It seems the idea of a second round of economic stimulus payments is gathering steam. Over the last couple weeks several writers have mentioned the possibility, citing rumblings from House Democrats. I wasn’t overly enthusiastic about the first economic stimulus package, and I believe a second one would be downright irresponsible. So what’s fueling these rumors of a second tax rebate?

First Check Failure

With their first economic stimulus check many Americans will elect to build emergency savings or pay down debt. Both of these actions are financially wise, but do not do much to stimulate the economy. In fact, I put most of my stimulus check into our emergency fund at ING Direct.  The consensus seems to indicate that if a second round of economic stimulus payments goes out it will likely be spent since the first provided some debt relief and/or a savings cushion. This theory seems to make a lot of sense, and if generating more spending is the ultimate goal, a second payment would likely generate results.

Iraq War Funds to Enter the Debate

Some are predicting Democrats will tie a second economic stimulus payment to Iraq war funding, making it even more politically unpopular for the President to strike down the measure. Without getting too political, I don’t like the idea of anyone on either side of the aisle using war funding as leverage in economic stimulus negotiations. I could think of several programs I’d cut before defense spending. Regardless, the argument ought to be a moot point because I don’t believe there is a need for a second economic stimulus package. Under a pure capitalist system markets will ultimately correct themselves. Yes, it could make for a very difficult period of months, or even years, but government intervention is rarely the answer.

Be Prepared - Just in Case

If a second stimulus check does find its way to your mailbox consider using it in much the same manner you used the first (assuming you used the rebate check wisely). Resist the temptation and political peer pressure to simply spend the rebate check for the sake of spending it. If you have no emergency savings, start an emergency fund. If you are deep in debt, apply the rebate money towards your lowest debt balance and become closer to living debt free.

Much has been made in the news over the last few weeks and months regarding an impending recession in the U.S. economy. Talking heads spend hours and hours telling us what impact the recession will have on the global economy, but the average citizen in mainstream America just wants to know the impact on his personal economy. With that in mind I offer the following tips for surviving a recession.

Increase your cash position. Entering a recession proves to be a good time to increase your cash position. Not only does a healthy emergency fund help pave over short-term bumps in your household finances, it also allows you the opportunity to find some excellent deals in the investment and real estate markets. Institutional investors make a lot of money buying on the way down, and the same rules apply to the individual investor. If you are fully invested, or fully leveraged, you probably lack the cash to take advantage of these deals.

Consider allocating more investments to international markets. If the U.S. recession deepens it will have an impact on other markets because we are in a global economy. However, the losses may not be as severe, and other external factors may help international markets continue to grow even in a U.S. downturn. To hedge against deep domestic losses it’s always advisable to keep a percentage of your investments in foreign stocks. Entering a recession it might make sense to boost that allocation percentage in an international fund and reduce domestic investments, in the short term.

Get smart - learn a new skill or add to your current skillset to make yourself more “layoff proof.” True recessions are usually accompanied by massive layoffs. In this particular recession, the financial services industry could be hardest hit. Now would be a good time to consider taking that online class or pursuing some cross-training to make yourself more valuable to your organization. It might make the difference between getting a pink slip or getting a raise.

No Chicken Little, the sky isn’t falling, but just in case. Recessions tend to bring out a lot of doom-and-gloom commentary. I personally have faith in the U.S. economy and do not think we are headed into another depression. Still, it is a good idea to review your family’s emergency plan. Stock up on basic necessities, including non-perishable foods and a few gallons of water. Instead of running out and buying these things all at once, just pick up a few items along with your normal, weekly grocery trip and over time add to your stockpile. In our current environment this is something we should already have in place in the event of a disaster (natural or otherwise), and news of a recession serves as a reminder.

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