Dean Baker, here:[T]he commonly claimed "second Great Depression" scenario is, to use a technical economic term, "crap." The first Great Depression, by which I mean a decade of double-digit unemployment was not locked in stone by the mistakes made at its onset. There was nothing that would have prevented the government from having the sort of massive stimulus spending that eventually got us back to full employment (a.k.a. World War II) in 1931 instead of 1941 and without the war. The fact that we remained in a depression for more than a decade was due to inadequate policy response.
Don't you see? There are no problems which Keynesian monetarism cannot solve, it's just that FDR didn't practice them then, and that Obama is not practicing them now.
Otherwise Baker makes the case for clearing the system the quick and dirty way, the way free markets are supposed to work:
This collapse led to a plunge in GDP for three months, followed by three months in which the economy stabilized and then six years of robust growth. It took the country a year and a half to make up the output lost following the crisis.
While there is no guarantee that the Bernanke-Geithner team would be as competent as Argentina's crew, if we assume for the moment they are, then the relevant question would be if it is worth this sort of downturn to clean up the financial sector once and for all. I'm inclined to say yes, but I certainly could understand that others may view the situation differently.
Once again, the domestic analogy would be 1920, but that's so, I don't know, modern.
