Economies: how BusinessWeek got it (almost) right long before the symptoms showed

The BusinessWeek article was prescient in its analysis of the issues facing Greenspan's successor. It said "The next financial crisis, when it comes, is likely to be global in scale, requiring a concerted effort by the major central banks to keep the world economy on an even footing."

It went on "The next Fed chief to have a deep knowledge of the international economy and the diplomatic skills to bring his fellow central bankers to the table in a crisis."

Well, Bernanke has not met that objective, either.

The article pointed out "In past crises, Greenspan was able to act independently, backed up by the most powerful central bank in the world. For example, in 1998 the Fed moved quickly to avert a disaster after Russia's debt default and the near-collapse of giant hedge fund Long-Term Capital Management threatened to bring global financial markets to a standstill.... That's no longer possible."

Actually, the predictions then start to go awry - it foresees a "crash landing of the dollar." So the crisis BusinessWeek saw was a predicated on currency issues whereas the crisis we have is predicated on bad management of the financial sector.

"In the end, what [is most] likely [to] happen is that a small group of central banks, including the Fed, would band together to prop up the global financial system. That approach puts a premium on having a Fed chairman who can collaborate effectively with overseas counterparts to defuse the crisis."

Well, the Fed came late to the party but late last night the US fell into line with the EU (which itself has been partially broken by this crisis), which had fallen into line with the UK's plan announced on Wednesday last week, although in the meantime, the UK's plan had been substantially revised.

As the article pointed out when listing potential candidates, most - including Bernanke - were theoretical economists and none were battle hardened in a real-world crisis.

The article suggested that the best candidate might not be an economist at all but James Baker who, it said, "has shown a knack for stitching together international coalitions during times of stress."

Certainly Bernanke's appearances before various committees have not caused confidence. Last year, when asked about falling house prices, increased interest rates and stagnant wages, his response was that if anyone was short of money, they should hock the equity in their homes to provide cashflow.

You can read the full article at BusinessWeek

.