We now know that, by June of this year, both the UK and Scottish economies had already ground to a halt. It will almost certainly be confirmed this morning that, in the past three months, UK output has begun to contract.

We now know that, by June of this year, both the UK and Scottish economies had already ground to a halt. It will almost certainly be confirmed this morning that, in the past three months, UK output has begun to contract. With the global banking system still in intensive care, a long period of recession now awaits us all. How long? We are in such uncharted territory no-one really knows. Whole countries - Iceland, Pakistan, Ukraine, Hungary and Belarus - are queuing up for emergency International Monetary Fund support.

Others - Bulgaria, Estonia, Latvia, Turkey, Argentina, South Korea and South Africa among them - are in various kinds of trouble, from capital flight to collapsing currencies. Apart from the UK and Scotland, outright recession has already touched Denmark and Ireland and will soon be felt in the United States, Japan and most the major eurozone economies, including Germany, France, Italy and Spain. Even China is feeling the pinch.

This slowdown will certainly dominate 2009. It could persist well into 2010. Or even beyond that. It will shape the next presidency of the United States, whoever wins, just as it will dominate the Brown/Cameron parliamentary endgame here. On Tuesday evening, Bank of England governor Mervyn King talked openly of the risk of "a sharp and prolonged slowdown in domestic demand". But how deep it goes - and how many people lose their homes or their livelihoods or both as a result, how many businesses go to the wall - is another of the great imponderables that lie ahead.

The fevered gyrations of almost any index you care to mention, from the FTSE 100 to the sterling/dollar exchange rate, suggest markets have, for now, abandoned their supposed role as the most efficient and intelligent means of reaching rational judgments about the state we are in. They are, in these torrid times, buffeted from pillar to post on a daily, even an hourly, basis, wrung out emotionally, just like all of us.

Nor is there any magic bullet - not even a rapid series of further UK interest rate cuts all the way down from the present 4.5% to something nearer 2.5% by this time next year - that will, predictably, ensure that this recession inflicts only flesh wounds on economic life as we have known it for nearly two decades, rather than much more serious and lasting damage.

It is the availability of credit, rather than its price, that matters most for now. Great oceans of central bank liquidity and the largest state-sponsored recapitalisation of great swathes of the banking industry any of us has ever seen have been deployed to prevent the entire financial system suffering cardiac arrest. As Mervyn King pointed out in his speech this week, the UK taxpayer "now has a larger claim on the assets of banks (in the form of collateral held by the Bank of England) than the total equity value of UK banks".

But that does not mean taxpayers - or our political proxies - can stand over each and every bank manager as they decide what to do about someone's growing defaults on a mortgage or about an application from a small firm for an extended line of credit. The fate of distressed homeowners and struggling businesses, large and small, will be down to whether banks continue to play hard ball in such situations to protect their own bottom line. And it will take more than sharp cuts in the Bank of England's own official lending rate to change what are, in many bankers' make-ups, the ingrained habits of a lifetime.

Given the extraordinary scale of state support now going into our banks, the political leverage should be there to bring them into line. But it will take all Lord Mandelson's silver-tongued powers of persuasion and more to ensure understandings made at boardroom level are translated into sympathetic responses in bank branches and regional offices up and down the land. To frustrated citizens wondering what they are getting from the great Brown/Darling bank rescue, a simpler answer no doubt beckons. Put new regulations in place to make them toe the line.

But some experts, while sympathetic to such public concern, urge caution. I went to the University of Glasgow this week to hear the distinguished economist, John Kay, address this very question. "It's very easy to sign up to more banking regulation," he acknowledged. "But people are rarely specific about what these regulators would do." Kay urges us to consider the roots of the current crisis. If some of the people running the banks, earning multi-million pound salaries, didn't really know what was going on within their institutions, how would outside regulators, much more modestly remunerated, ever get a better handle on banking operations?

Kay has a very telling metaphor for the modern banking conglomerates, the now tottering fruits of deregulation and globalisation since the 1980s. They are, he says, utilities attached to casinos. The utilities do all the boring stuff. They channel our wages and salaries, handle business cash flows, process payments and make prudent loans. They are traditional, boring, narrow banks. But attached to them are casinos in which big bets are made on more and more exotic and complex financial instruments, such as CDOs, CDSs and all the rest of the circus that just left town. They deal in wholesale financial markets. They constitute the financial house of cards that has crashed all around our ears in recent times.

We can try to regulate both of them, but it's a pretty difficult thing to do, says Kay. His preference is to break the conglomerates down, by force if necessary, and separate the ultilities from the casinos. Then those of us who yearn for what Mervyn King called "the long march back to boredom and stability" the other night, can have our utility banks back again, while those who want the excitement of the casinos can try to win or lose as much money as they like, ring-fenced from damaging the rest of us in the process.

It's a very appealing prospect. But, even if there were the political will to do it, it's not going to happen tomorrow. So the challenge of what to do about the looming recession remains. John Kay is sure, as I am, that banks are going to lend a lot less in future than they have in recent past. We may, he adds, be looking at more depressed conditions "for some years ahead". Other solutions will be promoted, like massive Keynesian-style public investment in much-needed infrastructure. We face challenges that are going to test us all.