If that wise old man of Wall Street, Alan Greenspan, is confused about the economy, then what hope for the rest of us? Mr Greenspan, who achieved almost Godlike status during his chairmanship of the US Federal Reserve for 18 years, says he thinks the American economy is more likely than not to go into recession. But he tells The Sunday Times today that he can’t be sure and he can’t find any concrete evidence to suggest that it is about to do so.

This confusion about our economic prospects was everywhere last week. On Monday the FTSE 100, which tracks the fortunes of Britain’s top 100 companies, suffered its biggest one-day fall since it was created in 1983. Stocks in America and Asia followed suit, perhaps partly propelled by the then secret activities of Société Générale, the French bank which was desperately selling securities in an attempt to prevent the losses incurred by Jérôme Kerviel, the rogue trader, getting even larger.

It looked certain that this was the long-predicted crash. But by the end of the week, thanks to a huge cut in interest rates by the Fed, an economic stimulus package from the White House and signs of a bailout for a small but vital group of credit insurance firms, the markets crept back. The FTSE 100 finished on Friday just a whisker below where it had started the week.

These helter-skelter markets are a clear sign of extreme uncertainty, even among professional investors and top economists. The basic indicators are confusing. Greenspan, for example, is stumped by the apparent strength of the American jobs market. A recession should mean a sharp fall in employment, but that has not happened yet. The price of gold shot to a record high on Friday, a normal harbinger of a serious downturn. Yet the price of base commodities, such as iron ore, is also rocketing, a sign of a thriving world economy.

There are two halves to the answer. First is the nature of the crisis gripping western markets. It is driven by the extreme problems in financial services, where greedy banks have invested heavily in dubious loans and compounded the problem by trading them in arcane derivatives. Not only have banks stopped lending, but nobody knows the full size of the losses.

Britain’s economy is heavily reliant on financial services. If you take the widest measure, some 30% of GDP is generated by this sector. Serious problems on Wall Street and in the City would have a disproportionate effect on the wider economy and further reduce an already falling tax take for the government. Add our rising budget deficit and a faltering housing market and things are looking shaky. No lifeline from vibrant China or India is likely to be strong enough to pull the economy out from the down draught created by America.

It is a difficult outlook for Gordon Brown and for the rest of us. The Bank of England may well cut interest rates early next month, but its primary duty is to control inflation. This makes it more inhibited than the Fed in boosting the economy. Mr Brown’s reputation for economic competency is falling rapidly while that of the Tories is rising. Mr Brown will try to blame any setbacks on world events outside his control and appeal to voters as the strong man who can pilot the ship of state through the coming storm.

Yet the excuses will not wash. Rising taxes have hit private incomes. The state is running an enormous budget deficit to pay for the barely adequate services that it renders to the British public. In the boom years Mr Brown built up no reserve to compensate for falling revenues in the bad. He cannot afford to pump-prime the economy with more public spending as he did in the wake of the dotcom crash.

The governor of the Bank of England has warned that inflation is up and growth is down. Chancellor Brown’s imprudence and extravagance with the public finances may yet exact a heavy political price on Prime Minister Brown.