I do not know any­one who pre­dicted this course of events…

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Sev­eral peo­ple have com­mented on the speech by Glenn Stevens (for inter­na­tional read­ers, Stevens is the Gov­er­nor of Australia’s cen­tral bank, the Reserve Bank of Aus­tralia) yes­ter­day in which he com­mented, inter alia, that:

I do not know any­one who pre­dicted this course of events. This should give us cause to reflect on how hard a job it is to make gen­uinely use­ful fore­casts. What we have seen is truly a ‘tail’ out­come – the kind of out­come that the rou­tine fore­cast­ing process never pre­dicts. But it has occurred, it has impli­ca­tions, and so we must reflect on it.”

As one mem­ber of this blog com­mented:

Has any­one heard Glenn Stevens ‘press club’ address yes­ter­day? he said in his open­ing remarks “… I do not know any­one in the world who has pre­dicted this eco­nomic cri­sis…”

Wow what arro­gance! I was flab­ber­gasted after read­ing this blog for the last cou­ple of years!! stunned!!

Indeed; but I’m not the only per­son who did pre­dict this crisis–other promi­nent com­men­ta­tors who warned about it include Nouriel Roubini and Peter Schiff. I hope there were plenty in the audi­ence who were think­ing “but,… but…” when they heard Stevens utter those words.

Of course, a cen­tral bank gov­er­nor can’t be expected to be brows­ing the web look­ing for com­men­taries all the time; there are other more seri­ous things to be done. But one would at least hope that some research was done before such a state­ment was made.

For the record:

  1. I first pub­licly pre­dicted this course of events in Decem­ber 2005–albeit in the rather obscure spot of an inter­view on Perth radio (and then sub­se­quently the ABC Radio cur­rent affairs PM);
  2. I started pub­lish­ing my Debt­Watch Report in Novem­ber 2006 to make a stronger ana­lytic case in the pub­lic arena;
  3. The Cen­tre for Pol­icy Devel­op­ment pub­lished my report Deeper in Debt (click here for the PDF) in Sep­tem­ber 2007;
  4. As any reader of this blog knows, my argu­ment that we were likely to expe­ri­ence a severe eco­nomic down­turn as a con­se­quence of debt delever­ag­ing has been exten­sively reported in the Aus­tralian media; and
  5. My first aca­d­e­mic paper describ­ing the dynam­ics of debt defla­tion, and mod­el­ling Minsky’s Finan­cial Insta­bil­ity Hypoth­e­sis, was pub­lished in the aca­d­e­mic (but non-main­stream!) jour­nal the Jour­nal of Post Key­ne­sian Eco­nom­ics in 1995.

The lat­ter at least a Cen­tral Bank gov­er­nor could be expected to know about–were it not for the bifur­cated nature of eco­nom­ics, that the main­stream is dom­i­nated by the “Neo­clas­si­cal” school of thought, and this school com­pletely ignores other “Het­ero­dox” approaches to eco­nom­ics.

One might also hope that he reads the occa­sional news­pa­per, or watches the odd cur­rent affairs pro­gram.

Finally, and also for the pub­lic record, I wrote to the RBA on June 15 1998, offer­ing to present a sem­i­nar on the Finan­cial Insta­bil­ity Hypoth­e­sis. The offer was declined. The text of my let­ter is below:

Dr. Steve Keen

Depart­ment of Eco­nom­ics & Finance,

Uni­ver­sity of West­ern Syd­ney Macarthur

PO Box 555 Camp­bell­town NSW 2560

Email s.keen@uws.edu.au

WWW: http://btwebsh.macarthur.uws.edu.au/steveK/

Ph 61 2 4620 3016 Fax 4626 6683

The Sec­re­tary,

Reserve Bank of Aus­tralia,

Mar­tin Place Syd­ney NSW 2000

Dear Sir/Ms,

My col­league Trond Andresen and I would like to present two related papers to Reserve Bank research and pol­icy staff:

  • A dynamic model of debt defla­tion
  • A model of stock mar­ket behav­iour with long-term cycles and pan­ics

While the Aus­tralian dollar’s deval­u­a­tion has sup­planted direct con­cern about the Asian cri­sis and Wall Street’s mas­sive over-val­u­a­tion, we believe that the issues high­lighted by these two mod­els are of sig­nif­i­cant medium term rel­e­vance to researchers and pol­icy mak­ers. We argue that the Asian cri­sis is a debt-defla­tion­ary process (over­laid with the impact of volatile flex­i­ble exchange rates), and that the even­tual crash on Wall Street may have sig­nif­i­cant impli­ca­tions for the US econ­omy, and hence the world.

The for­mer paper presents a model of cycli­cal growth with debt accu­mu­la­tion, price dynam­ics, an infla­tion-adjusted inter­est rate and a counter-cycli­cal gov­ern­ment sec­tor (two papers pre­sent­ing non-price pre­cur­sors to this model are enclosed). The lat­ter paper (copy enclosed) applies sys­tems engi­neer­ing con­cepts to pro­duce a behav­ioural model of stock­mar­ket cycles and crashes. It has not yet been pre­sented for pub­li­ca­tion.

I would be able to present my paper at any time, how­ever Mr Andresen (of the Nor­we­gian Insti­tute of Tech­nol­ogy) is a sab­bat­i­cal leave vis­i­tor who will leave Aus­tralia in late July and will only be avail­able between June 24th and July 10.

Yours sin­cerely,

Steve Keen

When I have the time to rum­mage through my paper files back at UWS, I will scan and pub­lish the RBA’s very brief reply here. I have for­got­ten who signed the let­ter; it will be inter­est­ing to see who it was.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • el reap­ero

    I can’t believe the way the media have let many elected lead­ers off the hook with the ‘it started in the US’ or ‘noone saw this com­ing’ lines.

    loads of web­sites such as house­price­crash in the UK have been link­ing to peo­ple like you,Mish Shedlock,Karl Denninger,Ambrose Evans-Pritchard as well as the ven­er­a­ble Peter Schiff and Roubini.

    It’s an out­ra­geous claim on their parts.Even worse,to get through this prob­lem we have the peo­ple who didn’t see it com­ing.

  • wisty

    It’s not that econ­o­mists don’t believe in dynam­ics, it’s just that they don’t under­stand it. And aca­d­e­mics can get away with being just a lit­tle bit pas­sive aggres­sive in deal­ing with emerg­ing dis­sent­ing schools of thought.

  • rycoka

    Sadly Mr Stevens com­ments don’t sur­prise me at all. An inquir­ing mind is not actu­ally a good qual­i­fi­ca­tion for a senior bureau­cratic posi­tion. A solid estab­lish­ment net­work and a track record of uncon­tro­ver­sial achieve­ment are more the “right stuff”.
    This is all good in a busi­ness as usual envi­ron­ment, how­ever, we are now out­side the bound­ary. We actu­ally need a group of very bright inde­pen­dent thinkers attack­ing this prob­lem (our cur­rent response smacks of clas­sic Rudd “me-too­ism”).
    From what I can see Aus­tralia is in an absolutely unique posi­tion. Unlike the UK and the US we have not built our for­tune on finan­cial inno­va­tion. Cer­tainly we have ben­e­fited from it, and will need to take our med­i­cine as the house of cards falls. How­ever, we are still sit­ting on a gold­mine of com­mod­ity riches, and our social struc­tures (despite Howard’s efforts) remain pretty good. Per­son­ally, I think we are in a fab­u­lous posi­tion for the long term. What we need to be care­ful of is sell­ing our­selves short in the cri­sis mar­ket so that we fail to reap the longer term ben­e­fits. An impor­tant part of this is shak­ing off the “aspi­ra­tional” tag from the Howard years and get­ting back to the old val­ues of “wealth for toil” and a “fair go” for those who strug­gle.
    Real­is­ti­cally — Rudd needs to put together one of his “com­mit­tees” to deal with the cri­sis — and include plenty of inde­pen­dent, cre­ative thinkers (and pos­si­bly invite in peo­ple like Nouriel Roubini). At the same time he needs to guard against sell­ing the farm as under­val­ued assets go dirt cheap in a depressed mar­ket. This sort of thing may actu­ally require leg­is­la­tion com­bined with inter­na­tional diplo­macy.

  • I wrote an email to sev­eral friends 3 years ago warn­ing them. This was after read­ing peo­ple like Paul Krug­man http://www.americanprogress.org/events/2004/7/b593305ct754567.html , Steven Roach http://www.mindfully.org/Reform/2004/Economic-Armageddon23nov04.htm and hear­ing of con­cern from War­ren Buf­fet, George Soros, Paul Volker and Ken Henry! http://leapingrealeyes.blogspot.com/2005/10/amerikkka-sharecroppers-society.html
    Maybe we need lead­ers who use the web.

  • Sorry,
    this excuse that the prob­lems were a chance event are just ludi­crous. Most of the peo­ple warn­ing of a cri­sis saw it as inevitable, only the tim­ing was uncer­tain. What can’t go on, won’t go on!

  • rycoka
    I think Australia’s sit­u­a­tion is very com­pa­ra­ble to Canada’s.

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  • ken

    It’s seman­tics, he doesn’t know any of these peo­ple, maybe he knows OF them, but that is dif­fer­ent. Maybe pol­i­tics is his next step.

  • Glenn Con­dell

    Robert Schiller and Dean Baker are two US econ­o­mists who also got it right well in advance, but the ear­li­est I remem­ber see­ing was from F William Eng­dahl. I have a piece of his dated July 2004 — it’s called ‘Is a USA Eco­nomic col­lapse due in 2005?’ His tim­ing was a lit­tle out, but still. 

    He said then ‘The rise in home prices has been dri­ven by cheap inter­est rates and banks rush­ing to lend with aban­don. Because two semi-gov­ern­ment agen­cies, the Fed­eral National Mort­gage Asso­ci­a­tion, known as Fan­nieMae, and the Gov­ern­ment National Mort­gage Asso­ci­a­tion, or Gin­nieMae buy up the bank‘s mort­gage con­tracts, tak­ing the risk from the local banks, so the local lend­ing bank has less pres­sure to guar­an­tee that he lends to low-risk credit-wor­thy fam­i­lies likely to repay the loan.

    The US Con­gress has passed new laws mak­ing it even eas­ier for fam­i­lies to buy homes with no penny of their own money required ini­tially as „down pay­ment.“ This has meant a huge rise in mort­gage loans to eco­nom­i­cally mar­ginal or risky fam­i­lies. The num­ber of such risky or „sub-prime“ mort­gage loans has risen by 70% this year alone, and now makes up 18% of all US mort­gages.’

    I would also men­tion Nas­sim Taleb of Black Swan fame. He warned about Fanny Mae explic­itly in mid-2006.

    A bit dis­turb­ing that an utterly non-eco­nomic per­son such as myself could have emailed one of my broth­ers in late 06 about the con­cerns I had after read­ing all these things, but Glenn Stevens was appar­ently inno­cent of any such knowl­edge.

    In recent times I have found sev­eral sites very good on the melt­down, RGE Mon­i­tor of course being cri­sis cen­tral, and this one far and away the best I’ve seen in the SH. Oth­ers include:

    Lon­don Banker:

    Pru­dent Bear (Doug Noland’s col­umn):

    And there are sev­eral good pieces by Soros and Krug­man in the New York Review of Books. The sci­ence web­site Edge has Nicholas Taleb’s acid com­men­tary of the inher­ent flaws in mar­kets gov­erned by prob­a­bil­ity mod­els, George Dyson’s unique his­tor­i­cal per­spec­tive, and just recently an attempt by a group of lead­ing sci­en­tists to grap­ple with the con­cept of a viable new model for finan­cial mar­kets.

    I’d be inter­ested Steve in your reac­tion to it (Taleb has already poured scorn on it, but you’d expect that from him):


    Last, I hope you have a great Xmas and New Year Steve; if there was a Brown­low for eco­nom­ics, you’d be a moral for it, and Glenn Stevens would not.

  • I used to work at the Reserve Bank and often joined Glenn Stevens in the Cafe­te­ria. He may not remem­ber it but he knows me. I don’t believe there were not peo­ple on his own staff with­out con­cerns.

  • Another web­site that has long issued warn­ings:

  • icon­o­clast

    Glen Stevens has pub­licly stated “I do not know any­one who pre­dicted this course of events.”, well then he should resign from his posi­tion, forth­with. He has been appointed not elected. He can give all man­ner of polit­i­cally palat­able rea­sons for his depar­ture, so as not to spook the mar­ket and allow the com­pe­tent to take the lead.

    We don’t need peo­ple that were part of the prob­lem to steer us out of the prob­lem we now find our­selves in.

  • BrightSpark1

    If he did not know, he can not claim that it was not his duty to know. 

    He should resign and hand over to some­one who was aware of the peo­ple warn­ing of this fail­ure. Prefer­able some­one who under­stand the the­o­ries which lead to these pre­dic­tions, pre­dic­tions which are now proven to be accu­rate.

  • aboutime

    Peter Costello knew over a year ago and was widely quoted in the MSM about the upcom­ing Finan­cial Tsunami. Glen Stevens and Peter Costello obvi­ously went out of their way to not know each other or each oth­ers advi­sors.

  • Otto C.

    Robert R. Prechter in his book ‘Con­quer the Crash’ writ­ten in 2002 warned of the com­ing Defla­tion­ary Depres­sion of major pro­por­tions and stock mar­ket col­lapse. His ratio­nale for this con­clu­sion was a com­bi­na­tion of eco­nomic fun­da­men­tals, Elliot Wave The­ory and social behav­iour. I think he deserves at least a men­tion as a per­son who also made the pre­dic­tion, even though he was a few years too early.

    Otto C.

  • icon­o­clast


    I think Peter Costello is attempt­ing to prac­tice his art of sophistry, in his attempt to pro­claim his for­tune telling skills.

    Peter Costello used the term finan­cial tsunami in the con­text of when China reval­ues it’s cur­rency, and the finan­cial tsunami that would ensure as a result of such a cur­rency reval­u­a­tion.

    Peter Costello is in the same camp as is Glen Stevens; they both had and have no idea.

  • I won­der if some Reserve Bank peo­ple read this blog?

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