It’s official. The U.S. is in recession and has been since December of last year, according to the National Bureau of Economic Research, the folks who keep track of business cycles.

The last two recessions (1990-1991 and 2001) lasted eight months each.  And of the 10 previous recessions, only two lasted longer than a full year. I predict this one will at least match the ones in the early 1980s and 1970s that each lasted 16 months. It may even exceed those, but this is not your typical recession.

This is a recession generated first by a downturn in housing which then led to losses by financial institutions — a full-blown financial crisis, the likes of which we haven’t seen since the Great Depression.

Credit losses and writedowns at the world’s largest financial firms are approaching $1 trillion and when the final ink is dry, that figure will be much higher.

Financial institutions are repairing their decimated balance sheets, hoarding cash, and making it tough to get credit. I suspect this process of deleveraging will last at least another year if not longer.

Oppenheimer Analyst Meredith Whitney predicts that credit card companies will pull back on lending by more than $2 trillion over the next 18 months in what she calls a “dangerous and unprecedented” move for U.S. consumer spending.

So how long will it take the U.S. economy to get back to normal? I spoke with Rob Carnell today of ING. He’s worth listening to on the U.S. economy because he and his team have been ranked by Bloomberg as being the most accurate in their forecast for the past two years.

He told me it could be 2011 before we see more typical levels of GDP growth again, typical being about 2.5 percent growth.   If he’s right, and I suspect he will be, a lot more pain lies ahead for the U.S. economy and other economies as well.

Manufacturing activity in the U.S. is at its lowest level in 26 years and at a record low in the Eurozone and China as companies and consumers pull back.

Oil prices have plummeted by two thirds in just six months as worries about a worsening global economy accelerate.  As one analyst wrote. “It’s hard not to be concerned about the prospects for a multi-year global contraction.  The daily flow of news is unrelentingly negative and comprised of many issues that should take quite some time to resolve.”

The bottom line is this economic downturn is going to be a drawn out affair. Expect a lot more bad news to come, and expect it to come for sometime.

Let me know your thoughts.

Are you pessimistic about when the U.S. and global economies will recover?

Do you agree that it could be at least two more years before growth gets back to more normal levels?

What else could authorities do that they’re not doing to try and speed up the recovery?

Ever wondered why we are so worried about falling prices? And how worrying about them can become part of the problem?

Can a simple sofa lead to bigger problems?

Let me offer my own, real experience: I was going to buy a new sofa this month. I have found the one I like in the color I want

I suddenly realized: Hey, prices are falling. I can make do with my old one until the replacement becomes cheaper, or I will buy it in the January sales, when I might get a bargain.

So this month I haven’t bought the sofa. The shop didn’t get the sale. The factory didn’t get the order.

The same may happen next month, and the month after. Certainly I want a new sofa, but I don’t want to find the same chair cheaper in a month or two’s time.

Of course, by this time the economy will have worsened and I may be more concerned about saving for even worse times ahead — at this rate, the dratted sofa may not get bought until next summer.

Multiply my decision by everyone else and you see how the economic crises — coupled with falling prices — is disastrous.

Now tell me, what changes in shopping or economc decisions have YOU made that, if multiplied, will have a major effect? What purchases are you putting off? What vacations are you not taking, and what home improvements have you delayed?

Let me know, so we can truly see the size and scale of this problem.

NEW YORK — The top executives of General Motors, Ford and Chrysler appeared in front of Congress for the second day in a row Tuesday, to make their case for an emergency government loan.

The three CEOs have said they don’t have the cash to operate next year without help and warned that the failure of the industry would have dire consequences for the U.S. economy.

And yet GM CEO Rick Wagoner, Ford CEO Alan Mulally and Chrysler chief Bob Nardelli arrived for these historic hearings on private jets! That’s right: The men at the helm of an industry so crippled that it has to ask for taxpayer money to survive flew on private jets. And they wonder why the American public is so angry about these bailouts.

Their choice of transportation dominated Wednesday’s hearing. Representative Gary Ackerman, a Democrat from New York said: ” … there is a message here — couldn’t you all have downgraded to first class or jet-pooled to get here? It would have at least sent a message that you do get it.

“If you’re gonna streamline your companies, where does it start? And it would seem to me as the chief executive officer of those companies you can’t set the standard of what that future is going to look like, that you are really going to be competitive, that you are going to trim the fat, that you don’t need all the luxuries and bells and whistles … it causes us to wonder.”

CNN contacted each company who said in various ways that the use of private jets had to do with security and safety requirements. The spokespeople claimed that the companies had already made major cutbacks in travel and corporate spending.

The director of GM news relations added: “We are only doing travel that is absolutely critical to the future of the business. We think testifying in front of the Senate and House to try to secure the future of the U.S. auto industry falls into that category.”

At best this can be chalked up to a public relations mistake. But I think many will also see this as a symbol of what is wrong with corporate America.

What do you think? Is this a legitimate issue — or are we in the media making too much of it? Should government aid come with requirements that the current management step down? Or should these companies sink or survive on their own?

LONDON, England — In the movie Wall Street, Michael Douglas preaches “greed is good.” Well, we know what can happen when greed goes amok.

We’re living in the aftermath of the worst financial meltdown since the Great Depression. And it’s not over yet, there’s more pain to come.

A lot of blame is being pointed at CEOs and bankers who helped sink us into this rat hole, and rightfully so. Now in an act of contrition, the fat cats who have made enough money to last a thousand lifetimes, are foregoing bonuses, saying it’s the right thing to do.

Who are they kidding? Of course it’s the right thing to do, but to call it an act of altruism would be disingenuous.

They are doing it because they know there is plenty of anger at the mess they have gotten us into and it’s their way of trying to placate the public and politicians who have their sights on them. They know more oversight is coming, and they are sensitive to the political winds howling at their backs.

What is clear is the investment banking model as we know it is dead and profits will be harder to come by. Bonuses will be smaller in the future if one is still lucky enough to have a job. And most importantly, the criteria for the bonus model is changing.

UBS, one of the banks hardest hit by the credit crisis, is making important changes to how its top management gets paid. The idea is to put more emphasis on long term performance.

“As of 2009, UBS will introduce a new compensation model. Top management may receive variable cash compensation and variable equity compensation in addition to their fixed pay. A large portion of this variable compensation will be held in reserve and paid out only if the results of UBS warrant it. Otherwise, there will be neither variable cash nor equity compensation. This should bring about a cultural shift in the company. Those who are rewarded will be those who deliver good results over several years without assuming unnecessarily high risk.”

In explaining why they adopted a new compensation model, UBS stated that they felt the old model was too aligned with short-term results, without consideration for the quality or sustainability of the bank’s performance, and that it did not sufficiently take into account the risks assumed.

UBS predicts their bonus plan will be followed by other banks. “I’m convinced this is essential, and the entire financial services industry will have to adjust its compensation models to the new realities,” UBS’s chairman was quoted as saying.

It’s too late to make those responsible for this current financial mess give back their bonuses. But if the UBS model becomes the industry standard, then there might be more sobriety in banks’ risk taking in the future. At the same time, shareholders have to be less focused on short-term profits which also added to the casino mentality.

The acid test will come when times get better again. We can hope lessons will have been learned, making bankers more accountable, with bonuses tied to long-term performance not just illusory short-term gains.

Tell me what you think. How should bonuses be determined?
Should there be a limit on how much they make?

WASHINGTON D.C. –- It was always going to be tough meeting the expectations at the G20 on Saturday. Talk of Bretton Woods II before the meeting inevitably raised hopes that would be near impossible to fulfil.

The fact that 20 nations, representing 90 percent of the global economy were present, merely gave the cynics cause to say nothing could get done — even President Bush admitted as much in his closing statement. Everyone expected an anodyne declaration giving something to everyone; thus nothing to anyone.

But the 10-page declaration proved us all wrong. It is considered, detailed and, yes, it sets out short and medium term goals for the G20.

Let’s remember the salient points: fiscal and monetary stimulus from those nations who can; immediate reform of accounting rules to conform to a global standard; new regulations for derivative markets and better early warning of crises; reform of the IMF and World Bank adding weight for the developing world; and a college of supervisors for cross-border investment companies.

These are not just platitudes. They mean business. Why? Because from what I can see the world leaders are angry and frustrated. Despite the cynics, most leaders go into politics to do some good. They don’t want to spend billions of dollars bailing out banks which should be building hospitals, roads and making life better for the electorate. They are furious that they’re stuck with the worst financial crisis in decades and they’re going to wreak revenge on those behind it.

However, there is an overriding hypocrisy that I found too much to take.

In defining the causes the declaration says “policy makers, regulators and supervisors in some advanced countries did not adequately appreciate and address the risks.”

Policy makers? Some advanced countries?

Surely not George Bush, who has been president for eight years? Or Gordon Brown who was Britain’s finance minister for over a decade and is now prime minister? Even Nicolas Sarkozy was France’s finance minister in 2005! The list of the complicit runs much deeper once you take into account officials in finance ministries and central banks who are still in office.

This is a breathtaking case of “someone was to blame” for the crash, conveniently forgetting they were the people either at the wheel or reading the map.

All I wanted to hear was one word: just one.

Sorry.

My Question: Did the G20 actually make a difference?

Or alternatively: Have the guilty politicians got away with the biggest financial swindle of our time? Watch The Economist’s Philip Coggan answer your questions

BERLIN, Germany — For a while, the German government thought the international financial crisis wouldn’t really affect the country. After all, there was never a real housing bubble here, Germans save money rather then go into debt and, unlike many other western European countries and the United States, Germany still has a huge industrial sector.

But now Germany’s economy has officially taken a nose dive into recession — and many Germans are wondering what’s hit them.

The answer is simple. When the world’s economies decline, the world’s largest exporting nation is bound to suffer.

The auto sector, Germany’s largest and most competitive industry is already feeling the pain. BMW, Opel, VW, and Mercedes have all announced they will halt production temporarily or have already done so because they can’t sell enough cars.

Make no mistake; Germans aren’t the most important consumers for German cars, the world is. In fact the average age of cars on German roads has drastically increased over the past five years, showing that German consumers are not buying.

Now that the world seems to have stopped buying as well, the automobile industry is looking at massive layoffs and temp workers are the first to suffer. Many have already had their contracts cancelled.

The same holds true in the German microchip industry, where manufacturers like Infineon and Qimonda have begun to lay off temp workers.

But to understand the full magnitude of what is going on you have to understand the sheer size of the German export economy. In the past four years, Germany has been the leading export nation of the world with a trade surplus larger than China’s. Germans can export almost anything.

I was in the forests around Berlin the other day and talked to forest owners and lumberjacks. It turns out they were exporting much of their timber to the U.S. as construction wood and now also have to lay off workers since the American housing bubble has burst.

One forest owner told me how a chartered cargo ship with German wood was on its way to the U.S when the contract was cancelled and the vessel had to turn back. “The crisis hit us very suddenly and very hard,” is something I have been hearing a lot.

And of course, even in the case of lumber, there are whole industries connected. Only a short drive outside the forest we found one of the world’s largest makers of laminate wood floors and wooden panels. Of course the company was exporting almost their whole production to the U.S. Now they will have to lay off about 10 percent of their workforce.

The story of the German recession is not one of consumers closing their wallets; the wallets of German consumers have been closed for a long time. Rather it’s a story of people fearing for their jobs and the threat of mass unemployment.

For a long time German politicians said they didn’t think that would happen. Now they have become pretty quiet.

LONDON, England — As the dust settles after an historic U.S. presidential election, the man chosen to be the next Commander in Chief cannot afford to pause and reflect upon the significance of his victory, let alone rest up after the most gruelling and expensive election campaign ever.

What advice would you give to anyone faced with the prospect of losing their job or their home?

The domestic and international goodwill that Barack Obama enjoys today will be short lived.

The millions who voted him into office as an agent for change and the hundreds of millions more around the world who see him as a figure of hope — the man to restore their faith in the United States — face an uncertain economic future.

While Obama doesn’t officially take office until January, he will be involved in decisions taken right now, today, particularly concerning the economy and the implementation of the multi-billion-dollar bailout plan.

He faces a daunting burden of responsibility. People have such high hopes, but as recession bites and thousands lose their jobs and possibly even their homes, his “honeymoon” period won’t last long.

So, while the president-elect appoints some of the best and brightest of minds to his cabinet and gets to grips with sorting out the mess we’re in, we want to draw on the bank of experience that is the CNN audience. You.

Presidents and economic hard times come and go and yet the world keeps turning. Having lived through “downturns” in the past, what advice would you give to anyone faced with the prospect of losing their job or their home?

Many of the people who brought Barack Obama to power were voting for the first time, perhaps too young to have lived through a period of economic gloom such as this.

Just how do you cope with debt and the associated stress? With unemployment and foreclosure?

Watch CNN’s Sasha Herriman talk with Occupational Psychologist Dai Williams about how best to survive the downturn

LONDON, England – It’s been the most expensive presidential campaign in history, a grueling slug fest. But as difficult as the campaign has been, it’s nothing compared to the challenges of dealing with the economy, the toughest economic challenges facing any president since the 1930s.

A deepening recession, consumer confidence at a record low, rising unemployment, the continued fallout in house prices, massive write-downs by financial institutions, the cost of a massive bail out, not to mention the looming huge health costs for retiring baby boomers. 

The reality is that a lot of priorities and promises such as health care reform are likely to be pushed to the back at least for now.

The number one priority for the Obama administration will be dealing with the deepening recession. A second government stimulus package will be pushed out quickly. It won’t turn the economy around, but it will send the right signal.

But the challenges of spending their way out of recession are compounded by the huge deficit that the new administration will inherit.

The deficit for fiscal 2008 which ended in September was $455 billion or 3.2 percent of GDP. Analysts say it could be a trillion dollars for the current fiscal year or more than 7 percent of GDP.

But like so much else in this financial crisis, the immediate goal is getting the financial system and economy back on track; deficit reduction will have to wait.

Bill Clinton realized early in his administration he couldn’t afford to fulfill some of his campaign promises and that fiscal restraint was more important.  It was an act of political courage, and when he left office, the Bush administration inherited a budget surplus.

George W. Bush pushed through tax cuts, Medicare prescription drug benefits and entered into a war on two fronts, and the cost has been enormous. During his administration the national debt has nearly doubled to more than ten trillion dollars. President Bush is leaving the new administration a country that is in a weakened position fiscally.

A lot of hopes are riding on Barack Obama. Not only will his leadership be tested in getting the country through its current economic crisis, but once times get better, it will be tested again in making fiscal discipline a priority.

His economic legacy, and the country’s, is riding on both.

As always I welcome your thoughts.  Are expectations too high in terms of what the new president can accomplish?

LONDON, England — When Barack Obama is sworn in as U.S. president on January 20, 2009 he will be taking office on the usual wave of enthusiasm for a new political beginning, but against a grim economic background.

Barack Obama must act quickly to turn around the U.S. economy.

There’s a much-told story about a couple becoming utterly lost in the back lanes of some rural area and chancing upon an ancient local inhabitant.

Watch Bill Hubard of MIG Investments discuss what President-elect Obama must do to clean up the economic mess

Asked for the directions to their destination, the old man leans on his stick, furrows a wrinkled brow and remarks sorrowfully: “If I wanted to get there, I wouldn’t start from here.”

Obama won’t have any choice, any more than the couple in the story did.

Shortly after the crowds attending the inaugural parade have gone to their homes (assuming they haven’t lost them to foreclosure by hard-hit mortgage lenders), ill tidings will reach the Oval Office: the national income numbers for the fourth quarter of 2008.

They will confirm to everyone but a few academic pedants and hair-splitters that the United States will be well into recession by then.

By then, too, the usual remarkable capacity of the U.S. economy to create jobs will be fully exhausted. The unemployment rate will be rising inexorably.

Add all that to a housing market still on life-support, and the feel-bad factor will be overwhelming.

The U.S. consumer will be in parlous state, and retailers will be licking their wounds after a disastrous 2008 holiday season.

So what will the new president need to do to dig his nation out this sticky economic mess?

In fairness, a start has been made by President George W. Bush’s administration after a hesitant start.

Fingers crossed, the worst of the financial turmoil is already behind us: the banks have been underpinned by hundreds of billions of dollars of government money and U.S. stocks appear to be escaping out of the cycle of volatility that has marked the past few weeks.

Economic forecasters believe the back end of 2009 will see global recovery — without adding any riders stipulating that what the new U.S. president does will alter the outlook.

But it plainly will.

The holder of the most powerful office on the planet can do more than anyone to influence global economic fortunes, especially if he has the support of the U.S. Congress, which holds the key to the awesome power of the U.S. federal budget (albeit painfully overstretched by the bank bailout plan).

So what should Obama be doing? What will be his most powerful tools? How will he stimulate the economy? How will he best use the “presidential bully-pulpit” to instil confidence into a stricken nation?

Should he adjust the duties of the U.S. Federal Reserve to include an obligation to prevent the formation of financial bubbles? Or would he be well advised to avoid extending the boundaries of economic regulation, while perhaps making sure that the existing framework is used more effectively?

How will he lift the housing market off the floor? And should he reach out to those many Americans suffering the distress and humiliation of being turfed out of their own homes because they can’t make the mortgage payments?

Please give us your answers and ideas.

LONDON, England — How long can this go on? We seem to be locked into a terrifying cycle: stocks suffer days of sell-offs, followed by a powerful bounce. But just as we start wondering whether this market slump will follow the same pattern as its ugly predecessors of 1987, 2001 and many others and hit bottom, the same pattern repeats itself.

Traders at the New York Stock Exchange, where share prices have fluctuated strongly during the past few weeks.

It’s three steps back, then one step forward - and over the past few months it’s been repeated more times than I care to remember. To make matters worse, there never seems to be that much rhyme or reason to the selling or the buying. One day share markets worry themselves sick about global recession, then the next day all that is outweighed by some random piece of supposedly good news. A few hours later a renewed slide on stocks in another time zone has investors back in panic mode, and we’re off to the races again.

Market insiders point to several underlying factors, notably the aching uncertainty about where the credit crunch and the world’s leading economies are heading. But they say that what is clearly adding to the volatility is a frenzied scramble by hedge funds to move out of stock markets and also to make money for their investors by whatever means they can dream up. The betting is that they are both creating a lot of the volatility and riding it at the same time.

To add to the craziness, we are seeing some violent swings on currencies, with the Japanese yen and to a lesser extent the dollar (given the relative security of US Treasury bonds) now the safe havens of choice amid the carnage of “global deleveraging”.

With previous sell-offs, there seemed to be a clear end to the selling. It may have taken a while to come along, but in the end the bargain-hunters stepped in and there was a gradual return to normality, and then to sustained growth in share values.

So where are we now? When Warren Buffett said a couple of weeks back he thought Wall Street stocks were a buy, he may have been right about their current puny valuations, but not about whether those valuations could get even punier.

Speaking on Business International on Friday, Robert Parker, Deputy Chairman of Credit Suisse Asset Management, was a lot more cautious, predicting the return to a bull market would not come until the middle of 2009.

That would certainly be a few months before the predicted end to the current global slowdown, which most economists I speak to seem to think will only loosen its stranglehold at the far end of 2009.

What do you think? If so illustrious an investor as Warren Buffett thinks we’re close to the bottom, should the rest of us pile into stocks in hopes of rather decent gains within a couple of years? Or has even he got it wrong? Watch what Tom Hougaard, chief markets analyst at City Index thinks of your opinions