Half-priced diamonds. Cashmere on the cheap. The slow economy is driving luxury retailers to extreme discounts on items that have never before seen the inside of a bargain bin.

The move is a clear indication of the economic toll that the recession has had on even the most recession-proof of retailers, such as Saks Fifth Avenue (SKS) and Bergdorf Goodman. It also underscores how profitable luxury items are in normal economic times, with those hefty profit margins giving retailers plenty of room to discount when faced with a sharp downturn in consumer spending.

"These luxury brands have just been blowing the prices as high as they could, driven by strong demand," says Pam Danziger, president of Unity Marketing, a consulting group that specializes in luxury retail. "They've finally reached the point that people are not willing to go above, and this is a natural correction in the market."

Yet, even with extreme discounts that can reach as high as 70%, luxury retailers aren't exactly struggling to survive. Yes, overall profits may shrink or disappear altogether for some of the more deeply-discounted items. But the idea is to get more shoppers in the store, where they might buy something else that offers a bigger profit margin.

We went shopping in search of the latest and most staggering discounts. Our findings: All but one of the items were marked down by at least 40% and several had their prices chopped by 70%. Over at Saks, for instance, shoppers can snag a men's Dolce & Gabbana cashmere sweater for $487, a 70% cut from its initial cost of $1,625.

While prices for luxury goods may be coming back to earth, savvy shoppers still need to assess just how much of a bargain they're really getting on that Burberry scarf or Prada clutch. "It really is a shopper's paradise. But things are so attractively priced right now, that you can go broke saving money," says Danziger.

View our slideshow for some of the luxury world's most notable markdowns, starting with discounts of a mere 30% and moving to the truly whopping sales.

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Burberry Double-Breasted Coat

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Dolce & Gabbana Wool Patchwork Driver s Cap

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Prada Suede Ankle Boots

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Nancy Gonzalez Croc Shoulder Bag

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Oscar de la Renta Hand-Knit Cashmere Sweater

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Burberry Metallic Knit Scarf and Metallic Check Gloves

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Lagos Arcadian Ring With Pave Diamonds

Faced with slow consumer spending in the recession, luxury retailers are turning to extreme discounts.

Dolce & Gabbana Cashmere V-Neck Sweater