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?

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 — The dow soared almost 1,000 points Monday in one of the most spectacular rallies in history.

Most of the gains came in a rocket surge in the last two hours. You would think champagne corks would be popping around the country. And yet I have not heard one analyst say they trust it. In fact many are advising clients to use it as a chance to sell and reduce their risk exposure.

Why the pessimism? The rally happened on low volume, with the bond market closed. And it was driven by the same factor which relentlessly drove us lower last week. Fear. This time investors, desperate to make up lost ground, are afraid to miss any rally.

We may be near the bottom, but few on Wall Street think Monday’s rally is sustainable.

Watch me talk about the Business 360 question of the week and your responses to my blogs

Following the plunge in markets last week, governments and central banks had their backs against the wall to do something quickly and something that addressed the central issues.

Investors for now seemed satisfied that leaders finally realised the enormity of the crisis and acted decisively.

This is a critical step and should help relieve some of the funding stresses seen in the credit markets.

As Goldman Sachs put it: “Taken together, the latest moves increase the chances that we will begin to see some relaxation of the intense funding stresses. This is because solvency risk should decline as the government offers protection.”

Banks have been reluctant to lend to each other out of concern they won’t get paid back, concerns heightened following the failure of Lehman Brothers.

Even well-run companies have found it tougher to get credit. A well functioning banking system is the lifeblood of any economy.

The question is whether the worst of the market rout is over? It’s unclear. One thing that is clear, had authorities not taken bold steps over the weekend, the selling would have accelerated, further undermining confidence in governments ability to act and further damaging the financial system and economies.

As I mentioned in my previous blog, it’s too late to avoid a global recession. The work of central banks and governments isn’t over.

There are expectations that central banks will cut interest rates further and there’s pressure on governments to stimulate their economies.

This is the worst financial crisis since the Great Depression, coming out of it will be a long and painful process.

Do you think the steps governments and authorities have now taken will be enough to restore confidence?

How long do you think the economic downturn could last and how deep could it be?

Do you think stock markets have already fully discounted the worst of a global recession?

Tell me what you think.

Darling did the age-old shriek of “something must be done” but, in a unique departure for politician, he accepted that he is part of the group that has to do something about it.

Of course he will be attending this weekend’s G7 meeting in a strong position, having announced a £500 billion package that included part nationalizing Britain’s banks, guaranteeing interbank lending and injecting more liquidity into the system.

His bailout has been well received by the financial world and experts alike. In the naughty classroom of finance ministers he can turn round and say: “My hands are clean.”

Darling even admitted that he has been saying he would do “whatever needs to be done.” Even he now realizes its time to stop the talking and do something.

But this shriek of “something must be done” is a bit disingenuous. It is 12 months since the credit markets first seized up, and we are only now getting macro economic policy responses on a co-ordinated scale.

Better late than never — but let’s hope it’s not too late.

LONDON, England — It is not hard to see why the markets have fallen so sharply today.  They believe no-one is at the helm. They believe that the policy responses we have seen so far are too little.

And in this scenario investors want out.

If you doubt what I say, ask youself. What are you doing in your investment decisions? Have you sold or gone into cash? I know we are all waiting to get back into the market, to get some stocks cheap, but is this the time?

The problem is that if you thought about buying last week, when the shares were down, you would have got burned — they fell further. So why do it this week when they might fall further and you can buy them even cheaper next week?

It is the oldest asset falling problems in the world. No-one will buy until they believe the shares have actually hit bottom or are at least bouncing around that area. The so called bottom fishers have not yet arrived.

LONDON, England — What do you expect finance ministers meeting in Washington to say?  I have had some thoughts (below), and I want to read yours:

We, Finance Ministers and Central Bank Governors, met today to evaluate the global economic outlook (and were pretty horrified by how the markets have stuck two fingers up at our responses so far …)

We have committed ourselves to ensuring the stability of the world financial system (but frankly, we don’t know what to do next … Hank’s idea didn’t really work … Alistair’s plan in London was interesting and is getting a lot of credit … as for poor Trichet, not sure what he is up to …)

We believe that our economies are fundamentally sound (hey guys, we have to say this, even though so many of us are heading into deep recession … )

And that we will co-ordinate activity to ensure the return to steady growth (assuming any of us can afford to make an international phone call after we have finally paid the bank bailout plan - Hank? will you take a collect call?)

We commit ourselves to the successful conclusion of the Doha round of World Trade Talks. (Hey guys - don’t forget, we always add this bit into every G7 statement …)

At that point, most of the so-called G7 sherpas decide the G7 ministers need to be removed to a place where they can’t do any more damage to themselves or others.

Now then - add your own touch to this G7 communique.

LONDON, England — I read a few surveys lately that alarmed even me. When asked the best place to keep your money, the stock market, a bank deposit CD, or under your mattress, 45 percent of those responding said under the mattress. Another survey showed 60 percent of those polled said a depression is likely.

Watch me talk about the Business 360 question of the week and your responses to my blogs

Not even I, who has been bearish long before this financial meltdown began, believe a depression is likely. That would imply among other things massive unemployment. I don’t see that happening. A global recession, absolutely. And even that may have been prevented if authorities had responded sooner to the current crisis, including the ill-fated decision to allow Lehman Brothers to fail.

What authorities are dealing with now is a crisis of confidence that has a stranglehold on the financial system, most people have been affected directly or indirectly. You know from my previous blog that I strongly doubt the bailout plan the U.S. Congress passed would fix the economy there.

Now Treasury Secretary Hank Paulson is coming around to the idea that recapitalization of the banks does make sense. It would be a much better use of the $700 billion than just buying up the toxic debt. The bill passed by Congress allows for that, but up until now it wasn’t where Hank and Company were putting their emphasis. It still remains to be seen how far they will go with recapitalisation versus buying up the toxic debt.

The UK government has come up with the most sensible plan to dealing with the crisis, one that has won kudos on both sides of the Atlantic. But what’s still missing is a coordinated global approach for the recapitalisation of banks. It’s needed. A global interest cut and other actions by central banks aren’t enough to restore confidence.

The fallout from the credit crisis is too far along to prevent a global recession. But unless governments pull out all the stops and take radical action, confidence will continue to erode and economies will continue to weaken.  And those fearing the worst may not seem so extreme.

Tell me what you think, do you think governments need to recapitalize the banking system?  What will it take to restore confidence in the banking system? Do you think those who say a depression is likely are right or wrong?

Watch me talk about my blogs and your responses in Business 360

Watch me talk about the crisis