It is a complicated story, involving a whole chunk of the Periodic Table, high secrecy, patent battles and conspiracy theory.

But it boils down to this - 97% of the specialist metals that are crucial to green technology are currently mined in China.

China is already limiting exports and has plans to limit them some more. As a result much of the hi-tech metals industry is also moving to China.

As you can see in my film for Newsnight:

First the science.

There are 17 rare earth metals; they have got their own special bit of the Periodic Table.

In nature they are mainly found clumped together underground in specific types of rock and ore, so they have to be separated.

It takes a large quantity of rock to make a tiny quantity of rare earth. And the rock can often be radioactive. For now just try and remember two elements - Lanthanum and Neodymium.

In the early 1980s a US company called Ovonics perfected a rechargeable battery using rare earth metals that would form the basis of a whole branch of experimentation in electric and hybrid cars.

For geeks, the battery is a Nickel Metal Hydride battery (NiMH) and uses, primarily, Lanthanum.

But remember the name Ovonics. The firm formed a JV with General Motors, ceding 60% ownership to the car giant.

Meanwhile in 1982 General Motors discovered a new compound that could make cheap, highly effective, permanent magnets, again using a rare earth - in this case Neodymium.

Again for geeks - the nomenclature is a Neodimium-Iron-Boron magnet (NdFeB).

The primary effort at turning science into commercial technology here took place in the United States, with GM at the hub.

In parallel, these scientists were putting in place the key technologies for green capitalism:

• battery powered cars would become crucial in the effort to wean us off the petrol engine and;

• permanent magnets are a crucial component in almost any gadget that moves or sees or is guided by a computer.

And both technologies rely on rare earth metals.

Now the geology.

As far as we know there is rare earth ore in California, Canada, South Africa, Brazil, Vietnam and Australia. There's even some in Greenland.

But the mother lode is sitting under the mountains 50km (30 miles) north of the Inner Mongolian city of Baotou, in the Bayan Obo mine.

In addition to Bayan Obo, China has also found massive deposits in Sichuan.

As Deng Xiao Ping presciently commented, at a time when electric cars and wind power seemed like ecotopian wet dreams: "Arabia has oil, China has rare earth".

The story of how China seized a stranglehold on the ore supply and then large parts of the metallurgy is a modern epic.

"Either by stupidity or design" says one industry insider, "the Chinese flooded the market in the mid 1990s and collapsed the price. Almost everybody else went out of business".

For the purposes of today, there are three big potential sources of rare earth outside China - in California, Canada and Australia.

The Californian mine has not produced since 1998, the Australian mine was set to start production in 2011 but has just lost its financing and the Canadian mine likewise is aiming at 2011. Together their annual production could amount to one third of China's.

Each of these projects has been hampered by lack of finance, particularly since the financial collapse of 2008. Some industry voices say the danger of China flooding the market again, making the mines uneconomic, means only a strategic rather than pure economic view makes them viable.

So with the doubling of demand and the collapse of non-Chinese supply, China ended up with 97% of the ore market.

But as the industry for processing the metal and making products out of it developed rapidly in the late 1990s and this decade, China has also managed to bring much of that on-shore as well.

In addition to producing nearly all the rare earth metals, companies operating in China consumes 60% of the stuff.

How has it achieved this? First by relentless state-backed focus.

If you do a web search for the scientific papers on rare earth, a lot of Chinese results come back. China's metallurgy industry flourished while the West's declined.

But increasingly China has started to pare back exports. It places an export tax on rare earth and a quota. In each of the last two years the quota has been shrunk by 20%.

There is of course, this being China, a flourishing black market. In addition to the 35,000 tonnes officially exported, another 20,000 tonnes were somehow consumed outside China.

There is also endemic illegal mining of the stuff in the Chinese deserts. This export limit is an overt signal to producers of rare earth products that, to ensure supply, they need to move production into the People's Republic of China.

Now, in addition to the export restrictions so far, another problem is looming. China's demand is predicted to equal the entire Chinese supply by 2012.

In a recently released - but not published in the West - draft report, Rare Earths Industry Development Plan 2009-2015, the Chinese government pondered a complete ban on five heavy rare earth elements and a cap on exports at the current level (35,000 tonnes).

Officials later downplayed this, reminding journalists that since "no-one wants to give up profits" the quotas are rarely enforced. However, if they were enforced - ie if smuggling was stopped - it would be a big problem.

Unless the non-Chinese mines ramp up production, there will be a shortage outside China. So Western companies who want to manufacture have, increasingly, got to move onto the Chinese mainland.

As Dr Ian Higgins of the Birkenhead rare earth firm Less Common Metals told Newsnight:

"What you're going to get is no opportunity for manufacturing outside of China. And it just depends how far you think it's acceptable to take this policy. Somewhere along the line do we say 'yes, the world does need some strategic control in terms of manufacturing these materials'?"

Now to the reasons why this is such a problem for the rest of us.

The wind farm and the hybrid car - the two key technologies in the transition to green energy use - are completely reliant on rare earths.

There is about a tonne of rare earth magnets in a wind turbine and about 2kg of Neodymium in the rechargeable battery of a Toyota Prius, plus another kilogram or so of Lanthanum and Praeseodimium in the drive train up the front.

(For those whose focus is more on blowing people to smithereens, it is also disconcerting that guided munitions such as the US's JDam bomb cannot function without rare earth magnets.)

Now to the response of the two big manufacturing powers outside China - the US and Japan. How have they coped with this complex problem of rising new technology creating a resource monopoly for China?

In summary, very differently.

Japan's car manufacturers jumped into the electronic vehicle game early. As a result a joint venture between Toyota and Panasonic is the world's leading manufacturer of rechargeable NiMH batteries.

Likewise on the magnet front, again largely due to the foresight of Toyota and its ilk, Japan makes the majority of the the Neo magnets that are not made in China.

Japanese companies hold an unspecified stockpile of the key materials. In addition Toyota has become the first car maker to own a mine - it has set up a rare earth mine in Vietnam which will solely produce for its car plants.

In addition, according to The Times newspaper, about 20% of all Japanese rare earth imports are black market. One Japanese offical told The Times:

"If the Chinese export quota limits were the reality of what comes into Japan each year, we would be even more worried than we already are."

Now what you can say about Japan's attitude to rare earth is that it is canny. The state and major companies are aligned, they're combining geo-politics with realpolitik up to - if The Times is correct - the point of tolerating a black market.

They have, in the process, gained the best part of a decade's head start on the West in cleantech cars. And, though they are reliant on China for rare earth, they have effectively pulled China into an Asia-centric rare earth economy.

Contrast this with the US. It was not just the free market that closed the Mountain Pass mine in California, but environmental concerns about radiation.

But for whatever reason the US allowed its own rare earth source - the second largest in the world - to go out of business.

Next, the rare earth magnet business. In 1996, GM sold its magnet business, Magnequench, to a Chinese-led consortium. It then moved large parts of its Neo magnet production operations to China.

Magnequench has now been taken over by a joint Chinese-Canadian business, but the bulk of its operations remain in China.

There is a large literature of political claim and counterclaim over this.

Next the rare earth battery business.

In the late 1990s GM famously scrapped its work on the EV1 plug in car and crushed all known models out in the desert.

It sold Ovonics, together with the patents for the key battery technologies, to Chevron/Texaco - an oil company - which successfully sued Toyota to maintain intellectual property rights over of the technology.

The resulting company was named Cobasys. During its period of ownership by Chevron it failed to produce NiMH batteries in large numbers. A highly polemical account of this can be found in the Sony Pictures film Who Killed The Electric Car?

In 2004, a protracted legal dispute between Cobasys and Toyota/Panasonic was resolved by the Japanese firms agreeing to pay Cobasys about $30m and also royalties on the batteries sold in America out to 2013.

As a result of the legal settlement the battery situation in the US is beginning to free up, but the legal battle leaves those promoting hybrids - and their next-generation development, the plug-in hybrid - rueing their dependence on non-US manufactured NiMH batteries.

Sherry Boschert, author of a book on electric cars, wrote in 2007: "It's possible that Cobasys (Chevron) is squelching all access to large NiMH batteries through its control of patent licenses in order to remove a competitor to gasoline.

"Or it's possible that Cobasys simply wants the market for itself and is waiting for a major automaker to start producing plug-in hybrids or electric vehicles."

Cobasys has now been sold to a JV between Samsung and Bosch, which specialises in the rival Li-Ion battery (which is not so rare earth dependent).

What matters, in the long-run, is that the US lost any kind of lead in electric car battery manufacturing and left the Japanese complex of Toyota, Panasonic and Sanyo as the NiMH battery superpower.

It has also taken a major bet on Li-Ion technology which some commentators doubt is wise.

Meanwhile, when Panasonic and Sanyo merged, China's competition regulator this year ordered these two Japanese companies to divest part of their rare earth battery business.

There are no prizes for guessing which country's cash rich state-backed companies will be queuing to take this division off their hands.

Stepping back to see the bigger picture: in little more than two decades China has achieved absolute dominance in the raw materials side of rare earth and forced much of the manufacturing industry to move to China.

Its coming export restrictions will force more of this, but will probably also stimulate non-Chinese raw material production as the price rises.

In the process China has acquired key tech transfers, as is its stated aim under the so-called 863 Program.

And, as a byproduct of US corporate decision making, the China-Japan axis has emerged as the centre of the rare earth economy.

The US is now so worried about all this that in the National Defense Act 2010 there is for the first time a whole section requiring the government to launch an urgent probe into the impact of rare earth dependence on national security.

But for years US governments - both in the Clinton and Bush eras - have stated they have no problem with the transfer of rare earth jobs, plants and science to China.

The whole story reveals a mismatch between Western and Asian ways of doing business, and of perceptions.

President Barack Obama has now, reportedly, accepted there will be a global resource crunch within a decade, led by peak oil.

But the Chinese and Japanese governments and industrial elites have been operating on a resource agenda for the past decade. China is demonstrably using foreign policy to gain direct access to supplies of raw materials.

When the Afghan war began, and the Russian involvement in the "Stans", it became common to talk about Central Asia being the "New Great Game" for the warring superpowers.

But the real new Great Game is being played in the swamps of the Niger Delta, on the borders of Colombia-Venezuela, in the metal mines of the DRC and now in the rare earth mines of the world.

For example, China attempted to buy 51% of the Australian rare earth mine, but pulled out in September when the Australian government vetoed this.

For decades US foreign policy, and much of the Western world behind it, has focused on security of supply of oil from the Middle East.

Chinese policy - foreign, industrial and commercial - now centres on finding and securing supplies not just of oil but of all major natural resources needed by an economy developing at 9% for the rest of the century.

The old, oil-based policy shaped the world; the rise of freemarket capitalism after 1989 became possible because no rival powers existed that could fragment the world economy and challenge US dominance; the new, multi-resource based policy of China (together with Japan and South Korea) is what is reshaping the world.

It has put roads through Kenya, and sent Chinese engineers into the swamps of West Africa and the airless space of the Andean metal mines.

As Asia powers out of the recession it is enchancing the prestige of a model based on resource monopolies, giant integrated manufacturing empires, overt black-marketeering and state directed industrial policy.

The FT's Martin Wolf reminds us we are stacking up a potentially huge conflict between the US and China over trade and currency - and these two issues are what dominate the thinking of free-market, Western-trained economists when they think of China.

But it seems to me that the West has been largely blindsided by the growing importance of resource strategy.

While the West was thinking about one thing, the big Asian industrial powers were thinking about another.

Kenya, right now, is in the middle of a drought. In the rural north the drought is already destroying the nomadic way of life (see this report from the Observer, and this from the BBC).

But it is also impacting on the fragile social infrastructure of Kenya's urban slums.

I've reported several times from the Kenyan shanty town of Kibera - well known for its starring role in John Le Carre's The Constant Gardner. In the troubles of early 2008 it was ripped apart by inter-ethnic violence. Now the same community activists who tried to hold things together then are preoccupied with a more fundamental issue. Water.

Technically the 700,000 strong population of Kibera is supplied by the Nairobi water company. In reality, allege community activists there, they are reliant on "water mafias".

"There are so many water mafias in Kibera," says Marcy Kadenyeka, a worker with local NGO the Hakijami Trust. "It's done by individuals. People are disconnected without the knowledge of the water company and then a group of rich people dominate the water supply; they get the bad guys to disconnect your water and then you have to pay to reconnect."

The main water supply for Nairobi comes from two dams, one of which - Sasumua - is, in one of the poorest years of rainfall on record under repair as part of a project begun in 2007 and entitled the "Emergency Physical Investment Project". At the remaining dam, Ndaka-ini, the failure of the so called "short rains" to arrive in June meant that all of Nairobi had to go on water rationing. With some parts of the city reduced to one day of clean water supply per week, the government began digging boreholes to find alternative supplies.

Doris Moseti, a counsellor with the Mukuru Serving Network, another NGO, takes up the story:

"Now, with the drought the government is trying to dig new boreholes. But what's happening is the people who come to the boreholes are the rich ones, with their trucks and big tanks: they can afford to buy 10,000 litres of water and then they sell it to the poor people."

A combination of drought and this broken social structure has spiked the water price to between 20 and 50 Kenyan Shillings for 20 litres, for the past two months. Though 20 shillings this is only 16p, it is too much for many of Kibera's residents and is, they say, placing a new strain on household incomes.

Kibera's water supply is a mixture of piped water to a few owner-occupied dwellings and a stand-pipe system, controlled by "kiosks". Though the UN opened the first phase of a water sanitation scheme last year, and this year saw the first phase of slum clearance, replacing low-rise shacks with high-rise buildings.

This weekend slum-dwellers from across Nairobi are going to be rallying in Kibera as part of a global campaign to demand the constitutional right to clean water. Marcy reads me out a list of their demands over the phone. One sticks out:

"Extend regulatory remit of government beyond formal network to the informal market and poor people - that means ensuring rules on water quality."

Basically, the water system, say the residents, needs to be managed as it actually is, not as it appears in the official accounts. Since the residents groups say 68% rely on informal water sources - mafias, cartels, private water bowser trucks - it is impossible under the present system to ensure clean water.

The newspaper report on this in Nairobi's Daily Nation ends with the following hopeful phrase:

"Weather experts have given an assurance that the on-going rains will be enhanced since they are associated with the El Nino phenomenon."

But today's report by eminent scientist Sir Gordon Conway, into the impact of climate change on Africa, gives a lot less hope in the medium term. Conway says the science is so imperfect that we have no certain knowledge of how climate change will affect Africa, other than it will make it worse. East Africa will probably see rainfall increase over time, due to the El Nino phenomenon:

"In general the best assumption is that many regions of Africa will suffer from droughts and floods with greater frequency and intensity. The implication is that we have to plan for the certainty that more extreme events will occur in the future but with uncertain regularity. Adaptation thus depends on developing resilience in the face of uncertainty."

If East Africa's rain patterns do undergo permanen change, life in Kibera becomes worse for another reason - to do with sanitation. Like all visitors to the shanty town I have been introduced to the concept of the flying toilet: the plastic bag in which faeces are wrapped and thrown over the nearest wall, if possible avoiding hitting somebody passing by. Rivers trickle through Kibera, carrying much of its effluent. When there is heavy rain the rivers become the streets and the streets become open sewers.

Sir Gordon's report for the Grantham Institute shows how, within a few years, the social structure of many African countries will come under threat from climate change impacts that are not only bad but unpredictable. The local churches and NGOs, who are already waging an uphill struggle on issues of poverty, ethnic violence and corruption, will now find themselves on the front line of the climate change issue. Because, basically, Kenya - along with many other fragile democracies in Africa, is proving very slow at developing resilience.

If I think of all my encounters with Kibera, it goes like this: the first time I met the local organisers, in 2006, they were fighting to stop unjust evictions using mobile phone text messages; the second time they were trying to hold the line, unsuccessfully, against ethnic disintegration; the third time they were trying to get justice for victims of rape and violence and now they are down to the basics: there is not enough to drink. It would depress you unless you could hear the indomitable optimism in the voices of the people on the front line.

But modern financial markets have a weird relationship with the past. Every prediction mainstream economists make is based on "data points" from the past; yet for the trader there is no past - only the future concerns them. That's why they've been able to shrug off the cataclysm of September 2008 and get on with making money. Right now, courtesy of the taxpayer and the central bank, they are raking it in.

In fact there is near-euphoria. The Dow Jones Industrial Average - which lost more than half its value in the twelve months to March 2009 has now clawed back half its losses. Goldman Sachs announced a record profit. Bonuses are bigger than ever. Foreign exchange dealers are opening offices and recruiting new staff just as fast as the computer guys can install the terminals. Meanwhile ordinary Americans go on losing their jobs: on one estimate there is 16% unemployment - on the most conservative estimate it stands at one in ten.

So what's happened? How did we avoid a 1929-style collapse into Depression? Have we escaped the peril permanently - and if not, what are the dangers?

When you talk to economists there is one historical parallel that haunts the conversation: in 1929 the Dow lost 40% of its value in the first three months - but by late 1930 it had clawed back half the losses. The sheer scale of intervention now, as compared to non-intervention by the authorities back then, means that no-one expects events to play out exactly. But there are still deep concerns.

To understand why, you can look at four key events of the Depression of the 1930s and compare them to today.

1. The stock market crash itself. In 1929 there'd been an unsustainable bubble. Share prices soared despite a falling money supply, despite a downturn in farm prices. This convinced sensible people that the economy had finally escaped the cycle of boom and bust. Economist Irving Fisher famously said, days before the crash that stock prices had "reached what looks like a permanently high plateau." From October 24 - known as Black Thursday - the real slide began and by mid-November the Dow was 40% off its peak. This time around, the Dow - mirroring the average losses of global stock markets - lost 50%. Now it is back up but buoyed by what?

One measure investors use to work out if stocks are overvalued is the price-to-earnings ratio. Normally it moves within a range of 15-30. Right now, based on Q3 profits of American companies, it stands at 141. That, to me, is an danger alarm.

According to people in the markets, what is driving the stock market resurgence is the slew of cheap money pumped into the economy, both in the USA and UK, in the form of quantitative easing (QE). There is little sign of retail investors putting their money back in. And while there are some signs of an upturn in profitability in the real economy, the stock market recovery looks to almost everybody from the outside to be over-blown - based on cheap money and optimism. So, paradoxically, on the eve of the 80th anniversary of the Wall Street Crash - and as we remember the cataclysmic events of a year ago: one of the most imminent dangers is a stock market correction.

However, what has clearly NOT happened this time is the rapid slide from crash to contraction. And to understand why not you have to look at the central event: the banking crisis.

2. The Banking Crisis: On a gritty street-corner in the Bronx, overshadowed by the rusty elevated railway line, lies a one-storey sandstone building that is now a Laundromat. On the walls you can just make out, beneath 80 years of paint-jobs, the words "Bank of the United States, Bronx Branch".

This is where, on 10 December 1930, a crowd of 20,000 people gathered after a rumour the bank was bust. That night, the great and good of Wall Street held a meeting to try and force through a merger of the bank with three healthy ones. But when they looked at the books most of the bank's collateral was - guess what? - bad mortgages. By morning the bank had failed. Those who turned up to withdraw their savings found they had none. Unlike today there was no deposit insurance. Within a year 300 other banks had failed; by 1933 no fewer than 10,000 banks had gone under - 40% of the total.

In the 1930s it was the bank crisis that turned recession into Depression. The Wall Street Crash had wiped out the savings of millions; now the bank collapse would wipe out tens of millions. Even those who did not lose money directly began to hoard it, take it out of the system. The so called "money multiplier" effect of banking - whereby my $10 deposit can become the surety for maybe $30 of loans - was curtailed.

The domino effect is now well known and legendary: people stopped spending, prices fell. Farm prices halved and consumer prices fell by about 25%. Wages fell too, by an average of 20%. This is deflation - not always a catastrophe but if you have a population deeply in debt, and lots of bad debts, it is a real catastrophe.

The reasons were spelled out by Irving Fisher, who recovered his poise and reputation by coming up with the "debt-deflation" theory: if the value of your debts stays the same, but your income falls, you are forced to sell off your property at knock-down prices to keep repaying your debt, which makes prices fall even further. This spiral forced millions of people into penury in the early 1930s and turned the crash into the crisis that only a decisive, counter-crisis response could have prevented from turning into a Depression. But instead of fighting the crisis, the US authorities made it worse.

3. The Great Contraction. Between 1931 and 32 output collapsed, prices collapsed, the labour market collapsed. One in four people were out of work. None of the traditional remedies had any effect. On the first day of the crash, Wall Street bankers had tried to bid the market up by spending their own money, as they'd done in 1907. It didn't work. Now the policymakers clung to what they though were the great safety mechanisms of economic policy: balanced budgets and money backed by Gold. Incidentally, we are not just talking about conservative politicians. Even Communists in the early 1930s supported balancing the books and defending the value of the currency. Macro-economics, as a discipline, barely existed and was based on a series of intuitions, some of which turned out to be wrong.

So President Herbert Hoover, who did try and ameliorate the crisis, relied on the private sector to solve the problem. That failed. His Treasury secretary, septugenarian Andrew Mellon, thought the crisis was a great opportunity. He urged:

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate ... It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. "

Finally, the Federal Reserve - to stick by the rules demanded by the international Gold Standard - took measures that actually made money harder to come by. By the bottom of the crisis, in the early 1930s, the money supply had fallen by a third.

There is a big debate in economics about whether the Great Depression was inevitable, caused by objective flaws in capitalism, or whether it was all down to human error. The human error school has been aligned with a version of free-market economics built upon the monetarist theories of Milton Friedman.

If there is one reason we have not repeated the 1929-32 scenario it is because, at the time of the collapse, the man in charge of the Federal Reserve was the key proponent of the human error theory. Federal Reserve chairman Ben Bernanke had long held that the modern financial system had reduced risk. But should it ever collapse, his research told him the financial mechanisms would accelerate the crisis. You would have to throw money at the problem, said the theory. And that is what - with many hesitations, mis-steps - he did.

Instead of balancing the books President Obama has run up a 1.6 trillion dollar national debt and allocated 600bn for a fiscal stimulus; meanwhile Bernanke's Fed has printed $1.2 trillion. And the US taxpayer has recapitalised the banking system with $100s of billions worth of guarantees.

But it's left us with a moral paradox and a very sticky situation. The moral paradox is: freemarket capitalism has been bailed out by the state. What American politicians railed against in other countries - state intervention to prop up ailing firms - has become a way of life.

One year on from the September-October 08 crisis my observation is that this has had basically a tactical drag effect on economic decision making: from the Tarp to Quantitative Easing policymakers have always tried a semi-market solution first and then, reluctantly, gone the whole hog for a state-backed solution.

The sticky situation is this: the stimulus measures in America - above all quantitative easing - have benefited mainly the companies and the people that caused the crash. Wall Street is booming, bankers' bonuses have returned. Sure, some people and some banks got wiped out, but the hiring spree here in lower Manhattan means lots of people are effectively "wiping the slate clean". Meanwhile, for ordinary Americans, life is still getting worse.

There are three layers of danger ahead domestically, as put to me by eminent economist Mark Gertler, a long-time collaborator of Ben Bernanke and Professor of Economics at NYU.

First, there is still concern about some banks, particularly those exposed to commercial property. One has to assume the authorities have such banks on watch and will go at them like a Bondi-beach lifesaver goes after a floundering supermodel in the surf at the first opportunity. I.e enthusiastically and with great overkill.

Second, the danger that regulatory reform of the banks falters. The bankers are spending millions of dollars lobbying against the most crucial of the re-regulation measures. As I keep saying, this is macro-prudential - ie systemic - regulation. While more radical commentators think, like Mervyn King, banks too big to be bailed out should be broken up, what the US regulators favour is a sliding scale of capital requirements. So if you are a bank too big to fail you have to hold so much capital that you are penalised for the implicit danger you pose to the taxpayer. The problem is, capital requirements have become a universal panacea: pay big bonuses, you have to hold more capital; adopt risky strategies ditto; become too big, ditto; the economy booms and there's a bubble, ditto, ditto, ditto.

After a certain point it becomes clear that heavy reliance on - theoretical so far - capital requirements is no substitute for actual regulatory intervention. And that means passing rules that allow the state to instruct banks to break up, and which above all pin down specific banking liabilities to specific nation states.

Finally, says the prof, there is a third danger. This is how he puts it: "Class warfare". The whole purpose of bailing out the banks was to save the economy, not the bankers. So if we don't reform the banks, and they simply run away with our money again, we will have failed. Those two words, "class warfare", had a spine-tingling impact here in America. Because the do not mean an American Arthur Scargill leading mass demonstrations of miners from West Virginia. They mean social breakdown and the breakdown of the fundamental American myth that "everyone can make it".

This is the great paradox of the year we've been through. The economy was saved - at massive cost; but we seem to be going through a big ideological change despite that. Hedge fund economist Max Fraad-Wolf put it to me this way:

"There's a belief that some of the fundamentals no longer apply: I will not be richer than my parents; those who obey the rules always lose out; there is no place in America for me."

So what you've got, basically is an economy on life support: 1.2 trillion from quantitative easing and about 700bn of fiscal stimulus. A banking system with a free ride back to profitability. And a stock market that looks based on over-optimism.

And then, on top of that, you've got the international situation.

4. Global trade collapses, and then the global currency system. In 1930 America passed the Smoot Hawley Act, raising the tariffs on selected imports. Other states retaliated and by 1933 US trade was 33% of its pre-crash value. By then the global economy was coming apart.

Smoot Hawley is often cited as a bad thing. Protectionism bad, we've learned from the 1930s. But actually many economists think it hardly affected the US economy and if it did it helped counteract the crisis. Imports were only about 5% of GDP.

Far more important is what happened with the currency system. After World War One the major economies had struggled to re-institute the Gold Standard, pegging their currencies to gold. America above all revered gold.

But to remain within the system, the US Federal Reserve was forced to tighten monetary policy. Meanwhile, rival governments were forced, one by one, to come off Gold. When the 1929-31 Labour government fell, to be replaced by a coaliton that more or less immediately came off gold, one Labour minister respondent with the immortal remark: "We didn't know you could do that".

What are the parallels today? Well global trade collapsed faster than after 1929: on some measures it was off 40% in the first 3 months of the crisis. But now it has stabilised and begun to turn upwards. However this de-globalisation impact was not primarily the result of protectionism - there have been more than 100 protectionist measures, most famously Barack Obama's tariff on Chinese tyres. But the real problem was the collapse of globalised production lines, once credit was withdrawn from the system.

The second parallel is: there is no gold standard, no pegged currency system at all, except the most important one in the world: the informal dollar-RMB peg enforced by the Chinese government. This stands at the heart of the relationship between China and the west and represents, as Paul Krugman points out in today's New York Times, one massive "beggar thy neighbour" policy.

However there are smaller "beggar thy neighbour" policies beginning to emerge too. Many commentators here believe the Obama administration is revelling in a weak dollar. If so, the results speak for themselves. On the latest (August) figures, US imports are down 30% while exports are down only 15%. A weak dollar will allow America to export its way off the bottom of this crisis.

What the experience of the 1930s shows is that, given persistent economic hardships, electorates eventually vote out parties committed to orthodox economics, globalisation and balanced budgets and put in parties committed to national, rather than global, solutions to the crisis. We are not there yet, but the tendency is definitely on the rise rather than the wane. If I were to cite my biggest worry, it is that we begin to get overt national exit strategies.

In summary: if we compare the Wall Street Crash and its aftermath to Lehman and its aftermath, the crucial difference looks like policy. Policy this time was a terrified activism; monetary shock and awe, measured in trillions of dollars. But the results of this massive intervention are not very impressive in the West. The weak recovery - or non-recovery as in the UK's Q3 GDP figures out today - signifies that the exploision of September 2008 was probably bigger than the explosion of 1929.

Given that, all the huff and puff from politicians about how things are looking up has to be tempered with the question: where is the sustainable growth coming from if not driven by debt? Where are the jobs coming from to soak up 7 million jobless in America? Where are the investors coming from who will buy the hundreds of billions of dollars of bad debt the US government is hoding on behalf of the banks.

What you learn by studying economic history is that a crisis is never over until its over; and that the most obvious and orthodox and seemingly permanent economic facts and policies sometimes turn out to be the carcinogen, and that only much later does it become clear.

Watch Newsnight tonight, 2230 GMT, BBC 2, for an hour of reports and discussion on the anniversary of the Wall Street Crash. There'll be economics, but there will also be tapdancing.

As I'm writing a woman from Eurovision has announced urgently, "Roll now! Camera spray of Russian delegation!" - causing 27 broadcasting technicians to hit the record button on a feed of pictures entirely controlled by the organisers, of a totally insignificant event.

We are protected by some of the most lethal force ever assembled. We saw the first use, as far as I can tell in any democratic country, of a sonic blaster. This can cause fatal aneurisms and damage your hearing.

In the Youtube footage of it firing a large number of people close to it are not rioters but cyclists and pedestrians.

Add to that the complete overlap of anti-terror and crowd-control policing, so that the whole city is silent except for sirens and the barking of police dogs, and you get a near complete dystopia.

What's being achieved here is significant - not for any specific policy but for the fact that the G20 will be turned into a permanent and "premier" body for managing the world economy.

The IMF will be reformed to allow greater representation for China - although there will be no specifics here because the Europeans who will lose their seats are wrangling about it.

The G20 will have a board and permanent apparatus. Given that the anti-globalisation left hates the IMF/World Bank, and the pro-market right has seen itself turfed out of IMF decision making as well, there will probably not be many mourners for the old system, where the G7 or G8 countries claimed decision making power and the IMF/WB were seen as extensions of US foreign policy.

However, we should probably consider what we are losing as tactical management of the world economy moves to an ad-hoc body like the G20.

Whatever the faults of the system put in place at Bretton Woods in 1944 it had two positive attributes. First it was created by democracies that had just defeated fascism and were now faced with a strengthened Stalinist bloc. Second, as the product of a Treaty, it had the power to sanction.

The IMF could and did instruct countries, famously including Britain, to get their public finances in order, and it could bail them out (Of course no-one is suggesting the IMF cannot do this in future, in fact it will be more flexible in its ability to do this because of reforms achieved so far.)

The G20, by contrast, has to work through consensus instead of sanction. And around the table, with a theoretically equal voice, are a giant Communist dictatorship (China); an undemocratic monarchy (Saudi Arabia) and a country whose banking system was bust eight years ago (Argentina) and an energy giant prone to holding small neighbours hostage over gas supplies (Russia).

Now the solidification of the G20 is only one moment in the long reform and reconstruction of the post-War economic order. But it's symbolic. Bit by bit the world is moving from an order based on treaty and formal sanction to one based on consensus, horse-trading and the diffusion of power.

If you think the move from G8 to G20 is irrelevant consider this: last year, when Russia clashed with Georgia, there was talk of the west suspending Russia's membership of the G8 in reprisal. If the world economic order is, in future, to be guaranteed by consensus - what are the chances of 19 governments getting together to suspend or expel a miscreant? Zero - unless globalisation begins to fall apart and countries opt for overt protectionism.

We're finding - in economics as well as diplomacy - that multilateralism is a grubby business: you scrap your missile defence shield, I place sanctions on your enemy; you give me extra votes at the IMF, I give you a binding carbon emissions target at Copenhagen. This is what's really being done this week, at the UN General Assembly and in Pittsburgh.

The G20 has indeed achieved something in the ten months since it moved from being a finance ministers' meeting to a leaders' summit. Co-ordinated fiscal and monetary stimulus prevented a Third Depression; and however minimal the attempts to co-ordinate financial regulation, isolate tax havens etc are real.

But it faces questions about its democratic legitimacy - with implications close to home as well as globally.

I've just asked Alistair Darling, for example, whether any country at the G20 is arguing -as the British Conservatives do - for a fiscal tightening in 2010, and whether the commitment to expansion made here would be binding on a future government.

He ridiculed the Tories, painting them as seriously at odds with the rest of the world, ignoring the rest of the question. I tried to ask him again: does Britain's commitment bind the Tories? Obviously it cannot - but herein lays the problem. Mr Darling's aide cut me off before I could repeat this awkward question.

So welcome to the world according to the G20. It's hard to know how the leaders will measure success but one yardstick would be if there comes a time when they do not have to be aggressively protected by a ring of steel, Kevlar and violent sound.

Then, almost in realtime, we are getting an applied demonstration of what that means in practice. Obama signalled a review of the USA's nuclear posture. This plus the withdrawal of the planned missile defence shield in East Europe now seems to have prompted the Russians to reciprocate - one member of President Medvedev's team signalling to the press that there will be movement on sanctions against Iran if the IAEA provides evidence to base it on. Right now there is a foreign ministers' meeting going on to discuss what international pressure the UN might place on Iran over nuclear weapons.

Then, a second demonstration of what it means to build alliances with people you don't like: Muammar Gaddafi delivers a long and rambling speech, calling for the UN to be relocated, and calling the Security Council the "Terror Council", complaining about jetlag also. But Gaddafi is now "one of our" dictators and is being tolerated.

There was a third striking aspect of Obama's speech. He omitted any mention of the Taliban, outlining the mission in Afghanistan thus:

"We have set a clear and focused goal: to work with all members of this body to disrupt, dismantle, and defeat al Qaeda and its extremist allies - a network that has killed thousands of people of many faiths and nations, and that plotted to blow up this very building. In Afghanistan and Pakistan, we - and many nations here - are helping those governments develop the capacity to take the lead in this effort, while working to advance opportunity and security for their people."

The background to this is a growing debate within the US administration over Afghan strategy. At the weekend the leaked McCrystal report showed Obama is being advised to boost troop numbers, accepting initial higher casualties, or face possible defeat in Afghanistan. Today it emerged there is another option being considered: abandoning counterinsurgency versus the Taliban in favour of a targeted anti-terror campaign against Al Qaeda, based partially in Pakistan.

Obama, we are told, wants to take his time rethinking Afghan strategy; the US media is interpreting this as a victory for Vice President Joe Biden, who has been pushing for a switch of focus to Al Qaeda, not the Taliban.

Obviously now we are in a world of multilateral diplomacy, it will be interesting to hear what America's NATO partners contribute to this rethink, particularly those who have advocated long-term military involvement on the ground in Afghanistan, in order to rebuild democracy and safeguard women's rights and generally achieve nation-building.

Sammy's Corned Beef joint full of seasoned barstool sitters, Hemingway's student bar - like a Methodist youth club with beer, even the nameless joint at the corner of a street with nameless wraith-like drug users hanging around just at the edge of the neon glow. The whole mid-western urban idyll is about to be broken by the arrival of the G20 herd.

There are so many answers being promoted this week you could be forgiven for asking "er, what was the question?"

It is only Tuesday and already a heavily hyped Middle East peace agreement has turned into a grouchy photo op.

Next Hu Jin-Tao announced a series of measures on climate change, hailed as China assuming "leadership" on global warming, but not very clearly taking the world towards a comprehensive agreement in Copenhagen.

In fact. not doing anything other than promising to grow carbon emissions less fast than the Chinese economy.

On top of that we now have Gordon Brown advising the Chinese on how to rebalance their economy. I look forward to reciprocal advice from President Hu on how we should rebalance ours.

So what's really going on? The dominant theme in all these narratives is the need for reciprocal, mutual and therefore multilateral action in the face of strategic problems in the world - climate change, poverty, trade, bank regulation, nuclear proliferation and Middle East peace.

Actually, the sheer volume of horse trading in the run up to this summit shows you these are all linked issues.

If there is one problem that recurs in all these initiatives it is this: the failure of the USA to adjust to a world order that is rapidly changing.

In economics, the Anglo Saxon model's prestige is battered. On climate change, action in the USA - after years of no action - is seen as the key to forward movement.

On trade, well the President signed the last G20 agreement - a moratorium on new protectionist measures - then placed new controls on Chinese tyres.

In the last few days I've been finding out just how hard it will be for President Obama to sell any multilateral action agreed at the G20 to the American people.

First there is the domestic right-wing backlash: it started over the bailouts, moved on to the fiscal stimulus and is now focused on healthcare reform.

From Washington's K-street this can look like the Republicans fragmenting, their popular base getting emotional and ruining the party's chances of forming a moderate electoral alliance at the next election.

But in Pittsburgh it does not look that way.

Obama's radical right-wing opponents are creating an emotional narrative which is becoming a dominant theme on the US news networks. It is, in the pop-psychology parlance, giving people "permission" to get angry about a lot of other things.

As a result the G20 will face a new kind of protester this week: conservatives who wish the G20 would stop doing things and who see multilateral action as a potential threat to American sovereignty.

Second there is the fragmentation of the electoral coalition that brought Obama to power.

He is trying to hold it all together - delivering an under-reported speech to the US trade unions last week clearly designed to boost his radical credentials there.

I've been meeting steel industry workers from Clairton, the setting for Michael Cimino's emblematic Nam-era film, The Deer Hunter. They are in no mood to accept multilateralism either on trade or carbon emissions. They want more trade barriers to protect jobs.

As one put it: "Our plant has a raised a cancer hazard. You get up, go to work, pay your taxes and wonder all the time am I going to live very long after I retire. Will I get leukaemia? And all so that some other country can come along and dump a bunch of cheap steel onto our market?"

The workers I spoke to want any deal on carbon emissions explicitly linked to forcing producers in the developing world to raise environmental standards.

"They will fail," predicted one, triumphantly.

Third, crossing the electoral divide, is race. I keep asking people whether the issues like healthcare and tax and bailouts risk tearing America apart. The surprising thing is the number who say: "It's torn apart already, always was".

And when I probe further what they mean is over race.

Whether Jimmy Carter is right or not over the heckling of Obama, the wider fact remains that people are increasingly prepared to talk about a racial divide opening.

Add to that an incredible emotionalism. Okay, Brits are reserved. To me all US television looks needlessly emotional. But laying aside cultural differences there is a lot of emotion on US TV already and now you've got political movements, above all from the right, prepared to make politics more about emotion than it was.

Then, in a different reality, you get the patrician narrative. The reserved, statesmanlike politicians on the Hill; their reflections in the grey-hair-hosted political talk shows and the finely crafted statements of corporate leaders.

And then, below that, at the level of grass roots, you get a preparedness to emote, shout and scream. One right-wing activist - holding profound small-state and decentralising beliefs himself - complained to me off camera that too many people on all sides are beginning to fantasise about some kind of "showdown" in America, in which all the values of self reliance, states' rights and the right to use 9mm ammunition will combine into some kind of cathartic moment.

"People almost seem to want this to happen," he confided to me, genuinely worried.

Now all this is only "noise", and for the politicians noises off.

But I think in the USA, there is definitely an intensifying cultural conflict that is not reflected in the news but actually mediated via the news. People of different political persuasions increasingly live inside self-constructed media bubbles.

The strong standpoint taken by Fox - refusing to show the president's speech and in turn getting itself boycotted in Obama's latest round of Sunday interviews - countered by the recent rise of MSNBC, with its liberal ranters throwing invective at Obama's opponents.

This is the America I've traversed in the process of writing this. I'm in New York now, inside the UN building. Once the UN symbolised multilateralism, but the global crisis has forced the world's leaders to improvise something more useful for tactical intervention.

The explicit dream of politicians in Europe and America is that the G20 becomes a more permanent horse-trading forum, a kind of insecurity council, with a remit to try and forge deals beyond economic growth and trade.

The whole situation is a product of the grand, spatial forces that are shaping the world: the weakening of American power and the crisis of neo-liberalism, the rise of China, global warming.

What I'm watching - and what's about to descend on the residents of Pittsburgh - is a kind of rolling maul of the world's politicians trying to cope with this power vacuum and improvise new ways of dealing with it.

And outside the calm, air-conditioned UN - almost archaic-looking now, with its fifties era furniture and its media centre with only enough power points for a world where computers don't exist - outside this time capsule there is just this palpable emotionalism, for and against the American President, rising in intensity and leading who knows where?

TONIGHT: Watch my report from Clairton, Pennsylvania - how the real life steelworkers and Nam veterans from the town where the Deer Hunter was set see the G20.

It was a surreal day and one of the most surreal moments happened on the stroke of 9am, when a nemesis figure arrived at Lehman's front door in the form of a large man with a beard and a red flag. Only his light-sensitive spectacles spoiled the Karl Marx likeness. He shocked the cops and earpiece-toting security guards by launching into an f-word-laden diatribe along these lines:

"F--- Lehman; f--- AIG, f--- Merill Lynch. Capitalism is doomed. They want us, the working people, to pay for the crisis. Our parents told us about the Depression - they want us to relive the Depression. They want that for us. Hell, no!"

When approached by reporters requesting his last name for the record he responded, after a moment's thought, with a snort: "What's your last name?" Not Hollywood central casting, nor Thomas Pynchon blowing deep and surreal could have invented such a figure nor placed him in such a place at such a time.

Yet the amazing thing about the crisis, one year on, is that he was substantially wrong. Many on the left - and for that matter the ideological right - assumed that the predominantly neo-liberal governments of the G7 countries would let the recession rip, let the banks fail and foist the cost of the crisis onto the population in the form of job cuts, bankruptcies and falling incomes.

They thought this because they had strong evidence to go on. In the early 1980s, the policy response to economic downturn could be summed up by John Major's later catchphrase: "If it isn't hurting, it isn't working." Both in Britain and the US governments crafted policies that would exaggerate the effects of recession: raising taxes, raising interest rates, letting the "lame ducks" of industry go to the wall.

For the old there was, too, the memory of 1929, when the US authorities, in deference to the market, simply let the financial collapse take its toll in the hope that it would "liquidate" all that was inefficient and leave the system stronger.

This time around it's been different. The state has rescued the market. Banks in Britain, the US and beyond have been half-nationalised. Taxpayers' money to the tune of $5 trillion worldwide has been used to replace collapsing demand from the private sector. The G20 leaders have congratulated themselves on the record, and in writing, for "avoiding the mistakes of the 1930s".

From the get-go this response has confused and alienated those who believe markets should be allowed to work untrammelled. The demonstrations, e-mail campaigns etc against the bailouts in the US, which have spilled over now into anti-tax tea parties and protests against state-run healthcare, are evidence of this.

But the bailouts have also confused and alienated the left. Instead of a collapse scenario there is now, at worst, a 10-year stagnation and quite possibly - for the most state-led economies like Brazil and China - rapid resurgence.

"They" - the man with a red flag meant the powerful ruling elite of the Western countries - it turns out, did not "want us to re-live the Depression". In fact they more or less spontaneously swung to the opposite position: they threw away the rule book in order to avoid having to impose the cost of crisis on their own populations in the here and now (though as we will see, the cost will be borne later).

The question historians will ask is "why?" - and how will that change the world?

In the first place the answer is because the free-market wing of US economics did, in its own way, learn the lessons of 1929. The left has long scoffed at Milton Friedman for trying to reduce the cause of capitalism's epoch changing Depression to a simple mistake of central bank policy.

But the result of Friedman's views becoming orthodox was that, on the eve of crisis, an academic steeped in them was at the helm of the central bank and determined not to repeat the mistakes of 1929. In 2004 Ben Bernanke told Friedman and co-author Anna Schwarz, at Friedman's 90th birthday party:

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

That is what was at stake on the morning of Wednesday 17 of September, when Bernanke and Hank Paulson realised they were facing financial collapse on a scale that would dwarf Lehman and AIG, and a Depression that would start on or around the following Monday when the ATM machines stopped dispensing cash and giant private firms stopped issuing pay cheques.

So the first part of the answer is that freemarket economics, it turns out, contains sophisticated, if rusty, counterbalances to the doctrine that the market is always right. The freemarketeers had long pondered what they would do in the case of another 1929 - Bernanke famously postulating the concept of dropping money from a helicopter. And they did it.

Of course that does not solve the ideological crisis for free-market economics. As Alan Greenspan famously admitted, it's broken - above all the assertion that the best regulator is the market itself. He told Congress on 23 September last year:

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself especially, are in a state of shocked disbelief... I made a mistake in presuming that the self interest of banks and others was such that they were best capable of protecting their own shareholders."

But better and more sophisticated economic theory is only one reason for the turn to state intervention. For some reason most of the world's governing parties and politicians either did not want to impose austerity, or thought they could not get away with it.

I think the reasons for this are the most interesting question arising for historians, and I hope they're being pondered by somebody reading this in 2109 (obviously in a subterranean bubble protected from the collapsing ecosphere) in a better position to know the answers. Something in the spirit of the age made it impossible to justify unleashing market-led destruction of businesses, jobs and lives.

It think this comes down to three things.

First, technology. We might moan about the collapse of representative democracy but we do live in an age of networked communications: that is, the old model of information flowing from the centre outwards is dead.

Just as the story of Tolkien's Lord of the Rings becomes impossible if you give Frodo a cellphone, so many of the great political impositions of the 20th Century would have been impossible with networked comms. That's why the Chinese and North Korean governments are so hostile to the internet and SMS. Unpopular policies have become quite difficult to impose: you have to manufacture consent and you have to control the information flow.

Second, the demise of deference. The populations of the West are not greatly content even with central banks printing money, slashing interest rates and governments handing out large dollops of cash to keep unspectacular small firms afloat. Any attempt to do what the red flag man anticipated - that is to foist pay cuts, job losses, givebacks of work conditions etc over a short period of time - would have provoked resistance. The one country where it became unavoidable - Latvia - went from Swedish-style apathy to violent rioting within weeks and was only stabilised by external intervention.

Third, there is this sense that - even if something was deeply wrong within the financial system - the real-world economy was not broken and did not need fixing with a dose of Depression. Those who remember the 1980s will know that the pro-cyclical (ie crisis worsening) measures adopted by governments were rationalised by the need to drive out inefficient businesses and archaic labour practices: Fleet Street printers, legendarily clocking on with the assumed name of Mickey Mouse to draw an extra salary, with the connivance of managers; British Leyland shop stewards who could bring the entire factory to a standstill by ringing a bell etc.

There is no sense now that the real-world economy is beset by labour strife or inefficiency, and that has been a major factor conditioning the response of those in power. However it is beset by debt and we are probably kidding ourselves that there is not a deep malaise out there in a world where cappucino cafes rise while real wages fall.

The result of all this, one year on, is an ideological hiatus. Free-market capitalism did not behave as its red flag waving critics thought it would. Indeed, it did not even behave in a way its supporters assumed it would. It found - pun intended - a "third way".

It adopted - reluctantly and with many false starts - Keynesian measures. It printed money and it threw taxpayers' money at demand and the state now owns large parts of the banking system. Because of all these highly abnormal things, which cannot be easily filmed, illustrated or directly experienced, the average Joanna and Joe actually experiences life going on as normal.

That, for me, is the answer to the question: why has there not been an intellectual revolution in response to all this?

But remember we're only about a quarter of the way through the crisis. Because all state intervention does is transfer the pain from the present to the future, and from the private sector to the public sector.

Already this is creating disquiet because of the rapid revival of investment banking. JP Morgan analysts show that 50-60% of all bank profits are being generated from high-risk activity right now. That, at root, is why the bankers and hedge fund bosses will be walking away with giant bonuses at Christmas, even as the jobless totals rise.

But it will get scratchier. In states that cannot afford massive deficits there will be austerity. That's why the UK debate on cuts, when and where they'll be made etc has hardly started. In states that can afford the spending spree - above all America with its deficit and China with its habitual surplus - the decision to resolve the crisis in the public sector rather than the private lays the basis for a dangerous clash of interests in the mid-decade.

Does America devalue its own debt and bankrupt China in the process, provoking a trade war, or not? That's a question I hope will be answered within a decade rather than a century, and hopefully with a benign outcome.

On top of all this, the fact is that the "real world" economy, for all its vibrancy, was based on something unsustainable - that is, the constant expansion of cheap credit. Whether it's the lifestyle celebrated in Friends or the one depicted in The Wire, it was all based on easy money that is not going to be available in the same amounts going forward.

So, at the end of it all, we've got an anomaly: state capitalism and Keynesian solutions enacted by politicians and advisers who would prefer the free market and who don't buy Keynes' core assertion that capitalism is inherently unstable.

Will this lead to a wider intellectual revolution as it did in the 1930s? We'll be discussing this tonight on Newsnight.

Some believe it's just a matter of time. In the 1930s the crisis signalled a fairly rapid swing in ideology, away from the market and individualism and towards not the state but also social programmes based on redistribution and solidarity.

But we tend to foreshorten the timescale. The policy revolution took four years and a US presidential election. The revolution in economics took seven years - with Keynes publishing the General Theory only in 1936. And in literature 15 years lie between the creation of Jay Gatsby and the creation of Tom Joad. So it might just be timescale.

But there's another view. The most trenchant critics of capitalism, in the anti-globalisation movement, have been going round for quite some time now propagating the slogan "One No; Many Yeses". That insistence on fragmentation and diversity rather than a single doctrine was actually born out of experience too.

In the 1930s sociologists noted the emergence of what they called the "authoritarian rebel" - the "party soldier" of the left and right, the Hollywood gangster, the brooding cartoon anti-hero.

Many on today's left, scarred by the experience of Soviet communism, are determined not to repeat the experience of the authoritarian rebel. In addition, they regard the issue of state versus market as secondary to saving the planet. That's not to deny there are some, like the man with the red flag, who hold a traditional leftist critique of capitalism. The question - and they are certainly asking it themselves - is why that view has not gained more popularity in response to the crisis.

For all these reasons, it may not just be that we're experiencing an ideological time-lag. The failure of a new narrative to emerge may have deeper roots. Technology has fractured the whole concept of dominant narratives; the anticapitalist movement has rejected a dominant narrative in favour of many competing ones; and for many the battleground has moved from the terrain of the economy to the ecosphere, altering the very concept of left and right.

That's how it looks a year after the explosion: mind you, it would have looked very different in October 1930 to how it looked in October 1933.

We'll be exploring all this with a cast of thinkers, strategists, idealists and bankers tonight on Newsnight at 2230. Pile into the debate right here, in the comments section...

That's how Prime Minister Gordon Brown explained the origin of the banking meltdown that began this time last year. It certainly did start in America: the subprime mortgage fiasco; the mis-pricing of risk; misregulation and then the policy decisions that led to the collapse of Lehman Brothers; all these originated in the US - so why was it Britain's banking system that came closest to collapse?

The government was forced to take massive public stakes in HBOS, RBS and Bradford & Bingley. Then, a manufacturing sector that had been booming saw output fall, as the business cliche for once accurately describes, "off a cliff". I spoke to one Midlands metal component maker whose turnover halved in November. Suddenly a workforce used to near full employment faced short time, wage cuts, a wave of closures. Unemployment is heading for three million.

Britain's problem was this: it has the most globalised finance system in the world and some of the lightest regulation. The banks that collapsed here were not investment banks - they were high street banks that had been sucked into the world of risk.
With no discouragement from the politicians

The impulse of the policy elite was to sort things out the old way. Mervyn King, who had resisted any talk of recession within the MPC, finally agreed to cut interest rates. Fred Goodwin walked away with a giant pension. Mr Brown talked Lloyds into saving HBOS. Instead HBOS sank Lloyds. Interest rates neared zero. The Goodwin pension deal outraged millions of people.

How did Britain change as a result? There are several layers to the answer - some quite visceral. Roger Bootle, MD of the consultancy Capital Economics tells me:

"I think the month after collapse of Lehman was an absolutely seminal period - it will affect politics for decades. Like 1992 - it was an absolutely shattering experience physically and mentally - I am quite sure the policy establishment will never be same again."

That policy establishment - the regulators, ministers, top civil servants and let's be frank journalists who surround them - saw their worldview blown away in the weeks between Lehman and the British bailout.

Only by tearing up textbooks did they find solutions. In March:

The taxpayer guaranteed £680bn of bad bank debt
The bank of England started printing money; £175bn to date with more to come.

The state had saved the market. But something fundamental had been lost. We used to call it "prudence".

I stood and watched the physically shaken lords of capital come and go in Downing Street on the week of the bailout. At the time it seemed like the end of an era. But the real game changer was the day Chancellor Alistair Darling had to stand up and admit Britain's public finances were shot for a decade.

Bootle says: "The effects of fiscal hole going to be devastating - before politics was all about using the proceeds of growth. That's out of the window now. The issue is about how fast and the balance between tax rises and spending cuts. The politicians will be incredibly constrained."

It's been recognised as the death knell of neo-liberalism, but the meltdown also signalled the end of the deal at the heart of so called Third Way politics. The deal was: the state would grow in size; the finance sector would be left alone to make money - and pay the tax bill. Now, the Treasury believes the economy has permanently lost 5% of its capacity. The fiscal crisis is structural. It will last a decade.

The public finances have skidded out of control and over the summer it got worse.
Britain is now on track for a £175bn budget deficit this year. By 2017 the government will be making £90bn a year in cuts or tax rises, just to pay for the impact of last year's banking crisis. And this huge deficit holds big risks: Britain's triple A credit rating looks shaky. And recovery is not assured.

Economist Graham Turner, who predicted the credit crunch tells me:

"The big fear is that what we've done is we ramp up the budget deficit to extreme levels to not seen in the 1930s - so we haven't done the Keynesian thing: if you just allow budget deficit run to extreme levels, and you don't address the underlying problem of private debt, you get what happened in Japan - public sector debt soared and they never got a recovery."

But the bank crisis and the fiscal crisis are only half the story. Because, on the ground, after 60 quarters of growth, there are parts of Britain that look poor, are poor - and given a squeeze on benefits and rising unemployment - the prospects for such places are bleaker still

By the end of our longest post-war economic upturn one out of six households in Britain are without work; £390bn pounds had been spent on welfare benefits; and the prison population was 23,000 higher at the end than the beginning. Britain had become hugely unequal - and all this in the good times.

Britain now faces a strategic question: where will growth come from, how big should the finance sector be? The new bank regulator said much of what the City does may be socially useless; and its size may be preventing Britain's economy from finding a role in the 21st Century economy. When the regulator of the City asks questions like this you get a sense of what a massive shock - financially, politically and ideologically Britain suffered a year ago.

For the best part of two decades, in the Anglo-Saxon countries, growth has been driven by credit. In the US this has been almost a pure trade-off with wages: American median male hourly wages were lower in 2007, in real terms, than they were in 1972; the amount of debt in the economy 2.5 times higher.

In the UK there has been a third factor, standing between this wage stagnation and credit growth: wages at the bottom have been stabilised around the minimum wage; but large numbers of people are in the benefit and tax credit system. The state has been the guarantor of incomes for the poorest families, and employs around 40% of the workforce. Graham Turner explains the dilemma:

"We've been squeezing wages and allowing credit to be the main driver of economic growth: take away credit and where are we going to get a sustainable recovery? I can't see where its coming from at the moment."

In the boom Britain's financial centre at Canary Wharf became the physical symbol of our future: post-industrial, global, cool Britannia. But Britannia waived the rules - and now that whole future is the subject of intense uncertainty.

* Tonight on Newsnight, Robert Peston explores the Lehman collapse and speaks to key decision makers in that crisis. Tomorrow, in a special edition to mark the anniversary of Lehman we'll be throwing the story forward - how will the world change, and what's happened to the critics of freemarket capitalism? BBC TWO 2230.

Chacellor Alistair Darling has just delivered a 5,000-word lecture about the future of public services. The word "cutting" is used 11 times - mainly in the context of "cutting costs" but not services.

Mr Darling's speech is a signal that Labour is moving to a new line of defence over public spending cuts. Until the summer its line was that the Tories will cut, Labour will invest through the downturn.

But there has been an argument inside the government that this just was not washing - the Labour party could attack the Conservatives better if they admit there need to be cuts, but paint the Conservatives as enthusiastic cutters and themselves as the human face of cuts.

Now the language has changed - not towards concreteness, but towards "cutting costs". To me that means cutting spending and in political terms, as nice as they try to put it, it is fraught with danger for Labour's leaders.

From Mr Darling's speech it is clear what that human face will be - the smiling mousachioed visage of Clement Attlee was called to mind on numerous occasions. The "humanity" of James Callaghan, himself forced to slash spending after the International Monetary Fund (IMF) bailed out the British government in 1976, was repeatedly invoked.

Even Nye Bevan ("a Welsh hero" according to Mr Darling who did not evoke Nye by name to the South Wales Chamber of Commerce) got a look in.

Naturally there are going to be a lot of Callaghan namechecks in a Callaghan Lecture, but for some reason Mr Darling did not choose to make any great exploration of what actually happened when Callaghan and Dennis Healey slashed public spending.

History records the Winter of Discontent as the denouement - but there were three years of strife, decay and decline between the two events. Those of us who were around at the time remember that it tore the heart out of the Labour party and its affiliated unions.

To get a flavour of the time have a look at Denis Healey's Budget White Paper speech from 1976:

"I do not pretend that the process of agreeing how the necessary reduction in previously planned expenditure would be achieved was a pleasant or an easy one. It never is. But I would claim that the government have done all that can be done to observe the priorities to which they committed themselves at the last General Election," he said.

There's a lot in the argument similar to the way Labour is talking now. Mr Healey talks a lot about "levelling off" public spending - that is a nominal freeze and a real terms cut because of inflation. He speaks too about a philosophical difference with the Conservatives over the cuts. Labour, Mr Healey assured backbenchers, would do the least damage to public services and act more in line with the party's core principles.

Later, in his autobiography, Mr Healy explained what happened in practice:

"Politically, by far the most difficult part of my ordeal was the continual reduction of public spending; almost all of the spending cuts ran against the Labour Party's principles, and many also ran against our campaign promises."

This is the problem you have if you are Labour chancellor and you have to cut spending. Up to now most of the commentary has tended to focus on what it would do to Britain's triple-A credit rating if Mr Darling fails to make the cuts.

Now, as Labour signals a mixture of cuts, privatisation and "public service reform" it is worth asking what it would do to the party itself. What will Labour's rank and file activists make of its leaders if they ever get around to concretising this into a series of actions in government? As I recall, in the late 1970s, it was close to mincemeat.

Looming over the debate is the shadow of a 20th Century giant: John Maynard Keynes.

I've been reading Robert Skidelsky's new book "Keynes - The Return of the Master" and it's an eye-opener. Skidelsky's three volume biography of Keynes was a landmark of the last decade and his latest book takes a completely unexpected turn.

Instead of a potted biography it is mainly a deep-Keynesian polemic against the freemarket economics that led up to this crisis, and the market-guided policy responses, and the failure of mainstream economics including the so-called New Keynesianism that emerged once the doctrine went mainstream in the 1960s.

It also contains a highly coherent account of the events of September-April, all the clearer for his decision to stop reading the newspapers while he was writing it. If you're doing Economics at GCSE or A-Level, this one chapter is a good reason to read the book.

We've got Lord Skidelsky on Newsnight tonight to discuss what Keynes might have done in this crisis; how he would have judged those who're using his tactics but still don't agree with his strategy and philosophy. He'll be facing one of his critics - my old opposite number and now venture capitalist Liam Halligan.

What is certain is that Keynes is back - in policy if not in philosophy. The quantitative easing strategy adopted here and in America was first advocated by Keynes in 1932; using the state spending to boost demand - well that's been done to a the tune of five trillion dollars worldwide. In the space of 12 months, all over the world, state rescued the market.

At the end of the 1920s economists believed capitalism was inherently stable; markets inherently efficient; recessions necessary. Then came the Depression: US GDP halved, the stock market lost 80% of its value; one if four of the workforce was unemployed.

Keynes concluded capitalism was unstable and needed state intervention to make it stable. Keynes went on not just to write a general theory of unstable capitalism, but to prescribe remedies that actually worked, and quickly.

Keynes was an economist who refused to believe that past data predicts the future; he based his theories on uncertainty and his prescriptions on morality. On the eve of last year's meltdown had almost no followers in Wall Street and few in academia. Mind you there are a few more now...

Let me know what you think, and if any of my figures and explanations are wrong. Finally of course there are some interesting ramifications here that qualify this post for the tag "political shenaegans". The BBC is having a lot of trouble summoning up City voices to rubbish Lord Turner - possibly because, while these are just his personal views, he is also their regulator with the power to give any institution what my friend in start-up finance calls, holding up one finger, the "rubber glove treatment".

John Roberts, energy security specialist at Platt's says not. Libya has wanted Megrahi back for many years; the fact that is happening now, he believes, shows the UK's relations with Libya are being influenced by the commercial situation, which is pretty crucial.

Libya has the ninth largest oil reserves in the world, at 44 billion barrels, and until 2005 these reserves were off limits for the west.

Since 2005 there's been a rush of foreign companies staking their claim on Libya's oil.
BP signed a $900m exploration deal in 2007, but has been hampered by disputes with local authorities. British Gas and Shell also have exploration deals. Russian giant Gazprom has been awarded exploration licences. The Canadian firm Verenex has made significant discoveries of oil but is now locked in a battle with the Libyan government because it wants to sell a stake to the Chinese.

So far, so funky: oil giants battling with each other and the feisty Libyan national oil company to grab a piece of the action. This is normal for the oil business and does not need prisoner release to make it any more like a Bond movie than it normally is.

However it's not the whole story. What is new is the urgency with which the UK and other governments are starting to address the issues of energy security. When a giant pool of untapped oil comes onto the market what politicians are thinking about is not just commercial advantage - it is the coming resource crunch.

Little more than a year ago the world was in the grip of an oil price spike that was driving the cost not just of petrol but also, by knock on effect, basic foodstuffs through the roof. Mismatch between supply and demand, of just a few hundred thousand barrels, amplified by speculators, drove the price of a barrel of oil to $140.

Those who fear an oil crunch point not to reserves, or to the growth of China, but to the slow growth of oil production capacity as the key danger.

According to the International Energy Agency, proven oil reserves are 1.3 trillion barrels - enough to power the world for the next 40 year; but production is shrinking in many mature fields. By 2015 an extra 30 million barrels a day of production capacity needs to be created. At present, only 23 million are planned. There is, says the IEA, "a real risk that under-investment will cause an oil-supply crunch in that timeframe"

Oil is not the only area where resources and due process are getting mixed up. China has arrested executives from Australian iron firm Rio Tinto, allegations of espionage surfacing only when a merger between Rio and a Chinese firm failed. Russian police harassed BP executives in a disputed oil venture over minor legal issues until they were forced to leave the country.

To calibrate how much has changed it's worth remembering that, at the time of the Lockerbie atrocity, Britain was a net oil and gas exporter. Russian pipelines ended in East Germany. A small oil country like Libya could be frozen out of the international community. Now Libya's production - and its capacity to expand up to maybe 3.5 mbpd - is a vital part of the world energy security story.

If BP's little local difficulties in Libya now suddenly go away, few in the oil industry will be surprised. Libya's large gas reserves also look critical for the UK, perched at the end of Russian-supplied pipeline system that does not look like it is enhancing our energy securty much.

So, if this has been realpolitik, it's some consolation that every other energy-dependent country in the world is also playing the game.

Even with 0.5% interest rates right through to 2011 and the full £175bn still in circulation until then, the Bank of England is predicting inflation will undershoot the 2% target for CPI. That means we should expect interest rates to be low for at least that long. It also signifies the recovery is going to be pretty appalling: weak and fragile.

The Bank's famous "fan chart" looks mighty perky - a near symmetrical V, centering on the last three months, showing that - although the recession is not over, the fastest period of shrinkage is over. But there are serious risks - both global and intrinsic - that this comes out worse than they think.

Here's the problem. QE, together with the 680bn guarantee for the bad assets of Lloyds Group and RBS, has begun to turn banking around. But there is scant growth in lending to individuals - and loans to companies are still shrinking. And so the Bank's main target on QE - expanding the money supply - is, well, off target. Growth of broad money (M4) has slumped and continued to slide even after the Bank started printing money. That's because while money makes its way from the BoE to the banks, it does not make its way in sufficient quantities into the pockets of borrowers or businesses.

Let us put it brutally: to save the banks the real economy's recovery is being delayed and perfectly healthy companies sacrificed. The governor of the Bank told me today this was more or less inevitable - we'll be discussing with politicians whether there are alternatives.

On top of all this there is a political variable: the Bank's growth projections today are based on the Labour budget figures. If, as the Conservatives have indicated, they rip these up and tighten faster there will be question marks over the growth projections.

Today's unemployment figures only tell half the story of the jobs market: pay freezes, short time and hyper-flexible work practices are contributing to the rapidity of recovery - but also to the permanent hit to economic demand that will dampen economic growth for the first half of the next decade.

Tonight we've got a trio of front-line politicians to discuss this, together with former MPC dissident David Blanchflower. Tune in at 2230 on BBC2.

This is the sound of Thomas Pynchon doing detective fiction, noir as a packet of Rizla Black cigarrette papers. Pynchon has done pastiche and parody before - swathes of it in Against the Day, a novel of anarchism and ballooning. But this time it is for real: the old genre buster, master of digression and unfilmable plotlines, has produced a genuine piece of crossover commercial fiction.

Inherent Vice is the story of Doc Sportello, private detective and acid casualty, based in Pynchon's fictional homeland - LA's Gordita Beach - during the early Nixon era. Doc, like most Pynchon protagonists, still yearns for a woman he should probably forget; lusts after others he would in no space other than fiction have a chance with; and shoulders the sorrows of the world aided by large quantities of mind-expanding drugs, some so niche and so Seventies that their names have been forgotten, above all by those who took them.

Sportello's opening attempts to sort out a problem for his ex, Shasta, leads in short order to the disappearance of her boyfriend, property developer Mickey Wolfmann. Then to a whole bunch of murders, arrests and encounters during which Doc discovers the essential duplicity of the free-spirited surfer/doper community he's a part of, and the indispensibility of their treachery to the success of the counter-revolution.

Like Vineland this book is about the failure of late sixties radicalism, its collective self destruction in pursuit of individual happiness, its easy infiltration by and ultimate compromise with the law enforcement agencies of Nixonian America. Indeed there are even several characters re-used from Vineland: saxophonist Scott Oof reappears in a cameo role; Kahuna Airlines - the only Hawaiian based carrier with in in-flight head shop - is explored further. Other characters from Vineland are mirrored: we get two more crazy muthas just out of Vietnam, only with different names; we get a badass narco cop; a messed up organised crime king and of course an unattainable ex-girlfriend.

What's gone though are the large swathes of digression, reflection and description that make reading any other Pynchon novel an exercise in hermeneutics. Here the story is boiled down to chunks of movie-style dialogue and chunks of Pynchonesque description. I say Pynchonesque because there is, at times, and not for the first time recently, a slight suspicion that he is actually parodying his own style. The story elements are - like in no other Pynchon novel - highly filmic. He has accepted, for the purposes of the genre, Kerouac's doctrine that "the movie in words [is] the visual American form". It turns out that - again in contrast to every other Pynchon book - his agent is right now trying to sell the screen rights.

To people with hardcore Pynchon habits, for whom no year can pass without a sneaky dip into his world Jungian craziness and multilayered subtext, this book will come as a disappointment. It reads, at times, like Pynchon after a long week at the Betty Ford Clinic, with all the dirt, most of the digression and all of the movie-deal-breaking sexual perversions detoxed out of his system.

Indeed there were points reading this (you always experience some kind of paranoia reading Pynchon) where I began to wonder whether the author was not playing a giant joke on the literary world, and whether he would pop up on The Simpsons with a paper bag over his head (again) to decry the critics: "Jeez, you guys it was just a joke".

However, once your consider the recent trajectory of Pynchon's work you can see where he might be going here, and why. Gravity's Rainbow was at the same time a genre-destroying and genre-creating book. Vineland was a return to tightness and closure: set in two periods - the treacherous eighties and the betrayed sixties - and in the gorgeous landscape stretching from the fictional Gordita (LA's Manhattan Beach) to the fictional Vineland (North California's Mendocino County), it achived an emotional truth some would argue he lost in the two subsequent chorizo-thick books (Mason & Dixon, Against The Day).

Since he does not give interviews, apart from to Matt Groening, we are left to speculate: here is one speculative version of the thought process. Ever-more convoluted riffs on the same themes of paranoia, the death of leftism, bizarre sex, yearning and mind-expanding drugs are proving harder and harder to hold together with any kind of narrative. As with some of Charlie Parker's later solos, there is the suspicion that you can hear, as Pynchon once put it "ol' mister death drumming his fingers" in some of this later work. So adopt a narrative genre. In fact kill three birds with one stoner: detective fiction gives you tautness; the hippy-era California setting puts you back in the world of your most truthfully drawn characters; and hey, its also a prequel so that's another genre bent. (Surely once he is dead some member of Pynchon's literary stalking fraternity will, Tolkien style, begin the labourious task of back-plot filling the characters: "Zoyd Wheeler, the Surfer Years").

The result is a book that will probably remembered as the work that introduced Pynchon to the masses.But it is not the same journey; the excruciating trip into the nightmare of the soul is is cut short; the lyricism comes in movie-length chunks instead of those pages of forever.

As Edward Said noted in his reflections "On Late Style", artists often confront their later years with a defiant return to something: Richard Strauss to unashamed conservatism in Metamorphosen, Mozart to the simplicity of bedroom farce in Cosi Fan Tutte. Plus they exhibit a distinctive refusal to resolve, an abrasiveness, a determination to dig once more through the themes discovered in a period of youthful rebellion, to see if they can find what they were looking for.

If this turns out to be Pynchon's late style (he is 72 years old) then, how weird for the vast tribe of followers who've constructed all those Wiki sites devoted to line-by-line deconstructions of the texts: this hardly needs deconstruction. It is translucent; at times obvious. It is, in fact, a small masterpiece but because it adopts a genre it also has to be compared to other works in the genre, not just - as normally with Pynchon - itself.

Said observed that the late style artist typically "abandons communication with the established social order of which he is a part and achieves a contradictory, alienated relationship with it". But Pynchon doesn't need to: he achieved that long ago. This late turn in his literary style achieves something opposite but equally surprising. It is a move towards form, and closed form at that, towards genre, and towards communication. And it is a move away from subtext.

I think, as far as you can presume to know anybody who has not given an interview or been photographed for forty years, it is a move towards himself.

* I am on holiday. Back on Newsnight in the second week of August