If these two sectors cannot take up all the slack created by necessary fiscal retrenchment in the years ahead – as seems likely – then the U.S. trade balance will need to improve as well. This implies that EMEs will no longer be able to rely on expanding U.S. demand as a key driver of their own economic growth. Of course, this is not just an issue of U.S. and EME adjustment. Adjustments will be required in other industrialized countries, too – and not just the deficit countries. There has to be recognition on all sides that global rebalancing in terms of the composition of activity and growth and in terms of global capital flows is necessary. Fortunately, this is not a zero-sum game: it is in the interests of all sides. However, it is still very difficult to accomplish because it is not in the short-term interests of some interest groups in many nations. This means that there are likely to be considerable political obstacles to adjustment in many parts of the global economy. In this process, the United States needs to show leadership in contributing to a smooth adjustment. In this regard, I think there are a number of actions that the United States can take – unilaterally and in its own interest – that will make this rebalancing process easier and less prone to disruption.
Lars E O Svensson: Monetary policy after the financial crisis Speech by Mr Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at the Second International Journal of Central Banking (IJCB) Fall Conference, Tokyo, 17 September 2010. *  *  *  I thank Claes Berg, Marianne Nessén, Staffan Viotti and Barbro Wickman-Parak for comments on this speech. The views expressed here are my own and not necessarily those of other members of the Riks-bank’s Executive Board or of the Riksbank’s staff. Gabriela Guibourg of the Riksbank’s staff has contrib-uted to this speech. As the world economy recovers from the recent financial crisis and the Great Recession that followed, a debate is going on regarding the causes behind the crisis and how to reduce the risk of future crises. The role of monetary policy and its relation to financial stability are also under debate and some argue that there is a need to modify the framework of flexible inflation targeting and give a greater role to financial-stability considerations. Some blame too expansionary monetary policy by the Federal Reserve after 2001 for laying the foundation for the crisis. My view is that the crisis was largely caused by factors that had very little to do with monetary policy.