0

World Finance After Robert Rubin

CAMBRIDGE: The US Treasury and Alan Greenspan receive great credit for restoring stability in global markets after the Asian, Russian, Brazilian and other financial tremors of last fall. So should we now be alarmed that a key man steering the boat is getting off, making the world economy much more vulnerable if trouble hits again? Of course, the Treasury which Robert Rubin came to lead was vital early on in the Clinton administration in countering the spend-and- tax- happy liberals on the Clinton White House team. Mr Rubin and his proteges taught the lesson that bond markets are supreme and they succeeded beyond anyone's imagination thus training the White House to that new view.

Today, Asia's emerging markets are on the road to recovery, China is not devaluing its currency (and nobody now really expects it to), and Brazil has become the capital market's new best friend. What, then, is there to fear from Mr. Rubin's departure? The world seems set for smooth sailing. In America, there seems little left for the Treasury to do except bring about a tax cut if and when the U.S. economy begins to slip.

The world can trust Mr. Rubin's long time deputy, the economist Larry Summers, to keep the ship afloat: he knows better than anyone that timely and decisive tax cuts are the way to keep the economy from tumbling. But the most important role now lies clearly with the chairman of the U.S. Federal Reserve, Mr Alan Greenspan; he is essential if and when a confidence crises hit asset markets; he is essential to keeping credit lines open and markets from freaking out. Markets hope that he will stay, somehow forever.

So, even with a key member of the American economic leadership team leaving, the world's largest economy seemingly is in very good shape to confront any of the small troubles of every day finance. But is this too good to be true? Of course, another emerging market might fall into crisis. But by now we know that, given the right policy mix, emerging markets mend almost faster than they falter. Nor is there much crisis potential in Western Europe in a shootout between socialist governments and a near-deaf central bank.