. the fed was established with a substantial degree of formal, legal independence at a time when that was relatively rare. the initial mandate was very broad. our predecessors were charged with the responsibility of furnishing an “ elastic currency... ” and affording “ the means of discounting commercial paper. ” decision - making authority was vested in an institution structured to bring a diversity of largely independent perspectives to the table, for many of the same reasons that most governments vest monetary policy authority today with committees rather than individuals. the federal reserve was set up with a balance of public and private perspectives, drawn from across the country – a structure designed to avoid concentrating too much power in washington, and also to provide a counterweight to new york. this body was comprised of a group of seven governors appointed by the president and confirmed by the senate – five governors and the secretary of the treasury, the comptroller of the currency – and the heads ( then called governors ) of 12 reserve banks. the terms of the washington - based “ board of governors ” were long and staggered, giving them an extended horizon for policy making more consistent with the time frame in which monetary policy works and with the long - term interests of the nation than might be shaped by the electoral calendar. reserve bank presidents were appointed by their boards of directors. the reserve banks, spread across the country, were established as individual corporate entities, owned by banks, with individual boards of directors, a majority of which were elected by the bank shareholders. in the early years, the principal substance of monetary policy making was not centralized around a table in washington, but was conducted by the individual reserve banks, which set the discount rate for their member banks and conducted open market operations. at inception, the fed was set up with financial independence and not reliant on annual appropriations by the congress. its capital was provided by the member banks and its resources were to come principally from earnings on its assets and the services it provided its member banks. in formal structure, therefore, and to a considerable extent in fact, the fed was established with a substantial degree of both “ goal independence ” and “ instrument independence. ” the very general framing of the initial mandate – “ to furnish an elastic currency ” – gave it considerable scope to decide what objectives should guide monetary policy. it had full authority to decide how to pursue those objectives. it had broad independence both to formulate and to execute monetary policy. that independence was qualified for substantial parts of the early history

most countries the stock market capitalization relative to gdp is decidedly lower than in the united states, resulting in generally much more modest effects on aggregate demand for given percentage declines in wealth. the exceptions to this rule are canada and the united kingdom. one recurring theme has been the expectation that the euro area will be relatively insulated from the effects of country - specific and common shocks. the euro area, for example, has only modest trade links to the united states ( minimizing the direct trade spillover from the united states ), has benefited from a depreciation of the euro ( further mitigating any trade effect ), has a relatively modest market capitalization to gdp ( minimizing either the spillover from the u. s. equity market correction or the effect of the global equity correction ), and has a relatively modest share of high - tech production to gdp ( minimizing the effect from the global retrenchment in high - tech investment ). nevertheless, while these channels have muted the slowdown in the euro area, they have not eliminated it. now let me turn to the risks. the greatest risk, in my view, would arise from a sharper - than - expected slowdown in the united states – either an outright recession or a more persistent period of very low growth. a second risk – and this might well be part of the story behind the first – would be an aggravation of the current slowdown in the united states and globally as slower growth triggered an abrupt unwinding of pre - existing financial and other imbalances. this is the story that typically lies behind more severe downturns. one important possible imbalance is a capital stock " overhang " in the information technology sector, especially in the united states, but to a lesser degree in a few other countries as well. in this case, the continuing retrenchment in high - tech investment could suppress economic growth for a longer period. another possible imbalance that continues to receive a lot of attention around the world is the large and still rising u. s. current account deficit. that deficit is, of course, simply the other side of the massive capital flows to the united states to take advantage of the higher perceived return there. the most benign adjustment would be for the euro area and other countries to benefit from an acceleration in productivity, much as the united sates has enjoyed. this would lead to a reversal of capital flows and depreciation of the dollar, with