It's about Deflation and its consequences. I have put an unusually big extract from the speech as it is really worth to read.
Although I would like to highlight few points and correlate them with todays actions and situation.
"even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation"
"We may never know for sure whether the Federal Reserve's rescue of Bear Stearns
averted a seizure of the $516 trillion derivatives system, the ultimate
Chernobyl for global finance.
Bear Stearns had total positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in "notional" terms "
"If the Fed had not stepped in, we would have had pandemonium," said James Melcher, president of the New York hedge fund Balestra Capital.
No wonder you see some institutions or investors buying 2 year US Bond yielding 1.75%...people are parking their money in the safest possible place: government bond... at least for a period of 2 years...
Looks like more and more are thinking that chairman Ben Bernanke will not succeed in rescuing the financial system. Europe will come to the rescue most probably at the end of the year after the U.K. Spain housing market join the deflationnary party...
"So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons."