Most of us have heard these re-assuring words from at least one economist in recent weeks: “Don’t worry. This is not another Great Depression. We have learned a lot since then.” What have we learned? In 1929 investors had a currency backed by gold; nowadays our dollars are backed by an IOU from the world’s biggest debtor. In 1929 the financial system was far less sophisticated: accounts were tallied with pen and paper. Today we have sophisticated financial models which we trust implicitly – until they fail to predict the impending collapse. In 1929 communication was largely by mail. Today we are all inter-connected, with communications around the globe measured in milliseconds. In 1929 the relatively new Fed was still cautiously finding their way and regularly making mistakes. Today we have a Fed confidently patrolling the financial markets with a huge can of gasoline, ready to douse any new flare-ups. And promising to use as much gas as it takes to restore stability.
Stock Market Crash
In 1929 voters distrusted government and any big spending programs were likely to be met by howls of outrage. Roosevelt won election in 1932 by criticizing Hoover’s huge deficits, advocating “immediate and drastic reductions of all public expenditures,” “abolishing useless commissions and offices, consolidating bureaus and eliminating extravagances reductions in bureaucracy,” and for a “sound currency to be maintained at all hazards.” His New Deal program then went on to do exactly the opposite, far surpassing any previous excesses. Today we have House majority leaders who subscribe to the same New Deal philosophy of big government spending in order to “rescue” the economy
Why am I not confident that we are in good hands? The mistakes being made threaten to dwarf those of 1929. Leaders seem to be ignorant that negative real interest rates and budget deficits are the same gasoline that caused the fire in the first place. If they continue along their present path, the inevitable conflagration will make the Great Depression seem like a backyard barbecue by comparison.
The Fed rapidly lowered interest rates in an attempt to stimulate borrowing, but has so far achieved little response. The banking and business sectors are focused on deleveraging: selling assets in order to reduce debt on their balance sheets. The effective fed funds rate, meanwhile, has fallen below 0.50 percent, warning us to expect further cuts.
The economy is headed for a liquidity trap, where interest rates offered on bank deposits are too low to attract investors. An outflow of funds from banks would force them to liquidate assets, unless the Fed prints more money to shore up their balance sheets.
If banks are forced to liquidate assets, calling in loans would set off a downward spiral similar to the 1930s. Borrowers are forced to liquidate investments, forcing prices lower and placing banks under even greater threat, with collateral value of stocks and real estate no longer covering the nominal value of loans.
Continual debasement of the currency, on the other hand, leads to another trap where investors lose faith in the currency. Provoking a flight to gold and other portable stores of value – in effect an alternative currency. In 1933 Roosevelt had to ban private individuals from holding gold in order to prevent this. Legislation that was only revoked in 1974.
General Motors, Ford and Chrysler are angling for $50 billion in Federal loans. Congress is finding the appeal of saving jobs hard to resist, but the road to hell is paved with good intentions. I believe that they should not receive a cent of taxpayer money. They were the ones who fiddled while Rome burned: selling Hummers while Toyota and Honda developed hybrids. Congress can help, however, by offering rebates to buyers of fuel efficient or alternative energy vehicles; forcing the big three to compete in the open market. Let the buyer decide whether they are worth saving.
In a way we can say that the recession is so severe that many people who panic , and have not adopted the right techniques of trading are searching for Hairfall Solutions for Baldness 
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