THE severity of the current economic downturn has been likened to the Great Depression of the 1930s by the new deputy governor of the Bank of England.
And he raised the spectre cited by other economists that the combination of market upheavals and soaring oil prices could trigger conditions similar to the depression that started in the late 1920s and dragged on for a decade.
His warning came amid reports that the International Monetary Fund (IMF) has scaled back forecasts for global growth made just a month ago.
The IMF is predicting world growth of 3.9 per cent in 2008, compared to the 4.1 per cent estimated in its July World Economic Outlook. It also forecasts growth next year of 3.7 per cent instead of 3.9 per cent.
"It's fair to say that if you look at the shocks impinging on us this is at least as challenging a time as back in the 1970s," Mr Bean said at the annual conference of the world's top central bankers in Jackson Hole, Wyoming.
"Some people have said it's as big a financial shock as the Great Depression and as far as the oil shock goes the rise in oil prices is in the same order of magnitude that we had to deal with in the 1970s."
"Last year this was a financial crisis that we thought with a bit of luck would be over by the time of Christmas, but it has dragged on for a year and looks like it will drag on for some considerable time further yet," he said.
He and his colleagues are facing the biggest financial challenge of the last 40 years, with the threat of a slowing market and rampant inflation conspiring against the Bank to immediately cut interest rates.
Inflation is running at 4.4 per cent – more than double official targets – and is set to peak above 5 per cent driven by surging food, fuel and energy costs.
Even when the markets looked like they were improving, another "grenade explodes" bringing fear of sustainability to financial institutions, Mr Bean said.
"We have our fingers crossed but there is the recognition there is still quite a long way to go yet."
Mr Bean added that he hoped that the economy would grow next year, despite official figures last week signalling the end of a 16 year boom.
Inflation "should drop back" into next year, he said, in remarks that will fuel hopes for borrowers of interest rate cuts.
His warning was echoed by Sir Peter Burt, the former governor of the Bank of Scotland.
But Sir Peter appeared to take a swipe at new accounting rules imposed on banks and called for the government to ensure that no other financial institution would go bust.
"I hope the Bank of England are doing more than just crossing their collective fingers." he said.
Tough new rules made it more difficult for banks to lend and these rules had been like "pouring petrol onto a bonfire".
"The Bank of England must be prepared to act as lender of last resort. We cannot afford to let a major bank collapse," he told BBC Radio 4.
A bank closure would "lead to the dominoes falling like crazy" with knock-on effects for all parts of the economy.
The government's insistence that the newly nationalised Northern Rock pay off £25 billion in 12 months was taking that amount out of the mortgage market, he said.
David Kern, an economic adviser to the British Chambers of Commerce, said: "We certainly believe that the impact of the credit crunch is going to take some time to sort out and it may be prolonged."
But if the right measures can be taken by the government and the monetary policy committee, they can avoid a major recession."
Vince Cable, the Treasury spokesman for the Liberal Democrats said Mr Bean's comments showed that the government and Bank of England were powerless to do much about the British economy which was "to a large extent in freefall".
Devastating outcome of collapse in confidence
IT STARTED with a stock market crash in the United States in October 1929, but soon no major industrialised nation was left untouched by what became known as the Great Depression.
The decade-long economic collapse was a time of runs on banks, falling prices and rising unemployment of a magnitude that has not been replicated since.
Thousands of investors lost their livelihoods when the New York Stock Exchange prices collapsed on Black Tuesday in October 1929. Within three years, shares had plunged to just one fifth of their 1929 values.
Nearly a third of US banks had failed by 1933, dramatically ending the speculative boom that had underpinned the 1920s.
This in turn knocked the confidence out of other parts of the economy, triggering a huge drop in production as the US imposed tariffs in the belief that this would protect it.
The impact soon spread to the United States' greatest dependents in the post First World War era.
The most affected was Germany, where the poor economic conditions had profound political consequences, with the rise of Adolf Hitler.
Britain's export sector was also hit and unemployment more than doubled from one million to 2.5 million in one year.
In industrialised cities such as Glasgow, a third of the working-age population was unemployed.
The Great Depression – a term coined by Lionel Robbins, a British economist who taught at the London School of Economics – was only ended by the militarisation in the run up to the Second World War.
Workers were needed to fulfill the generous armaments contracts .
(Hasn't worked this time. Cheney, Bush, McCain and all of the other foul smelling Neocons want endless war and have made no secret of it. There are no military-industrial-complex contracts more generous than the no-bid contracts of the Bush/Cheney administration. No matter, America is in the hole from hell economically and war is not the answer to our economic woes. After all, Bush came into office with a huge surplus. That surplus was shot to hell in his first administration. That was no accident. Breaking the back of the federal government was always part of their goal.)
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The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
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