There's no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.

Economics is a very difficult subject. I've compared it to trying to learn how to repair a car when the engine is running.

The crisis in Europe has affected the US economy by acting as a drag on our exports, weighing on business and consumer confidence and pressuring US financial markets and institutions.

The Federal Reserve is not currently forecasting a recession.

...the Federal Reserve has the capacity to operate in domestic money markets to maintain interest rates at a level consistent with our economic goals

I and others were mistaken early on in saying that the subprime crisis would be contained. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.

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.