Franklin Delano Roosevelt was nothing if not an optimist. Despite being faced with the greatest economic crisis in American history, he was determined that the United States would one day emerge from the Great Depression as a stronger, more prosperous nation than ever before.

At the same time, Roosevelt acknowledged in his famous first inaugural address that the power of fear could all too easily hold back the American people from dealing with the Great Depression and the massive challenges it presented. That's what he meant by “the only thing we have to fear is fear itself.” It was only fear that was the big problem, not the actual economic challenges confronting the American people. To be sure, those challenges were formidable, but Roosevelt was sure that if people put aside fear, they would be better able to face them.

With this speech, Roosevelt was encouraging the American people to look forward to the future with hope, confidence, and optimism. He realized how debilitating fear can be, how crippling it is to the human psyche, and how it can sap people's strength and moral fiber.

That being the case, he wanted the American people to put aside their fears and concentrate on the bigger picture. This way they would be much better prepared psychologically for the numerous challenges ahead.

The quote is from President Franklin D. Roosevelt's 1933 inaugural address from 1933. Here is the whole quote:

So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself -- nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.

And yes, the historical context is the great depression. Roosevelt was warning against the kind of fear that paralyzes the population and prevents individuals from making positive steps to extricate themselves from a bad situation. What was saying is: Go out and spend some money... go to a movie, buy some ice cream, give a friend a job, help your neighbor. Don't let fear force you to cower in the corner doing nothing; this will not help you or the economy.

Now, of course, there are times when fear can be a reasonable response to a situation and hiding oneself away can be an act of survival, but an economic depression, according to Roosevelt, is not such a time.

Fear is a powerful emotion that can cause people to behave badly. Fear of the unknown caused the Puritans to believe in witchcraft and led to the destruction of many lives. This is an example of allowing fear to overtake your whole being, so that a person will do anything he/she has to in order to quit being afraid. On the other hand, I don't believe admitting that you're afraid is bad as long as you don't allow it to control you.

Fear can be a positive motivating factor as well. I have a senior student who had slacked off at the beginning of the semester. His grades fell greatly, and he was told he might not graduate. His fear of not graduating with his classmates and of disappointing his parents motivated him to do extra assignments, to come to school every day, and to get his homework in on time. 

I don't know if you've been reading or listening to the news about the fifteen-year-old girl from Ireland who committed suicide due to bullying, but I think this is a perfect example of how fear can have a positive and a negative effect. I believe people who bully others are cowards who are afraid of being picked on or embarrassed themselves. They allow their fears to cause negative results. Those who are being harassed are also afraid to have to deal with the bullying on a daily basis. Their fear, rightfully so, becomes the motivating factor in their lives. The young, Irish girl's fear of being further harassed resulted in her death. Hopefully, however, something positive will come from this situation. It has brought the situation of bullying in our schools to the forefront, and now something can be done to make schools, parents, and students more responsible.

FDR used this phrase to positively motivate American society to remain hopeful instead of giving up. If we become too afraid, we then allow others to control us, and we no longer have control of our own lives. FDR wanted to inspire Americans to respond to a bad situation by doing something positive and not allowing their fears to keep them from reacting at all.

This phrase was invented by President Franklin D. Roosevelt.  It was one of his responses to the problems of the Great Depression.  He was trying to tell people that their fears were contributing to the bad outcomes that they feared -- sort of a vicious cycle.

As far as how this relates to the idea of fear, I suppose that the main thing it tells us is that fear feeds on itself.  Once we come to be afraid of something, we convince ourselves to be more and more afraid of that thing.