government finances are in good condition. for several years now the public sector – unlike earlier periods of large american current account deficits – has shown a surplus in savings. all in all, there are thus many factors indicating that confidence in the american economy can quickly be recovered. if this is true, the economic decline will not last very long. the most likely situation is therefore that although the high level of indebtedness, the large deficit in savings in both the household and corporate sectors, combined with over - investment in certain sectors, will subdue growth for a time, there will be no dramatic or prolonged economic recession. however, in order to increase saving in the economy and thus correct the constant deficit on the current account, it is necessary that growth is not primarily driven by increases in consumption. net export and investment should instead be the motors behind growth to a larger extent than before. bringing about this state of affairs requires a weaker dollar exchange rate. one can therefore look with scepticism on the idea that tax cuts will bring the american economy out of its decline. how will sweden be affected? the american economy affects developments in the rest of the world through many different channels, with exports to the usa as the most direct channel and the one where the effects are easiest measured. however, exports to the usa are only responsible for a couple of per cent of gdp in sweden and have a similar significance for the euro area. spread effects via the expectations that largely govern consumption, investments and the stock market are probably much greater, although more difficult to measure. nevertheless, there are numerous indications that the swedish economy is more sensitive to developments in the usa than the economies in the euro area. for instance, shareholding is more widespread among swedish households and many of the major " swedish " multinationals – in which swedes have invested a substantial part of their shareholdings – are very dependent, directly or indirectly, on developments in the usa. developments in the swedish economy in recent years have shown many similarities to developments in the usa. rapidly rising share prices, a strong gdp growth driven by both investment and consumption and an increase in indebtedness is a description that fits both the swedish and american economies in recent years. however, the increase in economic activity began later in sweden and has not really had the same speed as that in the usa. moreover, the rise in sweden was preceded by a period where adjustments following the crisis at the beginning of the 1990s had forced down investment and consumption considerably

/ lending one ’ s money. compare, for instance, with the situation in sweden during parts of the 1980s ( after deregulation ) when the system of tax relief on interest, combined with inflation shocks, meant that in principle one could earn money by borrowing while it cost money to save! the conditions for making wise economic decisions will thus become better when the price stability target has been met. the same reasoning can be applied to wage - setting. during the 1970s and 1980s wage - earners were repeatedly forced to make large demands for nominal wage increases as inflation was “ eating up ” their purchasing power. real wage increases were almost non - existent, while nominal wage increases pushed up prices, resulting in recurring cost crises. a low, stable inflation rate provides entirely different conditions for more stable and better developments in real wages. monetary policy and the stock market as i have the privilege of speaking to a group of shareholders, i would like to take the opportunity to make a small digression into the connection between monetary policy and the stock market. i have already mentioned that a low, stable inflation rate creates good conditions for favourable economic growth and long - term developments in the stock market. however, the reverse can also apply : stock market developments also have some significance for the shaping of monetary policy. the price of 2 / 7 various assets, such as shares, is important in itself for the dynamics of a country ’ s growth and inflation trends. if, for instance, share prices rise, this stimulates household consumption and corporate investment, and vice versa. this in turn affects price trends. thus, the stock market, like the housing market, can affect the riksbank ’ s monetary policy decisions. since the 1960s and 1970s, swedes have been saving more and more in shares, both directly and via mutual funds and insurance, and the market has developed considerably during this period. the return on shares has been very good, seen over the past 30 years, but it has also been something of a roller coaster ride. here i am thinking of periods of overvaluation, which have been followed by sharp price falls, for instance in connection with the financial crisis and the later it bubble. despite these periods of falling share prices, the percentage of shares in household wealth has increased, and stock market developments have thus become increasingly important for households ’ consumption decisions and for inflation. another reason to be interested in the stock market is its significance for efficiency and thereby for growth. an efficient securities market fulfils