James Saft

"Confidence grows at the rate that a coconut tree grows, but confidence falls at the rate that the coconut falls," Montek Singh Ahluwalia, deputy chairman of India's Planning Commission, told a panel in Davos.

He also indicated that India's decision not to float its currency and to build up massive reserves was correct, noting that this gave it a cushion during the downturn.

"Floating (currencies) would be fine, if that was what was meant, but what they mean by floating is crashing upwards and crashing downwards."

John Lipsky of the IMF said the answer was a better international liquidity facility to give surplus producing nations the confidence that cash would be there if they did float and were hit by volatility.

He's right though it would have to be a very big fund indeed. But if the lesson of the last five years is that everyone should export like heck and build up reserves we are going to have a battle on our hands and a long, deep downturn.

James Saft is a Reuters columnist. The opinions expressed are his own.

One of the best things about Davos is the conversations you overhear. It's like no place else.

Sitting minding my own business, typing away I became aware of a central banker from a medium sized emerging market sitting nearby. He was joined by a gentleman from a bank in his home country. After a few muffled preliminaries the central banks said:

"So, how much trouble are you in?"

The banker responded in what sounded like soothing tones but I couldn't make out exactly what he was saying. The only other line that came through clearly was that after a long speech the banker said to the central banker, with an air of exasperation.:

"The prices are very low, but there are no buyers!"

That's it, in a nutshell.

Good session on the "Frugal American," an as yet undiscovered species that is coming to a global economy near you.

You know the general idea, a decade or so of living beyond their means, borrowing money against their rising house values to finance consumption is coming to a grinding halt. That's called a recession, but how long will this frugal thing last?

Ian Davis, the MD from consultants McKinsey & Co was blunt:

"Americans have no option but to be relatively more frugal over the next 10-20 years." This is irrespective of the crisis and is a structural issue due to overspending in the past and the huge host of baby boomers who are now moving into what they fondly hope will be their retirement years. Old people buy fewer ipods and ski boots apparently, and are less likely to remodel their kitchens and bathrooms. That is a problem for the global economy.

So who is going to pick up the ball on consumption? From the sound of the panel, it looks like some kid took the ball and went home. China was candidate one, but even if consumption increased there, as it will, its not likely to become the next America, nor should it be.

"We have to live with the frugal American. Think about how much wealth has been lost, half of world market cap" said Zhu Min, executive vice president of the Bank of China.

"You don’t have wealth, you don’t have liquidity, how do you come back? After a very deep adjustment ... the whole world will be a frugal world."

The understanding I came away with is that it is 1) unclear what the new model will be, who will produce what and who will consume what, and 2) the frugal countries like Germany, Japan and China face their own very stern tests as their business models were predicated on consumption in the English-speaking world.

James Saft is a Reuters columnist. The opinions expressed are his own.

Alan Greenspan hasn't been chairman of the Fed for three years, but his policy mistakes keep paying dividends in the form of blame at this year's World Economic Forum in Davos.

Polish Finance Minister Jacek Rostowski yesterday:

"This was the failure of one of the key institutions in the world." During the Greenspan era he said they continually met downturns and distress with easing and "eliminated fear."

Ken Rosen of Berkeley, who was writing about the housing bubble in 2005 or so, is in the same camp:

"Alan Greenspan personally prevented some needed regulations being put in place. The free market fundamentalism we had was a mistake, to go the other way would also be a mistake.

We had excessively loose monetary policy and regulations on these aggressive loans were not put in place. There were Fed board members who wanted to do it, and Greenspan himself said the had too much belief in the market. ...it was a global problem of excess credit led by the central bank in the U.S. but ratified by the central banks around the world."

Maybe history will be kinder to his reputation as a jazz musician.

James Saft is a Reuters columnist. The opinions expressed are his own.

So do countries which can borrow money more cheaply, Germany for example, have a higher obligation to borrow, spend and make things better for everyone across Europe?

Polish finmin Jacek Rostowski, speaking in a session on the outlook for Europe, seemed to think so:

“Fiscal policy … some countries which are far more able to afford increases in govt expediture and budget deficits than others. We should apply the principle that those with the lowest debt financing costs should consider the most expansive policies.”

He pointed out that Greece is now paying more for financing that Poland, and said further that Poland would not go down the stimulative route, seeing as how credit was still flowing, but instead “leaving space for interest rate reductions.”

He did make clear that this was the province of the central bank.

Rostowski did raise another point I think has legs: financial protectionism. Smaller countries without a big banking sector could see themselves really hurt if governments make lending at home rather than abroad a quid pro quo for bailout money. It is a slippery slope.

James Saft is a Reuters columnist. The opinions expressed are his own.