raised include the following : what will be the extent and duration of the disruption to economic activity in the gulf coast region? how fast will rebuilding occur, how much support will be available for rebuilding from various levels of government and how will it be funded? and how quickly will the energy infrastructure be brought back on stream? the answers to these questions will also influence two important additional questions for the national economy : what will be the time path of energy prices? and what will be the effects of the rise in retail energy prices on economywide spending and inflation? unfortunately, this added uncertainty is not likely to be resolved anytime soon ; gulf coast residents - - both households and businesses - - are assessing the damage ; rebuilding plans and supporting government programs are just beginning to be put in place ; large portions of the energy infrastructure remains shut down ; and we are only starting to see the range of possible reactions to higher energy prices. economic activity and prices will be affected for some time and discerning underlying trends will be difficult. it is not obvious that this form of uncertainty has implications for monetary policy, however. pausing or slowing down a rise in policy interest rates would not itself help to reduce uncertainty because the way in which policy might affect spending or inflation is not in question. rather this is a situation in which a central bank generally is well advised to make its best forecast, to evaluate the risks around that forecast as well as it can, and to act on that forecast and associated evaluation of risks. with regard to economic activity, my best guess is that the economy retains a good deal of forward momentum and that the evolution over time of the balance between aggregate demand and potential supply may not be greatly affected by the hurricanes and further rise in retail energy prices. in particular, the factors that were supporting the growth of activity through the first two - thirds of the year are still in place : market interest rates remain relatively low and credit spreads narrow ; underlying growth of productivity - - the ultimate source of long - run gains in incomes and living standards - - appears to be appreciable ; and the rapid rise in house prices, which persisted through at least the first half of the year, has given households a reservoir of housing wealth that they can draw on to support spending. of course, several hurricane - related forces will be restraining consumer demand in the near term, including the loss of jobs and income by displaced workers ; the effect of the rise in energy prices on disposable incomes, especially through the winter heating

mr. stals discusses the importance of credit extension for macroeconomic financial stability address by the governor of the south african reserve bank, dr. chris stals, at a breakfast meeting of the institute of credit management in johannesburg on 29 / 10 / 98. 1. a “ credit ” economy modern economies are often described as “ credit - based ” economies. this is a true reflection of the functioning of modern, sophisticated economies in which money plays the important part as a means of exchange, as an instrument of payments and as a store of value. the availability and the use of credit facilitates the exchange of goods and services, the production processes and the growing importance in all modern economies of financial services. one can hardly visualize a modern economy that works without credit. the normal characteristic of credit is that one participant in the economy, be it an individual, a corporate body or a governmental institution, denies himself the immediate use of purchasing power already in his possession, and makes this purchasing power on a temporary basis available to another participant in the economy who has an immediate need for the use of the purchasing power. this kind of transfer of purchasing power from savers ( the lenders ) to users ( borrowers ) will never create macroeconomic distortions in the economy. on the contrary, as already mentioned, it supports maximum economic growth and development in the country. this basic form of credit extension encouraged the development over many years of financial savings institutions, financial intermediaries, institutional investors, fund managers, etc. that serve as useful conduits for transferring purchasing power from savers to users, either for consumption or for real or financial investment purposes. the financial authorities in all countries have a responsibility to oversee these financial institutions, mainly with the intention of protecting the general public, be they lenders or borrowers, against exploitation that may lead to an unreasonably low remuneration for savers, exorbitantly high costs for borrowers and / or financial losses for both. together with the development of these specialised financial intermediaries financial markets emerged where the transfer of savings from lenders to borrowers can take place in a more competitive environment with greater transparency and more general participation. these markets, such as the stock exchanges, bond markets, markets for derivatives and short - term money markets play a very important part in the optimum allocation of scarce resources in modern economies. financial authorities also have a vested interest in overseeing these financial markets to ensure orderly conditions, the effective and efficient transfer of