You can take steps now to survive what could be a perfect storm of financial destruction… a depression in the making. It’s not so far fetched that America could experience the worst economic downturn since the 1930’s.

What’s especially worrisome is that the U.S. government debt is already over 2 Trillion dollars for the first time in history. It will undoubtedly climb with legislation under consideration by Congress to deal with the crisis. At some point citizens could lose confidence in the government if the debt climbs too high or is spent unwisely. Then companies and individuals will seriously cut spending in a society based on mindless consumption. America could be caught in a self-reinforcing spiral downward to an economic depression.

In the advent of a financial depression, the name of the game is survival. Cash and credit are king. You’ll need to cut your expenditures to the extreme. Expect the situation to last four or five years that way you plan for the worst case scenario. What can you do to prepare is act swiftly before your in a bind:

Downsize your life: The average size of a home in America has been super-sized. Back in the 1970s a quarter of new homes were smaller than 1200 square feet, today only 4 percent are. Do you use all of your home? Consider selling your home and right-size it. Buy a foreclosure or fixer upper in an up and coming neighborhood. Stash the extra money in a well-run bank. Some banks are offering interest rates over 3 percent which is much, but safer than losing your retirement in Mutual Funds or stocks. Unload that SUV or truck that you use for commuting and buy a pre-owned hybrid compact car and get 45 miles per gallon. Find the best price at carsdirect and have it shipped from anywhere. As a benchmark cut expenditures by 25%. Write down your current household budget and starting slashing. Do you really need to go to Starbucks twice a day at 3 bucks a drink? You’ll find the little things really add up.

Go Green: It’s a great way to enhance the quality of your life on a budget. Conserve water by turning back your sprinkler timer, taking shorter showers and installing low-flow toilets. Plant a robust garden. Save electricity by installing a solar water heater, compact florescent lights and energy efficient appliances when your old ones wear out. Turn your thermostat down in winter and up in summer. Recycle everything and consider buying clothes and furniture slightly used. Consolidate the electronic gadgets in the home. You can buy and sell almost anything on Craigslist and ebay. Work in the green collar labor force part or full time in sustainable energy or conservation. Start a business at home as an eco-entrepreneur.

Optimize credit: If your home mortgage interest rate is a couple of percent above going rates consider refinancing. Many banks still offer home equity lines of credit at favorable rates. They are currently around 4.5-5% and a great deal with no fees unlike home mortgage loans. Apply for quality, low interest credit like Nordstrom’s Visa card while you still can. Read the terms of your credit card carefully. The zero interest transfer balance offers on some cards come with a catch. If you use that card for purchases interest could be over 20 percent! Interest rates and credit limits can change. Use the equity line to pay off high interest rate outstanding balances and auto loans if you have them. If you are running a deficit every month after cutting expenses, the credit can provide you a cushion. Don’t wait and apply when you need the credit because even with an excellent Credit rating you may not get it.

Bargain Basement: At the depths of the coming depression, those that are fortunate enough to have cash and credit will thrive. Stocks and housing will be at bargain basement prices. I venture to say 20 percent cheaper. Outsmart Warrant Buffet and buy some stocks in bell weather companies with strong balance sheets and brands at historic lows valuations. Become a real estate mogul by snatching up a distressed property. How do you know when we are at the bottom? Look at the major economic gages dipping below the worst downturn since the Great Depression which would be the recession of 1980-81. Also watch out for the capitulation of the darlings of Wall Street like Google. Be patient the storm will pass. With the help of smart deficit spending, reduction in interest rates and a new administration things will gradually improve.

Tags: mortgage, finance