This time last year, all the talk among the capitalist economic experts was about the V-shaped economic recovery that world capitalism would make from the recession of 2001. Indeed, the view was that the world would grow at about 5%, with the top seven capitalist economies shooting along at 3%. Unemployment would stay low and even fall. All stock market experts expected a significant rally in share prices. There was no way that the world's stock markets could fall for the third year running. After all, that had not happened since 1939-41, during a world war!

The main risk was a return to higher inflation. Everybody expected that the main central banks of world capitalism, the Federal Reserve in the US, the European Central Bank and the Bank of England, would have to raise interest rates in order to curb price rises.

Well, nearly everybody expected that. There were a few dissenters. This column was one of them. This column argued that: the optimism of capitalist politicians, economists and investors is so much wishful thinking and hogwash. Downturns in capitalism have usually been brief. But the underlying economic forces increasingly suggest that the recession of 2001 is developing into the depression of 2002. .The whole world is levered on what happens in the US, even more than it was in the 1930s. .The danger in 2002 is competitive devaluation and deflation, driving the world capitalist economy further down.

Who has been closer to the reality of 2002? The world may not have slipped into a depression yet, but the V-shaped recovery has proved a mirage. The US economy has grown by about 2.3% this year and slowing as we enter 2003. The Eurozone economies have managed less than 1% growth, while the UK is now growing at less than 2% a year. Japan actually contracted. Indeed, since the bursting of the hi-tech economic bubble in 2000, world capitalism has grown at its slowest rate since the first post-war worldwide capitalist economic recession of 1974-75.

Far from unemployment falling, the opposite has been the case in most capitalist economies. The US has lost over 2m jobs and the unemployment rate has risen to 6%. Germany and France continue to maintain an 8-9% jobless rate and unemployment is starting to rise again. Japan's unemployment rate is at a record post-war high of 6%. Only the UK enjoys a low rate (but partly because its statistical measure is bogus). And far from prices in shop and for businesses rising, the forces of deflation have intensified. Inflation in the US, Europe and the UK slowed to around 2.5%, while companies are experiencing price falls. Japan and most of Asia remains deep in deflation.

As a result of falling prices, companies in the US, Europe and Japan have been unable to bring in more profits. Profits for US companies are still lower than in 1997. So business investment has dried up completely with no sign of revival. Productivity (output per worker) has grown only because companies have slashed jobs, reduced overtime and cut back on pension payments.

This column used to measure the benefits of capitalism for the average working class family by a rather crude but effective measure - the misery index. The misery index was the sum of the inflation and unemployment rate in any country. If the index figure started to rise, capitalism was not delivering. If it reached double digits or over 10, then workers were really suffering.

In the 1990s, in the US the misery index fell from 10.7 to 7.4, Eurozone from 13.7 to 10.9 and in the UK from 15.0 to 7.5. However, in the last two years, the index has risen, with every prospect it will rise again in 2003. It is not at crisis levels yet, except in Europe. Only countries like Argentina and Brazil have moved into that category. But it's getting there.

Indeed, in one way the misery index is out of date as a measure of capitalist failure. Lower inflation is good news for workers, as it means increases in pay do not get wasted in higher prices. But when low inflation turns into falling prices or deflation, then that is bad news for all. It means all the debt borrowed to buy cars, goods in the shops and above all houses becomes more and more expensive in real terms to pay back. What has kept things reasonably okay for those in a "good job" has been the sharp rise in property prices in the UK, US and other so-called Anglo-Saxon countries like Australia, New Zealand and Scandinavia. Capitalism has been very unproductive in the last three years, but the better-off half of the population have gone on spending like there was no tomorrow (and there won't be!), confident of their property wealth.

This happened to Japan in the 1980s. Stock market prices and land values rocketed. Then the stock market bubble burst in 1989 and has never recovered. Last week, the Tokyo stock exchange hit a 20-year low. Two years after the stock market crash, property prices started to fall in Japan. They have been falling ever since. The same thing happened in Hong Kong and Asia in 1997. On that history, the property bubble in the US and the UK has not much longer to run. And once property prices start to fall, then the huge debts (mortgages) run up will become a major burden. The average American and British household had debts worth 80% of household income in 1990. Now that debt level has reached 100-120%. Only low interest rates make it possible to pay costs of that debt.

But optimism springs eternal among the spin-merchants of capitalism. The consensus view among the experts is that the world economy will recover and grow much faster in 2003. The prediction is for the US to grow at around 3%, the UK at around 2.5%, Europe at about 2%. Only Japan will remain in the doldrums. Once again the forecast is that deflation will give way to inflation, interest rates will rise later in the year, while unemployment falls. As for the stock market, there is no way that world share prices will fall for a fourth year in a row. That has not happened since 1929-32, the years of the Great Depression. Indeed, of 67 experts surveyed at the end of December 2002, 64 said that stock market would rise in 2003 by at least 10%. It's déjà vu. It's exactly the same wrong predictions made at the beginning of 2002.

These predictions again stand in the face of reality. The world economy continues to slow down. The US will be growing at just 1% in the first quarter of 2003. The same applies to Europe and the UK. As measured by the surveys of the experts themselves, consumer confidence in Japan, the US, the UK and Europe has never been lower. Business investment is falling at a 10% rate. If the property bubble should be pricked, then spending in the shops will dry up. Already, the reports are that Xmas sales have been weakest for years. As it is consumers will only buy if there huge discounts for cars or goods in the shops. In New York it is now common for people to 'make an offer' below the ticket price in most shops. Haggling in the way of the Middle East bazaars has come to America. That means companies will be making little or no profits. They will have to lay off more workers and new investment in technology and plant or extra borrowing will not materialise.

And there are the gathering dark storm clouds of war in 2003. The US, with its monkey on a lead, the UK, is hell-bent on going to war in Iraq. There seems little doubt that American and British troops will be in Baghdad by March at the latest. Of course, the capitalist optimists are confident that this adventure by the greatest military power that the world has ever seen against a poor and small Arab country will be a huge success. Then oil prices, which have been rocketing up in the past few weeks, will drop sharply back. A new US-friendly regime in Iraq will pump up the oil and the other Arab dictatorships will play along. Israel will be able to force the Palestinians to accept a draconian peace deal enforcing their rule in the region. World capitalism will rejoice and start to boom.

That's the theory. But again it is far from reality. Sure, US firepower may triumph in Iraq. But will Saddam be captured. Even if he is, will the clever, educated Iraqi people accept an American-imposed dictatorship? And will the Arab and Palestinian masses stand by while America and Israel impose a dictated peace? And won't Bush's victory deliver the exact opposite to what he claims the war is all about? Far from terrorism being defeated, the suicide bombers and attacks on American tourists and civilians will almost certainly increase. Indeed, it seems that the North Korean dictator, whose economy is on the brink of collapse and famine, as a result of US boycotts and corrupt totalitarian rule, is already using this as an opportunity to blackmail to world into providing aid by threatening nuclear war.

Uncertainty, worry and realisation that Bush has not 'saved the world' will be the product of Iraq at best. At worst, for capitalism, there could a messy war and worldwide opposition to the war, Vietnam-style. That will not be good news for the world capitalist economy.

If the Bush-Blair adventure goes badly wrong in any of these ways, then oil prices will not drop back but go even higher. That will squeeze incomes and profits in the oil importing economies of the West. The last two big oil crises of 1974 and 1986 drove the world economy into a deep recession. That is the prospect again.