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The point I'm wanting to make is, if my thinking is right, a recession is the slowing of cash flow from the consumer, which in turn causes business' and corporations to slow down and start laying people off, closing jobs, hell even some going out of business all together. The reason that people stop spending is caused mostly out of fear of an unclear future or economic environment. Meaning if they are being advised or they hear from each other, the new, past treasury officials that a recession is coming, what do they do? they stop spending the money that they had been spending before.....then what happens...you get a recession......
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Technically speaking, a recession two consecutive quarters of contracting GDP. We aren't there under those specific terms, but the economy continues to deteriorate because of the credit crisis. What you are referring to is a "crisis of confidence," which leads to a negative downward spiral. The economy may be just fine, but because I think my job isn't secure, or because I simply can't pay my bills, I reduce my expenditures on consumer goods (things I don't need). A scenario like this results in a drop in GDP and is hence merely a "crisis of confidence"
What we are facing right now however, i.e. the credit crunch, is much more severe. Banks and Investment banks made reckless loans to individuals, made private equity deals that were simply insane, and are now suffering for it. Something like 130,000 jobs have already been shed in the financial sector and more are on their way. If you look at the balance sheet of banks, are simply a mess - its a question of potential insolvency - which is why the Federal Reserve has been taken actions literally not seen in Great Depression in the 1930's. It's bad and its getting worse. Losses of more than $1 trillion dollars are expected (note that's was something like $200 billion just a year ago) from poor lending standards.
I will stop here for now - but this is quite literally a mess, a big mess that is going to have broad economic fallout, and will ultimately be worse than than the dot-com lead recession. CFO Magazine's survey said its participants don't expect things to start getting better until the end of 2009, and housing prices are still declining. Home Equity Lines of Credit are being reduced (so consumers can't use them as ATM machines), and commercial real estate loan defaults are on the horizon. In addition, what do you think the declining home prices have on local government? Lower property values ==> lower property tax ==> a small revenue base ==> budget shortfalls. And if they can't raise money in the public markets, then that leads to budget cuts and further job loss.
And on top of the mess, you have the Government giving more power to the Federal Reserve Bank (a PRIVATE bank that is unconstitutional) and the main cause of the current mess and gasp, the Great Depression. Interesting times.