It is 80 years this month since Britain went off the Gold Standard. Last month, it was 40 years since Richard Nixon abolished the dollar exchange standard established at Bretton Woods. The IMF just met last week.

Is there a 40-year cycle in international monetary systems? Probably not, since nothing much of note happened in 1891 except that Baring Brothers went into a crisis a year later due to a default on Argentine bonds. But 1931 was in the middle of a stock market crash converting itself into a depression. Now we have had a stock market crash and bank failures in 2008 and three years later the IMF is worried about a double-dip recession.

There is one major consolation this time around unlike in 1931 and 1971. The recession is not global; it is local to the developed economies. They may represent a majority share of world GDP but a sizeable part of the rest of the world is on a growth auto-pilot.

It was the Asian crisis of 1997 that taught the so-called emerging economies not to rely on the IMF for any help ever again. Asian countries embarked on a high savings, high export, underconsumptionist path. They accumulated their own forex reserves so that the IMF would never again come and bully them.

Yet they needed the developed world to valourise their savings. Hence the excessive reliance on the US T-bills market. Beginning with the aftermath of the dot-com boom collapse, the US began receiving a huge influx of Asian savings, which kept its interest rate low. The Chinese sold manufactures to the US and lent the trade surplus back. The IMF never noticed that this was a fatal combination. It swallowed the boast that the US was absorbing the savings glut and so deserved the thanks of the world. But the savings glut of the world was not converted into a productive investment but sub-prime mortgages. So, at the end of the boom, there is nothing to show for it, except debt with no matching assets.

In a more rationally organised world, the IMF would have said that there was no need for the US to act as Consumer of the Last Resort. There was a great need for savings across the poor countries. But they had to obey the Washington Consensus, which had all the good policies that Washington itself never followed. So the poachers were the game keepers and the IMF was in cahoots with the poachers.

This is why we are in the mess we are in. In the long boom of 1992-2007, the developed countries got used to dis-saving at a rate that was quite shocking. Many people pointed out that the boom was sustained by excess household borrowings. But this made profits for the banking industry and hence this was wealth creation. It was a diversion of wealth from households to bankers and now that the assets purchased by the debts are worth much less, households have to deleverage at a ferocious pace to balance their portfolios.

The stranger thing yet is that governments also got into dis-savings. If they had been truly Keynesian, they would have saved during the long boom and deleveraged. Clinton did in the first half of the long boom and the US had a surplus on its budget for the first time in 40 years. In the UK, the John Major government also retrenched sufficiently so that the share of government spending in GDP was at its lowest in 40 years?36%?when Tony Blair became the Prime Minister in 1997.

It was in the second half of the boom that governments began to break the Keynesian tenets. Even France and Germany broke the Stability and Growth Pact and forgave themselves such indiscipline. Money was cheap, thanks to the Chinese, and governments did not stop to ask why money was cheap. There was a rampant over issue not only of the dollar and the sterling but also of the euro currency and debt.

This is why in the middle of the most severe recession, countries cannot be as Keynesian as the Keynesians would like. The Keynesians did not sound the warnings in good times and now they cannot berate the governments for not listening to them. Indeed, even if governments did want to be Keynesian, there is no way they can be. It is not a matter of boldness or political courage. It is what the Marxists used to call ?objective reality?. The creditors of public debt are, simply put, the pensioners who want to protect their future pensions and they would be hostile to governments messing around with the creditworthiness of their debt. The ?rentiers? are our grandparents.

The Great Depression of the 1930s did not end, thanks to Keynesian policies; it took a War to end it. Let us hope history does not repeat itself too often.

The author is a prominent economist and Labour peer