Bank runs, financial crises and extreme emergency measures have investors on edge. The media is doing its part by playing on those fears, producing headlines that lack the proper context. The headlines on September 29 said it all, with all the media yelling about the biggest decline point of the Dow Jones Industrial Average in history! Never mind that it was only the seventeenth largest percentage decline (which is still bad, but not bad “collider”), the media are trying to harness fear to increase attention and audience.

All that fear is prompting many people to ask the question: is depression looming? The races at Wachovia and Washington Mutual were stark reminders of that seemingly, but uncomfortably too real, era that is now over. If fear is enough to collapse the largest savings in the country, what else is vulnerable?

Lost in the confusion of doom-flavored noise, as websites spring up overnight promoting lists of bankruptcy predictions, there are some huge fundamental differences between then and now.

There are two main distinctions, rampant systemic fear and deflation. A closer look at the two will easily demonstrate why depression is not even a remote possibility.

First, bank failures in the early 1930s were numerous and crippling. Many people think that the IndyMac, Wachovia and Washington Mutual collapses are doomsday scenarios. But looking back, from late 1929 to 1933, 35% of all bank deposits were lost or withdrawn. The bank runs of that time were not controlled.

In 1929, banks were typically city savings banks, operating one or two branches. There were some bigger banks, mostly in New York City. When the stock market crashed and the housing bubble burst, it caused panic in New York banks, some of which failed. The depositors of those failed institutions lost everything, since there was no FDIC. That knowledge sparked some local bank runs, as people feared losing their life savings.

So, without safeguards, bank runs spread across the country. The good institutions failed as much as the bad ones. All it took was rumors. Because these small banks were like islands, they had no way of paying a series of deposit withdrawals; they could not claim mortgages or sell them, since there was no market. When the cash in the vault ran out, the bank sought protection and closed its doors, usually forever. Depositors who did not withdraw their money lost everything.

Could a cascade of bank runs happen again? Not likely, as the FDIC guarantees up to $ 100,000 in deposits at a single bank. And indeed, despite the well-publicized troubles on Wall Street, only twelve banks have failed this year. While some people may fear a shaky bank, that guarantee is enough to keep 98% of depositors safe according to the ABA’s April banking survey. In the Wachovia and Washington Mutual cases, no depositor lost any of their money. Their accounts were simply transferred to different banks with no delay in access: Citigroup has seized and guaranteed all Wachovia depositors, while JP Morgan has guaranteed Washington Mutual accounts. Current statistics from the Federal Reserve show that the money supply and total bank deposits continue to grow (a full year after the crisis started) without drastically decreasing.

Deflation is the real reason there was a Great Depression. The contraction of the banking system generated deflationary pressures that turned a severe recession into a depression. When you take a step back and think of money in its most basic terms, in addition to being a store of value, it is also a medium of exchange. You work a job in exchange for money that you, in turn, exchange for the basic things you need. You save money to exchange it for basic necessities at a later date. If both your savings and income are threatened, without an immediate alternative source of cash, you will be forced to use another medium of exchange.

What happened in 1930 and 1931 was exactly that. Without the ability to earn more money (increased unemployment) and loss of savings (bank failures), people were forced to use other assets in exchange for basic needs. The massive sale and barter of household goods and assets reduced the prices of all goods and assets in the economy. In response, the economy had to contract dramatically to reflect a lower price of both assets and the profitability of doing business.

The deflationary spiral became self-sufficient. Those without money had to keep trading at ever lower prices. Those who had money clung to it out of fear and anticipation of even lower prices. The net effect was an almost complete halt in economic activity.

From 1929 to 1933, the general price level of the economy fell by 25%. Those price drops were broad-based, an exact reflection of all economic sectors.

The double whammy of the credit impact of bank failures (including 10,797 banks that closed) plus deflation caused an incredible 45% decline in GDP over the same period. Projecting that into today’s economy, we would have to see a $ 6.4 trillion decrease in economic activity over a four-year period.

There are serious problems in the financial system and a recession is already taking place in this first full year after the start of the crisis. But this contraction will not be as severe as the 9% drop in 1930 (the first year of the depression) or the 13% drop in 1932 (the worst year of the depression). The banking system will not suffer double-digit drops in deposit account levels, even if there are larger financial failures. That should be the headline in newspapers and 24-hour news channels, not end-of-the-world hyperbole.