KEY POINTS:
What's a recession really?
It's not exactly the black death or a world war. But on the other hand the technical definition - two or more quarters in which an economy shrinks rather than grows - doesn't quite do it justice either.
Somehow the impact, both financially and psychologically, seems more far-reaching.
In the depths of a cold stormy winter it can make for a depressing outlook.
Tonight's forecast: more doom with isolated outbreaks of gloom throughout the evening.
In practical terms, a recession is simply a period in which a society faces up to the fact that it has become less wealthy than it was ... or than it thought it was.
Economists with a certain Calvinist bent take the view that downturns are good for us. They can rebalance the economy. Some of us had PE teachers like that.
The country certainly got a lot richer between 2000 and 2007. The tourism sector boomed, dairy prices rose and foreign capital poured into our stock market and our property market.
As a measure of wealth the dollar rose from US38c in early 2000 to heights above US80c earlier this year. The fact that the Kiwi remains persistently high probably has more to do with the severity of the US downturn and their low interest rates than it does with our own strength. Judging by their property market the US is even further through the current cycle than us. If that's the case then the worst may be yet to come. A low kiwi dollar will exacerbate the price shocks we're already feeling for imported goods like petrol causing further grief.
But on the flip side, if these are the last days of the high dollar then now might be a very good time to be buying things we know we'll need in the next couple of years.
Electronics and other imported goods are still cheap and negative consumer sentiment has forced retailers to start their winter sales earlier than ever.
Those who rely on the discretionary income of the middle classes are feeling especially vulnerable as the economy starts to turn. While this isn't the worst downturn we've seen (touch wood), it may be the worst since 1991. Our economy has become a lot more retail dependent since then. Who bought takeaway coffee in 1991?
This week Starbucks announced the closure of 600 US stores. With petrol above US$4 a gallon the Yanks are no longer so keen to shell out US$4 for their hazelnut soy lattes.
What happens in the US flows through to us very quickly.
This week the stock market plumbed new lows as foreign investors pulled their cash out of New Zealand equities. Foreign investment is fickle at the best of times. And these are not the best of times.
In the property sector, in particular, New Zealanders borrowed heavily to join the speculative party that was sparked by a surge of foreign capital and immigration through the early part of the decade.
That party is now over. The foreign buyers are gone, prices are falling and the banks still want their pound of flesh. Actually that's a pound and a half thanks mate ... sorry, blame the credit crunch.
Currency and equity markets offer the most transparent examples of foreign capital flows but it is in the property sector where the pain will be felt most in this country. And from there the pain flows through to the domestic economy, through the retailers and eventually through the job market.
Life after a recession is unlikely to be markedly different from life before it. But the slowdown is a painful process. As the economy shifts down a gear we will feel the change of pace acutely.
Those who fail to adapt or have locked themselves into a financial situation based on conditions that no longer exist will cop the worst of it.
So the smart retailers are cutting prices, reducing inventories and battening down the hatches.
The real crunch comes if unemployment starts to rise. US president Harry Truman hit the nail on the head when he said: "It's a recession when your neighbour loses his job; it's a depression when you lose yours."
The surge in gang violence this country has seen in the past couple of years has confounded many - coming as it does in a time of relative wealth and full employment.
It might be the P or American youth culture but it is also worth remembering that any 19-year-old thug roaming the streets in 2008 was born in one of the worst economic downturns this country has seen since the depression. That's not a bleeding heart excuse for bad behaviour, its just a fact.
These so-called gangsters were toddlers in 1991 when life got extremely tough for a large number of the nation's poorest families.
That kind of recession isn't good for anyone. As the economy slows politicians, those in corporate power and the rest of us with a few discretionary dollars worth of consumer power need to do what we can to ensure a slowing economy doesn't become a stalled economy.
We need to keep living our lives, keep doing business and keep spending when we can. The rules change but the game doesn't stop. If we quit, we lose.
