View the businesses of the world as a large set of nodes interconnected by the business they do with other nodes. Some nodes will have tens of connections, some will have hundreds; a few will have millions of connections.

This type of network is often referred to as a scale-free network (cf. Albert-Laszlo Barabasi, Linked (2003)). This kind of network is particularly good at establishing contact between any two nodes with relatively few connections.

In order to visualise this, think of the hub-and-spoke systems that most airlines use. A few airports, like Heathrow in London, Hartsfield-Jackson in Atlanta, or Haneda in Tokyo are hubs and these airports all handle over 50 million passengers per annum. Compare that to say Esbjerg airport in southern Denmark with a throughput of less than 200,000 passengers per annum.

It is relatively easy to get from Esbjerg to Atlanta. You just fly to the nearest hub, London, and then board a direct flight to Atlanta: only two connections. Even if you had to get to another small airport in Georgia, you would only need three connections.

Another clear advantage the scale-free network has, is the resilience to random attacks. If you take out a few random airports in the world, hardly anyone will notice. There are still enough hubs to keep everybody connected. Similarly if a few businesses cease operations, it will not affect the global business network.

However, a scale-free network is very sensitive to a non-random attack. Say you targeted the hubs in such a network. Very soon the effects would be felt, and everyone would lose connectivity.

Banks are such super-nodes. The largest of them all carry millions of connections. If banks were taken out, very soon, the entire network would feel the effect, and the global business network would lose vital connectivity.

Faced with a loss of the most important super-hubs of the global business world, the governments could not just watch the banks drop out of the network. They all acted swiftly and decisively. Fortunately it looks like a financial meltdown was averted.

The government action to support the banks did not attack the root cause of the problem (which is not the topic of this article), so we may still see legion other effects of the underlying source of the banking crisis.

On Thursday 10th April, the Bank of England’s Monetary Committee will set the Bank Base rate against an extremely difficult economic background. The Committee is charged with ensuring monetary stability and of keeping inflation within 1% of the 2% annual target level.

The fault lines in the economy are likely to make this month’s decision as difficult as it has ever been. Inflation, by whatever measure, is likely to show a rise in March under pressure from fuel and some food price increases, while house prices look as if they are coming down while mortgage rates are going up.

The reluctance that banks are showing to lend to each other is reflected in the LIBOR rate, which for 3 months, is just over 6%, which is 0.75% above base rate, compared with a typical spread of 0.25% to 0.50% above base rate for much of the first half of 2007.

It looks as if financial institutions are making their decisions about lending rates and lending decisions in the light of their own particular circumstances and are not being influenced too much by what may happen to the Bank of England base rate.

In the current economic conditions, trying to manage the economy by moving interest rates is looking increasing like a measure that has passed its sell by date. A cut in the rate will encourage inflation but is unlikely to influence mortgage rates and keeping the rate the same will just prolong the current status quo. A rise in the rate will potentially choke off even more demand and make the outlook for growth and jobs that much more dismal.