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

  1. el reapero says:

    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.

  2. wisty says:

    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.

  3. rycoka says:

    Steve,
    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.

  4. reason says:

    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.

  5. reason says:

    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!

  6. reason says:

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

  7. Pingback: How the ‘Experts’ Missed the Crash: Philosophical Flaws, No Sense of History | Steve Keen's Oz Debtwatch

  8. ken says:

    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.

  9. Glenn Condell says:

    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:
    http://londonbanker.blogspot.com/

    Prudent Bear (Doug Noland’s column):
    http://www.prudentbear.com/index.php/dougnoland

    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):

    http://www.edge.org/3rd_culture/brown08/brown08_index.html

    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.

  10. reason says:

    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.

  11. reason says:

    Another website that has long issued warnings:
    http://financialsense.com/

  12. iconoclast says:

    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.

  13. BrightSpark1 says:

    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.

  14. aboutime says:

    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.

  15. Otto C. says:

    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.

  16. iconoclast says:

    abouttime,

    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.

  17. reason says:

    I wonder if some Reserve Bank people read this blog?

  18. Pingback: How the ‘Experts’ Missed the Crash: Philosophical Flaws, No Sense of History | Centre For Economic Stability

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