alan greenspan : jackson hole conference - closing remarks closing remarks by mr alan greenspan, chairman of the federal reserve board of governors, at a symposium sponsored by the federal reserve bank of kansas city, jackson hole, wyoming, 27 august 2005. * * * the federal reserve will almost surely face as many uncertainties over the next eighteen years as it has over the past eighteen. technology continues to bring rapid change and, hence, considerable uncertainty, to the global marketplace. monetary policy, supervision and regulation activities, and payments system operation will need to be calibrated to respond to the influences of that technological change. other forces will be at work on the economic environment as well. the inexorable aging of our population will markedly influence the policy milieu in the years ahead. monetary policy, for example, cannot ignore the potential inflationary pressures inherent in our current fiscal outlook, especially those that could arise in meeting commitments to future retirees. however, i assume that these imbalances will be resolved before stark choices again confront us and that, if they are not, the fed would resist any temptation to monetize future fiscal deficits. we had too much experience with the dangers of inflation in the 1970s to tolerate going through another bout of dispiriting stagflation. the consequences for both future workers and retirees could be daunting. nearer term, the housing boom will inevitably simmer down. as part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease. as a consequence, home equity extraction will ease and with it some of the strength in personal consumption expenditures. the estimates of how much differ widely. the surprisingly high correlation between increases in home equity extraction and the current account deficit suggests that an end to the housing boom could induce a significant rise in the personal saving rate, a decline in imports, and a corresponding improvement in the current account deficit. whether those adjustments are wrenching will depend, as i suggested yesterday, on the degree of economic flexibility that we and our trading partners maintain, and i hope enhance, in the years ahead. on monetary policy, i envision a continuous refinement of our risk - management paradigm. i presume maximum sustainable economic growth will continue to be our goal, with price stability pursued as a necessary condition to promote that goal. to date, we have chosen not to formulate explicit inflation targets, in part, out of concern that they could inhibit

and it has led them to the doors of foreign banks only. what explains this phenomenon? some foreign institutions, unlike their american counterparts, did not see the values that motivate and support u. s. economic sanctions rules. at most u. s. financial institutions, and i may be myopic in seeing too much nobility in them, there is a widely accepted understanding that our u. s. sanctions are tailored to accomplish a laudable public purpose. the sudanese sanctions are designed to coerce a regime to cease certain horrific practices, like genocide. the iranian sanctions are designed to stifle the iranian regime ’ s nuclear ambitions. the cuban sanctions are intended to hinder the advancement of communism in the americas and to change an oppressive regime through a trade embargo. for u. s. financial institutions, which operate on the basis of a public charter issued in the united states, the public purposes supporting economic sanctions and the detailed sanctions regulations are in harmony. with respect to rule compliance, the staff will follow those rules not simply because they are required to but also because they want to. while i am not here to speak for foreign institutions that have committed sanctions evasion, including bnpp, my sense from the evidence is that these institutions looked at economic sanctions very differently. they looked at economic sanctions as technical “ american ” rules that were not seen as consistent with the organization ’ s and the home country ’ s larger value system. in europe, they found no similar sanctions, and there it was perfectly legal at the bis central bankers ’ speeches time to do business with these sanctioned jurisdictions. some european bankers almost naturally adopted the view that there was no value system underlying the technical american legal rule. the foreign institutions saw the situation as providing financial services to just another country ; not to a country committing genocide ; not to a country building a nuclear weapon ; and not to a country fostering a dehumanizing ideology. this failure to correlate the rule with the value is the root of real mischief. it erodes what some commentators call the “ culture of compliance ”, and it tends to foster an employee population that will be inclined to look for loopholes, to place toes on the edge of the permissible, or even to turn a blind eye to a black letter compliance rule. and, the organization ’ s compliance staff will also suffer from a stifled motivation and the absence of any meaningful authority – it relegates that staff to a bunch of box checkers, rather