the solvency of the riksbank was not at risk. in order to offset the loss of foreign credit lines to swedish banks, during the height of the crisis the riksbank also lent large amounts in foreign currency. banks applying for support had their assets valued by the bank support authority, using uniform criteria. the banks were then divided into categories, depending on whether they were judged to have only temporary problems as opposed to no prospect of becoming viable. knowledge of the appropriate procedures was built up by degrees, not least with the assistance of people with experience of banking problems in other countries. the swedish bank support authority had to choose between two alternative strategies. the first method involves deferring the reporting of losses for as long as is legally possible and using the bank ’ s current income for a gradual write - down of the loss making assets. one advantage of this method is that it helps to avoid the bank being forced to massive sales of assets at prices below long - run market values. a serious disadvantage is that the method presupposes that the bank problems can be resolved relatively quickly ; otherwise the difficulties compound, leading to much greater problems when they ultimately materialise. the handling of problems among savings and loan institution in the united states in the 1980s is a case in point. with the other method, an open account of all expected losses and writedowns is presented at an early stage. this clarifies the extent of the problems and the support that is required. provided the authorities and the banks make it credible that no additional problems have been concealed, this procedure also promotes confidence. it entails a risk of creating an exaggerated perception of the magnitude of the problems, for instance if real estate that has been taken over at unduly cautiously estimated values in a market that is temporarily depressed. this can lead, for instance, to borrowers in temporary difficulties being forced to accept harsher terms, which in turn can result in payments being suspended. the swedish authorities opted for the second method : disclose expected loan losses and assign realistic values to real estate and other assets. this method was consistent with other basic principles for the bank support, such as the need to restore confidence. looking back, it can be said that in general the level of valuation was realistic. since the acute crisis had been triggered by difficulties in obtaining international finance, great pains were taken to give a transparent picture of how the crisis was being managed, so as to gain the confidence of sweden ’ s creditors. this applied both

. s. economy was facing the prospect of deflation, slow growth and high unemployment. this was the case despite the many actions world economies had taken to remedy the crisis and stimulate growth. for me, it was difficult to conclude that more monetary expansion would assure a sustained recovery, and while there may be events that may slow economic growth, those events are related to other real factors. as the united states continues to ease policy into its recovery, once again there are signs that the world is building new economic imbalances and inflationary impulses. i would suggest also that the longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth. in the united states, for example, with very low interest rates, we are beginning to see some assets accelerating in price. agricultural land prices, for example, are increasing at double - digit rates. high - yield securities in financial markets are demanding price premiums beyond what some would judge reasonable relative to risk. why? to quote a market participant, “ what are my choices? ” the world for some time now has been experiencing rapidly rising commodity prices. while some of the increase may reflect global supply and demand conditions, at least some of the increase is driven by highly accommodative monetary policies in the united states and other economies. and, more recently, in the united states there is evidence of accelerating bis central bankers ’ speeches increases in core prices. over the past four months, core pce inflation in the united states has increased from a modest rate of 0. 7 percent to a rate of 1. 5 percent. i understand the u. k. also is experiencing rising prices. while no one can say with certainty whether this will continue, evidence is mounting that it might. i conclude my remarks this evening with the following observation. i tracked the average growth of money and the price levels in the united states from the 19th century to the present ( chart 3 ). it should surprise no one that there is a striking parallel between the long - run growth of money and the growth in the price - level index. from the end of world war ii alone, the price index has increased by a factor of ten. with such a track record, it is hard to accept that deflation should be the world ’ s dominant concern. conclusion central bankers must look to the long run. if current policy remains in place, we almost certainly will stimulate the growth of asset values and inflation. this may temporarily increase