The debate over whether we are in a severe world financial and economic crisis is settled, says Jan Loeys, head of Global Asset Allocation at JP Morgan. Now the focus has shifted to how deep and long the crisis will be.

The financial crisis is in no doubt the worst since the second world war. The depth of the economic crisis is harder to gauge. It is clear that the global recession will be worse than the recession in the early nineties.

Where are we in these crises? The worst of the financial crisis has past, but we have not seen the worst of the economic crisis.

An avalanche of public measures to inject capital and liquidity brought some life to money and credit markets. More importantly, public authorities are becoming the largest financial intermediaries, taking in flight-to-quality money and lending it directly to industry.

Where does this leave us in the cycle of cutting leverage? Banks have come a long way. Other companies will likely turn more cautious on spending.

Households have started to cut debt, but are not halfway through yet. Pension funds are just starting to cut their risk appetite.

That leaves hedge funds. They have reduced their reliance on leverage, but their real threat comes from redemptions that will increase significantly next year. Over time we expect the hedge funds involved in less liquid assets to gravitate to a private equity platform.