Financial crisis has hit the common man's agenda

The most immediate effect of the financial crisis is the destruction of housing and financial wealth, especially in the equity markets.It is estimated, for example, that US employees with 401k pension plans may already have lost $2,500 billion in the retirement accounts since the start of 2008.

And the defined benefit pension plans run by companies, especially in countries such as the US, the UK and the Netherlands, will have suffered losses of hundreds of billions of dollars as a consequence of the bear market in equities.

This is not just a problem for employee pensions, but if the funding implications end up bankrupting the companies, it is a much bigger problem for the economy.

In my view, the recession, itself, is likely to be neither short nor shallow. Such is the nature of what we call `de-leveraging' recessions, when economies have to dismantle the complex debt burdens and structures that thrived in the previous boom.

This means much higher unemployment and cutbacks in business investment. These two outcomes go to the heart of the kind of things we have to pursue to adjust to aging societies, namely to augment the labour supply and raise productivity.

I believe, since there is considerable doubt about how many years it might take for equity markets and house prices to reach their old highs, and since too many people have not saved enough in their working lives for retirement, financial hardship or having to work longer than intended are now both highly likely outcomes.

Moreover, as inflation is now declining quickly - and could potentially turn into a deflation in 2009, in which broad measures of prices, like the consumer price index decline, the consequences for interest rates are clear.