= 0. 0109 ). conclusions and policy implications my objective today has been to review the evidence on the link between monetary policy in the early part of the past decade and the rapid rise in house prices that occurred at roughly the same time. the direct linkages, at least, are weak. because monetary policy works with a lag, policymakers ’ response to changes in inflation and other economic variables should depend on whether those changes are expected to be temporary or longer - lasting. when that point is taken into account, policy during that period – though certainly accommodative – does not appear to have been inappropriate, given the state of the economy and policymakers ’ medium - term objectives. house prices began to rise in the late 1990s, and although the most rapid price increases occurred when short - term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be readily explainable by the stance of monetary policy alone. moreover, cross - country evidence shows no significant relationship between monetary policies and the pace of house price increases. what policy implications should we draw? i noted earlier that the most important source of lower initial monthly payments, which allowed more people to enter the housing market and bid for properties, was not the general level of short - term interest rates, but the increasing use of more exotic types of mortgages and the associated decline of underwriting standards. that conclusion suggests that the best response to the housing bubble would have been regulatory, not monetary. stronger regulation and supervision aimed at problems with underwriting practices and lenders ’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates. moreover, regulators, supervisors, and the private sector could have more effectively addressed building risk concentrations and inadequate risk - management practices without necessarily having had to make a judgment about the sustainability of house price increases. the federal reserve and other agencies did make efforts to address poor mortgage underwriting practices. in 2005, we worked with other banking regulators to develop guidance for banks on non - traditional mortgages, notably interest - only and option - arm products. in march 2007, we issued interagency guidance on subprime lending, which was finalized in june. after a series of hearings that began in june 2006, we used authority granted us under the truth in lending act to issue rules that apply to all high - cost mortgage lenders, not just banks. however, these efforts came too late or

general budget should move into surplus, and over time the general budget surplus should average zero. indeed, the long - term value of higher national saving gives an argument for aiming at a positive general budget surplus on average, but i will not push that argument here because it is most likely a political nonstarter. for the surpluses of the entitlement program trust funds, covering social security, medicare, and the retirement benefits of government employees, one would follow a different rule. these trust funds are set up to finance long - term entitlement expenditures. to illustrate, for social security, the largest of these entitlement programs, revenue from worker payroll taxes go into a trust fund and, along with any earnings on asset holdings, are used to pay retiree benefits. these trust funds should then be evaluated on an actuarial basis - - whether present and future anticipated inflows are adequate to pay anticipated present and future program benefits. if not, corrective steps should be taken. again using social security as an example, inflows currently exceed outflows ( a cash surplus ), but forecast inflows do not cover forecast outflows ( an actuarial deficit ). even though the fund has a cash surplus today, some combination of tax increases or long - term cuts in benefits is needed to maintain these surpluses into the future and to restore actuarial soundness. this situation is not atypical for countries like the united states with an aging population. for a country with an aging population, the combination of a general budget surplus that is zero on average and trust funds in cash surplus will normally lead to surpluses in the overall, or unified, budget. these surpluses can be rationalized as a technique to build up the nation's future capital stock. since the population is aging, a relatively small cohort of workers will soon have to pay benefits for a relatively large cohort of retirees, and the idea is at least to give this small cohort of workers a larger capital stock to work with. having this type of a budget policy accomplishes three objectives simultaneously : • the surpluses provide for capital accumulation. • they do that to a greater extent the more the country's population is aging. • automatic fiscal stabilizers remain to deal with recessions. the discussion to this point has been entirely in terms of the federal budget. in principle, state governments could follow the same countercyclical fiscal policy, except for one