t fix all the economy ’ s problems. but monetary accommodation is indispensible. the economy would be in much worse shape if the fed weren ’ t acting so energetically. looking ahead, we may need to do more if the recovery falters or if inflation stays well below 2 percent. if the economy does need more stimulus, restarting our program of purchasing mortgage - backed securities would probably be the best course of action. the policy actions the fed takes will depend on how economic conditions develop. if circumstances change, our policies will adapt. no matter the circumstances, i assure you that we at the fed are doing everything we can to achieve the goals of maximum employment and stable prices. thank you very much. references board of governors of the federal reserve system. 2011. “ minutes of the federal open market committee ”, june 21 – 22. board of governors of the federal reserve system. 2012. “ press release ”, january 25. federal reserve bank of new york. 2010. “ quarterly report on household debt and credit ”, august. feroli, michael e., ethan s. harris, amir sufi, and kenneth d. west. 2012. “ housing, monetary policy, and the recovery ”. presentation to the 2012 u. s. monetary policy forum, new york, february 24. jorda, oscar, moritz schularick, and alan m. taylor. 2011. “ when credit bites back : leverage, business cycles, and crises ”. nber working paper 17621. mian, atif, kamalesh rao, and amir sufi. 2011. “ household balance sheets, consumption, and the economic slump ”. presentation at american economics association meetings, atlanta, ga, january 8, 2012. reinhart, carmen m., and kenneth s. rogoff. 2009. this time is different : eight centuries of financial folly. princeton, nj : princeton university press. for more information, see board of governors ( 2012 ). bis central bankers ’ speeches williams, john c. 2012. “ the federal reserve ’ s mandate and best practice monetary policy ”. presentation to the marian miner cook athenaeum, claremont mckenna college, february 13. bis central bankers ’ speeches

, such as the united kingdom and sweden ( but also spain and the netherlands ) when gauged by the federal housing finance agency index ( but equally so if measured by the case - shiller index ). 1 on the other hand, however, the devastating repercussions on us financial markets and intermediaries ( transmitted worldwide through structured financial products ) stemmed precisely from the interaction with the levels of debt of american households, spurred by the possibility that rising house prices offered for mortgage equity withdrawal. in many cases their debt came to exceed their home equity. in this way, the expansion of liquidity and so of credit was accompanied by the ratcheting up of financial leverage, prompted among other things by the emergence of new business models. in his re - examination of the depression in 1933, irving fisher noted : “ easy money is the great cause of overborrowing. when an investor thinks he can make over 100 per cent per annum by borrowing at 6 per cent, he will be tempted to borrow, and to invest or speculate with borrowed money. this was a prime cause leading to the over - indebtedness of 1929. inventions and technological improvements created wonderful investment opportunities, and so caused big debts ” ( fisher, 1933, p. 348 ; emphasis added ). in fisher ’ s view, that is, depressions stem from excessive debt exposures ( inevitably accompanied, one might add, by excessive risk - taking ) ; sooner or later, a correction is inevitable. once the correction gets under way, the impellent necessity of rapidly reducing excessive leverage exacerbates the fall in asset prices, which is the more violent, the larger the original bubble. and the price collapse, in turn, amplifies financial leverage, making the de - leveraging all the more painful. this danger had long been known to economists. 3. from economists ’ diagnosis to pre - crisis policies if economic analysis had effectively pointed out some of the looming dangers, the potential sources of infection and the mechanisms of propagation, then why was economic policy action for so long hesitant, sluggish, lacking in international coordination? to some extent this may have been due to the generic nature of the alarms sounded by economists, their failure to pinpoint the origins and course of development of the crisis, or the very reiteration of warnings when their fears did not materialize, giving policymakers the idea that the risks were vague and remote. but we can also find causes not only in