Economy always passes in different phases could be classified as the boom phase, the downside or the burst  phase . Central bankers are the key players in the economy with limited power in their hand.

Alans Greenspan ( former Chairman of the Federal Reserve)  and YV Reddy ( Former Chairman of RBI) were credited with far greater power then they ever had and with responsibility for outcomes largely beyond their control. Central bankers actually have  very limited tools and hence limited powers.

Reddy in India understood the risk of bubble better than Greenspan .In the era of Greenspan the major collapse where the tech bubble, Long term Capital Management. and now the biggest ever financial crisis of all times. His successor Ben Bernanke along with US treasury Tim Giothner rebuilding by pooling finances in the US economy .

Reddy made several efforts to squash the bubble in the year 2004-2007 by raising the repo rate from 6% to 9%  which stopped banks from lending for urban purchase and increased the risk weightage to real estate.

Comparing the two economy US investor could buy $100 worth of shares with only $33. The Sensex gained 700% for the period 2003-08 and US housing prices rose 55%.

Mr Reddy deserved all praised for calibrated opening up rather then resisting to liberalization. Even after bubble recognisation central bank can’t do much.

 

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