Are we or are we not in a recession? There seems to be a heated debate going on at the moment about that, but why should it make much difference?

What's happening to our finances is fact and whatever we choose to call it shouldn't have any real impact. But perhaps it does as there's lots of talk about trying to categorise the situation we are in? Let's look into that a little more and try to throw some light on the direction of our economy and how it will affect the cash in our pockets.

The reason for this concern over classify our financial predicament perhaps is that the dynamics of our money markets are more likely to be controlled by public perception, emotion and confidence, than by anything the clever brains that run our markets and make their money from them can ever do.

 

All the crisis in the credit markets was caused by uncontrolled lending accelerating, fueled by greed by companies that had been making healthy profits for many years and were being driven on to make even more. That all came out into the open last year and the area of adverse credit lending suffered a huge blow. Companies that had previsouly turned a blind eye to the details of the borrowers they were lending too came unstuck and the worth of their assets suffered some huge devaluations.

 

But most of that mess has already been unravelled, the new valuations defined and the rules of lending re-established to prevent the situation continuing, yet still the credit market is in pretty ill health. Companies are still closing, loan products are still in short supply and banks are still very reluctant to co-operate with one another to set the ball rolling again under the new rules. That re-energising all depends on confidence being re-established and that's something far less tangible and much harder to effect.

 

Likewise the debate about recession or no recession also comes back to a confidence issue. If the public believe we are already in or heading for a financial recession, then the view is that, even if we are not there now, we are more likely to end up there very soon. The power of new media, which so many different channels pumping out news and opinion at remarkable volumes, allows things like fear of recession to become established and deep-seated very quickly.

 

So don't believe everything you read and don't believe everything that you read about what you've read.