Stanley Fischer, Mentor to Barnanke, Says Worst of Crisis Yet to Come

Stanley Fischer is the current governor of the Bank of Israel and the adviser to Ben Bernanke on this doctoral thesis at MIT. He believes the worst of the fallout from the financial crisis is yet to come.

A Bloomberg article on him says the following:

"This is going to be tough,” Fischer, 65, said. “The worst of the real side is yet to come.”

Fischer, who was first deputy managing director at the International Monetary Fund during the 1997-98 Asian financial crisis, saw a risk that today’s turmoil creates a deflationary spiral in the U.S. and world economies, in which prices, wages and demand all fall.

“It’s a danger at the moment,” the central banker said, adding, “We’re not there yet.”

Fischer also believes that Bernanke's deep knowledge of the Great Depression will serve him well.

"“Bernanke’s work was on the collapse of the credit mechanism during the Great Depression,” Fischer said. “So he’s much more keenly aware of that as a critical factor than almost anyone else."

He also confirmed something I've always believed;: that our situation is reminescent of Japan's in the 1990s. But unlike in Japan, he believes forceful and fast Fed action will keep us from Japanese malaise.

"The actions “are on a completely different speed and scope than was attempted in Japan,” Fischer said. “If there’s a critical difference, it’s that.”