The federal fiscal stimulus sustained state and local governments through the severe revenue drops triggered by the recession. With the ebbing of the fiscal stimulus program, many state governments are taking actions to make long-term structural reductions in spending.   Federal fiscal policy is widely acknowledged to be on an unsustainable path for the long term and must be addressed (Chart 33). For example, the expiration of the Bush-era income tax cuts and legislated cuts in Medicaid, if they went into effect, would stabilize the debt to GDP ratio at around 80 percent; if, however, their effective date continued to be deferred, the debt to GDP ratio could move toward 100 percent fairly rapidly. The proposed budget delivered by the U.S. Administration on February 14 begins the process of adjusting the fiscal trajectory. Fifth, the challenge for monetary policy has been to provide stimulus and support in the wake of the combined financial crisis and recession. As noted at the outset, economic history suggests that such a combined financial and economic shock can drive the economy down very deeply. Strong, forceful policy – both monetary and fiscal – is necessary to stem the contractionary forces in the economy. The Federal Reserve responded by lowering interest rates to near zero, to provide substantial liquidity support to the economy and to conduct the first large-scale asset purchase program, more than doubling the Federal Reserve’s balance sheet. History also suggests that the recovery from a combined financial and economic shock can be fragile.

It is the inflation target that is the economy’s nominal anchor. The future size of the Petroleum Fund depends on oil price developments. The fiscal guideline ensures that we only use the return on wealth that has already been accumulated. This makes policy robust to changes in oil prices and ensures that petroleum wealth will be of benefit both today and in the future. The government invests petroleum wealth in foreign securities through the Petroleum Fund. Government wealth is thereby more diversified. These investments have no impact on the Norwegian capital market. The Norwegian government’s most important assets are the Government Petroleum Fund, assets in the National Insurance Fund and government direct ownership interests in enterprises. The Petroleum Fund’s equity investments are distributed across many countries, and all equity holdings are less than one per cent of a company’s total value. The National Insurance Fund's investments are mainly confined to Norway. As a result, changes in the value of the Fund's equity portfolio primarily reflect developments in Norwegian business and industry. The Fund has larger ownership interests in individual companies than the Petroleum Fund, and wider fluctuations in value. The government has substantial direct holdings in individual enterprises. In general, concentrated ownership requires a more strategic ownership approach and gives rise to higher risk than diversified ownership. The capital market serves as an intermediary between the government as investor and enterprises seeking capital. This market makes it possible to separate the government's choices from companies' choices.