Worse than the Great Depression?

It's widely acknowledged by economists, and supported by mounting evidence, that we're in for the worst economic contraction since the Great Depression. This is not "negative news" the media are inventing, dear positive-thinkers. It is simply reality. Yet it won't be as bad as the Depression, right?

For months, I have been giving a qualified "no" to that question. First, because the safety nets of the New Deal and Great Society, although badly frayed by Republican misgovernance, are still in place. Second, Americans are more affluent — we don't have a third of the nation "ill clad, ill-fed and ill-housed" and millions lacking even electricity. My "no" was qualified because expert opinion got us into this mess and will continue to hold sway — watch as the proteges of Robert Rubin steer the Obama economic plan. Experts were flummoxed by the Great Depression and in many cases carried out policies that made it worse. Expertise is only useful when it grows, as when a man demanded to know why Keynes had changed his view on an issue. Keynes responded: "When the facts change, I change my mind. What do you do, sir?"

Now, however, I am starting to wonder about my reassurances. Friday's report that 533,000 jobs were lost in November alone, signaling that the pace of unemployment is accelerating fast, was a kick in the teeth. Could this recession turn into a depression to rival, or surpass, the 1930s?

It is possible.

Several powerful forces are emerging that seem to go far beyond the typical cyclical moves that mark the average recession. Each is dangerous and, together with the other characteristics of the Great Disruption, they could make for a new era of very hard times:

Debt: Americans are deeply in debt. The ratio of consumer debt to disposable income is now about 140 percent, compared with 70 percent in the early 1990s. The American government is borrowing about $800 billion a year from overseas and much of the perhaps $2 trillion in "rescues" and other "facilities" of late will also be financed by borrowing. These historic levels are obviously unsustainable, but the cracks really start to become obvious as people lose their jobs, values of their houses, etc. It gives foreign governments tremendous power over American policy. But it is also destabilizing to them: What happens in China, for example, when laid-off, foreclosed Americans can't buy as much imported Chinese-made stuff at Wal-Mart? This is a situation in many ways worse than the Depression.

Workers wake up: Cheap global goods and the housing bubble concealed the danger zone into which average Americans had fallen, and it goes beyond debt. Wages have stagnated or fallen over the past eight years. More than two decades of deregulation, wrongheaded trade policy, anti-employee legislation and union busting have eliminated millions of good jobs, in a real economy, with pensions and benefits. The 401(k) casino has been blown to smithereens, and with it a huge amount of the wealth of average Americans. Now even the default move of selling houses or hawking mortgages is gone. And even before these chickens landed, income inequality was at levels not seen since the 1920s.

Credit: The credit markets are frozen at levels that the smartest people in the room have never seen — they're all too young to have lived through the Depression. It's not just that banks are hoarding money — customers are becoming less credit worthy. This feeds a vicious cycle of businesses laying off people, who then can't buy goods, which then causes businesses to lay off more people and close, etc. That's the Depression cycle we were taught back when schools taught history and economics. It also means that a nice, gradual conversion to a less-indebted society of savers is impossible. This is shock therapy.

Deleveraging: Whether by prudent action or the rough justice of the market or bankruptcy court, all the highly leveraged contracts of the bubble years are being "unwound." Much of this debt is based on swindles. As with average investors losing their nest eggs, the wealth is simply gone. Poof. This further feeds business layoffs and failures. It also is helping drive down the price of oil, as leveraged futures contracts go poof — potentially making Americans forget the real future of energy prices.

A ruinous price tornado: Prescient economists such as Nouriel Roubini are warning that these forces will produce a catastrophic deflation. This is exactly what happened in the Great Depression. But there's also the danger of a follow-on wave of severe inflation as "Helicopter Ben" Bernanke deals with the downturn by, as he once said, dropping shrink-wrapped pallets of dollars from choppers. These inflationary forces are already in the pipeline. They threaten to provoke a flight from dollar-based assets, such as all the debt we owe the world.

Mis-allocated stimuli: It's already becoming clear we were defrauded (again) by the big banks in the $700 billion "rescue" passed by Congress. It has neither fixed the credit markets nor staunched the downturn. It lacks strategic direction — besides ensuring continued imperial compensation for Wall Street — and it lacks oversight. It is encouraging the industry consolidation that proved bad for banking and for so many communities. Meanwhile, Detroit will get a fraction of what it sought, but there's little indication this will really change the Big Three's direction, or be enough money if there was the will and vision to do so. Finally, the new Obama stimulus seems heavily focused on highways and driving, with no discussion of investing in the transportation systems we need for the future. The great danger, of course, is not running a giant deficit. It is wasting that deficit to keep the unsustainable going a bit longer.

Chaos: From the bombing in Mumbai to the rebirth of a major threat of pirates to the narco war in Mexico — the world is cleaving into functioning nation-states against chaotic and violent trans-national movements, based on theocratic or tribal visions. Unlike the Great Depression, when America was rich in oil, the violent chaos is heavily concentrated in places with much of the planet's remaining reserves. In the case of India and Pakistan, nuclear weapons stand at the ready. Add to this the debt bomb to which America and China are chained…

So I'm sorry to dump all this on you on a Monday. It not a call to despair, but to hold the new American government for real change. Then hold together, because it's going to be a rough ride.