Gordon Brown, former British Chancellor, now Prime Minister, has come in for weighty criticism in recent days for his failure to spot and stop the runaway disaster that is the British economy.

Lord Turner, new head of the Financial Services Authority (FSA), blames Brown when Chancellor for the failure of regulation which led to catastrophic losses at Northern Rock, HBOS and RBS.

“They existed within a political philosophy where all the pressure on the FSA was not to say ‘why aren’t you looking at these business models?’, but ‘why are you being so heavy and intrusive, can’t you make your regulation a bit more light touch?’,” he said.

“We were supervising people like HBOS within a particular philosophy of the way you do regulation, which I think in retrospect was wrong. I think (the FSA’s actions were) a competent execution of a style of regulation and a philosophy in regulation which was, in retrospect, mistaken.”

Similarly, Bank of England Governor Mervyn King claims he has been shouting warnings for years about risky lending without any response from Brown.

It is on the record that Brown delivered a speech in the City urging them to take even greater risks.

The Prime Minister is now trying to cover the mess up by throwing the kitchen sink at sacked RBS boss Fred Goodwin’s enormous pension. Significantly this was done as the Treasury unveiled its third bank bailout in the form of a £325 billion insurance scheme for desperate RBS.

Meanwhile the head of the Audit Commission, Steve Bundred, warned that public debt is at “Armageddon levels” and will exceed two-thirds of the entire annual economic output of the country.

As Brown heads for Washington to try to convince the new adminstration to set up a “global regulatory system” the rest of us should ask why we should believe him now when he failed so spectacularly for 12 years.

The International Monetary Fund, as predicted, is now forecasting that British gross domestic product will contract 2.8pc this year, worse than the U.S., the eurozone and Japan.

Last year we reported here on the first use of the “T” word (trillion) for losses across the banking sector. Now we’re into the “2T” word, a graphic indication of how much conditions are deteriorating around the globe.

The IMF expects the US economy to contract 1.6 percent; Japan to shrink 2.6 percent and the eurozone to decline 2 percent. Overall, the IMF expects the global economy to expand 0.5 percent, its weakest showing since the Second World War.

Economists at the IMF also estimated that bank losses may reach $2.2 trillion, almost twice the $1.4 trillion the organization predicted in October.

It warned that, “unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth.”

In Britain, the bank bail-out is already projected to take national debt to 8 percent of GDP, and today the Institute Fiscal Studies warned that national debt levels are unlikely to return to the pre-crisis levels for more than 20 years.

The difficult question of when the current financial/economic slump will end is fraught with complications. However, the answer is really quite a simple proposition.

Assets prices are falling so fast, no financier can back them until a loan against them is guaranteed against loss.

What that means is that asset prices have to find a floor. Only then will the real economy find willing partners in the financial economy and finance start to flow. When will that happen?

Guesstimates vary from the ridiculously optimistic — the British Treasury forecast — to the ridiculously pessimistic — “never”.

In between, the more realistic: “2012″.

From there we may see a slow growth back to financial and economic health, but it will need a sea-change in regulation and business administration. In particular we need to create bulkheads against the madness of globalized swings that can disrupt the strongest of economies. As David Brook wrote in the New York Times:

“We’re living in an age when a vast excess of capital sloshes around the world fueling cycles of bubble and bust. When the capital floods into a sector or economy, it washes away sober business practices, and habits of discipline and self-denial. Then the money managers panic and it sloshes out, punishing the just and unjust alike.”

As the BBC’s Business Editor, Robert Peston points out: “If you combine consumer, corporate and public sector debt [in the UK], the ratio of our borrowings to our annual economic output is a bit over 300 per cent, or more than £4,000 billion [six trillion dollars].”

Those numbers make even 2012 seem optimistic.

The only safe answer is, “Rebuilding starts when there are no more cliffs to fall off.”

A version of this piece appeared recently on The Money Log.

It was hardly a well-kept secret. The Bank of England had received a raft of appalling numbers from the real economy this week. It was bound to cut rates deep today.

An hour ago, the Old Lady of Threadneedle Street duly obliged and cut by 100 basis points to two percent, the lowest figure since 1951.

It is clear that this is going to be a steeper and longer slump than most forecasters would own to until very recently. Next year will see the deepest of economic winters across the world.

Reflecting the gloomy forecasts, other central banks are slashing rates too.

Sweden’s central bank today cut its key rate by a record 175 basis points, to two percent, the largest since 1992 when the country famously nationalized its major banks.

New Zealand also announced a cut of 150 basis points to a five-year low of five percent. Further cuts are on the cards.

Indonesia made a surprise 25 basis-point cut to its rate, to 9.25 percent.

Yesterday, the Bank of Thailand cut rates by 100 basis points to 2.75 percent, some of which may have been due to recent political turmoil in the country.

On Tuesday, the Reserve Bank of Australia surprised markets with a 100 basis-point cut to 4.25 percent.

The European Central Bank is expected to cut again today, but signals are mixed. The Shadow ECB has called for swift, deep cuts from its current rate of 3.25 percent. However, voices close to the ECB warned not to expect them. The lack of a strategy is a major criticism of the “Bank without a Treasury”.

All bank authorities are aware that 2010 is the year when inflation will return with a vengeance if a prolonged deflation can be avoided. Most are fighting the latter tooth and nail, while making noises about having the medium term under control.

We shall see.