The aide says the CBO also sees a $703 billion deficit for 2010. The dismal figures come a day after President-elect Barack Obama warned of "trillion-dollar deficits for years to come." CBO's figures don't account for the huge economic stimulus bill that Obama is expected to propose soon to try to jolt the economy. At the same time, they do not reflect the immediate cost of the Wall St. bailout.

The shrinking economy has led to a sharp drop in tax revenues, which is largely responsible for the deficit, along with about $350 billion in spending so far for the Wall St. bailout. Obama and Congress are promising quick enactment of the economic recovery plan, which will blend up to $300 billion in tax cuts with big new spending programs and could cost up to $775 billion over the next few years.

'We are astounded to hear from a spiritual dignitary words that are so far removed from truth and dignity,' Israeli Foreign Ministry spokesman Yigal Palmor said. Cardinal Martino said: 'Defenceless populations are always the ones who pay. Look at the conditions in Gaza: more and more, it resembles a big concentration camp.'

In his interview with Italian online website Il Sussidiario he added: 'We need willingness from both parties because both are guilty. No-one sees the interests of the other only their own benefit. The consequences of this egoism is hatred for others, poverty and injustice. Those who pay are always the local people - just look at the conditions in Gaza.'

Cardinal Martino added: 'I condemn them (Hamas' rocket attacks). Israel certainly has the right to defend itself and Hamas needs to take this into account.' Pope Benedict has made several appeals for an end to violence in Gaza and up until the hostilities erupted had been planning to visit Holy Land sites in Jordan, Israel and the Israeli-occupied West Bank in May. However diplomatic sources in the Vatican said that the trip had now been put on hold

Parallels with the 1930s abound. But the tariff wars of the 1930s belong to a vanished world of fixed exchange rates, militarism and failed multilateralism. The tariff history of the 1930s is not a good parallel for today's world. The real risk is a more insidious undeclared trade conflict based on rises in applied rates, non-tariff barriers, bad faith, and an upsurge in trade defenses as countries try to "allocate" scarce demand and placate industries and workers under particular pressure.

The system is vulnerable to being "gamed". A dishonest state might introduce trade restrictions (especially non-tariff barriers or trade defences) that it knows or suspects will be found non-compliant, knowing it can gain the benefit of the added protection for 2-3 years before having to change, and suffer no penalty for the benefit it has dishonestly obtained.

Has this ever happened? Trade lawyers are paid very large sums of money to come up with convincing arguments for all sorts of protective measures designed to make them seem WTO compliant. As trade tensions escalate, there is really nothing to prevent more countries in more disputes acting in bad faith, introducing various non-tariff barriers, gaining 2-3 years worth of protection, and worrying about whether they are WTO compliant in 2012-2013, when the crisis might hopefully be past.

The principal of the Academy of Americas sent a letter to staff, parents and partners asking for donations of items "that are of the utmost importance for proper school functioning and most importantly for student health and safety."

In the letter, Principal Naomi Khalil cited budget constraints within the district as the reason why the school could no longer stock the items. The district is grappling with a more than $400 million budget deficit and is on the verge of being assigned an emergency financial manager by the state. The letter asks for toilet paper, paper towel rolls, trash bags and 60, 100 or 150-watt light bulbs.

"We realize that the economic situation is stressful for our entire community, but we are asking for your collaboration," wrote Khalil. "We thank you for your cooperation and we hope that as a school community we can pull together to guarantee the best possible educational environment for our children."

The half percentage point reduction brings interest rates below 2% for the first time since the Bank of England was founded in 1694. Manufacturers' association EEF said the move was "too timid", and that the Bank should have cut rates further. The Bank has now reduced rates four times from October's 5% level.

Explaining its decision, the Bank said the level of contraction in business activity had "increased during the fourth quarter of 2008, and that output is likely to continue to fall sharply during the first part of this year". It added: "Surveys of retailers and reports from the Bank's regional agents imply that consumer spending has weakened."

Institute of Directors chief economist Graeme Leach said the MPC's apparent caution in not cutting rates further this month "highlights the uncertainty over what effect the existing monetary and fiscal stimulus will have on the economy". He added that there also seemed to be uncertainty over "whether or not the Bank of England should go nuclear with limited printing of money or thermonuclear with extensive printing of money".

He has now said he is looking at "a range of measures," but "nobody is talking about printing money". Shadow Chancellor George Osborne said any such move would be "the last resort of a desperate government". According to the BBC's economics editor Hugh Pym, the Treasury could resort to the use of quantitative easing as falling interest rates become less effective at stimulating the economy.

Instead of literally printing money, the Bank of England would write out cheques to banks in exchange for assets such as corporate investments. The hope would be that the banks would then lend this extra money to consumers who would in turn go out and spend it. The government could also borrow more from the Bank of England and then use this money to invest in the economy via spending or tax cuts.

However boosting money supply like this effectively creates inflation - normally avoided by the government, but seen as a necessary evil in tough economic times, our correspondent said. While this might amount, metaphorically, to "printing money", it is not quite as simple as getting the Bank of England to churn out more notes, he added.

Correspondents say this is a dangerous moment in the current conflict. The fear in the past few days has been that the violence in Gaza could spread to northern Israel and the Lebanese border area, says the BBC's Mike Sergeant in Jerusalem.

The latest attacks come a day after the leader of militant group Hezbollah, a strong ally of Hamas, spoke openly about the possibility of a renewed conflict with Israel. Hassan Nasrallah said Hezbollah had already put its fighters on high alert along the Lebanese-Israeli border.

Data from ADP Employer Services are usually more optimistic than official figures due out on Friday from the US Government. However, following today's shock figures, which revealed that 693,000 people lost their jobs in the run up to Christmas, economists now expect Friday's payroll figures to show that more than 700,000 people lost their jobs last month.

Investors sent the Dow Jones industrial average down 185.82 points to 8,829.28 following the surprise rise in unemployment. ADP said that private employers cut 476,000 jobs in November. The company said that it used new methodology for its December numbers so that they more closely predicted the outcome of the Government's non-farm payrolls report, which follows within days.

But Mr Shepherdson said that, even if the new methodology was effective, the Government was still likely to report about 568,000 job cuts. "We await Friday with trepidation," he said.

It feels like 2006 all over again in Europe this week. Arctic cold has arrived bringing record low temperatures to wide swaths of Europe - and Russian natural gas giant Gazprom is again cutting gas supplies to Ukraine, resulting in inevitable disruptions to large parts of Europe.

On Wednesday afternoon, the European Union ratcheted up its efforts to ensure gas deliveries to Europe are restored promptly. European Commission President Jose Manuel Barroso said Russia and Ukraine had expressed their willingness to accept the deployment of international monitors to inspect the flow of Russian gas that travels to the European Union through Ukraine to ensure the flow is not interrupted. The EU receives one-quarter of its gas from Russia, though that dependency is greater in some member states.

"We have received assurances from both… that they are ready to accept international monitors," Barroso said, after a meeting in Prague with Czech Prime Minister Mirek Topolanek, whose country just assumed the six-month presidency of the European Union. Topolanek called on Kiev and Moscow to return to the negotiating table. "If this is agreed," he said, "nothing will stand in the way for transit supplies to be restored."

Port authorities in the Dutch city of Rotterdam deployed an icebreaking ship for the first time in 12 years, while in Britain forecasters issued a new severe weather warning. In the Balkans, thousands shivered in their homes after gas supplies to South Eastern Europe were cut as a result of a contract dispute between Russia and Ukraine, reminding many of the freezing winters they endured in the wars of the 1990s.

"It all reminds me of the war when we were freezing, except there is no shooting," said Hilmo Celjo, who stood in a queue near the Bosnian capital Sarajevo to buy wood and coal. Temperatures sank to record lows in parts of Germany overnight. A weather station in the eastern state of Saxony said the coldest spot was -27.7 degrees Celsius.

Thick snow has covered much of the country and icebreakers were at work on several waterways, including the River Elbe in eastern Germany. Marseille's main Saint Charles train station was paralyzed as signaling froze. School buses were canceled in the entire Bouches du Rhone area, where Marseille is located. France's Secretary of State for Transport, Dominique Bussereau, demanded an investigation into "unacceptable" chaos at Charles de Gaulle, where hundreds of flights were canceled and thousands of passengers stranded earlier in the week.

The eye-popping estimates reflect plummeting tax revenues because of the recession and about $400 billion to bail out the financial industry and take over Fannie Mae and Freddie Mac. Last year's deficit was $455 billion. The CBO estimate released Wednesday also sees the economy shrinking by 2.2 percent this year and recovering only slightly in 2010, and the unemployment rate eclipsing 9 percent early next year unless the Obama administration steps in.

"The recession - which began about a year ago - will last well into 2009," the CBO report says. The agency said "the ongoing turmoil in the housing and financial markets has taken a major toll on the federal budget." The dismal figures come a day after President-elect Barack Obama warned of "trillion-dollar deficits for years to come."

The Palestinian militant group Hamas said there were "positive signs but no agreement yet". The development came as Israel halted military operations in Gaza for three hours to aid humanitarian efforts. The lull, which began about 1100 GMT and ended shortly after 1400 GMT, was the first of what an Israeli spokesman said would be a daily ceasefire to allow Gazans to "get medical attention, get supplies... whatever they need".

News agencies reported that Gaza residents had rushed out into the streets during the lull to stock up on food and visit relatives in hospital. Israel and Hamas have been under pressure to accept a diplomatic solution to the conflict, which began on 27 December. Israel wants to stop rocket attacks on southern Israel and to stop Hamas smuggling weapons into Gaza via Egypt, while Hamas says any ceasefire deal must include an end to Israel's blockade of Gaza.

Israel said it was not sure how long the diplomatic process would take and that a working arms embargo on Hamas was needed. The World Bank warned on Wednesday of a looming public health crisis in Gaza because of damage to its sewage system and a shortage of clean drinking water.

Discontent could burst into the open and spread widely, according to an influential government magazine. It appeared that the article was issued as a warning to Communist Party officials to handle grievances with care.

China's Communist rulers have long been nervous that social instability might weaken their grip on power and undermine their claim to rule. They are anxious that celebrations to mark the 60th anniversary of Communist Party rule on October 1 should be picture-perfect and are determined to avoid a repeat of the student demonstrations in Tiananmen Square that were crushed 20 years ago on June 4 by troops and tanks.

This week's issue of The Outlook Magazine, published by the Government's Xinhua news agency, carried one of the starkest and most public warnings yet of trouble in 2009. Huang Huo, a senior Xinhua reporter, told the magazine: "Without doubt, now we are entering a peak period for mass incidents."

Before his world started to fall apart last autumn, Mr Merckle was employing 100,000 people and turning more than £30 billion a year. Forbes magazine had put his personal fortune at £7 billion. He had built the group from a small inherited pharmaceutical firm employing 80 workers. But almost every one of the offshoots of the Merckle empire was in serious trouble.

His Heidelberg Cement was having problems digesting Hanson, its recently purchased British competitor. Demand had slipped away for electric motors, machine tools and even the snowcats that he made for ski-trail maintenance. He was also thought to be the biggest individual loser from a dramatic swing in the share price of Volkswagen last year in which he is thought to have lost more than £200 million.

Although he had scratched together a £400 million loan for his companies, Mr Merckle was said to have become depressed by the decline in his fortunes. His creditors — about 30 banks including the Royal Bank of Scotland — had closed in on him, demanding his Swiss companies as security.

He disclosed that al-Qaeda's high command in Pakistan remained intent on using British citizens to carry out attacks on British soil, making necessary the constant surveillance of thousands of suspects. Terrorists were being forced "to keep their heads down" because of relentless surveillance and successful prosecutions.

The chat with the Director-General — arranged to mark MI5's centenary year — revealed more of the role of the intelligence agency and its myriad projects. More than 40 per cent of his staff are female, the average age is 40, and 8 per cent are of ethnic minority origin. Current concerns include the internet indoctrination of teenage Muslims into terrorism and the rise in dissident Irish republican attacks.

The MI5 chief also divulged that there had been indirect connections between the terrorists in Mumbai in November and individuals in Britain but that there was no evidence of any national security issue for Britain. In the past 18 months there had been fewer cases where terrorists had moved from facilitating and supporting terrorism to planning attacks. He said: "There have been 86 successful convictions since January 2007 of whom approaching half pleaded guilty, which has had a chilling effect on the enthusiasm of the networks. They're keeping their heads down."