foreign banks had to find safe investment opportunities for their yen funds. in this regard, interest - bearing bills issued by the bank of japan to absorb shorter - term yen funds became suitable investment opportunities. bills sold were safe and had no default risk. this string of trading ultimately had the effect that the bank of japan became the counterparty of both japanese and foreign banks, thereby promoting smooth dollar funding for japanese financial institutions. the stock purchasing program the third measure, introduced in 2002, is the bank of japan ’ s purchase of stocks held by commercial banks. at that time, japanese banks held large amounts of stocks on their balance sheets. therefore, market risk associated with stock price volatility was a major risk for japanese banks, and the adverse feedback loop of falling stock prices, restrained lending, and a deterioration in the real economy became a problem. in these circumstances, the bank of japan decided to purchase stocks held by commercial banks. this measure was very unorthodox, but was an effective tool in ensuring stability in the financial system and the real economy through the reduction of market risk associated with banks ’ stockholdings. the credit easing and the large - scale asset purchase ( lsap ) programs adopted by the federal reserve during the current financial crisis are very similar to the bank of japan ’ s stock purchasing program in that in both cases the central bank absorbs private - sector risks and thereby aims at improving financial conditions. v. new challenges as shown by the examples i have mentioned, central banks in the major economies – in their role as monetary policy authorities – have been implementing innovative policy measures, though they adopted the measures at different times : since the latter half of the 1990s in the case of the bank of japan and the current global financial crisis in the case of the federal reserve and the ecb. these policy measures have helped to prevent a depression as deep as the one that occurred in the 1930s. at the same time, however, as central banks stepped outside the framework of conventional behavior, they have been confronted with new associated challenges. the division of roles between the government and the central bank the first challenge is the division of roles between the government and the central bank. when acting as the lender of last resort in a crisis, the central bank must judge whether the problem it is dealing with is a liquidity problem or a problem concerning financial institutions ’ solvency. if the problem is one of a shortage of liquidity, it is the central bank that should act, based on

aspect of the budget and its economic impact. the unified budget deficit, projected forward a certain number of years, is an important measure that is already included in the congressional budgeting process. however, the unified budget deficit does not fully capture the fiscal situation and its effect on the economy, for at least two reasons. cbo ( 2005 ), the long - term budget outlook, p. 3. i discussed this issue in ben s. bernanke ( 2006 ), " the coming demographic transition : will we treat future generations fairly? ", speech delivered before the washington economic club, washington, october 4, www. federalreserve. gov / boarddocs / speeches / 2006 / 20061004 / default. htm. first, the budget deficit by itself does not measure the quantity of resources that the government is taking from the private sector. an economy in which the government budget is balanced but in which government spending equals 20 percent of gdp is very different from one in which the government's budget is balanced but its spending is 40 percent of gdp, as the latter economy has both higher tax rates and a greater role for the government. monitoring current and prospective levels of total government outlays relative to gdp or a similar indicator would help the congress ensure that the overall size of the government relative to the economy is consistent with members'views and preferences. second, the annual budget deficit reflects only near - term financing needs and does not capture longterm fiscal imbalances. as the most difficult long - term budgetary issues are associated with the growth of entitlement spending, a comprehensive approach to budgeting would include close attention to measures of the long - term solvency of entitlement programs, such as long - horizon present values of unfunded liabilities for social security and medicare. to summarize, because of demographic changes and rising medical costs, federal expenditures for entitlement programs are projected to rise sharply over the next few decades. dealing with the resulting fiscal strains will pose difficult choices for the congress, the administration, and the american people. however, if early and meaningful action is not taken, the u. s. economy could be seriously weakened, with future generations bearing much of the cost. the decisions the congress will face will not be easy or simple, but the benefits of placing the budget on a path that is both sustainable and meets the nation's long - run needs would be substantial. thank you again for allowing me to comment on