Whether there will be a recession is a moot point, but there is certainly more turbulence to come. Sometimes an economic downturn happens as a result of a series of factors beyond anybodys control. But even where an individual, organisation or institution is at fault it is normally impossible to avoid the consequences of past mistakes. Attempts to soften the consequences of financial market turbulence merely prolong the agony. The efforts of George Bush and the Democratic Presidential candidates in the US to aid the economy by increasing the budget deficit and by subsidising people who have lost money will lead to difficulties in the future. We should not make that mistake here. Neither should we cut interest rates dramatically as the Fed has done.
Where did the current problems originate? If we only had to deal with the fallout of the US sub-prime crisis, we probably need not worry too much. But there have been policy mistakes here too. The Bank of England may have made some minor mistakes though the judgements it has had to make have been difficult ones. The Government, though, has made some big errors that have contributed to the current problems and which will make recovery much more difficult.