Bloomberg reports that consumer spending — the real engine of the American and global economy — dropped 1% last quarter and seems destined to continue downward.  The real issue here is a near-total collapse of consumer confidence.  Put on the edge by an overload of credit card and other debt and a rapid decline in the value of key assets like homes, consumers were primed for panic at any opportunity.  And the wall-to-wall media coverage throwing around comparisons to the Depression provided whatever additional push was necessary.  I can state from personal experience that many households started a dramatic retrenchment, operating under the assumption that continued employment prospects are tenuous at best for the foreseeable future.

This process of reasoning has become a broad self-fulfilling prophecy, as decreasing consumer spending affects industries dependent upon discretionary spending, driving them to reduce their number of employees.  Those layoffs in turn produce a new round of reports of grave economic indicators that further panic consumers.  And round and round we go.

Where will it stop?  Perhaps January 20th will produce a round of hope-mongering stories from a media eager to give the new President a lustrous glow, but it is uncertain at best whether that effect will be large enough or soon enough to stem the cycle of decline.  Most respectable economic analysts continue to insist that the underlying fundamental conditions in the economy are no where near the levels required to produce a collapse on the scope of the Great Depression, but panic often doesn’t respond to such mundane data points.