absolutely

courtesy of barrons

in a class of his own

Nowhere on the short list of potential candidates to lead the Federal Reserve is the current star among the world’s central bankers—someone who oversaw a sharp drop in inflation, the stabilization of a currency, and a 50% jump in stock prices. Perhaps more important, his was a lonely but prescient voice warning of a financial crisis resulting from excessive risk-taking in credit derivatives—years before it hit.

If you’re a student of monetary policy, you probably recognize that we’re talking about Raghuram Rajan, who served as governor of the Reserve Bank of India for just three years, from September 2013 through August 2016.

There are precedents for central banks to be headed by noncitizens, such as Canadian-born Mark Carney at the Bank of England. But nobody is touting Rajan for a Fed post (although he has been mentioned as possible Nobel laureate in economics). He is back at the Booth School of the University of Chicago, where he had taught until 2003, when he became the youngest chief economist and director of research at the International Monetary Fund and the first non-Westerner to hold the post.

During that stint, he captured the attention of many of the world’s economists—and the derision of not a few of them—for the noteworthy paper he delivered at the Fed’s big annual conference in Jackson Hole, Wyo., in 2005.

“Has Financial Development Made the World Riskier?” was the question posed by his paper. His answer, offered at what was supposed to be an encomium for Alan Greenspan, was affirmative. The outgoing Fed chairman was known then as “The Maestro” for guiding the U.S. economy through what was called the Great Moderation, marked by steady growth, brief, shallow recessions, and declining inflation.

Greenspan also championed financial deregulation and innovations like derivatives, which had burgeoned during his tenure. Rajan highlighted the risks they posed, along with how these instruments gave portfolio managers incentives to take risks to boost their compensation. Finally, he questioned whether there would be sufficiently liquidity in a crisis, especially given the complexity that derivatives entailed.

All of which made Rajan the proverbial skunk at the 2005 Jackson Hole picnic and earned him the scorn of other economists in attendance. Two years later, the financial crisis began to unfold.

IN 2013, RAJAN became head of the central bank of his native India at a time the rupee was sliding and prices were soaring. Despite his success in crushing the double-digit inflation that had long beset India, he did not get a second term under Prime Minister Narendra Modi’s government. Some controversial comments got him in hot water, including a call for religious tolerance. He also warned against Modi’s demonetization plan late last year, when much of the nation’s currency was withdrawn from circulation as an anticorruption measure.

Rajan now sees other dangers on the horizon for developed economies as well. In a recent article in the Chicago Booth Review, he warned about the unforeseen risks posed by the extraordinary monetary policy measures taken by the Fed and other central banks after the crisis. He worried that central bankers might find it difficult to turn down strong-willed politicians’ requests to fund their pet projects, such as infrastructure, with the banks’ bloated balance sheets. If a Trump-shaped Fed faces such a test, Rajan can only watch from afar.