“What we think, or what we know, or what we believe is, in the end, of little consequence. The only consequence is what we do.”

John Ruskin (1819 - 1900)

The bubble has burst - as bubbles always do.

The collapse of the US sub-prime mortgage market, the almost free-fall of housing prices and the reversal of the housing boom in other industrialised economies have had a ripple effect around the world. Other weaknesses in the global financial system have surfaced, especially surrounding sophisticated derivative products, so complex and opaque, that as things started to unravel, trust in the whole system has disappeared.

The global financial crisis has been simmering for a while. Indeed, it was predicted by Nobel Prize winning economist Paul Krugman. Since the middle of this year, it has really started to show its effects.

Led by the collapse of the large US investment banks and the failure of Freddie Mac and Fannie Mae, financial contagion has spread to become world-wide. World stock markets have plummeted, with year to date losses from 40% to over 60%. Previously blue-chip financial institutions, like AIG and Citigroup, are teetering on the brink, requiring substantial bail-outs. Others have collapsed or been bought out and governments in almost every major country have had to come up with rescue packages in efforts to prevent the total collapse of their financial systems – while Iceland itself was on the brink of bankruptcy.

Most economic regions are now facing recession, or are already in it. This includes the US and the Eurozone, while growth in China has fallen dramatically in the wake of the loss of its exports. In fact, we learned recently that the US has been in recession for the past 12 months.

And it is not an economic hole that the world will climb out of easily. APEC leaders recently determined that, optimistically, the world could be out of this crisis by mid-2010.

The truth is that nobody knows what will happen as this is a financial crisis the like of which has not been seen in generations - probably ever. Credit markets, the engine on which the American economy has run for decades, has totally ceased up. The American consumer, the key factor in global growth for at least two decades, has been borrowing to fuel their spending. Their inability to access credit, from the equity previously stored in their homes – or through credit cards – or simply because they have lost their houses and their jobs suggests that this problem may be with us for a while.

In the Caribbean, as a region that depends on tourism, foreign direct investment and, in some cases, the offshore financial sector, I believe this could portend economic catastrophe, since:

• We cannot expect tourists to continue to come as before, and those who do, will spend less
• Investors, in an environment of volatility, will not continue to invest and projects will be cancelled or deferred
• The offshore financial sector will generate significantly less business and tax revenues, in response to reduced international capital flows and reduced trade.

We should brace for a deep and long recession. Our recovery is likely to lag behind the recovery of the major countries, especially where their recoveries are led by government and not private sector and consumer spending. We face economic recession, significant levels of unemployment, increasing government deficits and a larger national debt.

Whether this will mean fiscal crises, the IMF, currency instability and significant social dislocation will likely depend on our governments and our people. What should be clear is the unparalleled impact this will have on our countries – and on us.

What happens if you lose your job in the round of lay-offs that will come? If you are self-employed, what will a 25% drop in revenue mean for you?

An economic storm is coming our way. Are you prepared?