As we witness the downward spiral of global stock markets and spectacular collapse of some of the strongest financial institutions in the world, the assumption that the great depression of 1929 is the worst economic crisis in modern times, is just about to pass. The most interesting observation however has been the glaring similarities of 1929 to the present scenario and the worrying possibility that the scale of this crisis if compared to 1929 might have worse consequences.

Until now every serious economic downturn has been compared to the great depression, perhaps because eight decades later, nobody really expected a much more sophisticated world economy and various well developed markets in the Americas, Europe and even Asia to go bum as it did then.

With the likes of former Federal bank chairman Allan Greenspan considered the most powerful man in the world, even more powerful than the president of the United States, and trusted on the economic issues even more, it was unforeseeable to hear of the US treasury secretary kneeling in front of a politician to try to get political backing for a rescue plan like he did recently.

According to The Concise Encyclopedia of Economics, The Great Depression that began at the end of the 1920s was a worldwide phenomenon.

By 1928, Germany, Brazil, and the economies of Southeast Asia were depressed. By early 1929, the economies of Poland, Argentina, and Canada were contracting, and the U.S. economy followed in the middle of 1929. July 9, 1932 was a day Wall Street would never wish to relive, The Wall Street Journal reports.

The Dow Jones Industrial Average closed at 41.63, down 91% from its level exactly three years earlier.

The Wall Street Journal reports on October 11, 2008, "The Dow Jones Industrial Average capped the worst week in its 112-year history with its most volatile day ever, as hopes for a major international bank-rescue plan were overwhelmed at day’s end by another wave of selling.”

It goes on to compare the tow events, "This week’s 18% decline, and Friday’s 1018.77-point swing from low to high, were the biggest since the Dow was created in 1896. Until now, the Dow’s worst week was in 1933.”

So in effect, the markets are doing much worse that they did when the worst financial crisis hit the world.

The man at the wheel of the US Federal Reserve, Ben Bernanke, a former Princeton University professor and an expert on causes of the Depression, should make us comfortable.

He has devoted a life of study to examining and researching the causes of the Great Depression. Understanding it, he has written, is the "holy grail” of economics.

The Times UK says that the lesson for Bernanke is not just what got America into the Great Depression, but what got it out. By the end of the process, taxpayers owned a big chunk of the US banking system.

That will probably have to happen again – beyond the $700 billion bailout – and the sooner it does, the better the chance of avoiding depression.

The banking system went into convulsions. About 9,000 banks failed in panics between 1930 and 1933, and hundreds of others were closed by the Roosevelt administration in the first days of its term.

This time the number of banks has not hit the one thousand mark, but at the current rate where banks are falling over themselves like a pack of dominoes, getting rescued by others, by the state or going down, we might soon be drawing parallels.

A strong similarity however is the public panic that is driving bank customers to withdraw their money into safety or investors selling off their shares in institutions suspected to be on the way down.

A Star Tribune article begins, "A stampede of selling that began in the waning minutes of trading on Wall Street spread to Asia on Friday, deepening a financial crisis that has defied all efforts to stop it.”

David Wyss, chief economist at Standard & Poor’s in New York said that "Right now the market is just panicked,” said "Nobody wants to take on any risk.

Everybody just wants to get their money and put it under the mattress.”

Eugene White, an economics professor at Rutgers University who is an expert on the crash of 1929 and its aftermath, thinks that the only real similarity between today’s climate and the Great Depression is that, once again, "the market is moving on fear, not facts.”

As bumbling as its response so far may seem, the government’s actions in 2008 are "way different” from the hands-off mentality of the Hoover administration and the rigid detachment of the Federal Reserve in 1929 through 1932.

"Policymakers are making much wiser decisions,” says Prof. White, "and we are moving in the right direction.” The nation was in the grip of what U.S. Treasury Secretary Ogden Mills called "the psychology of fear.”

The one most cunning similarity between the last big one and the current economic downturn is the political maneuvering around the crisis. This week, a man on the rise repeated the words, "now is not the time for fear.”

The great depression may have helped Franklin Roosevelt to kick president Hoover, a republican out of the white house, for his perceived mishandling of the situation.

This time, Barrack Obama is not about to force President Bush out of White House. He is leaving the hot seat voluntarily with some of the lowest popularity rankings a sitting president has ever had.

And his protégé, one 75 year old John McCain is willing do anything to prove that he does not like he guy he wants to replace and should be privately cursing why the economic crisis has come at a bad time, a bit like how president Hoover should have thought in 1932.

"I can take it (dirty Republican ads) for four more weeks, says Democratic Nominee Barrack Obama” but the nation cannot take "four more years of Bush-McCain economics.”

Contact:kelvion@yahoo.com