Bad as things WERE, they're beginning to look better. There has been a deceleration in the rate of economic decline. Certain economic indicators are approaching zero (from below). First quarter earnings, though depressed, are surprising on the upside. All in all, there is light at the end of the tunnel with prospects for a recovery, if not this year, certainly next near. What looked like a relatively severe recession is going to be no more than that, certainly not a depresssion? Right?
There is one scenario that could derail the recovery in this, the modern 1931, for the simple reason that it did so in the original 1931. What's worse, it was basically outside the control of the United States.
As my (Wiley, 2004) book, "A Modern Approach to Graham and Dodd Investing" reported:"The seminal event [in 1931] that turned the global retreat into an economic collapse was the collapse of the Credit Anstalt Bank in Austria, which plunged Europe deeper into a decade-long European depression. (and brought Hitler to power in Germany), while infecting the United States." The followup was that the modern Credit Anatalt could be a bank off shore China, (which has a similar economic importance to the 1930s Germany), such as Hong Kong's HSBC or Bank of East Asia, or possibly a Taiwanese or Korean bank. And if that weren't enough, we also have to worry about other seemingly random events from East Asia such as avian or swine flu. Any way you look at it, China is now on the brink of a recession (de facto, not de jure), and one more pressure point could push it over the edge. With the rest of the world in a recession, the drying up of the one "oasis of prosperity" would not be good news. Vitaliy Katsenelson made a similar point the other day in his post about the Chinese bubble.