even without the political pressures those governments face. one final note on the financial system. the global financial system is in the process of very dramatic change. the changes of even just the last five years are extraordinary, in terms of the size, and strength, and scope of the major global firms, the role of private leveraged funds, the extent of risk transfer and the increase in the size of the derivatives market, the change in the structure of the credit market, the increase in and changes in the pattern of cross border financial flows. these changes, and others, seem likely to have made the financial system both more effective in moving capital to its most productive use and more stable and resilient over time. but they do not, of course, mean the end of systemic risk in financial markets. they could in some circumstances work to magnify rather than mitigate stress. central banks, supervisors and those running the major private financial institutions need to continue to work to ensure that what jerry corrigan calls the “ shock absorbers ” in the financial system - capital and liquidity and the operational infrastructure - are sufficiently strong and robust to withstand economic and financial conditions more adverse than we have seen in the recent past. thank you.

budget deficits to open up – this always happens when a decline in economic activity leads to a sharp drop in revenue and increased spending on the safety net – but instead is more due to the fact that these deficits generally have a very large structural component. by structural, i mean that the deficits are projected to be persistent – absent changes in tax and spending policies – even after the individual economies have recovered and the unemployment rates in these countries have fallen as low as is possible, consistent with price stability. fiscal stimulus measures undertaken to support demand have been responsible for much of the recent deterioration in the structural budget deficits. for example, in the united states, the congressional budget office estimates that the structural federal budget deficit rose by nearly $ 1 trillion between fiscal 2007 and fiscal 2009, to $ 1. 1 trillion or 7. 3 percent of potential gdp. obviously, different people have different views as to how much stimulus was needed and the form of that stimulus. but to me it is clear that an accommodative fiscal stance was the appropriate policy response given the circumstances. in the case of the united states, without substantial fiscal stimulus, the economy would have been even weaker and the unemployment rate considerably higher. given the fact that the federal funds rate could not be pushed any lower, fiscal stimulus was indeed important in stabilizing the economy. going forward, however, market participants are worried that many countries are now on unsustainable fiscal paths. by unsustainable, i mean a scenario in which persistently high deficits cause the amount of outstanding debt to rise relative to gdp indefinitely, even if the economy performs well in the future. the concern is that at some point, investors worried about the potential for default would balk, and this would lead to sharply higher interest rates and a fiscal crisis. just as there needs to be a credible exit strategy for monetary policy to anchor inflation expectations, there also needs to be a credible exit strategy from fiscal policy stimulus to anchor expectations about the risks of sovereign debt default. this is not going to be easy for several reasons. even abstracting from considerations involving political will – it is never easy to vote for higher taxes or lower spending – there is also the important issue of timing. the economic recovery is still very fragile. this means that premature fiscal retrenchment could jeopardize the recovery and push a convalescent economy into a double - dip recession. given this risk, why not just wait and see how things go