We do not claim to have found the ultimate monetary strategy. But by being transparent about the information on which our monetary policy is based and by being prepared to discuss the policy’s formation, the Riksbank can offer a guided tour of the complex world in which we live and are constantly learning new things. So when we wake up each morning, let us ponder a while on the mistakes we may have made and do not yet understand. However, since the world and its inhabitants do not behave in a mechanical and rigid fashion, one cannot expect monetary policy to be perfect. Monetary policy is not an exact science, perhaps not even a science. Still, by acting systematically and predictably in accordance with a clear intellectual framework, while we may not entirely avoid the risk of making mistakes, it does seem – and that is maybe what matters – that we can avoid making mistakes that are serious. 8  BIS Review 24/2002
The investment climate was further muted by the terrorist attacks of last September, hitting hard other sectors such as air travel, tourism, and insurance. In short, there is considerable uncertainty surrounding the adjustment of investment spending and the dim prospects of corporate earnings. While the worldwide weakness in business investment lies at the very heart of our present problems, at the same time the most recent signals from abroad reveal that new potential risks have emerged. The most recent economic indicators from the United States show that domestic demand is growing less strongly than anticipated. The confidence indices registered a decline for the months June and July. The labor market has recently shown increasing signs of weakness; both in terms of employment and hours worked. These recent developments weigh heavily against household spending, which has been considered the lifeline of the U.S. economy. The fear is that many households are stretched, adding fears to the strength of household consumption and the resilience of the U.S. economy to withstand further shocks. U.S. households on average have low levels of savings and have begun to dip into housing wealth to maintain their consumption habits. While such savings imbalances do not support the crisis  BIS Review 50/2002  3  in investment, the recent signals from the labor market, should they deepen, bring new risks to consumption and the robustness of the U.S. economy. Here in Europe, although the economic picture is slightly different, the economic prospects are not brighter.