Rich Miller, Bloomberg News

Published: Monday, October 13, 2008

The world may be heading for its worst recession in a quarter of a century - if it's lucky. A steep slump looks likely as the credit squeeze crunches economies from the U.S. to Singapore and panic engulfs global financial markets.

"It's certainly going to be the worst since the 1980s," says Bradford DeLong, an economics professor at the University of California at Berkeley who worked at the U.S. Treasury Department from 1993 to 1995. "The hope is that it won't become the worst unemployment business cycle since the Great Depression."

Of special concern: The two big bulwarks of the global economy in recent years - U.S. consumer spending and the rapid growth of emerging markets - may be finally giving way in the face of the 14-month-old financial turmoil.

Treasury Secretary Henry Paulson's US$700-billion financial rescue plan, similar efforts by European leaders and the coordinated interest-rate cuts engineered by Federal Reserve Chairman Ben S. Bernanke and other central bankers last week.

"This is the worst crisis I've seen in my 50-year career," William Rhodes, senior vice chairman of Citigroup Inc. in New York, told fellow bankers in Washington on Sunday. "We still have to deal with the effects on the real economy here and elsewhere."

The early 1980s recession was a severe recession in the United States which began in July 1981 and ended in November 1982. The primary cause of the recession was a contractionary monetary policy established by the Federal Reserve System to control high inflation.

The recession was the most serious recession since the Great Depression. A brief recession occurred in 1980. Several key industries—including housing, steel manufacturing and automobile production—experienced a downturn from which they did not recover through the end of the next recession. Many of the economic sectors that supplied these basic industries were also hard-hit.

Employment conditions deteriorated throughout the year. The unemployment rate in the U.S. reached 10.8% in December 1982—higher than at any time in post-war era. Job cutbacks were particularly severe in housing, steel and automobiles.

By mid-1982, the number of bank failures was rising steadily. Bank failures reached a post-depression high of 42 as the recession and high interest rates took their toll. By the end of the year, the Federal Deposit Insurance Corporation (FDIC) had spent $870 million to purchase bad loans in an effort to keep various banks afloat.

The recession affected the banking industry long after the economic downturn technically ended in November 1982. In 1983, another 49 banks failed—easily beating the Great Depression record of 43 failures set in 1940. The Federal Deposit Insurance Corporation (FDIC) listed another 540 banks as "problem banks" on the verge of failure.

In 1984, the Continental Illinois National Bank and Trust Company, the nation's seventh-largest bank (with $45 billion in assets), failed. The FDIC had long known of Continental Illinois' problems. In May 1984, federal banking regulators were forced to offer a $4.5 billion rescue package to Continental Illinois.

The mid-term Congressional elections proved to be the nadir of the Reagan presidency.

A combination of deficit spending and the lowering of interest rates slowly led to economic recovery. Some of the most dramatic improvements came in industries hardest hit by the recession, such as paper and forest products, rubber, airlines, and the auto industry.

By November 1984, voter anger at the recession evaporated and Reagan's re-election was not in doubt. Reagan was subsequently re-elected by a landslide electoral and popular vote margin in the 1984 presidential election.

Mon Dec 8, 11:39 am ET

LONDON (AFP) – Global stock markets rebounded sharply Monday on hopes of fresh government action to fight a deepening recession in the wake of massive job losses in the world's biggest economy, dealers said.

There were signs on Monday that crisis-hit US carmakers may finally secure financial lifelines to avert an industry collapse.

In London, the leaders of Britain, France and the European Union were meanwhile on Monday set to hold a mini-summit on the world financial crisis.

In late morning trade, London was  up  4.47 percent,  off  initial gains of more than six percent.

advanced 4.17 percent.

Wall Street rebounded Friday despite news that the US economy had lost more than half a million jobs in November, adding to concerns about the depth of a recession that is spreading worldwide.

That helped Asian markets to start the week on an upbeat note. Tokyo closed up 5.20 percent, Hong Kong soared 8.7 percent, Seoul rallied 7.5 percent and Sydney climbed 4.1 percent.