Perhaps I'm jumping ahead of myself here using that word since we haven't officially hit recession yet. But 'precarious' and 'precipice' are the words that are coming to mind right now as in we are standing a little too close to my liking to the very edge. I'm not a person to have a fear of heights but suddenly I'm feeling the vertigo. And it wasn't always this - euphemisms aside - it's not like I have spent years being overly cautious of the economy and worrying about every possible market drop. As one can tell, I was quite the economics major.

Actually most of my interest lied in reading about economic history and Adam Smith (Oh, like I'm the only person who has read Wealth of Nations like 15 times) rather than with actual numbers and graphs. Fast forward to today, with mefeeling all adult like and super prepared for my long term goals with my savings and 401(K) and careful choosing of where I should place my money, I felt completely nauseous in the days leading up to last Monday.


Nausea isn't a new feeling neither is worry about money but this was a different "Oh shit" feeling. I think that's the true sign of an adult: When you spend hours switching back and forth between Fidelity Investments and staring at NYSE with heart palpitations. I have arrived! And once again, it's a big fat disappointment! Not only has the current economic climate made me ridiculously nervous (hand wringing! pacing! breathing into a paper bag! the hyperbole!) but it has also frustrated me and thankfully I am not the only one who feels the need to discuss the impending economic doom. From Jonniker who is currently embroiled in the housing market slump:

I have an uncontrollable urge to wax philosophical on the economy, and how interminably frustrating it is that people — many, many people — seem to lack any kind of common sense, and how the fact is that usually by the time people are talking about a recession, we are so deeply entrenched in it that any “stimulus” package is likely to have the effect of four tiny needles thrusting against Mount Everest in futility. Except I am going to control it because it’s incredibly boring, if fascinating only to me, and it’s frustrating! So frustrating!

A recession is defined as negative Gross Domestic Product (GDP) growth for two quarters but the feelings of recession are felt before the actual start after several economic quarters of slowed GDP growth, rising unemployment and businesses stop expanding. The most recent recession was in 2001 after the technology stock prices fell. The current downward spiral is due to a real estate market collapse coupled with oil being $100 a barrel and the continuous rise in unemployment and now we are at a bit of a standstill; with things parlous at best.

None of this is to give street cred to any economic prowess I may possess. I'm surely not trying to get all John Kenneth Galbraith on you. But my point is that while rates of employment are low; economic uncertainty is high. It's physics with the current situation being the equal and opposite reaction. In order to prevent a true recession from occurring Congress and President Bush have hammered out an economic stimulus package in order to boost the economy with proposed tax rebate checks with the mindset that consumers fuel the economy and giving them cash to spend will help give it that boost. Though there is no way to know exactly when the check will come or the exact amount as any package has yet to reach the President's desk.

Working for Financial Freedom asks what someone would do with their rebate check:

What would you do with an extra $800 or $1600?

I know that we would put it on our debt.
But I wonder if that is what the government wants us to do with the money? I have a feeling they are hoping that the tax rebates would get spent therefore boosting the slowing US economy. The last time Americans received a tax rebate like this was in 2001. By the end of the quarter following the tax rebate distribution 66% of the money distributed was circulating in the economy. The rest was saved. So while buying a flat-screen TV is a bit tempting, we would do the right thing for our family and put it on our debt.

A lot has been made of this current situation some of it perpetrated by the media and some of it real. My hyperbolic tendencies and general nerves when it comes to fiscal matters aside, the truth is that in regards to MY personal finances, I don't see the recession hitting me hard. I do not have a mortgage or any real debt. Hell, up until last week, my parents still paid for my cell phone bill. The only suckage to my finances comes from monthly rent. That's it. But for the personal finance obsessed, what has been happening and what might happen is intriguing at best and somewhat terrifying at worse. It's also another thing that as a 'newbie' is difficult to understand and to realize the true impact of which there is no way to be prepared. I, like many others, will continue to keep an eye on what is going on but will leave things as is but with a better understand of economics and so help me God, I wish I had paid attention in macroeconomics all those years ago instead of checking out the J. Crew catalogue.

Frugal Babe will be taking the same approach by going with pragmatism instead of 'doom and gloom':

For us, I think we’ll keep right on doing what we’ve been doing. I don’t see us hiding gold bars under our bed anytime soon (but I can’t tell you where I live, in case we change our mind…) or selling everything and moving to Australia.

We’re going to keep plugging away at our emergency fund, and keep focusing on our main financial goals for 2008 (we just put $1200 into our HSA this week, which is a good start toward the $5800 allowed for the year). We’re going to keep paying extra principal on our mortgage every month, working towards our goal of paying it off by 2018. We’re going to keep paying off our credit card every month. We’ll keep the bulk of our assets in the stock market, because we’re in this for the long haul - most of what we have is in IRAs and can’t come out for more than 30 years anyway.