One disastrous international trade policy of the 1930s concerned tariffs: nations increased tariffs on imports to protect domestic industries; when applied universally, it resulted in declining export sales and trade volumes. Tariffs made the Great Depression worse.

Now, it appears, nations are on the verge of implementing another counter-productive policy -- manipulating currencies -- and if public officials are not careful, a similar downward spiral in international trade could occur.

The mainstream media is overflowing with hyperventilating bears preaching about a depression. All fear-mongering aside, we see two very positive developments in the U.S. economy: retail and corporate spending.

1. Retail Spending

The International Council of Shopping Centers has announced that retail sales expanded at the highest pace since September 2006. Luxury retailers posted an eye-popping 8% rise in sales. Seems like consumption is our culture. Some people think the U.S. consumer has changed. Personally, I would never bet against the DNA of a tribe ... and ours is shopping. As my brother Derek said, "In the Great Depression we had bread lines. Now, there are Apple (AAPL) iPhone 4 lines." That is a mind-blowing distinction.

It seems all the news is bad. The little bit of good that's out there is quickly dismissed as something bad overwhelms it. Every day, something new, something bad. As Roseanne Roseannadanna used to say: It's always something.

Sometimes when things seem really awful, it helps to do a little research and look at history, at previous times when everything seemed to be on the road to ruin, that good fortune would never return. So I looked back at some newspapers from the 1930's (the Web can take you anywhere). If you lived in those times, you knew for certain the American way was dead and gone, that nothing positive would ever happen again.

Put this in the category of "we'll believe it, when we see it." There was more speculation in the financial markets Friday regarding a possible move by China to let its currency, the yuan, appreciate slightly versus the dollar in the weeks ahead.

China keeps the yuan pegged at roughly 6.82 yuan to the dollar. U.S. manufacturers charge that the peg artificially undervalues China's exports, giving China's companies an unnatural competitive advantage. China counters that the fixed yuan is necessary for its embryonic, vulnerable economy, and that the world benefits from cheaper goods.

Ah, yes. Tuesday, baseball season, and new NCAA champs. Sigh. Online classified ad growth skyrocketed by 84% in February, according to Hitwise (tip to MarketingCharts.com). The bad news? Craig's List and other free classified sites dominated the growth, further sealing the doom of newspapers. Steve Ruble of Micropersuasion interviewed Jeff Jarvis of "What Would Google Do?" fame (and Buzzsaw, of course) and asked what the future of online advertising was. The reply? Bleak to non-existent.

Readers of this space know that the emphasis is placed on the economic, on commerce, and business trends, with a general avoidance of goings-on inside the beltway.

However, the financial crisis (which spawned federal bank bail-out legislation) and the nation's pronounced recession (which requires fiscal stimulus to end), has meant that things occurring in Washington once again have great relevance for investors.

And one current D.C. development must be evaluated: the House Republican leadership's decision to seek a federal spending freeze for the fiscal 2010 federal budget, The AP reported.

Sales of safes are booming in New York and probably around the United States. (SentrySafe is a large safe manufacturer that probably has an opportunity for an IPO if it's profitable -- its stock would represent another great "fear play.") The price of gold hit $927 an ounce this week. And stock in Smith & Wesson (NASDAQ: SWHC) is up 79% since inauguration day (despite losing $76 million in its fourth quarter).

It's beginning to feel a bit like the period after 9/11 when people went out and bought gas masks, duct tape, and the antibiotic Cipro.

The most sweeping fiscal stimulus in a generation is about to be signed into law by President Obama. It amounts to $787 billion and includes tax incentives, infrastructure projects, renewable energy developments, and payment to state and local authorities.

However, investors appear to be skeptical as indicated by the performance of the markets today for a variety of reasons:

• Some estimate that as much as 75% of the spending will not reach the economy until 2010.
• There are questions as to how many jobs in the United States will actually be created.
• People are uncertain as to how productive the spending bill will be and how much is actually just wasteful "pork."

Last March, I posted on whether we were at the beginning of the Greatest Depression. Back then, my reasoning was that there was $6.1 trillion in financial toxic waste -- in the form of Collateralized Debt Obligations (CDOs) -- in our financial system resting on a sliver, a mere $340 billion, in capital.

Therefore, a 6% decline in the value of that toxic waste would wipe out the bank capital. (I should have added in another $6 trillion in mortgage-backed securities). When you consider that Merrill Lynch sold $31.6 billion of its CDOs last year for 22 cents on the dollar, you realize that toxic waste needed an 80% haircut rather than a 3% one -- and voila -- you've wiped out all the capital!

If you look at some basic statistics comparing the current economic situation with that of the Great Depression, you might think that we are in relatively great shape. Our unemployment rate now is 7.2% -- at its nadir, 25% of the population was unemployed in the Great Depression.

It looks like America has shut down until 2009. And that's probably a good idea because there were so many bad ones in 2008. Bad ideas are like vampires. They charm their way into the good graces of a host society and then they suck the blood right out of them.

Although they all didn't just pop into our lives in 2008, these eight ideas reached a peak of awfulness in 2008:

• Deregulation is good. The wave of deregulation that started in the early 1980s has created enormous problems for society. Sure there were some bad regulations on the books, but just one deregulated industry -- the $62 trillion credit default swaps (CDS) market -- has cost taxpayers hundreds of billions of dollars in the bailout of American International Group (NYSE: AIG).
• If you can lend against it, securitize it. Securitization -- the practice of buying, credit-rating, and bundling loans backed by assets like mortgages, credit card receivables, and leveraged buyout loans -- created the illusion that you could mix risky loans in with safer ones and you could earn above-average returns with no risk. Bad call -- securitization has spread toxic waste around the world from Iceland to Whitefish Bay, Wis.
• Home-ownership is good for everyone. The hungry maw of securitization created enormous demand for new mortgages. And that led mortgage originators to lend to people who couldn't afford to pay back the loans. The $1.3 trillion subprime mortgage market was born and it grew so big that its collapse refused to remain contained. In 2004 Bush bragged about home ownership reaching 69.2% -- three million foreclosures later it seems we should be careful what we wish for.
• Leverage up your balance sheet 30:1 or more. In 2004, the SEC gave financial institutions (FIs) discretion to borrow more money than they had ever borrowed before. Most banks and hedge funds borrowed as much as $35 for every $1 of equity. If they had used their $340 billion in equity to buy the $13 trillion worth of mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs), a 3% decline in the MBSs and CDOs value would have wiped out the FI's capital.

New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman argues, in so many words, that, indeed, the United States must go back, to get to the future.

Krugman's advice for President-elect Barack Obama? Think big. Contrary to selected, conservative arguments about President Franklin D. Roosevelt's New Deal, the reason the New Deal had limited, short-term success was the fact that FDR's economic policies were too cautious, he said.

The New Deal: new life

The New Deal's long-term success and achievements, including the structural changes to the U.S. economy (including Social Security and bank deposit insurance), have proved to be both durable and essential, most economists, including Krugman, agree.

Hence, President-elect Obama should think big from the get-go, Krugman says, and avoid the mistaken belief that 'government spending made the Great Depression worse,' and Obama should move forward with a large fiscal stimulus to put people back to work, for work that needs to be done in these United States.

Fed Chair Ben Bernanke always likes to remind us that he is a scholar of the Great Depression. But I am not sure he has drawn the right lessons from it based on his actions. As Mark Twain said, history doesn't repeat itself but sometimes it rhymes. There are certain rhymes between the Great Depression and the current circumstance. Income inequality and negative savings rates leading up to the current circumstance are the same as they were in 1929. In both situations, high levels of borrowing and lack of transparency were key contributors.

But things are also different now. For example, securitization is at the core of the current catastrophe and so is the globally-interconnected nature of the financial system. There are $13 trillion worth of mortgage backed securities (MBS) and collateralized debt obligations (CDOs) alone and there is perhaps $340 billion worth of capital on the books of leading financial institutions (FIs).

And due to the global interconnections, banks in Germany were wiped out since they bought too much of this financial toxic waste. And this does not even take into account the $54 trillion credit default swap market – which did not exist in 1929.

Twenty five trillion dollars in global market capitalization wiped out. At least $500 billion -- and most likely in excess of $1 trillion added to the United States' national debt. The Fed has loaned money to corporations, added massive liquidity to banks, cut interest, and the U.S. Treasury may invest directly in private banks, if it doesn't nationalize them.

And the currency of the nation primarily responsible for the global financial crisis -- the dollar -- how has it fared?

The dollar has been firm, for the most part, even rising against the euro and British pound. However, the dollar has fallen against Japan's yen. As of Friday at 2:35 p.m. EDT, the dollar had risen 2 cents versus the euro to $1.3382 and 1.5 cents versus the pound to $1.6947, but had fallen one-half yen to 99.33.

Metaphors sometimes oversimplify, but think of the U.S. Congress' 2008 bailout bill (pdf) as a long-overdue oil change for the U.S. economy.

Still, as any driver knows, an oil change is not enough to keep a car running well. You need to have it tuned, and keep all of its engine, transmission and related systems maintained for the car to perform safely. So next up for the U.S. economy: a tuneup.

But regarding the rescue, if it goes reasonably according to plan, the U.S. Treasury, and the companion agencies the rescue creates, will slowly remove distressed / bad assets from the financial system, and in the process both stabilize the credit markets, and equally important, restore confidence in the financial system.

Of course, there's no guarantee the rescue will work as intended, but there was near unanimous agreement in economic and investment circles about what would happen without it: a freezing-up of the credit markets, contagion in stock and bond markets, panic, and a substantial reduction in the ability of companies small and large to function. In short, the worst financial panic since the stock market crash of 1929 that led to the Great Depression.

The U.S. Government's decision Friday to put in place a sweeping program to buy distressed/bad debt to stabilize the financial markets will likely represent the biggest intervention of the federal government into the private sector since The Great Depression of the 1930s. But not everyone is convinced the action is destined to add hundreds of billions to the taxpayer's bill.

U.S. Rep. Barney Frank, D-Massachusetts, is chairman of one committee that will review the U.S. Treasury's/U.S. Federal Reserve's plan, the House Financial Services Committee. He believes the plan will cost taxpayers "ultimately not a great deal. The Treasury will buy selectively," Bloomberg News reported Friday.

Frank added that the bad debt will cost "maybe double-figure billions over a few years. The government will sell the assets back," he said, Bloomberg News reported.

Frank's forecast realistic or optimistic?

Is U.S. Rep. Frank's cost estimate realistic or very optimistic? Economist David H. Wang told BloggingStocks Friday that depends on several factors.

"On the one hand, if we have a two-year period of economic stagnation, the government could end up with hundreds of billions of dollars of extremely-low-grade bonds, bonds that they may only be able to recoup the equivalent of 20 cents or 10 cents on the dollar," Wang said. "Some bonds would be written-off, others reconfigured and perhaps grouped with other investments, with the housing that backs them perhaps converted to other uses."

"On the other hand, if the government intervention broadens the conforming loan category of both Fannie Mae and Freddie Mac, as the legislation is expected to do, this will enable more 'somewhat-risky' mortgage bonds to be purchased, providing even more liquidity," Wang said. "And if the FHA [Federal Housing Administration] also receives more money to refinance mortgages at a lower rate, this will help check the high level of foreclosures."

"Under the latter scenario, net government outlays would be considerably less," Wang said. "Essentially, the issue is this: can the government maintain financial market liquidity, ease risky bonds out of the system, and reduce foreclosures with this plan? Not a simple task, but it is possible, over years."