Two reasons why another Great Depression is not likely

"We're going into another Great Depression." The continuing market turmoil with the passage of 700 billion bailout package makes those G-D words seem possible for the first time. But I don't think another depression is likely, for two reasons.

First, when you spend time studying the Crash of 1929 and the depression that followed, what stands out the most is that people hadn’t realized or believed the casualties actually happened. But today lots of people already worried about them and the market already digested enough bad news. Although worsen situation could be expected, but people could take actions worldwide at least.

Second, the Great Depression and other panics in earlier years occurred before the Federal Reserve Bank had aggressively grown into its role as "lender of last resort." In the wake of 1873, after a railroad-building boom had swept the nation and then gone bust, companies and consumers alike were left gasping for capital. The same thing happened in the Panic of 1907, while the banking magnate J.P. Morgan gathered New York’s bankers at his home, where they worked through the night until he persuaded them to form a joint pool of capital to pay depositors at bank under threat. Nothing but the passage of time could supply it; the Fed would not be established until 1913. After the crash of 1929, when the Fed was still weak, years passed before the federal government could flood the economy with cash.

Today, however, the resolve of the Fed is not in question; nor is there any doubt that the Treasury Department is willing to provide the financing it takes to get the economy moving again. So it's hard to see how a depression could get under way when so much capital is waiting in the wings.

Put it differently, in the down market, cash flow is not die, instead, diversification is dead. It means that the tightness of the linkages among various assets like U.S. and foreign markets, stocks and bonds, commodities or real estate. Normally, one asset will tend to zig while another zags. But in bear markets, they converge -- and in really terrible bear markets, they move in complete lockstep.