Companies have been unable or unwilling to invest as a result of earlier investment mistakes and poorer prospects for the future. The banks have suffered severe credit losses, which has further intensified the recession, as their capacity to provide new credit has been limited. The situation becomes particularly serious when losses have led to acute bank crises, which has often been due to the banks being greatly exposed to a particular sector. For instance, it was an overheated property market with banks strongly exposed to this sector that was one of the main reasons behind the bank crises afflicting several countries – including Sweden – at the beginning of the 1990s. Adaptations to large financial imbalances have also put a burden on central government finances and increased uncertainty. This has in itself prolonged and intensified the crisis. Japan is a well-known example of what can follow in the tracks of a serious financial crisis if confidence cannot be recreated in economic policy and future growth potential. The consequences of financial imbalances have proved particularly serious in countries with a fixed exchange rate, partly because interest rates need to be kept high when confidence in the fixed exchange rate policy declines, and partly because there has often been a large foreign currency debt. When the fixed exchange rate has to be abandoned and the country's own currency is weakened, the burden of debt increases. Should the central bank then concern itself with asset prices?
When confidence in the American economy returns and investment growth takes off, there is every indication that productivity will continue do develop favourably. However, this does not mean that the long-term growth path indicated earlier by developments in share prices and demand will be realised. Secondly, it seems that the over-investment has mainly taken place in the IT sector, where financing has been largely via the risk capital market. The depreciation period for IT investments is often short, which means that investment mistakes do not affect the willingness to invest in the long term. The bank system does not appear to be particularly strongly exposed to the IT sector and the risk spread among the banks' assets is assessed as good. There would thus appear to be little risk of problems in the banking sector reinforcing the slowdown to any great extent. Finally, there is scope to use fiscal and monetary policy to stimulate the economy, if necessary. The American central bank has utilised part of this scope and lowered interest rates by a total of 2 percentage points since the beginning of the year. The central government finances are in good condition. For several years now the public sector – unlike earlier periods of large American current account deficits – has shown a surplus in savings. All in all, there are thus many factors indicating that confidence in the American economy can quickly be recovered. If this is true, the economic decline will not last very long.