Dysfunctional capital markets, frantic central banks, stressed-out consumers, fear and uncertainty — all these are alarming echoes of the global economic cataclysm of the 1930s. Which raises the inevitable question: Could another Great Depression be lurking?
On the surface, parallels between economic conditions in the early 1930s and those of 2008 are disquieting. Enormous asset bubbles popped: stocks then, housing now.
And, as in the Depression, the financial system is in disarray. It was symbolized back then by the failure of thousands of banks, mostly small local outfits — 2,300 in 1931 alone. The parallel today is the crippling of onetime giants such as Bear Stearns Cos., Countrywide Financial Corp. and Ameriquest Mortgage Co.
Many economists believe the United States will find it almost impossible to avert a recession, if one has not started already. Housing remains mired in a deep slump. The Commerce Department reported this week that new residential building permits plummeted 36.5 percent nationwide in February from a year ago.
Then, like now, stock prices were highly volatile. The S&P 500 Index, which fell more than 56 percent from 1928 through 1940, nevertheless recorded four up years in that span, including a 46.5 percent gain in 1933.
But there are differences between the 1930s and today. U.S. unemployment reached 25 percent during the Depression; in February, it was reported at 4.8 percent.
The worldwide industrial economy was in a shambles in the 1930s because of World War I. Today, it is coming off a global boom.
"I've been asked many times whether we will have another Great Depression," says David M. Kennedy, a Stanford University history professor and the author of Freedom From Fear, a Pulitzer Prize-winning history of the Depression and World War II.
"My standard answer is that we won't have that one again. I'd be surprised to have one of that seriousness and duration. But that doesn't mean we wouldn't have a catastrophe we haven't seen before."
Economists and historians say the most important difference between today's economic environment and that of the old days is the government's response.
"There's a perception now that you don't stand around at the central bank and whack people with a ruler for making bad decisions," says Robert Brusca, chief economist at New York-based Fact and Opinion Economics. "Instead, you do something."
The Fed's relative powerlessness in 1930 led directly to New Deal reforms that expanded its authority. Some of its new powers, such as the ability to lend directly to brokers and investment banks, were seldom or never used until the current crisis.
And Fed Chairman Ben Bernanke, an expert in the Fed's Depression-era history, knows all about the instruments at its disposal in a crisis.
But there are limits to what monetary policy — the Fed's responsibility — can achieve on its own to forestall a drastic economic downtown. President Franklin D. Roosevelt's administration not only reformed the Fed, but also experimented with stimulative fiscal policy.
New Deal programs aimed at staving off a wave of home foreclosures may be especially relevant today.