Is this country headed toward another depression?

[CARLHAYDEN]

Depression, probably not.  Severe and lengthy recession, probably.

[CARLHAYDEN]

Things just got much worse.

The feds have made it clear that if you are rich, you want piss away as much money as you want and not have to worry as the taxpayer will be stuck with the bill.

I got out of the market when I say just how incredibily out of control the system was, now I'm told that as a taxpayer I'm going to be on the hook for totally irresponsible behavior.

[CARLHAYDEN]

I heard this being floated around at work.  With several major financial institutions biting the dust the past week, my co-workers are comparing this to what happened in late 1929 into 1930 at the onset of the Great Depression.  They are tossing around the idea that this is looking eerily similar to the events 78 years ago.  What say you?  I don't necessarily agree with the idea that we're headed to a depression.  One reason is, the American Economy of 2008, while in a recession, is much stronger than the American Economy of 1929-1930.  80 years has made our economy very strong.  Plus, with several "recessions" in those 80 years, those events have made our economy very resilient and we have been able to bounce back nicely from all the recessions we've had in the past 70-80 years.  I want to get your honest, non-partisan, opinion, though.

“It's a recession when your neighbor loses his job; it's a depression when you lose yours.”
                                                                                                  --Harry S. Truman.

The unemployment nationwide is about 6.5 percent, which is high, and failed business will probably raise that figure, but that's a long way from the 25% that was reached in 1933. 
Who knows, anything can happen.  But a major depression, defined as an any economic downturn where real GDP declines by more than 10 percent, won't have the same flavor as the 1929 crash.

You have to look at the causes of the great depression:  debt, money supply, trade decline, bank failures, and lack of government deficit spending.  And the structures are different today.  The government isn't shy about massive deficit spending, for example.  And banks are FDIC insured.  And the government has taken a kneejerk response to large business failures. As Carl pointed out, we're all on the hook now. 

Also, the Great Depression of the 1930s is two separate events:  an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38.  The US hasn't experienced this type of depression in the post-war period.  Even in the worst period of recession, November 1973 to March 1975, real GDP fell by 4.9 percent.  The current forecast calls for a growth, albeit small, in real GDP over the next few years.

Then again, if you lose your job, it's fair for you to call it a depression.  And I think Opebo makes a fair point about the widening gap, which doesn't show up in most of these economists' definitions.  The income inequality has been increasing for some time now, just as it did in the 1920s, and it is something to keep in mind.  Top five percent in terms of wealth seeing massive income increases, while the bottom 20% are seeing small increases, or none.  Ominous, for sure, but not as bad as in the Roaring Twenties.

Also, the core problem over the coming decades will be ecological in nature.  Soil erosion, unsustainable population growth, anthropogenic global climate change, more frequent tropical storms, and the like.  I think this may have a bigger economic effect than is currently realized, so if any depression does occur--and I don't think it would be as staggering as that of the 30s because of safeguards and knowledge learned--it would definitely have a different flavor.

While I agree that its unlikely that unemployment will be allowed to go much beyond ten per cent, and the government will pump massive amounts of money into the system, I am really concerned that the system has been really screwed up so that those who run amok are bailed out by the responsible people.

Why bother creating of saving when those who destroy finanicial institutions gain by their deceits and those who act responsibly are soaked with the bill?