Fresh from his economic illiteracies over interest rates last week, NSW Treasurer Michael Costa opened the 19th Australasian Banking and Finance Conference 2006 at the Shangri-La Hotel in Sydney on Wednesday, talking to top talent from the finance and banking communities of more than 40 countries.

Finance is a cut-throat world – and our sources say Costa quickly demonstrated why he is the CFO of a bankrupt state.

Crikey’s moles say he spent 30 minutes – somewhat longer than scheduled – blaming everyone except his government for the mess that is the NSW economy. He raised a number of questions that left the national and international audience perplexed with his knowledge of Economics 101.

Once again he openly advocated a state-based interest rate regime. Our blokes in striped shirts say that under his analysis WA would have an interest rate of 7.5% and NSW 4.25%.

They also fear that while the Sussex Street boot boy might be able to crunch the numbers, he doesn’t understand the laws of supply and demand, let alone the free market. These rates would equalise as free flowing capital moves across state borders to utilise the most effective interest rate regime.

To compound his sins, he questioned the importance of monetary policy and then used his deep economic understanding to promote fiscal policy. The many academic economists the room – many of whom follow Keynes – were openly horrified with Costa’s analysis. Our sources say no-one is now in any doubt that the state of NSW is in a recession for good reason.

We could add a bit more. Costa has said that Peter Costello’s tax cuts have been inflationary. But the Feds have a considerable surplus while NSW runs a deficit. Former Reserve Bank Governor Ian Macfarlane belled that cat in his testimony to the Reps Banking & Finance Committee. And the comments don’t exactly gel with Costa’s preference of fiscal over monetary policy.

So, the difference between Michael Costa and Jeffrey Skilling? Skilling was an effective salesman. The difference between NSW and Enron? Time will tell.

Peter Fray

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