HOWZAT

And, of course, nobody talks about an end to boom and bust any more. Not least the man who is benefiting so much from the bust that he claimed to have abolished that he might become the first Labour prime minister to be re-elected because of a recession. Gordon Brown, the socialist who saved capitalism, may be the only person in the world looking forward to 2009.

WHAT do all these developments have in common? Hype.

Bankers, traders, executives, politicians, academics, regulators — and let’s face it, most of us consumers — ignored reality. We suckered ourselves into believing that easy credit, rabid consumerism, the house-price bubble and low energy prices would sustain the economic boom forever.

“We all got a bit carried away, didn’t we?” said chef Gordon Ramsay. He should know. He spent the boom years building a £100m global restaurant business based on greed; his for money and publicity, ours for food and fun.

Then, at 9 am Eastern Standard Time on September 15, money died. The collapse of Lehman Brothers and the disintegration of stock markets and evaporation of credit was so sudden, unexpected and catastrophic that it was, as one Icelandic woman, put it, “like watching through a window, seeing something impossible that was happening outside but was not happening to me”.

Now we are all facing a reality check. 2008 will be remembered as the year the financial system turned on a dime, the credit crunch became recession and ever-rising living standards came to an abrupt stop.

The economic landscape is narrower and flatter. Everything is smaller — cars, house prices, pay packets, Vat, even breasts. One consequence of the credit crunch is that the price of breast implants has plummeted as demand has slumped.

Now that the collective conceit is pricked, what’s next? Can capitalism haul itself out of the ditch? The consensus among those financiers and forecasters who have managed to hang on to their jobs is that there is more woe to come.

Observers argue that the housing markets in the leading western economies have still not bottomed out. Analysts at Goldman Sachs and Merrill Lynch believe they will fall another 15%-20%. With little credit available, consumer spending is likely to remain weak.

Bankruptcies will surge — rising from 149,000 in 2007 to 197,000 next year, according to Euler Hermes, the world’s largest credit insurer.

In the markets, equity strategists expect earnings to pick up only in 2010 and think there could be falls of up to 30% next year.

The outlook for mergers and acquisitions is the worst for many years. Paul Parker, global head of M&A at Barclays, expects $2,000 billion in global deal volume next year, roughly on a par with 2004, three years after the dotcom bust.

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

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