HugeNerd - 7:09 pm on Oct 13, 2008 (gmt 0)

People may be earning the same, prices of products may be the same, but it is just that people do not feel as wealthy and confident. I don't think any economist seriously believes that the world can escape a major recession now.

These are subjects this Nerd pays a substantial amount of attention to...what can I say? I love stats and numbers.

Economists, unfortunately, rarely identify anything as a "recession" or "depression" until they write their books during the ensuing upswing. That part of cyclical analysis is one of those "hindsight is always 20/20" phenomenons. I think part of it is that the National Bureau of Economic Research (NBER)(the Business Cycle Dating Committee to be exact), the group which has the official say of whether or not the US is in a recession, is a government entity. Not only must the numbers be checked, double checked, recalculated, revised, signed off 10x by all necessary beaurocrats, etc. but they also want to avoid "externalities" of saying we are in a recession. I guess its the only time our government wants to avoid fear-mongering.

This has always bothered me: Strange that we live in a world where "money" is a theoretical entity which we place so much "faith" in. I mean, think about this... The concept of money is entirely manufactured. So is credit, debt, wages, etc. Our whole economic system relies on faith to the point that religion's requisite "leap of faith" pails in comparison. Since modern economic history began (post-barter economics) man has gotten into situations like this where "confidence" is dragging down the "real economy". People "lose faith" in the system and mechanisms to correct such failures. It seems to me, though I know its completely naive, that we should all just wipe the past few weeks from our collective memory and carry on as usual. Literally, we need to just be more confident...

Anywho...

What I foresee being a problem for us e-commerce types, is credit card debt. With the traditional credit markets locked up to the point that the LIBOR Index (London Interbank Offered Rate -- an index which tracks the rate banks are charging one another for unsecured debt loans; high #'s = bad) is hitting new highs daily, people are going to be using their credit cards -- and not to pay people like us. We have become a credit hungry society who is used to living beyond our means with money borrowed from projected future income (see Milton Friedman's theory on Interest Rates and Income Streams). That river has run dry...so now people will borrow from their credit cards as their banks won't even open the door. That leaves e-commerce, which is driven by Visa, MasterCard, American Express and Discover out in the cold (I'd say up the creek without a paddle, but I've already used an analogy where we have no river...). I am tightening my belt, the same as everyone else, and waiting for John Q Public's discretionary spending fund have a (perceived) positive balance.