Are we heading into another depression? I sincerely believe that it is unavoidable, at least for the USA. I doubt it could ever be as bad as the Great Depression of the 1930s.
I also sincerely believe that the US government is trying everything they can to play down the very real and obvious problems the economy is facing. Their reasons for doing this is to try and maintain consumer confidence and their own credibility for the next election. Their methods, though, are quite remarkable; in the past few years lots of indexes and reports have changed so that anyone not paying close attention won't notice what is happening. The unemployment index was adjusted to no longer count anyone who has been unemployed for more than six months, making the 18% figure (nearly as bad as in the 1930s) appear on reports as a more reasonable 8%. GDP and inflation figures have been tweaked as well, to try and make them appear more palatable.
I also think we are unwise to blame "greedy profiteers" at the banks: the banks will loan as much money as they are able to according to the money supply. In a Reserve Bank system, the government can and must regulate the availability of money as well as the interest rates charged on loans. The current US government has kept interest rates low and money supply ridiculously high in order to finance the ever-increasing cost of the Iraq war; in essence, every time you take out a loan in the USA, you are buying war bonds!
I believe there is an attitude in all levels of US government and finance that the USA is invulnerable; that they can do whatever they want to do and there won't be any bad consequences. It is this attitude that is to blame for the current worries, and not the banks which respond only to market forces.
I've thought a little about how this will affect me, and my part of the world. Australia is in the midst of a mining and industrial boom. We have a new government that has cut spending significantly. And our economy is very closely tied to China and Asia. While I believe interest rates here will go up a fair bit - and believe me I know our house repayments will really start to hurt soon, we'll be fairly insulated from the financial trouble soon to affect the USA. I can only hope that Europe also manages to avoid most of the worries as well.
My advice: make subtle plans for the worst. Prioritise your life and work out what you can afford to lose. For instance, my wife and I have discussed it and if it came to it we would both sell our cars and ride bikes to work before we would ever dream of giving up our house. First, though, we could do without home phone or Internet service. This means if we ever do have a really big crunch, we know what we're going to do, which will ease the pain a little.
I realise now I was a bit wordy on that last post. 