or were unrealistically radical. most countries with floating exchange rates developed a pragmatic approach that, broadly speaking, tried to resist excessive inflation and to have some stabilising influence on economic activity in response to shorter - term shocks. policy in australia through this transitional period has been criticised for lacking a clear conceptual framework and allowing too much scope for central bank discretion, and there is some validity in these criticisms. in australia, the policy “ checklist ”, which entered the discussion for a few years following the abandonment of monetary targets, comprised a wide range of variables which were to be consulted in assessing economic conditions and making policy decisions. the list of variables included interest rates, the exchange rate, the monetary aggregates, inflation, the external accounts, asset prices and the general economic outlook - - in short, an amalgam of instruments, intermediate and final policy objectives, and general macro - economic indicators. the checklist conveyed the idea - - sensible as far as it goes - - that policy needs to look at all relevant information. what was missing was some framework for evaluating that information and converting it into an operational guide for policy. another way of expressing this is to say that monetary policy needed a “ nominal anchor ”. pure pragmatism was not enough because it could lead to monetary policy aiming to achieve a desired result for a “ real variable ”, which in the long run would be self - defeating. for example, if monetary policy was solely designed to achieve a given unemployment rate ( as to some extent it was in the late 1960s / early 1970s in many countries ), it would be continually eased whenever the actual unemployment rate was above the desired rate. but if the desired rate was too ambitious, this would be a recipe for continued easing and, in time, continuously rising inflation. at the same time, there would be no guarantee that monetary policy alone would be able to achieve the desired unemployment rate if structural factors were important. similarly, indeterminacy would arise if monetary policy was directed at the current account of the balance of payments, as a lot of discussion in the late 1980s seemed to suggest. if the current account was too large, should monetary policy be tightened to reduce domestic demand ( and imports ), or should it be loosened to lower the exchange rate and hence increase competitiveness? these sorts of discussion led policy - makers and academics to again ask the question about what monetary policy could achieve in the long run. the nearly unanimous answer was that it could

necessarily a permanent burden since, if carried out successfully, the ownership stake can be sold again in due course. in fact about 70 per cent of the funds invested by the united states in banks have been repaid, and the us government expects to make an overall profit from these capital injections. 1 nonetheless for a period of time governments are carrying a little more debt than otherwise as a result of the provision of support to the banking system. of course the united states retains the stake in the insurer aig. fannie mae and freddie mac also remain in government ownership though that perhaps might be seen simply as final recognition on the us government ’ s balance sheet of an obligation everyone always assumed it would meet. second, the depth of the downturn saw recourse to discretionary fiscal packages. as the table shows, while there was a lot of national variation, for some countries this spending was quite significant relative to the normal pace of annual growth in gdp. to the extent that the packages had measures that increased spending for a finite period but not permanently, the result is a rise in debt of a finite magnitude, but not an ever - escalating path of debt. but it is the third factor – namely the magnitude of the downturn itself and the initial slowness of recovery – that is having by far the biggest effect on debt ratios. according to the imf, for the group of advanced economies in the g - 20, the ratio of public debt to gdp will rise by almost 40 percentage points from its 2008 level by 2015. fiscal stimulus and financial support packages will account for about 12 percentage points of this. close to 20 percentage points are accounted for by the effects of the recessions and sluggish recoveries. another 7 percentage points comes from the unfavourable dynamics of economic growth rates being so much lower than interest rates for a couple of years. now it is somewhat inaccurate to attribute the economic downturn effects entirely to the financial crisis because there would probably have been some sort of slowdown even without a crisis. there will always be a business cycle, after all, and deficits and debt rise when downturns occur. as a comparison, the rise in the debt ratio of the g7 from 2000 to 2005 associated with the previous cyclical downturn – which was not an especially deep one – was around 12 percentage points. nonetheless the recent downturn was a bad one in many countries, and that is because it was associated with a financial crisis. for