there was a lengthy period in which households saved progressively less from current income, increased their leverage and enjoyed a sense of rising prosperity from the increase in asset values. that was most likely a one - time, if rather drawn out, adjustment to a number of important factors. it is quite understandable that it occurred – and it should be equally understandable that it wasn ’ t going to continue like that indefinitely. the “ new normal ” – which is actually the old normal – is where households save a non - trivial fraction of income and keep their debt levels more in line with income. one positive is that the adjustment to this “ new / old ” normal has been pretty fast, which means that a lot of it may already have been accomplished. nonetheless, in view of the financial turmoil of recent weeks, it would not be surprising if a degree of caution remained for a while yet. bis central bankers ’ speeches three months ago, the bank voiced concerns over the outlook for inflation in australia, on the basis that measures of underlying inflation looked like they had ended a decline that had lasted for more than two years, were starting to turn up and were forecast to rise over the three - year forecast horizon. that outlook suggested that policy would need to be tightened “ at some point ”. the bank did not have a pre - committed notion of when that point might be. such indications are, in any event, always conditional on the ongoing assessment of the outlook. the policy decision must consider not only the central forecast but also the possibility that things turn out differently from that forecast. in the intervening period, the international situation has become more clouded and evidence of caution at home has, if anything, intensified. asset prices have declined, credit growth has moderated further and the exchange rate remains very high. while each of these is affected by factors other than monetary policy, together they suggest a fair degree of restraint is being exerted by financial conditions. under the circumstances, the board judged the most prudent course was to sit still through this period, in spite of inflation data that, on their face, continue to be concerning. looking ahead, the year - ended cpi inflation rate will probably remain well above 3 per cent in the september quarter. it is then likely to come down as the impact of last summer ’ s floods on food prices continues to unwind ; we will see those effects around the end of the year and the early part of next year. after that, the assumed impact of the carbon pricing

alan greenspan : regulatory reform of the government - sponsored enterprises testimony by mr alan greenspan, chairman of the board of governors of the us federal reserve system, before the committee on banking, housing and urban affairs, us senate, 6 april 2005. * * * mr. chairman, senator sarbanes, and members of the committee, thank you for again inviting me to discuss the role of housing - related government - sponsored enterprises ( gses ) in our economy. as i described at length last year, the federal national mortgage association and the federal home loan mortgage corporation ( hereafter fannie and freddie ) have contributed importantly to the development of the secondary home mortgage market and thereby to the diversification of funding sources for depository institutions and other mortgage originators. in particular, fannie and freddie played a critical role in promoting mortgage securitization - the key to the success of secondary mortgage markets in the united states. 1 the stated intent of the congress is to use the housing - related gses to provide a well - established channel between housing credit and the capital markets and, through this channel, to promote homeownership, particularly among lower - income families. although prospectuses for gse debt are required by law to say that such instruments are not backed by the full faith and credit of the u. s. government, investors have concluded that the government will not allow gses to default, and as a consequence offer to purchase gse debt at substantially lower interest rates than required of comparably situated financial institutions without such direct ties to government. 2 given this advantage, which private competitors are not able to fully overcome, the housing - related gses have grown rapidly in recent years. the strong belief of investors in the implicit government backing of the gses does not by itself create safety and soundness problems for the gses, but it does create systemic risks for the u. s. financial system as the gses become very large. systemic risks are difficult to address through the normal course of financial institution regulation alone and, as i will stipulate shortly, can be effectively handled in the case of the gses by limiting their investment portfolios funded by implicitly subsidized debt. the government guarantee for gse debt inferred by investors enables fannie and freddie to profitably expand their portfolios of assets essentially without limit. 3 private investors have granted them a market subsidy in the form of lower borrowing rates. unlike subsidies explicitly mandated by the congress