Economy and Psychology

Why are we going into depression? It's psychology, stupid. You look around and everybody is talking about stagflation. Inflation is below 4%, economy isn't contracting hard (yet), so why is the talk? It's because most of important people in investing business and economy lived through stagflation in '70s. That's the scariest economic impression they ever had in their lives.
That's a huge problem. Economics is not an exact science because economy is a result of human interactions. And in the extremal situations (which is right now!) things which happen are the most unexpected. Almost everybody expects stagflation. Not gonna happen. We are going into real depression, 1930s style. Reason number 1: nobody expects that. Parallels: in 1930s there was banking crisis. Check. Real estate prices were falling around the country. Check. There was credit contagion, even best borrowers couldn't get a loan. Check. Fed fought a wrong war, they tried to hold to the gold standard. Here's the difference. Question is: did Fed wake up in time? I don't think so. In 1930s there were runs on the banks. Not happening now, thanks to FICA (not everything in the New Deal was bad).
The scariest thing right now is the inability of municipalities and other government and pseudo-government agencies to get loans at reasonable rates. If this problem is not solved right now, we are in a big trouble.
What does it mean for investing? I'm trying to think about it. Maybe I'm going to have couple of ideas soon.
Very disappointed in Jim lately. He mostly guessed right about stocks to sell, but because he doesn't advise to sell short on the show, there is no useful advice last three weeks. Oh well, everyone has to do own homework.