2011 ). bis central bankers ’ speeches nudge and more several authors have suggested that, while leaving the final decision on financial matters up to the individual, public policy should nudge people in the direction of better decisions. this idea has been applied, for example, to making it easier to opt in to an optional occupational pension scheme ( e. g. box already checked ) than to opt out. this idea is not necessarily unproblematic for a variety of reasons. for instance, nudging practices may not always be devised in the interest of the individual, as anyone navigating airline ticket booking sites will know. indeed, at its worst, manipulating known behavioural biases in order to increase profits can get to the point where the central bank would seek to outlaw it as an unfair practice. 5 many of ireland ’ s over - indebted individuals and families are in this position because they were caught up in a systemic event. it includes people who borrowed too much because they feared getting left behind, people who borrowed too much because they saw a profitable ( buy - to - let ) opportunity and underestimated the risk, people who borrowed an affordable sum but their income circumstances deteriorated unexpectedly because of unemployment, business contraction, health problems or other misadventures. one way of limiting the likelihood or extent of a recurrence is to reduce the exposure of new borrowers to the threat of over - indebtedness. many scholars have discussed how this could be done through contracts that share risk more effectively between the provider and user of funds. 6 even in the united states, home of financial innovation, though, the kinds of macromarkets that would allow home - owners to hedge the risk of a downturn in the economy, or in their sector, or in house prices, have not really emerged. there also, borrowers are stuck with conventional mortgage debt contracts, albeit often with no recourse to the borrower for a shortfall in the case of repossession of properties after default. mortgage insurance? though not having recourse to the borrower, the main mortgage lenders in the us have generally sought a second signature – mortgage insurance provided to the lender by an insurance company – in the case where the initial loan - to - value ratio exceeds 80 per cent. specialised mortgage insurers providers in the us did rather badly in the crisis of 2008 – 10 and there were failures. but mortgage insurance is a method that has been used

generally have appeared reasonably well anchored, giving the fomc room to focus on supporting economic growth. moreover, as i will explain below, for a variety of reasons, i do not expect the recent elevated inflation rates to persist. in my view, the adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare in the united states. but the recent information on prices underlines the need to continue to monitor the inflation situation very carefully. the outlook for economic activity and inflation how long the adjustment in financial markets will take and the consequences of that adjustment for economic activity are subject to considerable uncertainty. in my view, the most likely scenario is one in which the economy experiences a period of sluggish growth in demand and production in the near term that is accompanied by some further increase in joblessness. new building activity will continue to decline until the overhang of inventories of unsold homes has been substantially reduced, and the demand side of the market is not likely to revive appreciably until buyers sense that price declines are abating and financing conditions for mortgages are improving. consumer spending will be damped by the effects on real incomes of a weak labor market and rising energy prices and by the effects of declines in the stock market and home prices on household wealth. business spending on capital equipment should be held down by slower sales and production and by caution in a very uncertain economic environment. nonresidential construction is likely to lose some momentum in the wake of both weak growth in overall economic activity and tighter credit. some modest offset to these areas of weakness should come from export demand, which should be boosted by the lagged effects of recent declines in the dollar and supported by still - solid growth abroad. by midyear, economic activity should begin to benefit from several factors. one is the fiscal stimulus package that the congress recently enacted. the rebates that households are scheduled to begin to receive in may should provide a temporary boost to consumption. although the timing and the magnitude of the spending response is uncertain, economic studies of the previous experience suggest that a noticeable proportion of households are quite sensitive to temporary cash flow. the potential effects of the business incentives are perhaps more uncertain. although economic theory suggests that they should bring forward some capital spending, past experience has been mixed. second, the decline in residential investment should begin to abate later this year as the overhang of unsold homes is worked off, reducing what has been a significant drag on economic growth