One more time: Is this the Greatest Depression?

Last year about 20 (out of roughly 8,500) banks failed -- compared to a third of all banks that failed during the Great Depression. (Of course those 2008 statistics fail to capture the magnitude of the failures and de facto nationalizations that happened last year). And at bottom, stocks fell 90% from their peak during the Great Depression; whereas they lost a mere 38% in 2008.

What jumps out at me is that it is not that helpful to compare the worst of the Great Depression with where we are now -- which could be the first inning rather than the worst part. New estimates suggest banks will take $3.6 trillion in asset write-downs before this is all over and that they currently have $1.4 trillion in capital -- this leaves a $2.2 trillion capital gap because banks need to add capital after they take write-downs.

Until that capital gap is closed -- and my hunch is that it could be bigger than $2.2 trillion -- we are in a deflationary spiral. That's because banks are going to be very reluctant to lend money, which will mean that companies and people can't purchase goods. Since 70% of GDP growth depends on consumer spending, that lack of purchasing will cause companies that make goods to cut their prices to get excess inventory off their shelves and then reduce their idle capacity.

This will add to the number of unemployed people who spend less and who can't borrow money to make up for the gap between their expenses and their income. So the companies will cut back further, which keeps the cycle going down. Perhaps economic stimulus can reverse this cycle -- I hope so, because the Fed and Treasury's combined $8 trillion in capital injections and loan guarantees have so far failed to do the trick.

Is this the Greatest Depression? I'd say it's too early to tell.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.