insurances existed then as now one can also observe another similarity, namely the occurrence of so - called credit insurances. a company that sold credit insurances to the swedish banks in the 1980s and 1990s was svenska kredit. many banks bought insurances against losses from their loans to property companies from this company. when the property market crashed, svenska kredit was unable to meet all of its obligations and consequently went bankrupt. this in turn fuelled the problems for the banks. there are parallels between the swedish credit insurance companies of that time and the current so - called monolines. these are large insurance companies which are specialised in insuring various types of bond loan. those who have bought the companies ’ insurances have traditionally been municipalities, federal states and other bond issuers with poorer credit ratings. the insurance has meant that the bond loans have received better credit ratings and it has been possible to sell them at better rates. in july 2007 the outstanding volume of bonds insured by monolines amounted to a value of usd 3, 300 billion. in recent years these monolines have increasingly been used to insure securities issues with a subprime content. this has meant that they have also begun to experience problems. this risks in turn having repercussions for the securities they have insured and ultimately for those who have invested in them. of course, there are also some essential differences between the most recent financial turbulence and the swedish bank crisis. this applies to both the nature and the scope of the crisis. but, as you will note, there are many and striking similarities in the way people have acted. or as voltaire is supposed to have said " while history may never repeat itself – man always does! ” financial crises arise as a result of imbalances in the balance sheet so why do financial crises arise? the root of most financial crises can quite simply be found in the imbalance between assets and financing. the simplest way to illustrate this is to look at a stylised bank ’ s balance sheet. on the asset side there is lending to companies and households. these are assets that cannot be realised quickly without a substantial discount. in other words, they are illiquid. the bank ’ s financing on the other hand largely consists of deposits from the general public and short - term borrowing on the interbank and securities markets. their financing is thus very liquid. in normal circumstances this is not a problem, as we do not expect all depositors and other

has frequently been necessary for the central bank to show that expectations of high inflation are unfounded. besides monetary policy, expectations are affected by other factors. one of these is the budget. unsustainably large budget deficits are liable to undermine confidence in long - term price stability. our inflation forecast serves as a foundation for decisions about monetary conditions. if monetary policy is directed at stabilising inflation at 2 per cent, it will over time help to stabilise demand so that this is in line with the economy ’ s available capacity. in order to clarify our line of reasoning and our inflation assessments, the riksbank publishes an inflation report four times a year. a range of indicators is reviewed in these reports, accompanied by a discussion of risks and opportunities in the field of inflation. the present situation in the latest inflation report, published this march, gdp growth in 1997 and 1998 was expected to be around 2 and 3 per cent, respectively. it was also argued that sizeable capacity restrictions should not arise in the course of the period. given that, and inflation expectations being low, underlying domestic inflation ( measured with the cpi excluding transitory effects on inflation ) in the coming two years was put at between 1. 5 and 2 per cent. as we all know, to forecast inflation is a complicated task. in view of the shortcomings in such estimates, it is more a matter of assessing the balance of risks. our latest inflation report therefore includes a discussion of two alternatives in which future inflation might be either lower or higher than in the main scenario. one alternative is that inflation could be lower than in the main scenario, mainly if private consumption were to be weak. the other envisages the opposite - higher inflation - on account of a weaker exchange rate that stimulates a stronger growth of exports and gdp, leading to increased inflationary pressure. what are the economic tendencies that have appeared during the last months? during winter there were signs of a slowdown in manufacturing. the december survey from the national institute of economic research showed an unchanged inflow of orders and expectations of subdued production. the order statistics from statistics sweden, which fluctuate fairly widely from month to month, gave the impression of relatively weak orders in the fourth quarter of 1996. in december and january, however, the order inflow has picked up and more recent survey data likewise paint a brighter picture of activity in manufacturing. the improvement mainly applies to production for export but even the domestic market is somewhat optimistic about the