The US housing recession that began three years ago finally seeped into a capital spending recession at the turn of last year, and only by the third quarter of 2008 did it finally morph into a consumer recession.

We expect to be in recession through to the end of 2009 at the earliest, even with the help from intense monetary and fiscal stimulus before a recovery takes hold in 2010. Sustained negative wealth effects from the slide in housing and equity prices will reinforce the uptrend in the personal savings rate. This, in turn, creates a highly disinflationary environment as job losses mount and pushes the unemployment rate up towards 9 per cent in the US in the coming year.