As the world teetered on the brink of economic ruin 80 years ago, the most powerful central bankers and financial policy makers of the day compounded key blunders by essentially sitting on their hands or finding ways to make things worse.
U.S. authorities actually tightened monetary conditions as banks collapsed around their ears. And the Bank of England and British Treasury "did nothing in particular, and did it very well," historian Peter Clarke writes in Keynes , a fresh assessment of the famed economist and arch-opponent of laissez-faire policies in the midst of serious slumps.
When Montagu Norman, governor of the British central bank for a remarkable 24 years, was called as the first witness of a government committee investigating the growing crisis, he took to his bed and sent a deputy in his place.
It's hard to imagine Federal Reserve chairman Ben Bernanke, current Bank of England governor Mervyn King or the Bank of Canada's Mark Carney ever ducking a spotlight. And it's even harder to picture them doing nothing while the sky falls.
Indeed, rapid and unprecedented intervention by the major central banks in the past year played a crucial role in rescuing the storm-battered global financial system. And many economy watchers credit their rare co-ordinated response with saving the world from the second coming of the Great Depression, one that some feared would make the original pale by comparison.
But although the grim forecasts of gloom purveyors as recently as last spring have failed to materialize, the central bankers themselves acknowledge that we are not out of the woods yet.
A flood of international loans tied to troubled assets sit like ticking time bombs in the financial system. Massive public stimulus spending has helped lift key economies out of technical recession. But the recovery has been slow and spotty and has not yet shown it can be sustained once government shuts off the taps.
Businesses and consumers have reined in spending. Unemployment remains stubbornly high, wages are stagnating, credit conditions are still tight, industrial output is nowhere near recovery level and global imbalances are worsening.
What's more, most governments have pretty much used up their ammunition. Interest rates cannot go any lower and heavy deficit spending has put a serious dent in their balance sheets. And the all-out effort to fix the short-term crisis is bound to have longer-term repercussions, from new asset bubbles fuelled by cheap money (already appearing in emerging markets) to soaring deficits, rising borrowing costs and growing inflation risks.
But that's tomorrow's story. Today, leading central bankers are basking in praise for thawing the global credit freeze, keeping money markets afloat, big banks solvent and currencies relatively stable. Once little known outside finance and policy circles, they have quite unexpectedly become celebrities.
Mr. Bernanke has gone from being a dry Princeton economist to Time magazine's person of the year. Mr. Carney has vaulted from the ranks of faceless financial technocrats into a leading public voice of financial prudence and moderation.
They may well be following the advice of global risk expert and former investment banker Satyajit Das, based in Sydney, Australia. "People grossly overestimate the ability of policy-makers to influence events," he says. "The wisest thing you can do is take credit for things which go right, whether you had any influence on them or not. And when things go wrong, make sure you've retired."
The developed world's worst central banker, Iceland's David Oddson, stayed too long. By the time the first poet or former government leader to run a modern central bank - Mr. Oddson holds both distinctions - was ousted earlier this year, he was reviled as a leading architect of the country's financial and economic ruin. Toward the end of his tenure, he required a 24-hour police guard.Report Typo/Error
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