When Americans get worried about the economy, their thoughts turn to the Great Depression of the 1930s. And when an eminent US economist, Martin Feldstein, says America is possibly facing its most serious recession since the second world war, those worries are heightened. Could there be a rerun of the Great Depression?

The names may not be familiar to British audiences but in America they resonate enormously. Bear Stearns, the investment bank that went belly-up last weekend, survived the 1929 Wall Street crash and the Great Depression. JPMorgan, the bank that came to its rescue, is a Wall Street legend.

JPMorgan was the target of anticapitalist terrorists in 1920. They placed a bomb outside its office, leaving one scion of the banking dynasty with shrapnel in his bottom. It was Jack Pierpoint Morgan, son of the original JP, who is said to have got worried about the stock market when his shoeshine boy started giving him share tips, and it was at JPMorgan’s offices that Wall Street’s movers and shakers gathered to try to stem the 1929 crash.

Winston Churchill was on a visit to New York in 1929 on one of the worst days for share prices. Churchill was surprised not to see more frenzy among the brokers until he was told that rules prevented them from running, shouting or gesticulating. Churchill did witness something, though, that has become part of the grim history of the era: a man jumping to his death from a nearby hotel window.

The 1929 crash followed a long, debt-fuelled boom for the American economy, the Roaring Twenties. People wanted cars, radios and the other trappings of the new consumer era and borrowed to buy them. The radio age was even more powerful in its impact than the dotcom era of a few years ago.

Americans thought their economy had been transformed. Irving Fisher, one of the country’s most distinguished economists, opined shortly before the crash that was to see stock prices eventually drop by 90% that shares had reached “a permanently high plateau”.

A serious recession in modern times would be when gross domestic product (GDP) falls by 3% or 4% over two years. Between 1929 and 1932 America’s GDP fell by 32%.

Herbert Hoover, America’s supine president, was powerless. Some 9,000 banks, accounting for nearly half of America’s banking capital, failed. Unemployment soared and stayed high, with little social protection for the victims. This was the “Buddy, can you spare a dime?” era.

John Steinbeck’s novel, The Grapes of Wrath, tells the story of a family of poor Oklahoma sharecroppers and their futile journey from the dust bowl to a new promised land in California. It was published 10 years after the crash and was hugely powerful in its impact.

The effect on Britain was smaller but still profound. The inter-war years led to mass unemployment and misery, epitomised by the Jarrow march of 1936.

Could it happen again? The point man in the current crisis, Ben Bernanke, chairman of the Federal Reserve, also happens to be an expert on the era. The big mistake the authorities made in the late 1920s and early 1930s, he believes, was to allow so many banks to fail, guaranteeing a slump in the wider economy. This was compounded by other errors, including protectionism.

Bernanke’s task now is to ensure that banks are topped up with enough liquidity to keep lending. The Bank of England has come round to the same view.

In 1932, Franklin D Roosevelt campaigned successfully for the presidency with the slogan that Americans had “nothing to fear but fear itself”. There is a powerful echo of that now.

Explore Economics

• Autumn Budget 2007

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• Repossession orders at a record high
• Retailers police industry through database
• Royal Mail demands cash after £279m loss