After all, there is always a small risk that things can go badly wrong. If one is content to refer to this, one could justify more or less any type of policy. What one must try to make sufficiently credible is the risk that things will go badly wrong is sufficiently large that it needs to be addressed. One must also be able to show that the proposed changes have sufficient effect on the risks in relation to the costs of the measures taken. It is not enough, in my opinion, to express concern for high indebtedness and refer to the financial crisis. One must, as far as possible, make an assessment of households’ entire  12  This alludes to a book on financial crises from an historical perspective by Reinhart and Rogoff (2009), This Time is Different, Princeton University Press. The title of the book is ironic and refers to the fact that immediately prior to each financial crisis there has been a tendency to regard the current situation as special and quite different from previous crises. However, many who refer to the book appear to have missed the fact that monetary policy has a very obscure rule as reason for financial crises there. BIS central bankers’ speeches  5  financial situation, including their balance sheets with both assets and liabilities, as well as their debt-servicing ability, on the basis of the facts and analyses at hand.
The main arguments against a more expansionary policy that have been put forward lately are that this type of policy would be too risky, given the size of household debt.3 Let me therefore use this argument as a starting point for my reasoning. The discussion among the Executive Board members to a large extent reflects a broader international debate on the relationship between monetary policy and financial stability, on whether household debt is too high and, if so, whether monetary policy should be used to try to limit indebtedness – although the Swedish debate does contain a number of specific characteristics. In brief, one can say that those who believe the repo rate should be held extra high appear to think as follows.4 If the interest rate is too low, households take on too much debt. A large share of the loans households take on are used to buy housing, which also pushes up housing prices. If indebtedness and house purchases are based on overly optimistic calculations, there is a risk of a heavy fall in housing prices when the mood changes, for some reason. If prices were to fall, many households would find themselves in a situation where their assets have substantially declined in value, while their debt remains unchanged. They may then want to pay off some of their debt to come down to a more suitable level. This means they will prioritise saving over consumption. Demand in the economy will then decline and unemployment will increase.