Depression, he says, “will not happen on my watch”. Remember his 10-year refrain when he was Chancellor of the Exchequer? “No more boom/busts.” This is evidence, as if we needed any, of how much reliance we can place on his promises.

Britain has had the biggest housing bubble in its history, and is now enduring the consequences – a sustained downturn into a bust that would have happened even if the US mortgage lenders had been as prudent as Mother Theresa.

Re-writing History

The Prime Minister lives in a virtual world in which he re-writes the rules of the economic landscape when it suits his political agenda. He has abandoned his 10-year prognosis – that the economy always goes into recession after a sustained bout of property speculation. Now, we live in a new economy of his imagination.

Apparently we are living in a “new global age” – in fact, Britain led the world into a globalised economy in the 19th century. This was interrupted early in the 20th century for the same reason that global trade has been interrupted in the 21st century –you guessed it – land-led property boom/busts.

The magnitude of the current crisis, which actually began in the real estate sector in countries around the world, is magnified because all these property cycles were synchronised by the first global business cycle.

Not on My Watch

But the economics of today’s boom/bust is no more than a mundane repetition of the postwar boom/bust on which Brown claims to be an authority. The result, warns Brown in his speech on January 12, will be “rises in unemployment becoming permanent…whole communities written off…lasting damage in our economy and a bigger bill to pay in the future”.

All of which he claims “will not happen on my watch”. Just like there wasn’t going to be a property boom/bust on his watch at the Treasury.

But Halifax and Nationwide are not alone. Liberal Democrat Vince Cable is the only politician to come out of the economic crisis with reputation enhanced. Though we mustn’t forget that, back in 2003, he predicted “the housing market is about to crash”. It didn’t, and couldn’t.

In 2002, the Centre for Economics and Business Research announced that the price of the average house would triple by 2020. They won’t, and can’t.

Why do they all get it wrong? According to Parkash Loungani, a top IMF economist: “One theory is that the information needed is lacking: forecasters either do not have access to real-time information or lack reliable models for translating information into predictions of a recession”.

Looking In The Right Places

The information is not lacking – it is all there, but forecasters need to know what they are looking for. A reliable theory does exist to make sense of the property market. Vitally, it tells us about turning points in the economy at large and has worked brilliantly over the last two business cycles.

The Renegade Economist team spells out that theory at our Workshop on January 24. Our forecast will be offered to those who really want to understand what’s going to happen.

When Halifax and Nationwide muster the pluck to re-emerge, will their models have changed significantly enough to offer knowledgeable insight? My bet is that they continue to rely on educated guesstimates.

Three years ago they laughed when I forecast a depression. Economists were emphatic: governments had learnt the lessons. By definition, therefore, they were determined that there would be no return to the 1930s.

Which is why economists are now bringing to bear their most potent weapon: the elasticity of language.

The State of Denial

Ordinarily, a recession is defined as six months of negative growth. So what does the UK now face? The Daily Telegraph (Nov. 3) asked George Magnus, senior economic advisor to UBS, the bank that carelessly lost $42bn (£25bn) of its assets.

Mr. Magnus, apparently, is gifted with foresight. And in his view “the current crisis [will not] descend into a full-blown depression, but rather a recession that will last for around two years”.

Economists like to glibly skate over recessions as “technical” events – awkward interruptions to business as usual. In their lexicon, there is no definition for a depression. America suffered three years of negative growth (1929-31), which is the closest they can get to choking out a description of the pathology of economic abnormality.

So is it a Depression?

When politicians retreat into a state of denial, we can expect matters to deteriorate even further than the worst nightmares of their economic gurus. Gordon Brown is the archetype of a leader incapable of analysing the economy in realistic terms. Fresh from apparently saving the world’s banking system, he now tells us that the UK will be reluctantly dragged into recession on the coat-tails of everyone else’s demise.

Yet, according to the European Commission, Britain will suffer a deeper downturn than the other large EU countries. But even the Commission expects a recovery in 2010. Given that its models have so far failed to predict the downturns, why should we have confidence in their forecasts of the upturns?

In the absence of technical definitions we just have to sit back and wait for events to unfold. And then define, with hindsight, what turns a recession into depression.