By David Lawson
Yesterday’s talk by RBA Governor Glenn Stevens at the Anika Foundation Luncheon, The Lucky Country, has been well spread across the press today. While Glenn Stevens has an undeniable obligation to uphold confidence in the financial system as part of the overall economy, credit to him for acknowledging the sceptics when he said:
…we should welcome the sceptics. Perhaps some of their concerns are valid. The Reserve Bank gives a lot of thought to these issues; we certainly do not dismiss them. We should always be wary of the conventional wisdom being too easily accepted. We should never, ever, assume that ‘it couldn’t happen here’.
…some observers – admittedly not the majority – still harbour concerns about the foundations of recent economic performance and question the basis for confidence about the future. There are several themes to these doubts, but the common element is that recent relative success owes a certain amount to things that will not continue – to luck – and that our luck may be about to turn.
Those who have followed Steve’s research into the financial instability for some time would understand that this so called LUCK (Labouring Under Certain Knowledge) is unsustainable on the grounds that conventional economic theories fundamentally ignore the essential role of banks, money and debt. Their oversimplified models provide a false sense of certainty around a dynamic uncertain real world economy.
Then again, if central banking officials were to acknowledge uncertainty on a credible level it would be extremely counterproductive to their obligation to maintain confidence in the financial system. Just ask US Federal Reserve Governor Ben Bernanke what he thinks of Black Swans?
Meanwhile on the political front, Treasurer Wayne Swan was far more belligerent to contrarian points of view. Saying Glenn’s speech was a:
Fortunately, he has today’s CPI release on his side to provide positive news for the general cost of living for the Australian people and grounds for the RBA to provide monetary stimulus in the coming months. Fiscally speaking, there is limited room for the Federal Government to provide additional deficit spending with AU$238,276 million of Commonwealth Government Securities on issue, before hitting the AU$250,000 million ceiling.
We should always bear in mind is that nothing is certain in relation to financial system. The RBA clearly states that they will not facilitate an environment of certainty in Australian financial system, when saying: