UPDATE The US national debt ticked over $US10 trillion for the first time last night. There is no more significance to this number other than it being a big, bad, round symbolic figure.

Though it does serve to illustrate one of the concerns over the $700 billion ($900 billion) bail-out package, that even if it were good policy it's just too damned small.

And it comes at a time when America is about to dive deeper into debt to bail out Wall Street. Interbank rates hovered at all-time highs last night as banks refused to lend to each other.

Meanwhile, stock prices careered down again as a slather of poor economic data and company downgrades all pointed one way...deep recession. In Australia, stocks are back to late-2005 levels.

Is Australia in for a hard landing?

Apart from the layman's observation that global recession is taking grip - and nine of Australia's top ten trading partners are all facing slower growth this year (Thailand being the only exception) - this story should be prefaced by the fact that economists and assorted pundits have not yet deemed Australia to be heading for a soft landing, let alone a hard landing.

The official line remains that there will be no recession at all, recession being a decline in economic activity for two consecutive quarters.

Economists' forecasts are clustered around the number 2.6% for GDP growth in 2008 and 2.8% for 2009.

Economists really ought to show disclaimers such as the ''past performance is no indicator of future success'' which can be found in product disclosure statements.

Or perhaps past performance is an excellent indicator of future success.

Forecast follies

Let's take a look. Where were the pundits clustered before the last recession, not the blip in the aftermath of the dotcom bubble but the big one in 1991-92 which saw a million people out of work?

The prelude to the recession of the early 1990s was characterised by an asset price bubble and excessive corporate gearing levels. Unemployment had fallen to 5.6%, real domestic demand growth surpassed 8% at its peak, and inflation touched 8.6%.

Under the Prime Minister of the day, Paul Keating - who incidentally told the ABC's Lateline show this week that the global financial system was disintegrating and things were far more serious this time around - tightened the cash rate to 17.5% to prick the asset-price bubble. Commercial property and bank share prices crashed. Recession ensued.

What were the forecasters of the day saying? In the 1989 lead-up to the recession, the Government Budget was forecasting 2.75% real growth for 1989-90.

Market economists were gunning for GDP growth to slow to 2% to 2.2%. Not a stretch from the present estimates.

Commonwealth Bank was tipping growth to drop from 4.5% to 1% in 1990, National Australia was gunning for a ''slowdown''. The NAB business survey had the outlook positive and the OECD estimated employment would grow, inflation would fall and demand would rise just as quickly as it had in 1989. There would be no recession, was the tip from the OECD.

Actual outcome? GDP growth in 1990 was 0.65% and the following year the economy contracted by 0.8%.

In December the following year, the OECD was still saying a recession would probably be avoided. In May 1990, the IMF was forecasting growth of 1% after inflation and a rebound in 1991.

Debt binge

What is different this time around?

The critical, and most dangerous, factor is that last time a corporate debt binge was the culprit and this time it is household gearing.

Australia's private debt was less than 70% of GDP in 1990. In 2008 it is 150%. That is a frightening figure. Aussies have borrowed everything from the monster flat screen from Harvey Norman to the car, the share portfolio and the kids' school fees.

It would not be too bold a call to suggest that if there is a hard landing in Australia this time around the human suffering could be far greater than in the early 90s.

On a bright note it should be said that the stock market did rally 30% from December 1990 to December 1991 and the hammering in world markets now is merely part of the cycle.

It is always darkest before dawn. Markets, again, will rebound in anticipation of an economic recovery. Right now, though, it is an almost unassailable conclusion that share prices are factoring in a significant recession.

What else is different this time?

House prices are higher in both real and relative terms, interest rates are lower, inflation is running at 4% versus a peak of 8.6%, the debt service burden is 11.5% of income against a high of 9.5% in 1990, the oil price is five times higher.

Further, the unemployment rate bottomed out at 5.6% last time and this year it's hovered around 4.3%. In 2007, domestic demand surged to 6.6% as the economy hotted up while it hit its straps at a tad over 8% in the lead-up to the 90s recession.

China factor

The shape of the world economy has changed in the last 18 years. China has boomed.

Although Australia's GDP growth has historically tracked the US, this time we are in a particularly fortunate position of having a mining boom (although commodity prices have begun to come off sharply). And Government debt is not an issue.

That said, Australia like the US is a current account deficit country (currently 6.2% of GDP) which means our banking system borrows from the rest of the world to support our lavish lifestyle.

No longer can this country rely on a debt-funded spending spree to fuel a recovery. This is bad news for both the banks and the consumer.

What is the range of views now? The Government is sanguine about growth. Finance Minister Lindsay Tanner debunked ''gloom and doom'' assessments saying recession was unlikely, or at least that calling a recession was ''premature''.

Isn't making premature judgements called forecasting?

Tanner conceded that Australia was not immune to events in the US but was on a more ''solid'' footing. While he could be right, being Finance Minister he does have something of a duty in  ''jawboning'' the economy.

Zero growth

One of the outliers in economic circles, Associate Professor Steve Keen of University of Western Sydney has GDP growth this calendar year at 2% and zero growth for the year to June.

''Today, we owe 165% of GDP - that's more than twice the level of the Great Depression,'' said Keen recently.

''In the US, in 1929 before the big crash, it owed 150% of GDP, now it owes nearly 300% of GDP. So we are obviously in a more precarious position now than in the run-up to 1929.''

Keen has drawn all sorts of flak for predicting a sub-prime crisis in Australia triggered by a mass of loan defaults in the mortgage belts of western Sydney and elsewhere.

The credit crisis he reckons will expedite the deleveraging of households which will culminate in a ''long, deep recession'' the likes of the Japanese experience in the 1990s.

Recession risks

To the market economists then: AMP's Shane Oliver is forecasting a 40% chance of a recession some time next year with Australia to be protected to an extent by mining revenues.

JP Morgan's Stephen Walters says the risks are rising though he is yet to pull back his 2.6% growth forecast for 2009.

Tim Toohey from Goldman Sachs is tipping 2.7% growth for 2009 and Merrills' Peter Osborne forecasts 2.5% growth for 2008 and 2.7% for 2009 with the risk ''on the downside''.

Not one of the mainstream market strategists or economists predicted the events of this year -  not that they could be expected to - and the only pundits who got it right were those who were last year regarded as crackpots and conspiracy theorists.

Some of these ''marginal'' types, operating mostly in the blogosphere, are now looking decidedly bard-like. Their ranks are proliferating, and as officialdom and the mainstream pundits stick to their upbeat numbers, the ratio of ''D'' words to ''R'' words is on the increase in cyberspace.

The proponents of the ''D'' word are not all crackpots by the way. Though at this point a ''D'' would appear somewhat alarmist. An ''R'', however, would seem entirely on the cards.

And the sheer magnitude of household debt would render such an outcome ugly.

mwest@fairfax.com.au

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