December 9, 2008 1:07 AM

The Liberal Democrat Shadow Chancellor and Deputy Leader, Dr Vincent Cable, was in Newcastle last week to address Party members.

Dr Cable, who has prophesised many of the calamities that have befallen the economy, addressed a dinner of North East Liberal Democrats, hosted by Newcastle Liberal Democrats.

He spoke of how the current financial crisis engulfing Britain was caused by a collapse in the US banking system and the unrestrained growth in consumer spending linked to household debt and rising house princes in the UK economy.

"I don't think we should underestimate how serious the problem is. In the new year there is going to be a wave of unemployment," he said.

"There are two potential scenarios. One is that next year we have a very deep, deep severe recession, significantly worse than many are forecasting.

"If there is a bounce back it is caused by a bottoming out of the housing market and recovery in 2010.

"There is another scenario, which is that the economy goes down and doesn't bounce back."

Dr Cable said that the UK economy was presently faced with an "unprecedented situation in our lifetime".

"We have never been through a crisis of this magnitude and complexity. The solutions are not obvious and there is no silver bullet," he said.

"There are three things governments have to do. First of all allow deep cuts in interest rates, second is, as Keynes' generation showed, when the private sector loses confidence the government has to use its own balance sheet to support the economy.

"The third thing, which is absolutely crucial, is what happens in the banking system.

"What the banks decide to do has a far bigger impact on the economy that modest changes in public expenditure.

"The Government has to give much more clear unambiguous direction to the banks in order to maintain a flow of capital into business to maintain the economy.

"The priority is to get the economy moving and in order to do that the banks have to have the confidence to act."

Jonathan Wallace, Editor of the North East Democrat and Gateshead councillor, recorded an interview with the Shadow Chancellor. Click on http://uk.youtube.com/watch?v=hwDwgkXKMjo to watch the short film.

The five-minute clip also shows interviews with Newcastle North Parliamentary spokesman Ron Beadle and Carol Woods, Parliamentary spokeswoman for Durham City.