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May 30, 2015 / 12 Sivan, 5775
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Enough with the Praise for Stanley Fischer and Israel’s Central Bank

There should be no central bank which regulates the supply of money.
Stanley Fischer

Stanley Fischer
Photo Credit: Yori Yanover, based on image by Miriam Alster/Flash90

Stanley Fischer is the head of the Bank of Israel. As such, he is the government appointed goon in charge of money printing. In his infinite wisdom, he is supposed to know exactly what the supply of money should be, because he’s purportedly a chacham she-ein kamohu – a crazy genius who has a pulsating brain and somehow knows these things. Or maybe God comes to him in his sleep and tells him how many shekels should exist and how much he should print and when.

Or maybe he’s just some guy who has no idea what he’s doing, given a power the equivalent of an economic nuclear weapon, something that no one man should ever, ever have.

Stan the Super Shekel Man recently came out with an announcement that he would be quitting his post early. Aside from the speculation as to why (I think it’s because he knows there will be an unstoppable economic tsunami in the next 3-5 years and he wants to duck out early and quit while he’s ahead), I have seen nothing but wall to wall praise for this central planning money printing soviet-style currency czar. Sure he’s kindly, has a sweet voice, an endearing Zambian accent, cutely mixes up male and female in his Hebrew grammar all the time, and the Israeli economy didn’t totally collapse in 2008 so everyone assumes the money master is responsible for saving us all from destitution. But this is all a big, sad, sorry myth.

Let’s break it down.

Let’s step aside for a moment from the persona of Stan the Man himself. He as a person is not the main problem. As I said, he’s a nice guy. The main problem is the very system of central banking that give men like him inordinate power over all of our economic lives, a power which, once you realize the scope and consequences of it, can make you dizzy.

Imagine for a moment two national economies. One where the supply of shoes and their price is controlled by one man and anybody else who manufactures or uses shoes besides him goes to jail, and another where the supply of shoes and their price is controlled by the free market, meaning a myriad of entrepreneurs freely importing and exporting shoes based on the demand for them by customers. In a free market where anyone can manufacture and buy as many or as few shoes as he wants, the supply, demand, and price of shoes will tend to reach an equilibrium point where profits will remain constant and steady. Shoe firms like wholesalers, manufactures, and retailers, will all compete with each other to sell the most shoes to the public. In order to do this, they will have to make shoes of the highest possible quality at the lowest possible prices in order to attract buyers.

If the supply of shoes gets too high, shoe prices will tend to fall, lowering profit margins, thereby restricting the amount of shoes manufactured, choking off supply, and bringing shoe prices back up to equilibrium. If demand gets too high, shoe prices will tend to rise, increasing profit margins, encouraging shoemakers to produce more in order to earn those increased profits. This brings supply back up to match demand, bringing prices back down to equilibrium again.

Now, in an economy where the supply of shoes and their price is controlled by one man, let’s call him the chairman of the Shoe Bank of Israel, we are entrusting a single person to:

  1. Manufacture every single shoe in the country, because anyone else who does that is considered a shoe counterfeiter and goes to prison
  2. Know automatically what the supply of shoes in the country should be at any given moment
  3. Set the price of shoes at whatever he thinks it should be
  4. Not abuse this power

The shoe market in such a country would be a complete mess and everyone who needs shoes would be miserable. Since only one firm would be allowed to make and sell shoes, there would be no competition and the quality of the shoes would deteriorate. If the Chairman of the Shoe Bank of Israel set the price of shoes too low, meaning he underestimates demand, people would start hoarding the shoes and buying more than they need, and there would be shoe shortages. If he sets the price of shoes too high, meaning overestimates demand, people who needed new shoes would not buy them, instead waiting for a lower price. Perhaps they would attempt to repair their old shoes, or cut open the ends if they didn’t fit. Huge surpluses of shoes would result.

About the Author: Rafi Farber blogs at SettlersofSamaria.org.

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4 Responses to “Enough with the Praise for Stanley Fischer and Israel’s Central Bank”

  1. Charlie Hall says:

    "maybe he’s just some guy who has no idea what he’s doing".

    It is this blogger who has no idea what he is doing. Using only precious metals for currency was a disaster worldwide, producing financial panic after financial panic, ruining the lives of millions each time. Winston Churchill later admitted that putting the UK back on the gold standard was one of his worst mistakes, as it helped to precipitate the Great Depression — which helped to precipitate the rise of the Nazis. And the ideas here are more extreme than any proponent of gold standards; he would eliminate government involvement completely and allow private interests — think George Soros — to make a killing by controlling the supply. Small countries in particular, such as Israel, would be at the mercy of such.

    Stanley Fischer justifiably gets a significant part of the credit for saving Israel from the consequences of the 2008 Crash, a crash caused largely by the removal of government involvement in financial regulation in most countries — but not Israel. Furthermore, the author shows his ignorance through this statement:

    " government controlled money to continually lose value".

    In fact the Shekel is worth more now than eight years ago when Fischer took over.

    Can't the *Jewish Press* do better?

  2. Charlie Hall says:

    "maybe he’s just some guy who has no idea what he’s doing".

    It is this blogger who has no idea what he is doing. Using only precious metals for currency was a disaster worldwide, producing financial panic after financial panic, ruining the lives of millions each time. Winston Churchill later admitted that putting the UK back on the gold standard was one of his worst mistakes, as it helped to precipitate the Great Depression — which helped to precipitate the rise of the Nazis. And the ideas here are more extreme than any proponent of gold standards; he would eliminate government involvement completely and allow private interests — think George Soros — to make a killing by controlling the supply. Small countries in particular, such as Israel, would be at the mercy of such.

    Stanley Fischer justifiably gets a significant part of the credit for saving Israel from the consequences of the 2008 Crash, a crash caused largely by the removal of government involvement in financial regulation in most countries — but not Israel. Furthermore, the author shows his ignorance through this statement:

    " government controlled money to continually lose value".

    In fact the Shekel is worth more now than eight years ago when Fischer took over.

    Can't the *Jewish Press* do better?

  3. Rafi Farber says:

    Charlie, you seem to attack most things I write. First, you should understand that I am a anarcho-capitalist libertarian. I do not believe in the right of States qua States to exist, so obviously they should not run the monetary system. Just to clear up you facts a bit, the biggest financial panics ever (great depression, great recession, the soon to be great economic explosion and collapse of all currencies) have all occurred under Federal Reserve Hashgacha, the epicenter of fiat money. Winston Churchill's mistake was not putting Britain back on the gold standard. It was putting Britain back on the gold standard at 4.86 per pound instead of 3.5 per pound in an attempt to deny that they had been inflating the pound. This meant they were back on a gold standard with more pounds than gold. As for George Soros, there is no man who hounds for fiat currency and inflation more than him. When the Fed prints garbage, he's the first one that gets it, because it all goes to Wall Street first.

  4. Rafi Farber says:

    And the Shekel is certainly not worth more now than 8 years ago by any stretch of the imagination. It is stronger relative to the dollar, which is weakening even faster, yes, but in terms of what one can buy with 100 shekels, the purchasing power in terms of actual goods and services continually erodes and will keep doing so as long as governments are in charge of printing them.

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