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 UK Daily Telegraph is reporting that an unnamed rating agency is set to cut Britain’s credit rating following yesterday’s calamitous fall in bank shares and the government’s astonishing blank cheque for the banks.

Edmund Conway writes that this is only a whisper, but given the S&P reduction in Spain’s rating just days ago, it has the ring of truth.

Should it happen, it will put up the interest paid on “gilt-edged” government bonds, and filter through to almost every part of the economy.

Unlike Spain and Ireland, however, Britain has the advantage of a free-floating exchange rate that acts as a safety valve for the economy when times are tough. With interest rates approaching zero, more strings become available to pull, despite the apparent loss of monetary control.

However, the astonishing 96 percent fall in the share value of giant international lender, Royal Bank of Scotland — now 70 percent owned by the government — has led to some commentators calling the UK “Iceland on Thames”.

It would be a big blow to the fragile ego of Gordon Brown in particular. He knows that “his watch” has lasted 12 years and a catastrophe will destroy what little reputation he has left.

Should Brown be placed on suicide watch?

One of Britain’s leading economists Peter Spencer, Chief Economic Advisor to the Ernst & Young ITEM Club, has warned that “printing money” to buy assets such as corporate bonds and consumer loans, was needed now or the country faces a repeat of the Great Depression.

“My concern is that people don’t fully understand the dangers lurking out there. The Bank of England needs to move towards quantitative easing immediately – you don’t have to wait until you get to zero percent interest rates. If someone is choking to death you don’t think twice about giving them an emergency tracheotomy. There may be dangers, yes, but the alternative is that they die,” he said.

“We are now in danger of seeing the economy choke: and once you get into a situation where people are hoarding as much cash as you can throw at them and interest rates are stuck at zero, you’re in real, real trouble.”

He continued, ominously, “Our forecasts are relatively optimistic. The recession is already baked in. The question is whether we go from here into a decade of deflation – if they make more mistakes that is pretty much on the cards – or some pretty horrific numbers this year and some positives later on. They have days – not weeks – to play with.”

During and after the Great Depression of the 1930s many people asked the same question.

As it turned out, capitalism wasn’t dead, just undergoing one of its periods of creative destruction, when old practices and outworn businesses are ruthlessly purged.

Free markets are a natural phenomenon, like grass. If you cut grass, it grows back again. So does capitalism. It is government that is an unnatural construct of human ingenuity. Long, hard-won experience tells us it should be limited in size and scope.

John Evans has written a piece on what will happen to capitalism under the title, Is socialism the new quid on the block?

The “failure” of capitalism should be seen as part of a greater failure involving government and its duties to society. These are principally, sensitive regulation of systemic elements of the modern economy, like banks and other financial services, and ensuring monetary and fiscal balance across its operations.

It is now clear that government has failed systemically over the past decade by taking on too much debt, a condition mirrored in consumers’ personal balance sheets, and by serious mismanagement of the regulatory process.

Read Is socialism the new quid on the block?