Worst-Case Scenario Survival Guide

Should I Prepare My Portfolio for a New Depression?
First, let's explain our terms. Economists broadly define a depression as a 10% drop in output and consumption. In the Great Depression our gross domestic product fell 25%. There are some frightening parallels between then and now: Banks are weak, and the economy is loaded up with debt. (See the graphic on the left.)
But historian Eric Rauchway of the University of California at Davis points to big differences too. Strange as it sounds, our financial system is vastly better regulated than it was then. Bank deposits are insured, and the Federal Reserve has taken an active role in trying to stem the crisis. Policymakers have in fact been trying to do everything their predecessors didn't — they're spending like mad, saving banks and loosening up money. (No guarantee that this will work, but it beats doing what clearly didn't work before.) Meanwhile, a social safety net adds stability to the economy that wasn't there in 1930.