This lesson has been absorbed by supervisory authorities around the world, as evidenced by our successful efforts to strengthen bank capital and our financial systems. I do agree that market corrections can have profoundly adverse consequences if they lead to deflation, as illustrated by the United States after the 1929 stock market crash and the more recent experience of Japan.
But it does not follow that conventional monetary policy cannot adequately deal with the threat of deflation by expeditiously mopping up after the bubble collapses.