Most of us planning for the next few months are building the economic equivalent of bomb shelters: 2009 will be treacherous. We face a formal recession in most developed economies, and the contraction is highly likely to be more severe in the UK than almost anywhere else.

Companies and consumers will continue to tighten their belts. There will be a sharp rise in unemployment. Many businesses, especially big ones, will become unviable - and will present the Government with an appalling dilemma of which ones to put on life support. We have borrowed too much money and the process of paying it back is not only leading to a fall in living standards but is also precipitating very significant changes in how the global financial economy operates.

Capitalism is changing in fundamental ways. What's happening will affect the relationship between business and government, between taxpayers and the private sector, between employers and employees, between investors and companies for many years to come. Arguably the crisis will turn out to be more significant for us and other developed economies than the collapse of communism.

A New Capitalism is likely to emerge from the rubble, one which may well seem fairer and less alienating than the model of the past 30 years. The system's salvation may require it to be kinder, gentler, less divisive, less of a casino in which the winner takes all.

Here are some of the numbers that tell us what's gone wrong. If you combine consumer, corporate and public sector debt, the ratio of our borrowings to our annual economic output is a bit over 300 per cent, or more than £4,000 billion. Over the past decade, we borrowed and we borrowed and we borrowed: we assumed that the day when we had to pay it back would never arrive.

One of the best ways of understanding how all our debts were accumulated is to look at the gross foreign current liabilities of our banks. These rose from £1,100 billion in 1997 to £4,400 billion this year - again, about three times the size of our annual economic output.

This trend tells two stories. It shows the massive and unsustainable growth in the City of London and our financial services industry - which is now shrinking with a vengeance, at the cost of massive job losses and evaporating tax revenues (perhaps £30 billion to £40 billion of income for the Exchequer gone for ever). But it also shows that our debts are, to a large extent, the recycled savings of other countries, notably the massive surpluses of China, other Asian economies and the Middle East.

To put it in crude terms, for much of the past decade, millions of Chinese slaved away on near-subsistence wages and still managed to save, both as a nation (China swanks £1,400 billion in foreign exchange reserves) and as individuals. This imbalance - between savings in the East and our indebtedness in the West, between their massive trade surpluses and our deficits - was never sustainable.

For me, the most important event of the past week was the chastising of the US Treasury Secretary, Hank Paulson, by Zhou Xiaochuan, governor of the Chinese central bank. Mr Zhou said that “overconsumption and a high reliance on credit is the cause of the US financial crisis” and “the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits”.

This seemed a pretty unambiguous statement by the Chinese that they are no longer prepared to finance the spendthrift ways of the US and UK: they don't want to lend more and they want to be confident that what they have lent won't disappear in a puff of bad debts and inflation.

So the big question is how much debt we will have to repay until our economy is returned to some kind of stability. Over just the past few months British taxpayers have provided loans, commitments, guarantees and capital to our banks in excess of £600 billion. Which is probably just the beginning.

During the boom years we created twin connected bubbles in assets and credit. Both of those bubbles have burst. Falling asset prices are leading to losses for those who borrowed to buy those assets (from hedge funds to homeowners). And as they struggle to pay their debts, they sell other assets, driving down their price and causing losses for other borrowers. And when they can't repay banks, the resources of banks are depleted, which means there is less credit available, which drives down asset prices further, and so on in a vicious cycle of decline.

So it is unrealistic to expect our banks to cease the insidious process of contracting the volume of credit they will provide until the price of property, shares, commodities and other assets stops falling. Asset prices have to find a floor before the financial economy can rebuild itself and the real economy can receive the necessary finance that will allow the recovery to begin.

Who's to blame? The short answer is all of us. But it's hard to mount a convincing argument against the notion that the most at fault were the banks and bankers - because they systematically failed to do what they were handsomely remunerated to do, which was to assess properly the risks of all that lending. Their survival as institutions now wholly depends on the goodwill of governments and taxpayers.

There are reasons to believe that credit from taxpayers can't and won't be repaid for many years. So if we've witnessed a semi-permanent nationalisation of the banking system and will soon see significant taxpayer support for real companies in the real economy, then our banks and companies will have to work much harder to sustain the goodwill of those who are keeping them alive: millions and millions of taxpayers.

That means that those running our biggest businesses will have to be more visible. They will have to manifest a genuine understanding not only of the anxieties of their employees but of all taxpayers. Those chief executives who succeed will be those who imbue their businesses with simple, commonsense standards of decency. And they'll almost certainly be paid less for doing more.

But the biggest lesson of all is that we are a million miles from having created the political and regulatory institutions to help us to contain the risks of globalisation. If the unfettered movement of capital, goods and services is going to survive, if there is not going to be a retreat into national fortresses that could impoverish all of us over the longer term, we will have to find a far better way of monitoring global risks and of bringing governments together to deal with them.

Some may regard this as a threat to national sovereignty, as the thin end of an anti-democratic wedge that will see the world ruled by unaccountable bureaucrats. Reconciling our political traditions with the imperative of making safe the globalised world will be a challenge, to put it mildly. But it's not a challenge we can shirk.

Robert Peston is the BBC business editor and author of Who Runs Britain and Who's to Blame for the Economic Mess We're in?

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