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.

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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.