Microsoft CEO Steve Ballmer made a useful terminological distinction last month:

“We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy,” said Chief Executive Steve Ballmer during a conference call. For consumers, that may mean less discretionary income to spend on a second or third home computer, he said.

Australian economist Steve Keen commented on his DebtWatch site:

Bravo. That is precisely what is happening. It is also why, though government action might slow down the decline, ultimately it can’t prevent a serious decline in economic activity. That can happen only gradually as we slowly replace debt-generated spending capacity with income-generated capacity. What the government can do is remove the logjam standing in the way of that process, which is the crippling mountain of debt accumulated by the Ponzi financing behaviour of the last 4 decades (and in particular the last one). But that will require much more drastic action than simply bailouts: given the scale of debt accumulated, either the debt has to be devalued by inflation, or written down via government decree.

We’re still a long way from any government official or politician realising that. But the fact that someone as influential as Ballmer has put his finger on the problem implies that maybe that day of realisation is approaching.

More recently, Keen posted the World's Longest Blog Entry, explaining why everything you, me, and Ben Bernanke think we know about the fundamental economics of money is backwards. I have no idea if Keen is right, but I have to admit that when my children would ask me, "Why is a dollar bill worth a dollar?" — I'd always start out confidently, but would end up waving my hands around, with a sinking feeling that I really had no clue.