The British government announced recently that they too are officially in recession. The world, it seems, is heading for financial crisis, come what may.

The days when one nation's economy was barely dependent upon another's are long over, just as the days of Empire have waned.

Britain is facing "arguably the worst" economic downturn in 60 years which will be "more profound and long-lasting" than people had expected, Alistair Darling, the Chancellor told The Guardian, one of Britain's leading newspapers.

Today's fast-paced global economy means that when one nation suffers an economic crisis, others are sure to follow, and quickly. In this case, the mismanagement of American economic policy over the past decade have resulted in a world heading for what may be a worse crisis than the Great Depression.

We coined the phrase "Depression 2.0" here, but in reality, we should call this the "Even Greater Depression", as it brings together both recession and depression on a scale unprecedented in history. Perhaps we could liken it to the Fall of the Roman Empire? Yes, it's going to be that bad.

Britons, like Americans and Europeans are facing a fundamental crisis that cash alone will not resolve. That is the loss of faith in economic and financial institutions.

"When the populus loses faith with banks and financial companies, and we see a flight of cash out of markets into government backed securities, the fears pervasive in the community become self-evident - a depression is underway." says Dr. Robert Angelone, Chief Economist for The Institute.

"People around the US and Europe are concerned now, and have lost considerable confidence in a system solely dependent upon the faith and credit of its institutions. As we've said before, without faith, there is no credit." Angelone continued.

The lack of faith is one of the reasons financial institutions have not fully returned to lending, despite massive cash injections from government.  Present news indicates that lending, despite cash injection, remains tight, partly because banks are mis-using the funds.

The lack of lending must cause a ripple effect like dropping a boulder in a pond. We see this in dramatically reduced auto loans, student loans, business lending and mortgages. Like ripples, we're in a long down trough presently, and we may see a strong upswing at some point, only to go back down again.

The second downward swing will hurt the most, because it will break the promise of the prior recovery. That will cause an extended duration to the loss of faith, leaving the public in a depressed state for a considerable period.

The ways to resolve these crises of faith stems not from bailing out the troubled institutions or adding new levels of regulation, but in fixing the institutional practices which permitted the crisis to begin, and beyond regulation, establishing a system of checks and balances for lending to ensure that all loans are made in full compliance with regulations.

This is why The Institute proposed the Loan Evaluation Mortgage Analysis Corporation as a government-sponsored enterprise working in full accord with the regulators. While this would work in the US, it would also work throughout Europe and we urge financial leaders and politicians to consult with us on how to implement such a program.

Once the fundamental systems are secured again, bank lending will resume in earnest, and borrowers will come back into the system, as will depositors and stockholders.

The public, on both sides of the Pond are calling for a stable lending system, as opposed to bailout programs. They want the economy to be revived, but remain fearful that the loans generated in the short term, without proper checks and balances will result in bad lending once more. They realize that the greed in the financial system was not limited to a select small group of individuals, but was systemic and that the solution must be to change the systems to something better, with accountability.

With Britain now officially in recession, Continental Europe has not failed to join the pack, as have others. Today, 11 economies are in recession. We suspect the next few weeks will show that most, if not all of the EU will announce problem economies. Should this occur, we expect the contagion to spread to Russia, India, South Africa, Australia, China and Japan in ways that create a long term crisis, resulting in decades long depression, versus what could be no more than two years if managed well.

Yes, we predict this global crisis, if spread to recession level in Asia as well as Europe and the Americas will result in a long term depression. We can seriously predict that will prompt financial based collapses of governments and potentially wars.

As G-20 leaders meet to discuss the economic crisis, they must be aware of the considerable implications of bailing out institutions without implementing reforms of the fundamental systems.

Politicians around the world must be particularly careful at present, and not over-react or be too liberal with controls. Care and caution are the watchwords, and watching words is critical, as the wrong statements can tumble markets and topple governments. Checks and balances, the keys, perhaps to the kingdom.