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Since last night the government has been trying to clear up the, er, confusion caused by Alistair Darling's Guardian magazine interview. The indy reports Steve Carter has resigned; the Mail on Sunday reports Brown vs Darling row over implementing the key Crosby recommendation on government backed mortgages, and my colleague Brian Taylor's attempt to get clarification.

I meanwhile have been rooting around in the National Statistics to try and amplify the point I made yesterday: this is not the worst economic downturn for 60 years. Not yet at any rate. The sharpest downturn was surely the 1973 bust following the Barber boom. But if you want to see real economic agony you have to look at the recession fuelled by Margaret Thatcher and Geoffrey Howe's pro-cyclical economic policy in 1980. The economy shrank bigtime for four quarters in a row. The dashes below are minus signs.

1980 Q1 -1.0
1980 Q2 -1.9
1980 Q3 -1.6
1980 Q4 -1.6
(Source ONS*)

Looking at the data reminded me that GDP shrinkages, like inflation figures, are not the whole story....

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I think people are missing the wider context of Alistair Darling's with Decca Aitkenhead in today's Guardian, which is spun on the front page as "Economy at 60 year low". Obviously it prompts a number of questions, which I would be only too keen to put to him, especially if his special adviser is now in a mood to advise him "tell them everything". But first context.

The interview itself is not a "hard hitting interrogation" - and is proof that the quiet game is often more effective. It was conceived as a fireside chat on his Hebridean hideaway. But WHEN did it take place. I know for a fact that when HM Treasury was dealing with the Downing Street/Rebekah Wade-spun story on Stamp Duty Darling and his advisers were on Lewis, on holiday and as it now seems with Ms Aitkenhead the only journalist invited.

But that was two weeks ago! The interview, in other words, has been long set up by the G2 section as a profile piece and because Darling has, as I know only too well, not been doing interviews, the news line in it has aged very well and is fresher than it was when he gave it because in the meantime we have had the Q2 figures showing we are on the edge of recession...

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Seven times Barack Obama invoked a word that you hardly hear in its ungarnished and emotion-laden form here: workers.

Now the word that sticks out from his , of course, is "promise" - used 31 times in the speech. The American promise is Obama's reworking of the "American dream" metaphor. But who are the promises being made to? And how is the promise being pitched? it's very clear from the rhetoric: Obama, whatever you think of him, is the first politician in any G7 country since the collapse of communism to make a direct, visceral appeal to something that is hardly admitted to exist in UK political-speak: the working class. Just listen...

1. "When I listen to another worker tell me that his factory has shut down, I remember all those men and women on the South Side of Chicago..."

2. "...businesses should live up to their responsibilities to create American jobs, look out for American workers..."

[UPDATE: McCain picks and announces to the world that she is someone who "understands working people"]

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It was his , footballer Danny Blanchflower who famously said "we need to get our retaliation in first". Today, rebel MPC member has broken with Bank of England protocol to do exactly that. He has called for a big, fast rate cut, a fiscal stimulus to the economy and in general indicated that both the government and the Bank need to get their fingers out.

The move came in an , in which the US-based academic predicted:

"We are going to see much more dramatic drops in output. The way to get out of it is to act, by interest rate cuts and fiscal stimulus and other things to try help people who are hurt through this."

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Business Secretary John Hutton has today that energy companies are not ripping off customers:

"Making a profit is better than making a loss and if we want these companies to invest significant resources investors are not going to do that if they don't think there's a reasonable return to be made on their investment," he says.

That was the default view of regulator Ofgem until, in March this year, it launched a and anti-competitive practice in the energy supply industry. It said then:

"Recent events in the market have increased public concern and have damaged customers' confidence that competition is working well and giving them a good deal. Customer confidence is vital for a well-functioning market. ...The detailed probe we are now launching will investigate whether the market is working well for all energy customers - and not just particular groups such as those who are on the cheapest online deals."

The detailed probe is still under way. But a major contribution to it was made by the cross-party Commons Select Committee. They :

"Written and oral evidence has highlighted serious problems in the functioning of a number of aspects of the markets for gas and electricity."

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Following last night's attempt on Newsnight to recreate the brainstorm process in advance of Labour's mightily trailed economic rescue package I have been summarily informed, yet again:
1) There is no "economic plan"
2) The Treasury is working separately on both an "energy package" and a "housing package"
3) It's highly unlikely they will be launched together
4) I was reminded yet again that one option in the Crosby report on the mortgage shortage was to "do nothing"
5) Nobody has contradicted my assertion yesterday that Thursday 4 September is "pencilled in" for an economic statement, initiative or package (or against all odds a "plan"). I stand by it.

However....

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Among the remnants of Labour activists and bloggers who have not made it to the DNC in Denver Colorado there is currently a pastime called "". Suggestions range from outlandishly left (45% income tax rate for those earning over 85k) to the outlandishly right (re-arm Britain as a conventional military superpower) - and that these two are from just one list shows what a "broad church" Labour still is.

However it is becoming clear that there is one item on all the policy wishlists that is going to have to remain in the dreams of the centre-left wonks, wonkettes and bloggers - and that is despite 80 going on 100 Labour MPs signed up for it. I speak of the Windfall Tax....
...

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Remember the day you saw that big fat zero: this is how much the UK economy grew between April and June. Nothing. Zilch. And it gets worse.

Once you drill into the figures, whole sectors of the UK economy are shrinking, and if you strip out foreign trade, the recession is not a technicality, it's a fact...

If you look at the domestic economy only, stripping out imports and exports: this has clearly been shrinking for the past six months.

The major factor in the fall in growth is the squeeze on people's spending power: household bills have risen 8%, food bills by 12% and car fuel by 25%.

But real wages, once you strip out inflation are falling, and sharply.

Downturns are part of the economic cycle and no government or central bank can stop that; what they can do is see it coming and adjust policy to meet it; and here's the problem. The government's predictions on economic growth now look way out.

In March, in the budget, Alistair Darling predicted the economy would grow at 2% this year and 2.5% next year. Last week the Bank of England's forecast was significantly lower: 0% - and lo it has come to pass.

In fact, thanks to HSBC's sharp eyed UK economist Karen Ward, we know that even this top line figure could be too optimistic. She has spotted a 2.8% fall in financial intermediation services last quarter - and here I must issue an "its complicated" alert because this has already made my brain hurt:

"As I mentioned in the earlier note: a 2.8% fall in financial intermediation would have taken 0.2pp off quarterly growth. By the current accounting standards, this is not incorporated (or more technically was removed to a large extent by +0.17pp cont. from the adjustment for financial services), but it may be incorporated in September."

So the economy may really have shrunk in any case, and we will find out one way or the other in September.

But what does it feel like out there on the streets: well it does not yet feel like one of the big, gloomy economic shrinkages we saw in the early 80s or 90s; and retail sales keep turning out better than expected. So why?

Stats people are saying a lot of retail sales are being driven by tourists. That's real, not illusory, but again the core, UK generated spending power may be falling faster than the top line figures suggest.

Here's something else interesting. Faced with a collapse in spending power, consumers are switching their behaviour to the cheap and cheerful.

McDonalds has reported double digit sales growth and is serving 2m MORE people a month this summer than last summer and has taken on 4,000 extra staff.

There's only two things policy makers can really do: they can cut interest rates here at the Bank of England; or they can cut taxes at the Treasury to put more money in our pockets; problem #1 is doing either of these things is quite hard under the current rules; problem #2 is that if Alistair Darling DOES give us all a tax cut, the people a the Bank may feel duty bound to cancel it all out.

Why? Because the Bank's projection of inflation meeting its 2% target within two years relies on there being flat growth. If it thinks a tax cut will stave this off it has to either put interest rates UP or hold them for longer.

At the end of the day, the Bank, though independent, obeys a remit set by Alistair Darling. And there's a growing chorus in the banking business that thinks policymakers have lost the plot. What's interesting though is that the political class is united in defending the current remit and its hawkish interpretation: nobody wants to look "soft on inflation". But the City is screaming for a rate cut and really bearish economists are warning of a Japan style stagnation unless monetary policy is relaxed.

Technically a recession is two quarters of negative growth. Even if we get one, the UK economy still bears the marks of sixty-odd quarters of uninterrupted growth.

But that means spotting a recession and dealing with it are tests that neither the Treasury, nor the Bank of England has had to face for nearly two decades. We'll be discussing some of these issues with Labour and Conservative front benchers tonight.

Amid an ever changing world it is reassuring to see one thing stays the same: the English football team is still rubbish.

I attended the friendly international vs Czech Republic last night and can attest to the lack of shock, indeed lack of regret among the in-crowd in the corporate stand, as the news filtered out that FA Chief Executive Brian Barwick has agreed to walk the plank due to "disagreements" with the association's new chair, David Triesman.

I can also attest to the fact that the majority of the crowd, including the massive corporate section of the stadium, booed England off the pitch; the "real" fans (ie those not barred by the rules of corporate hospitality from wearing an England team shirt) also booed Frank Lampard on an off the field, booed Rooney on and off, and - needless to say - booed David Bentley as he came on towards the end. (They booed Milan Baros, who for them ticks the double negative of being a renegade Liverpool player and a "donkey": he replied by scoring the opening goal.)

With vital qualifiers coming up English soccer is fast approaching a moment of truth much bigger than the ones that finished the careers of Sven, McLaren and Mr Barwick. The fact is that even with a world class coach, English football is rubbish at international level....

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The diplomatic ramifications of the Georgia peace deal are still ramifying. Almost every major western power, and most of the west's multilateral groupings, have had the fundamentals of their policy shaken or challenged. There is a strong economic aspect shaping the responses too, and it goes way beyond the Baku-Ceyhan pipeline. I'm going to try and do a scrapbook style collation of thoughts and links here...

First, Europe: the EU foreign ministers meet today. Instead of the usual opportunities for diplomatic platitude they have to decide if they support the Georgian peace plan engineered by Sarkozy or not. Step forward , the Italian foreign minister:

"It would be negative for Europe to create a sort of coalition against Russia. It's important that Europe is the 27 (member states) and that it does not divide into groups and little cliques".

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For tonight's Newsnight report on the wider implications of the Georgia conflict I interviewed Dr Jonathan Eyal at the Royal United Services Institute. While moving the furniture around to set up the shot I realised I was leaning on a table with a plaque marked "Sebastopol 1855". It turned out this was the very table on which the Anglo-French forces in the Crimean War had taken Russia's surrender. It's a chilling reminder of how the geo-politics of "great power" shenanegans are returning; not only Russia, but also the USA as I showed in tonight's report (watch on iPlayer) are now carving out their own military-diplomatic furrows.

What seasoned observers are telling me is that, on top of the killing, wounding and distress what is perishing here is multilateralism in international affairs. This comes less than a month after the collapse of the Doha trade round. Hearing briefings about how the "G7" is co-ordinating trade sanctions against Russia made me think back to Gleneagles in 2005, when Putin's helicopted buzzed over my head on the moorlands outside the summit, noisily announcing the arrival of the "G8". The G8 has proved useless during this crisis. It remains to be seen whether OSCE will be able to provide good offices for a solution. The UN Security Council will be deadlocked on every issue unless Russia backs down (kiss goodbye, I would imagine, any concerted UN action on Iran's nuclear programme).

The depressing thing was that, if my memory serves me right, that peace at Sebastopol in September 1855 led soon to the devastating wars of the 1860s: Prussia vs Austria, the American Civil War; France vs Prussia, the Opium War with China. The map of the world was redrawn with the needle gun and the breech loading cannon.

7 August: After a week of serious skirmishing Georgia signs a ceasefire with South Ossetian rebels. 8 August: Georgia attacks South Ossetian capital. 9 August: Russian 58th Army counter-attacks and retakes Tskhinvali, and steps up air strikes on Georgian territory; at this point the words "pipeline war" are first used. Shortly afterwards people begin to ask me (and in some cases tell me) whether this is a "war for oil".

As far as I can see from this , the words "pipeline war" were first used by the Daily Mail on 9 August in a now "Russian Bear Goes For West's Jugular".

Various blogs have taken up this theme as have other media outlets around the world. Today the Guardian's Jonathan Steele entitled "This is no pipeline war but an assault on Russian influence".

What are the facts about the pipeline and its role in the conflict? I've been trying to dig them out...

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I have decided to mark the build up to the Olympics by blogging on themes and issues and that have bugged me during my trips to China. So, for openers, here are some thoughts about my favourite Chinese movie.

In Chen Kaige's 1984 film , Gu, a soldier from Mao's "Eighth Route Army" arrives in the Shanbei district to collect folk-songs. Gu arrives at a village that shocks his urban sensibilities. There's a peasant wedding going on: usual deal - arranged marriage, old man, barely adolescent girl. At the wedding feast the waiters bring wooden fish: "you have to have fish at a wedding" explains the host, but of course they are too poor.

Gu's is billeted with a family: Dad is a brute, mother is dead, the young son is mute, Cui, the 13 year old daughtger does all the work. As she trudges down to the Yellow River to fetch water, exactly 14 minutes into the movie, something with universal relevance happens - something that speaks about the lives of peasant girls in the 1930s and about the lives of the waitresses buzzing, eyes averted, around the tables of foreign visitors to Beijing this week.

A classical orchestra begins to play the Shanbei melody "Song of Daughter" and the girl, singing off camera, pours her heart out: she is to be married off, she misses her mother, she wants a different life....

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