Double dip recessionIs America headed for the Great Recession, part two? The talking heads are still in heated debate, with experts coming down on all sides of the issue. But for those of us who aren't pundits, there's a more important question: What should we be doing now, just in case economic lightning does strike twice?

The uncertainty in the air has created confusion. On one hand, many people continue to focus on saving and reducing personal debt. But on the other hand, despite the fact that 40% of Americans surveyed in the First Command Financial Behaviors Index said they expect the economy will fall into a depression, a growing number of middle-class families are taking out new loans: 43% of those surveyed said they have taken out at least one new loan in the last 11 months.

"This growth in borrowing is an unexpected turn in what had appeared to be a relatively straight road toward debt reduction," said Scott Spiker, CEO of First Command Financial Services, in a prepared statement.

Then there's the just-released Q1 2011 Credit Card Debt Study from CardHub.com, which revealed that consumers paid down 26% less credit card debt than they did in the same quarter last year. CardHub.com projects that consumers will end 2011 with $20 billion more in credit card debt than they started with.

"The implications of this increased spending, should we indeed double dip, is that the impact of the recession is going to be magnified exponentially. The increase in spending will push consumers over the edge much more quickly and will make it much harder for them to stay out of serious trouble," says Odyssea Papadimitriou, CEO of CardHub.com, a credit card comparison site.





Preparing for the Worst: A Checklist


For all the crystal-ball gazing, nobody knows for sure what's coming next. If you do nothing, you increase your odds of getting caught like a deer in headlights should the economy tank. However, if you prepare for the worst, even if it proves unnecessary, you're likely only to improve your financial situation in the process. Here's where you should begin:

Pay attention to interest rates: The first sign of trouble is likely to be short-term interest rates starting to tick up. "If you see that happening, reduce your exposure as soon as possible," says Daniel White, president of Daniel A. White & Associates. "If you're retired or about to be retired, pay particularly close attention to the subtleties in the marketplace. Think ahead and make plans for what to do when the music stops."

Rethink stocks: Reduce, but do not eliminate stock exposure, says Peter Tanous, co-author of Debt, Deficits, and The Demise of The American Economy. "I would concentrate on two areas, own high quality, blue chip stocks that pay dividends. In an uncertain environment, you want to own companies that will always be around. Also own emerging markets stocks, but be aware that these will be volatile and more risky, and keep in mind that emerging markets are where the future growth is going to come from. In either cases, buy funds, either index funds or actively managed ones, in order to avoid concentration and the additional risk of only owning a few companies."

Further, if you want to continue holding equities, allocate assets to stable companies in utilities, health care and consumer staples, while lightening up on the consumer discretionary, industrial and financial sectors, advises says Jay Ferrara, economic strategist and investment manager for Farmers and Merchants Trust Co.

He adds that in a double dip, U.S. Treasuries would be viewed as relatively safe, just as they were during the recession of 2008. "Their prices would go up while the corresponding interest rates would fall, says Ferrara, who notes that this is happening now: 10-year Treasuries yield 2.92% and the 2-year T-bill hit a record low overnight.

Diversify your assets: The secret to reducing risk is to diversify. Portfolios should not be too concentrated in any geography, industry, or currency. Decide how much risk you can take. The single most important thing you can do is decide how much risk you can afford to take, says Todd Millay, managing director of Choate Investment Advisors.

Tame your wild side. "Don't make big bets, because you might just be wrong," says Tanous.

However, "Don't limit yourself to just stocks and bonds. That's so last century," says Tanous. "Today, you need a dedicated allocation to real assets and some commodities." Consider too, adding more cash or cash equivalents such as money market funds, short-term CDs, or low-risk bonds to your asset mix, suggests Ray Brastow, professor of economics at Longwood University.

Consider hard currencies of other countries with better balance sheets than the U.S. "They can provide a buffer from a declining U.S. dollar," says Rose Greene, a certified financial planner with Rose Greene Financial Services. "Including global bonds from countries from countries that are paying a higher rate than the U.S. is not a bad place to hide as well."

Quite simply, adds Millay, "Decide how much risk to take, use diversification to take this risk as productively and responsibly as possible, and stick with the plan, particularly when you feel scared or greedy."

Shore up your cash position: It is important to have strategic cash reserves. Start saving now so that if things do take a turn for the worse, your spending needs can be covered. "Strategic cash allows you peace of mind, flexibility and the ability to ride the downs without having to sell at the bottom," says Adrian Cronje, chief investment officer of financial services firm Balantine.

Building a nest egg, no matter what size, is a strategy that should always remain in vogue, says Ferrara.

While conventional wisdom suggested you should save 10% of your income, the new thinking says go for 15% or more. You want to have an emergency fund of at least six months to fall back on. The recent tough times taught everyone just how much back up is needed when a recession is long and deep.

Spend wisely:
"Get your spending under control and make smart spending a priority," says Ted Hunter, author of Money Smart: How to Spend, Save, Eliminate Debt, and Achieve Financial Freedom. His advice: "Negotiate down prices on everything, including interest rates and fees. Group your Internet/cell/phone/TV into one service, [and] get rid of expensive features like call waiting. Make a monthly spending and saving plan, price shop, shop from a list, and don't spend more than you make."

Some experts say if you're in the market for a house, rent, don't buy. Indeed, think twice about upgrading to a more expensive home or car. "Unless you are completely confident in your job security and future earning power, it does not make sense to start adding monthly expenses like a car payment, or to undergo home renovations or upgrades, especially given the state of the housing market," says Keith Davis, a certified financial adviser with Farr, Miller & Washington.

Reduce debt: If you're like many people, you've been doing your best to pay down those bills. Step it up a notch. "Cash flow is the most important characteristic of surviving any additional economic pullback associated with another double dip," says Ferrara.

And, quite simply, "Do not take on more debt," says Ferrara.

Homeowners should look to pay down their mortgages more aggressively. "Your cash is earning next to nothing right now, and if we fall into recession, rates may decline even further," says Davis. Be prepared too, to refinance your mortgage if rates fall far enough. "It usually makes sense to refinance if you can decrease your mortgage rate by one full percentage point," he adds.

While the economy could move forward full steam or sputter still further, doing nothing isn't a smart option. Says Hunter: "Don't sit around waiting for the economic recovery to happen, as it's likely to be a long way off."

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oram020347

Rates have definitely helped keep real estate afloat. However, the real problems are unemployment, uncertainty, confidence in the economy, and tight mortgage lending standards.


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July 17 2013 at 2:14 PM Report abuse rate up rate down Reply
Alan Kalitta

more like Depression

June 25 2011 at 7:18 AM Report abuse rate up rate down Reply
cbckelly2

"If your retired or about to be retired, pay particularly close attention to the subtleties in the marketplace". What the heck are you talking about? What marketplace? What subtleties? What a waste of print. Who would benifit from such an obscure statement. "Think ahead and make plans for what to do when the music stops". Another complete waste of print! What a bounch of useless dribble. I can't think of one senior that would benefit from such obscure advice. Did you actually read this after it was printed and say ' Yes, that makes perfect sense'?

June 24 2011 at 6:21 PM Report abuse rate up rate down Reply
Ironweed

The very least we need to do is send millions of welfare class citizens of other countries home.

June 23 2011 at 10:13 PM Report abuse -3 rate up rate down Reply
akcoyote

Nice suggestions............IF you have the money to do them.

June 23 2011 at 7:53 PM Report abuse rate up rate down Reply
John Dagne

I believe we had a depression, and just like the one in the thirties the solution failed. If it had not been for the "arsenal" of Democracy plan we would have gone off the cliff then. This time we do not have the world wars to bail us out and we will go into another depression that is even deeper and more destructive. Start practicing austerity now. Get used to it. It will be the new way of life.

June 23 2011 at 7:32 PM Report abuse +2 rate up rate down Reply
LonerPhrique

1) in order for a "double dip" there would have had to have been a recovery (a real one).

since there was no recovery (and there will be no recovery in the foreseeable future: which is to say for many years to come, and even then, the smoke-and-mirrors "growth" we knew in the past will never return, thank goodness) there can be no "double dip".

this kind of Orwellian use of language is absurd, offensive, fantasy-based and counterproductive.

2) contrary to popular myth and mantra, you can't have infinite growth on a finite planet

3) economics is not a science:

http://www.edge.org/3rd_culture/rushkoff09/rushkoff09_index.html

4) the more we desperately try to restore what can't be restored--specifically: The Amerikan Dream--the deeper the nightmare will become, and the longer it will last.

5) money and corporations are the event horizon of our black hole:

http://www.arthurmag.com/2009/03/16/let-it-die-rushkoff-on-the-economy/

6) republicrats or demopublicans, makes not one bit of difference.

since they both pursue the nightmare of the amerikan dream, they will only exacerbate the problem(s).

June 23 2011 at 7:15 PM Report abuse rate up rate down Reply
1 reply to LonerPhrique's comment
Fiat Currency

Loner Phrique,
You hit several nails right on the head.
The difference between the Femocrats and the GOP, (Greedy Old Prostitutes),
is the same as the difference between a red and a blue car. If you get run over
by a red or blue car, does it make a difference? No, you are still run over.
The tools have changed, but the methods for controlling the populace remains
the same. Divide and Conquer. While we taxpayers argue about who is at fault,
Dumbya or Oblamer, the banksters and their puppet politicians are laughing all the way
to the bank, because they are picking our pockets in several ways. Inflation of gas and food is
above 30% a year. Soon we will have hyper-inflation, and then debasement of the US dollar.
That means every US taxpayers savings will be completely gone overnight. Your greenbacks
will be used as birdcage liners, wallpaper, toilet paper, or kindling. If you are not holding a tangible
commodity like physical silver or gold, your life savings will be gone overnight. Bush and Cheney both
have 1,000 acre ranches in Paraguay, because Paraguay has a non-extradition treaty to the USA.
In the history of planet Earth, no fiat currency has ever lasted 40 years. Nixon took us off the gold standard
in 1971. 2011 - 1971 = 40 years! Do you think it's a coincidence that the US National debt has recently
gone parabolic, and Trillion is the new Billion? The US taxpayers, their kids and their grandkids will
be expected to pay back the greatest swindle and transfer of wealth on planet earth. Are you able to see
the extent of the con?

June 23 2011 at 10:59 PM Report abuse +1 rate up rate down Reply
1 reply to Fiat Currency's comment
Mark Glenzek

Fiat said: "The US taxpayers, their kids and their grandkids will
be expected to pay back the greatest swindle and transfer of wealth on planet earth"

The answer to this problem is contained in your post. It is a good dose of hyper-inflation. Ink is cheap, electronic digits are even cheaper. So inflating will be easy and effective.

This is the best and most effective solution. The banksters who have a lot of money will loose the most. If we have a deflational recession (or depression) then the Rich will make out like true bandits. They will be the only ones with money and buy up assets for pennies on the dollar.

We need inflation NOW!

June 24 2011 at 7:02 AM Report abuse rate up rate down
madddddddddddddd

DEFEAT THE LIBS, THE DEMS, AND MR O..............THEY HAVE DUG US IN THIS HOLE............

AS THEY SAID WEEK,, THIS IS THERE ECONOMY NOW.....................

June 23 2011 at 4:25 PM Report abuse -1 rate up rate down Reply
1 reply to madddddddddddddd's comment
Will

REALLY?,,,,,YOU ARE FORGETTING BUSH-DICK WHO SET THE ROAD MAP TO THIS Maddddddd MESS!
CLEAN UP IS GOING TO TAKE TIME AS WE RECOVER FROM THIS,
WE NEED TO WORK WITH THE PRES WHO YOU CALL MR O. HE EARNED HIS POSITION BECAUSE HE IS SMART NOT BECAUSE HIS DADDY WAS PRES AND FORMER HEAD OF THE CIA.. IF WE LISTEN TO LEMBER AND BECK YOU MIGHT FALL INTO THE TRAP TO WHAT IS PROVEN TO BE LIES PAID FOR BY THE 2% WHICH I'M SURE YOU ARE NOT AND THAT SAME 2 % WANT TO MAKE SURE YOU AND I WILL NEVER BE. IT IS NOT LIBS OR DEMS, DEMS OR REP, JEW OR CHRISTAIN, BLACK OR WHITE, IT IS
,,,,,,,,SUPER RICH (2%) AND EVERYONE ELES.

July 02 2011 at 1:03 PM Report abuse -1 rate up rate down Reply
1 reply to Will's comment
herbcav

Wasn't Bush. It was Barney Frank and his mortage-messing elevator rides. You see, Will, when you don't know a simple thing like what to use your progeny-maker for, you go through life making BIG errors in judgement--like Obama and his Massachusetts pal, Kevin Jennings.

July 02 2011 at 3:01 PM Report abuse +2 rate up rate down
fred

July 15, 2012 the DOW will be about 8,950; anybody care to enter a contest? The winner gets a Snickers Blizzard from Dairy Queen!!

June 22 2011 at 11:25 PM Report abuse +1 rate up rate down Reply
billcac

When are we going to go after Wall Street! All of these traders have computers set up to Buy or Sell automatically and bring in constant pennies per share. The anoying thing is that one day the market goes up and the next day it goes down and ONLY for that reason. Example: Commentary " The Market is very concerned about the problems with Greece, Market Drops. "Next Day" Comment It looks like Greece is going to get out of trouble? They have to give a reason for the market going up and down even though they have these Robot Computers that do all the work and they don't have a clue as to what's going on in the world!

June 22 2011 at 5:23 PM Report abuse +2 rate up rate down Reply
1 reply to billcac's comment
bggdg

Yes, let's stop all the productivity enhancements enabled by computing! Brilliant!

June 23 2011 at 8:12 AM Report abuse rate up rate down Reply