(Agencies)
Updated: 2008-03-24 11:07

Which is not to say this time will be anywhere near as bad - partly because, economists note, Federal Reserve Chairman Ben Bernanke is a student of the Depression and appears to be steering the Fed toward avoiding the mistakes of back then.

That may be why the Fed moved quickly to back up JPMorgan Chase & Co.'s lifeline loan to Bear Stearns when it neared collapse.

The Fed dusted off other Depression-era tools, too. It allowed securities dealers to borrow directly from the Fed, a privilege once restricted to commercial banks. And it announced it would lend up to $200 billion to investment banks in exchange for the banks' beaten-up mortgage-backed securities.

The idea is to maintain confidence in the American banking system. If that fails - if more Bear Stearns episodes emerge - it could gum up the entire economy, historians note.

"No one would trust anybody else, no one would be willing to do business," said Charles Jones, a finance professor at Columbia Business School. "And if that happens, the economy would feel that right away. So the Fed is doing what it can."

Another key difference: Today, the United States is just one piece of a complex global economy. A century ago, an American financial crisis was America's problem. Today, emerging economies provide an extra layer of insulation.

"People are still going to eat in China and India. They're going to be buying clothes and cars and airplanes," says Robert A. Howell, a distinguished visiting professor of business administration at Dartmouth. "So I think it's a whole different ballgame."

A better comparison might be the economic downturn that gripped the United States in the early 1970s, a time now widely remembered for long lines at the pump. Today gas is plentiful, but summer drivers face the scary prospect of paying $4 a gallon.

And as David Rosenberg, chief North American economist for Merrill Lynch, pointed out in an analysis this week, the parallels to the 1970s go much deeper than just the shock of record oil prices, which tripled during the 1973-1975 recession and have seen a similar rise in recent years.

Then as now, food prices rose along with energy. Then as now, declining home prices gave homeowners ulcers over equity. And the dollar, which held up fine in the 2001 recession, is falling now even more than it did in the early '70s - 9 percent then on a trade-weighted basis, 14 percent in the last year, according to the Federal Reserve.

One other interesting difference: In the downturns between the '70s and today, the baby boomers used their massive buying power to help spend the nation out of the slump. In the 1970s, they were too young. Today, they are focusing on retirement.

"The mid-1970s is the best template," Rosenberg wrote, "if there is any."

If the 1970s truly are a guide, there's a lot farther to fall.

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