst the most corrupt cultures on the planet (run by KGB and Peronist thugs), have nothing to do with their current economic situation? Not even a little?

I thought this was a conservative magazine, where things like personal responsibility was valued? Shocking to see ‘Occupy Wall Street’ type rhetoric seeping into the pages of TAC. For shame !!

#7 Comment By Reinhold On January 9, 2014 @ 3:08 pm

“Those respective governments are at fault. Russia was mostly destroyed by the oligarchy. Argentina was destroyed by the Peronist Kirchner populist vote buying.”
Funny that you think you’re so opposed to the ‘Keynesian’ monetary overlords when Greenspan and Fischer have the exact same theory about financial crisis as you do: gov’t overspending and overregulation, not, as should be obvious, macroeconomic trends which reverberate throughout the world and are then exacerbated by austerity. This is an obvious ploy by bankers to get off the hook and revive their reputations––Greenspan after the 2007-8 crisis blamed it on bad economic models, but by now has done a turn and blames it on bad government policy. So really, you’re just like them, and your solutions are the same.

#8 Comment By Joseph Zernik, PhD On January 9, 2014 @ 3:42 pm

See concurring opinion at:
13-11-30 Stanley Fischer’s legacy in Israel – placing banks above the law, subservient to the US surveillance apparatus_US_OpEdNews.com

#9 Comment By NB On January 9, 2014 @ 5:39 pm

To those remarking on Stanley Fischer’s dual citizenship, the current Governor of the Bank of England (Mark Carney) is a Canadian citizen. I don’t recall any outcry about that.

#10 Comment By DeepSouthPopulist On January 9, 2014 @ 7:11 pm


To those remarking on Stanley Fischer’s dual citizenship, the current Governor of the Bank of England (Mark Carney) is a Canadian citizen. I don’t recall any outcry about that.

Check the British press. The Federal Reserve is an American institution. A man whose primary loyalty is to Israel should not be in that post.

#11 Comment By Johann On January 9, 2014 @ 7:46 pm

@Reinhold, Argentina was living off of the IMF loans for years, most of the 1990s, racking up an unsustainable deficit. So one could say the IMF enabled their profligacy and so played a part in their demise. But even the IMF eventually realized it couldn’t go on forever so they pulled back. And then people said – Oh such shame on them.

At some point, there is no other choice but austerity. Its self-inflicted. And then to say that its the austerity that is a fault, and that if they could have just a little more, a few more years of borrowing and debt increase, then everything will be ok, is delusional because after a few more years they will be in even worse shape.

#12 Comment By RadicalCenter2016 On January 9, 2014 @ 8:52 pm

NB: Canada is not an enemy of the UK or the USA. Israel, by contrast, should be regarded as a rival, certainly not an “ally” or “friend.” That could reasonably account for some of the difference in our reactions.

In any event, I wouldn’t want any dual citizen holding a Federal Reserve position, whether his other citizenship is Israeli, Canadian, German, Italian, Chinese, whatever.

#13 Comment By Hire American On January 9, 2014 @ 10:42 pm

“To those remarking on Stanley Fischer’s dual citizenship, the current Governor of the Bank of England (Mark Carney) is a Canadian citizen. I don’t recall any outcry about that.”

Maybe because nobody at TAC cares who the Governor of the Bank of England is. But we do care about who is on the board of our own Federal Reserve Board. I for one don’t want any dual citizens there or anywhere else in our government. It’s a stupid risk, and an unnecessary one, because we have plenty of real Americans able to do the job better than Fischer. Like Tom Honig, who would have made a damn sight better and saner Chairman than Yellen.

#14 Comment By Reinhold On January 10, 2014 @ 2:01 pm

“At some point, there is no other choice but austerity. Its self-inflicted.”
Actually, when a state takes a loan from the IMF, there’s something called ‘conditionality’ to shore up its credit––it’s a code-word for austerity: you have to start servicing this interest immediately and so you’re going to have to cut healthcare programs, education, etc. This has been true for many African, Asian, Middle Eastern, and Latin American countries for decades, and it’s crippled their economies. I agree with you that the IMF solution––taking on more and more unpayable debt––is suicidal, but the tragedy is that it then falls on the citizens to suffer for economic mismanagement.

#15 Comment By NB On January 10, 2014 @ 3:32 pm

Hire American, I didn’t say “outcry at TAC.” I simply said outcry. And I’m not aware of outcry about Mark Carney’s Canadian citizenship in the UK.

#16 Comment By jimbojones On January 10, 2014 @ 4:29 pm

I gather that a lot of commenters here feel that if a country (say, Russia or Argentina) follows the prescriptions of the IMF and of Fischer, and collapses horribly, then the fault lies with the country and its people for being incompetents and thieves.

But, presumably, if the IMF’s bitter medicine were to produce the desired effects, whatever they are, Fischer & co would get all the praise and win more Noble prizes.

Isn’t this a bit of a heads I win, tails you lose situation?

But even if we ignore all that, what of Fischer’s catastrophically inaccurate predictions? The man is incompetent.

#17 Comment By matt On January 12, 2014 @ 5:03 pm

NB, that’s specious. Canada and Britain share a Head of State (Queen Elizabeth), and until 1982 (a date well within the lifetime of the functionary you name) the British Parliament had jurisdiction over certain matters of Canadian law. A majority of Canadians are also ethnically British.

Divided loyalties in an international relationship like that are far less plausible than between the US and Israel.

#18 Comment By Sonke On January 12, 2014 @ 5:42 pm

Some people are being super apologists for the IMF why aren’t they working for the “IMF department of propaganda?”

#19 Comment By Johann On January 13, 2014 @ 10:16 am


It could be I’m one of the commenters you believe is an apologist for the IMF. I’m not, but I do believe the IMF is used as a scapegoat for a lot of failed countries.

Personally, I don’t believe there should even be an IMF or a World Bank, or central banks for that matter. The Fed was the most significant factor in creating the housing bubble with its interest rate manipulations. Now they claim to be heroes by keeping interest rates at zero which they claim has fueled a recovery,(for a crash that they caused) but in fact has drug out the recovery.

#20 Comment By Cliff On January 13, 2014 @ 2:54 pm

Stanley Fischer was apparently an Israeli citizen when he was naturalized an American citizen. That’s ok, barring substantive evidence that he puts Israel above the U.S. If he had gone in the other direction, American citizen to Israeli, it would be different, since swearing allegiance to a foreign country would contradict his earlier oath to the U.S. But as things stand, his CITIZENSHIP is not a reason to oppose his nomination.

#21 Comment By Reinhold On January 13, 2014 @ 8:15 pm

“The Fed was the most significant factor in creating the housing bubble with its interest rate manipulations.”
Nope. It was the banks. The central bank regulates the interest rates, but it doesn’t create subprime mortgages and bundle them together and then bet against them and crash housing prices and the real economy. Nope, that’s the banks. Which is why the IMF gets ‘blamed’––it gets blamed as much as the state should get blamed for borrowing from them.

#22 Comment By Steve Sailer On January 13, 2014 @ 8:52 pm

Even before becoming the #2 man at the IMF in 1994, Fischer had been involved since 1991 in advising Russia to a “shock therapy” of rapid privatization, which led, in the words of economist Marshall Goldman, to the “piratization of Russia” as a few oligarchs stole pretty much everything. Whether Fischer was merely a “useful idiot” or if he knew what was going on seems to be an unexplored question. For documentation, see:


#23 Comment By Oathkeeper On January 13, 2014 @ 10:20 pm

“I hereby declare, on oath, that I absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty, of whom or which I have heretofore been a subject or citizen; …”

If Fischer pronounced those words then he renounced Israeli citizenship. If however he is still a citizen of Israel then he’s in violation of his oath. And if he’s in violation of his oath he has no business working for the US government.

#24 Comment By PennStater On January 15, 2014 @ 6:56 pm

Was Sailer aware Kevin MacDonald might be a liar? If yes, why does Steve defend him?


MacDonald has particularly been accused by other academics of academic fraud, saying that he has promoted anti-Semitic propaganda under the guise of what he says is a legitimate and academic search for truth.[26] He has also been accused of misrepresenting the sources he uses in that regard. Fenris State University professor Dr. Barry Mehler cited for example a quote from a 1969 dissertation by Sheldon Morris Neuringer titled American Jewry and United States immigration policy, 1881-1953 where MacDonald surmised that when Neuringer noted Jewish opposition in 1921 and 1924 to the anti-immigration legislation at the time was due more to it having the “taint of discrimination and anti-Semitism” as opposed to how it would limit Jewish immigration, MacDonald wrote, “…Jewish opposition to the 1921 and 1924 legislation was motivated less by a desire for higher levels of Jewish immigration than by opposition to the implicit theory that America should be dominated by individuals with northern and western European ancestry.” “It seems to me Mr. MacDonald is misrepresenting Mr. Neuringer in this case and I posted my query hoping that a historian familiar with the literature might have a judgment on MacDonald’s use of the historical data,” Mehler wrote, citing other examples.[27]

#25 Comment By PennStater On January 15, 2014 @ 6:57 pm

Lieberman has also written that MacDonald even dishonestly made up lines from the work of British Holocaust denier David Irving. Citing Irving’s Uprising which was published in 1981 for the twenty-fifth anniversary of Hungary’s failed anti-Communist revolution in 1956, MacDonald asserted in the Culture of Critique, “The domination of the Hungarian communist Jewish bureaucracy thus appears to have had overtones of sexual and reproductive domination of gentiles in which Jewish males were able to have disproportionate sexual access to gentile females.” Lieberman, who also noted that MacDonald is not a historian, debunked those assertions, concluding, “(T)he passage offers not a shred of evidence that, as MacDonald would have it, “Jewish males enjoyed disproportionate sexual access to gentile females.”[30]

#26 Comment By DeepSouthPopulist On January 16, 2014 @ 10:59 am

The topic is the significance and impact of President Obama’s appointment of a dual-citizen with substantial loyalty to Israel to a high position at the American Federal Reserve.

The Chairman of the Federal Reserve is sometimes described as the second most powerful man in American after the president. While this fact doesn’t necessarily mean Fischer is the third most powerful man in America, there is no doubt that Fischer will wield great power over the lives of Americans.

Steve Sailer didn’t mention Kevin MacDonald in his TAC comment or in his linked article, so it’s not clear why PennStater is bringing up that man’s work. It looks like an attempt at an off-topic distraction, wrapped in back-handed a personal attack (Steve supports a liar) and speculation (MacDonald might be a liar).

#27 Comment By DeepSouthPopulist On January 16, 2014 @ 11:06 am

MacDonald replies to his critics [15].

#28 Comment By Pretty Simple On January 17, 2014 @ 3:13 pm

“Stanley Fischer was apparently an Israeli citizen when he was naturalized an American citizen. That’s ok, barring substantive evidence that he puts Israel above the U.S. ”

In taking the US oath of citizenship he renounced his Israeli citizenship. The oath is comprehensive and unambiguous on that point. If after taking the oath he still spoke or acted as a citizen of Israel (i.e. voting, paying taxes, representing Israel, saying that he is an Israeli citizen) then he should be stripped of his American citizenship. We certainly don’t want someone who has demonstrated contempt for their oath holding a position of trust with substantial responsibilities affecting millions of Americans.

#29 Comment By one love On January 18, 2014 @ 11:36 am

Citizenship doesn’t seem to mean too much to Mr. Fischer. He’s had three of them so far.

#30 Comment By project emeritus On January 18, 2014 @ 11:45 am

Here’s an idea. Rather than appoint Fischer to the Fed, let’s deport him to Beijing and let him go to work on the Chinese economy …