1) We have researched the economics of deflation and have measures prepared should it appear [they have been saying this in a dozen ways, usually indirect such as research to Japan, "negative" interest rates, alternatives forms of intervention, etc].
2) Central banks should not try to prevent financial bubbles. Trying it then - or now - might hasten deflation. [As Friedman says it did in 1928.] Defensiveness on this point was a major part of Greenspan's AEA address; he clearly fears the issue might stain his 'legacy'.
3) To prevent world deflation there must be one undisputed leader among central banks. [The decline of the B. of Eng and the immaturity of the Fed helped cause the Great Depression. Note implied exclusion of multi-party leadership.]
4) Left Wing doubters and anti-unemployment militants will be partly to blame if there is global deflation. [The rise of labor and social democratic parties and the concern over unemployment is what undermined the "credibility" of the central banks' efforts in the '30s.]
5) For a "coup de grace", blame the French. [It was their stubborn policy traditionalism that stretched out the Depression.]
It may seem inconsistent to blame both the 'let-it-take-its-course' or gold standard traditionalists AND the activist anti-unemployment crowd, but this message says: in a crisis you must unite behind the leader to produce 'credibility'. Doubters and critics exacerbate the problems and prevent solutions.
Forewarned is forearmed. Paul
Doug replies to Michael:
>>It does not seem so odd. He has worked on the subject of years.
>
>No that part's not odd. But a longish lecture on the Depression right now
>by a Fed official does excite curiosity.
>
>> Also, he seems to
>>be suggesting -- based on a very quick skim -- the Fed could possibly
>>unleash a
>>crisis if it tries to break the bubble.
>
>Exactly. It looks like he's criticizing the Fed for busting the stock
>market in 1929, and again for defending the dollar in 1931 - so it sounds
>like he'd like them to stay easy for nearly ever.
>
>Doug