If the sovereign then – for the purpose of maintaining its solvency – obliges the central bank to set a lower interest rate than price stability would require, demand would rise too quickly, thus leading sooner or later to inflation.
*  *  *  Chairman Frank, Ranking Member Bachus, and other members of the Committee, I appreciate the opportunity to discuss ways of improving the financial regulatory framework to better protect against systemic risks. In my view, a broad-based agenda for reform should include at least five key elements.