BEN BERNANKE'S speech on Tuesday got all the attention, but the speech later that day by Bill Dudley, head of the New York Fed, is more intriguing. In it he analyses the macroeconomic origins of the global imbalances that precipitated the crisis and prescribes the policy path forward.

He does so in logical, crisp and accessible language. Mr Dudley is, however, still a central banker, which means he must be translated, especially when it comes to the delicate subject of the dollar. In a nutshell, Mr Dudley tells us that aggressively easy monetary policy is essential to both the cyclical recovery and to a structural rebalancing of the American economy away from consumption and toward exports. This process will go more smoothly for everyone if emerging market economies (EMEs) cooperate and let their exchange rates appreciate (i.e. let the dollar fall), but absent such cooperation, don't expect the Fed to change course.

Mr Dudley starts with some striking statistics. EMEs now account for 38% of world GDP, up from 23% in 1990, and 59% of world growth in the 2000s, up from 25% in the 1980s. Since 2007, the BRICS' GDP has risen 31%; the G7's, just 1%.

He retells the familiar story of how global imbalances bred the financial crisis, but with a twist. In the past, the Federal Reserve and Mr Bernanke (here and here) have denied culpability for the credit bubble, blaming instead the influx of excess savings from EMEs into developed-world assets. Mr Dudley, in effect, says both bear the blame:

[T]he combination of rapid gains in production capacity and relatively repressed consumption in the EME world helped foster a global deficiency of demand relative to supply. In these circumstances, the United States and many other industrialized economies had to sustain domestic demand at elevated levels in order to achieve "full employment" and prevent deflation. For the United States, the consequence was elevated consumption facilitated by asset price inflation, easy underwriting standards for credit and structural budget deficits.

In other words, the Fed had to hold down interest rates. Had it not, American GDP would have persistently fallen short of potential (because so much American consumption was being satisfied by foreign, rather than domestic, production) and inflation would have fallen below the Fed's informal target of 2%. Mr Dudley implicitly defends America's lax fiscal policy for the same reason: smaller budget deficits would have led to higher unemployment and lower inflation.

[A digression: The views of the Fed and its critics may be converging. Claudio Borio at the Bank for International Settlements is a prominent critic of the Greenspan/Bernanke doctrine that asset and credit bubbles can be ignored so long as price stability prevails. In a new paper Mr Borio and Piti Disyatat concede that excess global savings may have held down long-term interest rates prior to 2007. But they fault central banks for interpreting lower bond yields as a decline in the natural interest rate, i.e. the rate that would balance investment and saving at full employment. That led them to hold down short-term interest rates as well, because tighter monetary policy would have nudged inflation and employment below ideal levels. Low short-term rates in turn, fed back onto long-term interest rates. This sounds similar to the argument Mr Dudley makes.]

Mr Dudley doesn't want to point fingers. Yet:

[I]t is hard to avoid the conclusion that regimes with limited exchange rate flexibility linked to the dollar at undervalued exchange rates frustrated one channel through which relative prices might otherwise have adjusted in a way to induce more balanced global growth.

So much for the past. What happens next?

The financial crisis did not cause the old growth patterns to become unsustainable. They already were. But its aftermath forces us to confront the need for adjustment with greater urgency.

America has both a cyclical challenge—the economy is operating far below potential—and a structural one: it depends too much on consumption and fiscal support. How can this be mended?

As EMEs have shown us, comparative advantage and global competitiveness are not inevitable consequences of factor endowments—they are the result of the choices we make as nations.

Mr Dudley recites the usual boilerplate about the importance of long-term fiscal consolidation, better human resource policy, a strong dollar, and keeping inflation expectations anchored. But read between the lines, and his message is that extremely easy monetary policy is part of solving both the cyclical and structural challenge:

[S]tructural issues…cannot be tackled primarily through monetary policy…Nevertheless, monetary policy has an important role in supporting the transitions that need to take place.

To get the federal deficit from its current 10% of GDP to a more manageable 3% will require America to generate additional consumption, investment and net exports equal to 7% of GDP. Since it already consumes too much, that leaves business investment and net exports.

Monetary policy can help achieve this by accommodating the shift in relative prices that rebalancing requires. Mr Dudley notes that surging EME growth has driven up prices of both commodities and their own exports as domestic wages rise. That has driven up headline inflation in America. But Mr Dudley makes the crucial point that this represents a deterioration in America's terms of trade and thus its standard of living. It is not a generalised inflation problem unless it leads to second-round wage and price catch-up, of which there is no sign. Not only does such a terms of trade shock not call for tighter monetary policy, it is essential to rebalancing. As foreign prices rise relative to American prices, America will export more and import less.

EMEs have complained loudly that easy American monetary policy has fueled destabilising flows of capital into their economies, driving their currencies up and the dollar down. That, Mr Dudley (uncharacteristically for the Fed) admits “is at least possible” but then, in effect, tells them to deal with it:

[O]ther nations should recognize that we cannot and do not seek to make monetary policy for the world. It would have been irresponsible for us to allow the risk of a deflationary outcome in the United States to persist without decisive policy action.

Not surprisingly, Mr Dudley would like the EMEs and the rich world to cooperatively “move toward arrangements that put us on a mutually sustainable path”. This, obviously, means the EMEs allowing the dollar to fall further against their currencies. Mr Dudley does not, however, answer the question on everyone's mind. Given the economy's latest soft patch, is the Fed prepared to force the issue with more QE? That would be logical. Yet by acknowledging the costs QE imposes on EMEs, Mr Dudley would no doubt think twice. Nor is the case, at present, clear cut: deflation no longer threatens, and the economy may pick up of its own accord.

It may not matter. As William Pesek over at Bloomberg observes, Asian currencies are already reacting as if QE3 is on its way; the Singapore dollar, Malaysian ringgit, Indonesian rupiah, Thai baht and even the Japanese yen are all rising. It may be that the logic of rebalancing is so powerful that exchange rates will adjust no matter what the Fed does. Mr Bernanke noted Tuesday that the America's persistent trade deficit and the recent deterioration in its terms of trade were reason enough for the dollar to fall. But it is also possible that Fed is getting its way with words, such as Mr Dudley's speech, as much as with actions.