This is not meant to be political, and in fact the executive branches of both parties seem aligned:
The people who have been running the show for the past decade have been bankers. Whether we are talking about who is running the Treasury or who is running the FED (DUH!), these guys represent the banks.
The 1930's depression was started by a bursting stock bubble which pulled the banks along for the ride. This mess was started by the banks which pulled the stock market down for the ride. The results are similar, but the causes are a bit different.
We should have gone into recession in the early 2000's and stayed there for the requisite year or two and then had a normal business cycle recovery. Instead, partly because of the credit freeze after 9/11, money flowed into the system without letup. So much money, that risk went out the window. We had a additional psychological issue that during the 1990's stock bubble, we got used to seeing P/E ratios of 20 or more as normal. The bear market rally (yeah, I'll call it that) of 2002-2007 continued this expectation, despite the fact that historically P/E ratios of half that number would be the norm. So our current fall is from loftier heights and the expected drop will be that much less pleasant.
That said, less than a year ago, the price of oil (and other commodities which went along for the ride - maybe because of ETF linkage) was stressing nations to the breaking point. My suspicion is that, when the bubble finally popped, other national banks in conjunction with the FED bought dollars to push the price lower. When we entered the post-Lehman era, the Treasury/FED realized that it would have to borrow massively to finance the banking system and other financially struggling "strategic" businesses (like automotive, insurance, etc.). They found that with the strong dollar, especially with their ability (despite their protestations that they couldn't do it) to keep long term interest rates low, they could dramatically reduce long term debt service on their borrowings. This (and the unfortunate sinking of competitive economies worldwide) allowed them greater flexibility to borrow than they otherwise would have had.
Unfortunately, these very factors are a glaring hardship for American business interests abroad. An "expensive" dollar makes exports harder to sell and causes currency translation losses on P/L statements.
Because of their backgrounds and their concerns, they seem willing, for at least the current time, to trash our businesses and equity marketplace for the benefit of what they interpret as the financial well being of our country. I suspect that they will continue until they are forced, by increased unemployment (unless they figure out some government program to directly address this - maybe that's the logic behind the stimulus package) to relent and let the dollar fall (if there is any world economy left to fall against). I figure, they have to stoke inflation up (both price and wage components - or our standard of living will plummet) in the next 6-9 months in order to address next year's Alt-A and ARM mortgage reset problems.
In the meantime, the profits of companies across the country are going to suffer.
The question begs - what is a valid P/E ratio in times like this? Probably in the 4-8 class. We are still accelerating into recession (depression), in part due to these actions and I would pose the following as food for thought:
If you were going to make an investment (regardless what vehicle you are using - bonds, stocks, commodities, whatever), you would want to make, say 7%-10% per year - else, why bother. Looking forward into this scenario (currently deflation, followed by inflation next year), that would force you to discount earnings significantly from those currently publicized by S&P for instance and thereby come up with even lower valuations than the market is currently at.
The equity market is strictly a side show to the bankers compared to bonds and they have little interest in supporting it when they feel their primary interests are in jeopardy.
Be careful out there - we still have pints of blood to spill before this is over. While these is talk of "maximum pain" and capitulation, remember that even some paranoid individuals have enemies :-)