2 For instance, a long-term U.S. government bond can be a safe investment for a life insurance company  (because the security carries no credit risk and matches the duration of the life insurance company’s liabilities), but it is not money. 3 See, for instance, Thomas Eisenbach and Sebastian Infante, “What Makes a Safe Asset Safe?,” Federal  Reserve Bank of New York Liberty Street Economics (blog), November 27, 2017. 4 See Benjamin Lester, Andrew Postlewaite, and Randall Wright, “Information and Liquidity,” Journal of Money,  Credit and Banking 43 (s2), October 2011 and “Information, Liquidity, Asset Prices, and Monetary Policy,” Review of Economic Studies 79 (3), 2012; and Bengt Holmstrom, “Understanding the Role of Debt in the Financial System,” Bank for International Settlements Working Papers no. 479, January 2015. 5 For the purpose of these remarks, I assume that, as is largely the case in developed economies, the monetary  authority is able to keep prices stable; I therefore disregard the difference between nominal and real future payoffs. 6 Assets accepted as collateral are assigned a lendable value deemed appropriate by the central bank, taking  into account a haircut that reflects an assessment of credit risk, historical volatility, and market liquidity. However, the assets (and associated risks) remain on the balance sheet of the borrower. 7 Previously, the Federal Reserve had sterilized its liquidity provision by running down its Treasury portfolio.
How quickly that happens depends on the strength and durability of the recovery. Some of the turnaround in growth here and elsewhere is mechanical in nature, driven by a reduction in the rate at which businesses are running down their inventories. But as far as the strength of the recovery over the medium term goes, one needs to look at the underlying forces driving the demand for UK goods and services. On this score, there are both reasons to be fearful and reasons to be cheerful. The reasons to be fearful are several. First, the banking system here and elsewhere is still dealing with the legacy of decisions taken before the crisis. The process of balance sheet repair has some way to run and that is likely to continue to restrain the supply of credit. Moreover, a key feature of the run-in to the crisis was an underestimation of risk and an excessive compression of risk premia. We should not expect premia to return to where they were before the crisis broke. The spreads on lending to businesses and households, particularly riskier prospects, will be higher in the future than before the crisis. BIS Review 31/2010  1  Second, the housing boom has resulted in some households, especially younger ones, carrying forward high levels of debt.