Economic Self-Flagellation

Yes, the mortgage crisis revealed the house of cards that so many of the banks had constructed. Yes, the economic crisis revealed the lack of proper regulation and transparency that leads to confidence in the markets. Yes the stock market is down from its high from about a year ago (just when I made a major investment! Note to readers-when I buy, you should sell!). Yes, unemployment is rising.

But talk of a new "Great Depression" that is rampant in the media is just bizarre. First, consider that the government is taking some action to increase market liquidity and, without doubt, government actions to restore stability to the markets will be much more aggressive once the new Democratic administration and congress are both in place in January. On both legal and philosophical bases, the concept of government intervention in the marketplace is light years ahead of where it was in 1929.

People who have actually lived through the Great Depression must be both concerned and, at the same time, somewhat amused at the current panic, and panic, an irrational fear- is exactly what we are witnessing. During the Depression more than 20% of American were unemployed, while at present the rate is 6% and growing. During the Depression hundreds of banks failed, but according the the FDIC, here ONLY TEN BANKS HAVE FAILED SINCE SEPTEMBER 2008, many have been acquired by other banks. Further, during the Great Depression, the FDIC did not exist, and people actually lost their life's savings. Today, the FDIC insures deposits up to $250,000.

One must ask if the media are blowing this economic crisis out of proportion? Are we actually in a severe recession, brought on by unwise practices in the mortgage and investment sectors? And will aggressive action by the Obama administration mitigate the impacts of this recession?

Recessions, for whatever reason, are an inevitable part of the business cycle. As someone who has lived through previous recessions, it seems to me that that a recession is exactly what we are living in today. After previous recessions passed, many economists said that government interventions had no real effect on the outcome of the recession. What is important is the the positive psychological impact that occurs when it seems that the government cares about the people and is trying to do something to alleviate conditions. I believe that whatever Obama's policies might be, the psychological impact will exceed the political impact and that the recession will be over in two years. Any thoughts?