My time at the IMF gave me an insight into the fantastic quality of its staff and the political constraints they often operated under. As for Tim, I often wonder what he went on to do next. On return to London I produced another book, on the design of the international financial system.15 This too failed to make the bestsellers’ list. In the period since, fault-lines in the international financial system have continued, periodically, to cause global tremors. They will continue to do so until the international financial architecture is strengthened. With hindsight, I think Stan Fischer was right on the need for a better-resourced IMF, alongside the international equivalent of a resolution authority for nation states. Alas, it may take another bout of emerging market crises to instigate this change. Back in London, I was reassigned to lead a Division working on domestic rather than international financial stability issues. This was something of an anti-climax. The domestic financial system was, by comparison with the violent seas of emerging markets, a millpond of tranquillity at the time. Moreover, the prevailing consensus was that this tranquillity was set to last. In response, the Bank slimmed the resources it devoted to financial stability by around half. The timing was unfortunate. The financial system was riding a credit wave as banks’ balance sheets and leverage ballooned. Every major financial crisis in the past has been presaged by credit waves of this type.16 But this time, it was said, was different.
But if activity were rather to show signs of freshening, there is a risk of the existing high inflation continuing and being incorporated in our  2  BIS Review 15/2002  perceptions of inflation in the longer run, with possible effects on, for example, future wage negotiations. That of course must not happen. A scrutiny of the current cyclical picture reveals a growing number of signs that activity abroad, above all in the United States, is on the way to improving. This is something that also affects conditions for the Swedish economy. A majority of leading indicators point in that direction. Although the upward phase does contain risks to which I shall be returning, there is still a good deal of evidence that a recovery in the rest of the world as well as in Sweden may be on the way to materialising later this year. A factor that often contributes to a cyclical swing is movements in stocks. When stocks are plentiful and sales are falling, firms often cut back production so that this falls more than demand. In this way, stock adjustments initially accentuate the cyclical downturn. When the reduction of stocks ultimately comes to an end, firms may step up production again even though demand has not yet started to recover. This drives a cyclical upturn and perhaps it is just such a positive effect that may be on the way. There are signs of this in the United States in particular but also in Sweden.