in the transition ahead. but we face a number of difficult long - term challenges as a nation — in our fiscal position, in how well we equip our citizens to prosper in a more competitive world and in our ability to sustain political support for the policies, including our relatively open trade policy, that have been an important source of the improvement in u. s. prosperity. our external imbalances make it more important that we invest in meeting those challenges. thank you. 3 / 3

the u. s. economy. and sustaining this flexibility, which is so important to our capacity to adjust to shocks, requires that we continue to support the process of openness and economic integration. we jeopardize future income gains if we are unable to sustain support in the united states for what has been a relatively open trade policy. how effective we are in meeting this political challenge is likely to depend significantly on how effective we are in improving educational opportunity and achievement in this country, and perhaps also in improving the design of the temporary assistance we provide individuals who bear the brunt of the adjustment costs than come with greater global economic integration. these policies by the united states would help improve the prospects of a more benign adjustment process. but they would not be sufficient to produce a more favorable adjustment path. a more favorable adjustment scenario would require a complex mix of policies and action in each of the major economic areas, sustained over a considerable period of time. for global growth to be sustained at a reasonably strong pace during this period of adjustment, the desirable increase in u. s. savings and the necessary slowing in u. s. domestic demand growth relative to growth of u. s. output would have to be complemented by stronger domestic demand growth outside the united states, absorbing a larger share of national savings. exchange rate regimes, where they are currently closely tied to the dollar, will have to become more flexible, allowing exchange rates to adjust in response to changing fundamentals. the global nature of these requirements does not imply that the united states can put the principal burden for adjustment on others, or that we can expect the broader global adjustment imperative to easily alter the forces in countries outside the united states that have contributed to these imbalances. if we focus adequate political capital on the factors within our control, we will have more credibility internationally in encouraging policy changes outside the united states that might reduce our collective risks in the adjustment process ahead. the increase in macroeconomic stability in the united states over the past two decades, or the reduction in the volatility of growth and inflation, has contributed to what seems to be a significant reduction in expected future volatility of asset prices. and the u. s. economy is in many ways in a relatively favorable position to manage through the risks in the adjustment process ahead. the apparent strength in u. s. productivity growth, our greater overall flexibility as an economy and the resilience of our financial system puts us in a stronger position to deal with the challenges