Bernanke kommer ovenpå (ikke klar)

Bernanke to Get on Top of Credit Squeeze, Says Israel's Fischer

By Simon Kennedy and Elliott Gotkine

March 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke has the skills to guide the U.S. economy through a credit squeeze, now in its eighth month, said Bank of Israel Governor Stanley Fischer.

``You can inject liquidity in the economy and it happens that Ben Bernanke is an expert on this issue,'' Fischer, 64, who advised the Fed chief on his doctoral thesis at the Massachusetts Institute of Technology in the 1970s, said in an interview in his Jerusalem office yesterday. ``That the Fed will get on top of this, I don't doubt.''

A student of the Great Depression, Bernanke is rewriting the Fed's play-book as he seeks to prevent a financial market meltdown and recession. Economists say the central bank will cut its key interest rate by at least 75 basis points today. Two days ago, the Fed lowered its rate on direct loans to banks and became lender of last resort to the biggest dealers in U.S. government bonds.

The latest round of action accompanied the emergency purchase of Bear Stearns Cos. by JPMorgan Chase & Co. after a run on Wall Street's fifth largest securities firm. The Fed will provide up to $30 billion to JPMorgan to help fund the purchase.

Fischer rejected the view that the Fed was orchestrating a bailout that would encourage investors to take greater risk in the future. He pointed out that shareholders of Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14.

No Bailout

It's important ``you maintain the capacity of the financial system to operate,'' Fischer said in a Bloomberg Television interview. ``Whoever was the owner of Bear Stearns was not bailed out.''

The Fed has lowered its benchmark overnight rate five times and the discount rate seven times since the middle of August, when the collapse of U.S. subprime mortgages started to infect markets around the world. Since then, the S&P 500 stocks index has dropped 11 percent and the dollar has fallen 14 percent against the euro.

Fischer gained insight into rescuing economies as the International Monetary Fund's number two official during the Asian financial crisis and Russian debt default of the 1990s. In that period, the IMF made a quarter of a trillion dollars in emergency loans to countries including Argentina and Korea.

Still, the implication of the U.S. slump ``for the global economy far exceeds the things I've seen previously,'' he said. ``I haven't seen anything on this scale for the global economy at least since I've been active.''

Growth vs Inflation

Complicating Bernanke's task is that even as growth slows, inflation is accelerating as rapid expansion in China and other emerging markets pushes up consumer prices through higher food and energy costs.

While Fischer acknowledged the ``Fed is clearly more concerned about growth than inflation,'' he ruled out a repeat of the early 1980s when the U.S. central bank confronted double- digit inflation and unemployment. That is unlikely to happen because Bernanke's Fed would raise interest rates ``long before'' inflation got out of hand, he said.

``The world is full of surprises, but I don't think that is a likely scenario,'' he said. ``Ben Bernanke is an outstanding economist.''

Fischer is rare among the current crop of central bankers in that he has experience of academia, policy making and banking. As well as working at the IMF and teaching at MIT, he served as chief economist at the World Bank and, prior to moving to Israel in 2005, was employed by Citigroup Inc. as a vice chairman.

He declined to forecast when the credit squeeze will pass, only that it would. ``I've lived through crises, they have a rhythm,'' he said. The U.S. economy is ``not going to collapse, it will come back.''

To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net; Elliott Gotkine in Jerusalem at egotkine@bloomberg.net