Are We in a Depression Now?

Some financial newsletters are already saying the U.S. recession is the steepest decline in value we have "seen since 1931" -- a euphemistic way of saying, hey, this is the worst it's been since the Great Depression (which was in full swing by 1931). By simply saying it's the worst since 1931, though, media outlets keep people from getting too panicked. So what if it's the worst since 1931? Until recently, they were calling it the worst since 1987 -- no big deal, people think.

Although our economy is far more complex than it was in the 1930s, and we still have plenty of wealth in this country, there are some telltale indicators that we may be sliding into an all-out depression. If this is the case, we may not see significant relief until around the Fall of 2010, when credit markets ease up.

Some facts worth considering:

-- Consumer Confidence Index fell to 38 in December from the downwardly revised 44.7 the previous month. Much of our country's prosperity is driven by consumer activity, so this is troubling, to say the least.

-- Home prices posted another record drop in October, falling 18 percent compared with a year ago. One popular index of home values has posted losses for a "staggering" 27 months in a row. And further drops in value are likely to occur. Just as we are a consumer society, we are also a landholder society in many ways -- much of our middle class has its wealth tied up in the homes and real estate investments they own. As home values continue their downward spiral, this effectively decimates the wealth available to the middle and upper class for discretionary spending -- mall runs, restaurants, vacations, new homes, automobiles, and nearly everything else that isn't an absolute necessity.

If you are uncertain about your current financial situation, I would recommend the following actions:

-- Get your unsecured credit card debts under control. As credit markets continue to tighten, card issuers may close accounts or raise interest rates. You don't want to be overly reliant on credit cards right now.

-- Save a certain percentage of your "take-home" income as cash or put it into a savings accounts that is FDIC insured. It's always nice to have an emergency fund, and a fund to draw on once you have paid off your credit cards.

-- Invest conservatively, if at all. Any stock that can go up 45 or 50 percent in a day can conceivably go down just as quickly. Lock in any profits and begin to look for more conservative stocks to own. Stocks such as pharmaceutical companies and large conglomerates often pay a dividend -- look into owning stocks that pay a guaranteed dividend, regardless of the stock's performance or current price.

-- Look for ways to pursue entrepreneurial ideas. In a downturn, there is still plenty of money to be made. Certain small businesses profit more in an economic downturn: maybe your idea is one that will. Investing a bit of money in your own idea or business plan is simply good diversification. Why only invest in huge companies on the stock market? Also consider investing in yourself.

-- Speaking of investment in oneself, your health remains one of your most valuable assets. Don't let financial stress damage your health -- exercise often, take up meditation, and realize that any ill billionaire would give every dollar he has in exchange for good health. Therefore, health is important to preserve and appreciate; it is also a solid money-generating tool as you are most productive when healthy.

-- Make new contacts in your industry. This will be a tough year for many workers, so network in advance -- just in case your company downsizes, you want to have other options, and other companies to "jump ship" to.