A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily.
The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth and led to sharp declines in the values of many homes and businesses.
Among the largest banks, the capital ratios remain good and I don’t expect any serious problems . . . . among the large, internationally active banks that make up a very substantial part of our banking system.
The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand.. a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.
It is not the responsibility of the Federal Bank – nor would it be appropriate – to protect lenders and investors from the consequences of their decisions
