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.

Most Americans realize that every new U.S. president, upon taking the oath of office, faces his/her share of economic problems, none of which originated on his watch.

President John F. Kennedy spoke to this when he said (and someone said it before him), "It's true. Life is not fair. Some men go to war, and others remain at home. Among those who go to war, some men are sent to the front lines, while others stay behind. It's true. Life is not fair."

Still, although each age has seen its share of formidable economic problems, the scope, seriousness, and systemic impact of economic problems facing the new president, be it Democrat Barack Obama or Republican John McCain, may represent the biggest economic decisions since those President Franklin D. Roosevelt confronted upon taking office in the depths of the Great Depression in 1933.

What's one issue likely to give the president more gray hair? The kinds of systemic reforms to lobby for, on the heels of the federal housing bailout of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) following the collapse of the housing market and rise in mortgage defaults, said economist David H. Wang. The housing bailout will further increase the U.S Government's annual budget deficit, which is expected to reach $490 billion in Fiscal 2009, Wang said.

For the second time in four months, the International Monetary Fund has cut its 2008 global growth forecast, citing the worst financial crisis in the United States since the Great Depression of the 1930s.

IMF now expects the global economy to grow 3.7% in 2008, down from its earlier forecast of 4.1% growth, Bloomberg News reported, citing an IMF document it obtained at the meeting of Southeast Asian deputy finance ministers and central bankers in Vietnam. The IMF also said there's a 25% chance global growth will drop below 3% in 2008 and 2009.

In January 2008, the IMF lowered its forecast for global economic growth this year to 4.1%, the lowest since 2003, from 4.4% predicted in October 2007. At that time the IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories was hurting the rest of the economy.

With wholesale inflation running at a 12% annual rate, prices are raging out of control. But Fed Chair Ben Bernanke is wagering that the risk of economic contraction is greater than the damage from inflation. He might be thinking that it took 15 years to get us out of the Great Depression but only two years in the early 1980s of 19% Fed Funds rate to break inflationary expectations after a decade of the stagflationary 1970s.

In 2005, the Wall Street Journal reported that Ben Bernanke was a Great Depression "buff." This makes me think that he is trying to avoid making the mistakes that the Fed made in the 1930s. In so doing, he is spurring runaway inflation. For example, the price of gasoline is expected to rise to $4.00 a gallon this summer with help from $103-a-barrel oil. Back in January 2001, oil was at $24 a barrel -- it's increased at a nice 23% compound annual growth rate in the last seven years. Since oil is traded in dollars, Bernanke's interest rate cuts are spurring a weaker dollar, hence higher oil prices.

The Great Depression started in 1929 with a stock market crash. And it really didn't end until World War II -- which spurred enormous government spending to build a war arsenal. Bernanke believes that a major reason that the Great Depression lasted so long was that the Fed tightened credit, which cut off liquidity when it was needed most.