treasuries portfolio, except for those assets held as collateral for traditional discount window operations. should the fiscal authority ask the central bank to engage in lending outside of its normal operations, the fiscal authority should exchange government securities for the nongovernment assets that would accumulate on the central bank ’ s balance sheet as a result. this type of swap would ensure that the full authority and responsibility for fiscal matters remained with the treasury and congress and the fed ’ s balance sheet remained essentially all treasuries. congress has mandated the goals of monetary policy to promote price stability, maximum employment, and moderate long - term interest rates. asking monetary policy to take on ever more fiscal responsibilities undermines the discipline of the fiscal authorities and the independence of the central bank. central banks and monetary policy are not and cannot be real solutions to the unsustainable fiscal paths many countries currently face. the only real answer rests with the fiscal authorities ’ ability to develop credible commitments to sustainable fiscal paths. it is a difficult and painful task to be sure, but a monetary solution is a bridge to nowhere at best, and the road to perdition at worst – a world of rising and costly inflation and a weakening of fiscal discipline. references plosser, charles i., “ credible commitments and monetary policy after the crisis, ” speech presented at the swiss national bank monetary policy conference, zurich, switzerland, september 24, 2010. plosser, charles i., “ ensuring sound monetary policy in the aftermath of crisis, ” speech presented at the u. s. monetary policy forum : the initiative on global markets, new york city, february 27, 2009. sargent, thomas, “ where to draw lines : stability versus efficiency, ” new york university working paper ( september 6, 2010 ). sargent, thomas, and neil wallace, “ some unpleasant monetarist arithmetic, ” federal reserve bank of minneapolis quarterly review, 5 ( fall 1981 ), pp. 1 – 17. see plosser ( 2009 ) and plosser ( 2010 ). bis central bankers ’ speeches

and equity. yet, until fiscal authorities choose a path, uncertainty encourages firms to defer hiring and investment decisions and complicates the financial planning of individuals and businesses. the longer it takes to reach a resolution on a credible, sustainable plan to reduce future deficits and limit the ratio of public debt to gross domestic product, or gdp, the more damage is done to the economy in the near term. some observers say cyclical factors and the magnitude of the recent global recession caused the current fiscal crisis. it is certainly true that the policy choices made by governments to deal with the financial crisis and ensuing recession have caused a significant deterioration in fiscal balances and debt levels in many countries. however, the underlying bis central bankers ’ speeches trends that are at the root of unsustainable fiscal deficits in many countries, including the u. s., have been in place and known for some time. in the u. s., for example, the major long - run drivers of the structural deficit at the federal level are entitlements such as health care and social security. 1 thus, even after cyclical effects play out, many countries will continue to have large structural budget deficits. in this sense, the financial crisis and recession have simply exacerbated the underlying problems and perhaps moved up the day of reckoning. in some cases, such as greece, that day has come. in light of these realities, market participants have begun to question the solvency of governments and their ability to honor their sovereign debt obligations in the absence of deep structural reforms. in europe, the doubts have greatly complicated the political problems as various countries debate the question of “ who pays ” for the anticipated bad debts of individual countries. here, too, the protracted nature of the political debate creates uncertainty, which undermines economic growth and exacerbates the crisis. while some have argued that preventing greek default would keep the crisis from spreading, that argument has proven false. the interaction of monetary policy and fiscal policy the fiscal challenges alone are daunting. yet, they can also have profound implications for monetary policy and the role of central banks. today, i want to focus my remarks on that interaction between monetary policy and fiscal policy. of course, the appropriate relationship between the two is not a new topic. yet, it has taken on new relevance and importance as a result of the recent crisis and the actions undertaken by policymakers. let me elaborate. it is widely understood that governments