Is it spring time in the stock markets?

This spring, my wife and I spent time in Europe, just to get a change of air. We did not see Springtime in Paris, but went instead to Lyon, the real food paradise of France, famous for its 18th-century silk industry and proximity to the best wines of France. It was a real treat, tasting not just the steely fragrant and wondrous white Burgundies, but also the mysterious depth of Savigny de Beaume, a red and sensual wine, far more unpredictable than Bordeaux wines. To this, you add the complex regional cheeses on top of fresh crisp baguettes, you are almost in paradise.

Asians admire the power of the Americans, the efficiency of the Germans, the cleverness of the English and the romanticism of France, but I must confess that I have never owned a French stock. This is because everyone thinks that the French have such a good life that their companies are not the best run. And yet, so far, the US, UK and German banks have been devastated and other than the rogue trader in Societe Generale, French banks have come out better than any of their Western competitors. Asians relate very well with the French, because they care a lot about food and discuss food and the next meal, even when consuming the most delicious of meals. French meals are not presented with the beauty of Japanese cuisine, the earthiness of Italian, but have the gusto and zing that the best of Asian street food possess - a joy of life that hints of the next delight.

Travel is always the best time to read a good book and if you want to find out how four central bankers broke the world of finance during the Great Depression, you should read "Lords of Finance" by Liaquat Ahamet, an investment banker who writes in the best tradition of Chinese history. A distinct difference between Western historians and Chinese historians is that the former talks of grand traditions and trends, such as the Age of Enlightenment, whereas Chinese historians since Sima Qian always saw history being shaped by personalities. History is not about the arrival of the Renaissance or the influence of religion on the industrial revolution, but how the Emperor made a bad decision because he was influenced by wicked eunuchs or restored to glory by a faithful minister.

In "Lords of Finance", Ahamet tells the fascinating story between four central bankers, Benjamin Strong of the New York Fed, Montagu Norman of the Bank of England, Helmut Schaht of the German Reichsbank and Herbert Morel of the Banque d'France. Reflecting back to the 1920s and 1930s reminded me how similar and yet different those years were to the 2000s and possibly the next decade. The similarity is the cross-Atlantic Great Imbalance between the US as the surplus country and Europe as the deficit country, with the US owning 80 per cent of the world's gold after the First World War, whilst Europe bankrupted itself by war. Today the Global Imbalance is cross-Pacific, with the US as the largest deficit country and Asia (largely Middle East, Japan and China) as the surplus region.

The difference is the monetary standard. In the 1930s, gold was king. The British made the bad mistake of going back to gold, trying to restore her global banking status, when it had already been lost to New York. The Germans could not repay their debts to France, UK and US and so resorted to borrowing heavily instead, particularly from the US. The French were the most underestimated by the Anglo-Saxons, but in fact performed best because they pegged themselves to gold, not at the pre-war rate, but at an advantageous lower level.

Just as Greenspan mistakenly lowered interest rates after 9/11 and boosted the property market, the Fed lowered interest rates in 1928 in order to relieve the deflation in Europe, thereby fuelling the stock-market bubble of 1929. But it was the second shock from the failure of Austrian and German banks in the early 1930s that created the shock waves of losses in the US. Money centre banks in New York lost money lending to German banks and their failure led to losses in the regional banks in the rest of the US. The danger of the gold standard is that banks can create credit, but outflows of gold can exacerbate the domestic deflation as banks have to deleverage.

The central bankers in the 1930s failed to understand the impact of the gold standard on domestic credit and did not lower interest rates fast enough, thus worsening the Great Depression. Ben Bernanke, the economic historian who became the chairman of the Fed did not repeat this mistake, but it is clearly too late to stop the real sector recession.

In hindsight, the Great Depression was also a network crisis, because the shocks and policy mistakes moved back and forth across the Atlantic in a vicious positive feedback that ultimately ended up in the Second World War. Today's Global Imbalance is three-cornered, involving not only the Atlantic, but also the Pacific and between Asia and Europe.

Who emerges winner in this new Romance of Three Kingdoms remains to be seen.

ANDREW SHENG is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served as adviser and chief economist to Bank Negara, deputy chief executive of the Hong Kong Monetary Authority and chairman of the Hong Kong Securities and Futures Commission.