By John W. Schoen Senior Producer
updated 10/21/2007 3:51:52 PM ET 2007-10-21T19:51:52

With oil prices surging and the Fed cutting interest rates to help the ailing housing market, some readers are starting to get a little nervous about the U.S. economy. While the stock market seems relatively calm and many economists say they don’t see a downturn on the horizon, it doesn’t hurt to consider the possibility that a recession may be coming. Think of it like getting ready for a storm: you may wind up with some extra batteries on hand if it doesn’t hit. But you won’t be left in the dark if it does.

What do you need to do to get through a recession? I am 33 years old. I have never had this oncoming experience as an adult, taxpaying citizen.
— Brandy, Weston, Fla.

First off, Brandy, take a deep breath. Now hold it in. Hold it. OK, now let go. Repeat until calm. It's important to try to stay calm - because fear is our worst enemy in an economic downturn. When consumers stop spending and businesses stop hiring and start laying pepole off, that can make the situation much worse.

Second: It’s not clear yet that we’re headed for a recession — though economists who make a living watching out for one will admit that you sometimes don’t know you’re in a recession until after it’s started.

Third: You’re not crazy to be a little nervous. The housing market, especially once-booming states like yours, is already in a “slump” that by most measures would have to be called a recession. And housing has led the U.S. economy into most of the recessions in the past 50 years. On the other hand, the unemployment and inflation rates — the sum of which came to be known as the “misery index” in the darkest days of the Stagflatin’ 70s — remain historically low.

There is no textbook definition of a recession, though many people say it constitutes two back-to-back quarters of “negative growth” — when the Gross Domestic Product goes down instead of its usual upward path. While that’s often the case, the official arbiter of U.S. recessions for the past 50 years has been a group called the National Bureau of Economic Research in Boston. They say they use “a broader array of indicators than just real GDP” because those data often get heavily revised to revision. They also look at other monthly data, since the GDP is only calculated quarterly.

Even if you could see a recession coming on the horizon like a bad storm, it’s not necessarily going to hit everyone the same way. Most people just get really wet when a thunderstorm hits. A few get hit by the occasional tornado or lightning strike. Some storms are gone hours after they begin; others linger for days.

The same is true in a recession. Right now, housing-related businesses — builders, mortgage brokers and lenders, real estate agents and furniture stores — are suffering. But other parts of the economy are doing just fine. Carmakers are laying people off. But healthcare companies are hiring.

And while the government statistics we all follow so breathlessly measure changes in “the U.S. economy,” that national outlook masks a great deal of variation in local conditions. The government data crunchers have recently acknowledged this regional disparity in economic growth by publishing state by state GDP data.

Last year, for example, the state of Michigan saw its portion of the GDP slide by half a percent. For many people there, a recession is underway. On the other hand, the fastest growing state – Idaho – posted a 7.4 percent jump in GDP. So even if the “national” economy slips into recession, your town may dodge the bullet.

Still, there are things you can do prepare — just like you might fill a bathtub with drinking water when a storm threatens. If you think your company or your job might be hurt by a downturn, start an emergency savings account. Even when times are good, life is full of expensive surprises: An unexpected job loss or uninsured illness can easily set you back big time financially. Everyone has a different comfort level, but it isn’t a bad idea to have enough cash to pay six months worth of living expenses.

You can also throw a little plywood on the windows in the form of looking around for job alternatives in the event you lose yours. Ask around to see who’s hiring; freshen up your resume, brush up on your professional contacts, maybe join a job-related social network like LinkedIn. You don’t need to panic and jump ship just yet, but it doesn’t hurt to keep your eye out for an alternative to hedge the risk that the next rise in the unemployment data includes your job.

If you’re an investor, you may want to put at least some of your nest egg in a safer harbor. Stocks have had a terrific run lately, and while no one can predict where prices will go next, a recession often hurts stock prices. Bonds often do better in a recession because as business and consumers scale back on borrowing, that slowdown tends to bring long-term interest rates lower — often with the help of the Fed. (When rates go down, bond prices go up.)

Keep in mind that while there are certainly some economic clouds are on the horizon, the storm may well blow in another direction, and there will be no recession in the near term. Recent interest-rate cuts by the Federal Reserve seem to indicate that given the choice between fighting inflation and heading off a recession, the central bank is more worried about your job. With any luck, the Fed may be able to engineer another “soft landing” and avert a recession.

Unfortunately, you probably won’t know until it’s already happened.

What’s your opinion on an 80-year-old putting money in a fixed annuity?
— Jack,Santa Clara, Calif.

Thinking about annuities makes my head hurt.

These can be a good place to put some of your money if you want to generate a reliable return for the rest of your life without having to worry about it.

The problem is that these can be horrendously complex, which can make it difficult to determine just how much this financial security is costing you. So shop for an annuity like you would a new car: Once you pick a model you like, focus on how much the dealer is getting.

For more on annuities, try this article from our colleagues at MSN Money. Print it out and ask a lot of questions of the salesman. And trust your instincts: After 80 years, they’re probably pretty sharp.

Is every senior citizen in the future going to be a millionare?
— Larry Tamanini, Crown Point, Ind.

No, certainly not if you define “millionaire” as someone with “accumulated wealth with the same purchasing power as 1 million 2007-equivalent dollars.”

By way of comparison, the Bureau of Labor Statistics says that a dollar in 1913 (that's as far back as the data go) would buy the equivalent of $21.06 worth of goods in a shopping mall today. (Assuming you even find comparable goods.) Put another way, you only needed $47,484.29 in 1913 to have the same buying power as 1 million "2007" dollars.

So, in theory, over the next century the purchasing power of the dollar could decline to a point that virtually anyone could accumulate one million units of the currency now known as a dollar.

But if that’s your definition, you can be a millionaire today. Just go to a bank or currency exchange today and buy $110 worth of Indonesia’s local currency, the rupiah. Now you're a “rupiah” millionaire.

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