Having led a worldwide effort to strengthen financial regulation after the crisis, US politicians are now attempting to throw things into reverse -- something Fischer bluntly describes as "extremely dangerous and extremely short-sighted". America's role as guarantor of global organisations such as the IMF can no longer be taken for granted, he fears. "I had a picture of the world economy in which the United States was an anchor, not a source of volatility," Fischer says. "This really changes things."

This verdict is striking coming from a top US policymaker, but Fischer has seen a similar story play out before. Born in the former UK protectorate of Northern Rhodesia in the 1940s, Fischer grew up in the twilight of the British empire. America is losing its status as the world's hegemonic power -- just as Britain did before it, he suggests.


Human beings, says Fischer, borrowing from Milton Friedman, are not rational, but they are great at rationalising things. He agrees with Greenspan, saying the persistently low level of real long-term interest rates is a conundrum. "I don't feel I understand it fully, and therefore I feel uncomfortable," he says, referring to the rapid ascent of equities. Part of the reason for the post-election stock market surge was a belief that Trump would push through tax reform and infrastructure. That justification for booming equities has evaporated, however, Fischer says. "The truth is our political system doesn't look like it is going to deliver very much in the way of what we hoped it was going to deliver on November 8 2016."

What Republican control of Congress and the White House may well herald, however, is deregulation. Recently the US Treasury put forward a document proposing ways of easing capital standards underpinning banks. The Fed has also been facing Congressional attacks on its independence -- both attempts to curb its ability to lend in an emergency and demands that it pay greater attention to monetary policy rules.

Fischer is openly incredulous, describing the moves to unwind the post-crisis system as "mind-boggling". The US political system "may be taking us in a direction that is very dangerous", he says. For example, the big US banks passed their stress-tests -- the annual Fed-led exercises that gauge their health -- and the cry goes up that it is time to reduce their capital requirements or make the tests more transparent.... ``the pressure I fear is coming to ease up on large banks strikes me as very, very dangerous,'' [Fischer said].

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