different parts, other parts of the system adjust. as supply and demand changes, the price adjusts. does this always happen seamlessly or painlessly? no. but broadly speaking, the stress test of the past few years shows that it does happen. there were a lot of people worrying throughout that period about where the funding would come from. but in the event, the system broadly speaking coped. the system here didn ’ t fail, and that is an important point to keep in mind in this whole exercise. prices did adjust. the exchange rate in 2008 was one of them. deposit pricing was another. do markets always get this right? no they don ’ t, but it ’ s not clear what the better alternative is. regulation is motivated at least in part to address some of those deficiencies of markets. is regulation always going to get it right? clearly not. so that ’ s why we need to keep on questioning the appropriateness of the structure of financial markets and their regulation. it ’ s good to be asking the question in an environment when the system hasn ’ t failed rather than when it has, as is the case in other countries. and that i see as the value of the work the acfs is doing, namely asking the question, is the system working as well as it can? in particular, talking about the system, as rod and peter do. in terms of the way forward, kevin davis had a slide in his presentation which basically mapped the path out. what are the broad structural forces shaping the financial system in the years ahead. do we want those structural forces to play out? are they well founded or are they the result of some distortion in the system? so in a nutshell : think about the system, think about the broad structural forces. bis central bankers ’ speeches

last year, as we all reacted in the same way to the dramatic news being transmitted around the world. the events of the past six months have resulted in big changes in the forecasts for the global economy. mid last year, official international bodies were generally forecasting that the world economy would grow by around 4 per cent in 2009, only a little below average. now they are forecasting that global gdp will fall by around 1 per cent in 2009, the weakest outcome in the post - war period. it is widely accepted that a precondition for economic recovery is the restoration of financial stability. markets have at times been frustrated at how long it has taken countries with banking problems to implement measures to restore the health of their financial institutions. but these are very complex problems and it takes time for consensus to build about the solution. another complication is that, not surprisingly, a common initial reaction is to want retribution from the financial institutions that are seen as having caused the problem. while this is understandable, it makes it difficult for the political process to support making public funds available to stabilise the financial system. these issues are not new and, by the standards of some past banking crises, the us, the country at the heart of the current crisis, is making reasonable progress. the us authorities last week announced further plans to restore the health of their financial sector. these were followed by a solid rise in share prices, particularly for banking stocks, though market sentiment is clearly still fragile. on the real economy, we are starting to notice the odd positive economic indicator in the run of us monthly data, in contrast to the universally negative outcomes a few months ago. let ’ s hope this continues. from australia ’ s perspective, no discussion of the global economy is complete without reference to china. like other countries, china experienced a sharp slowdown in the second half of last year, after a couple of years of extraordinary boom in which output growth increased to around 12 per cent per year. the downturn in china has been of great significance to australia, given that china is now our largest trading partner. my guess is that the chinese authorities, like everybody else, were caught by surprise at the suddenness of the downturn. but they have since reacted with great speed and vigour in implementing monetary and fiscal measures to stimulate their economy. there are some signs that these measures are starting to work. while china is not going to return to a 12 per cent growth rate any time soon