Risk of a Double-Dip Recession: Time for Contingency Planning

I like to scan the surveys of economic forecasts, including the Wall Street Journal's, Blue Chip Economic Indicators, and the Philadelphia Fed's Survey of Professional Forecasters. Lately I've been looking at how pessimistic the most optimistic forecasters are.

For example, Kurt Karl at Swiss Re has the most optimistic 2011 forecast, as reported in Blue Chip. Here's a comment he recently made:

    "The risk of a double-dip is still only 10%."

I concur with Karl, but I have trouble saying "only" 10%. That's a pretty large risk.

Do you have life insurance? Your risk of dying this year is less than 10% if you are under age 85 (males) or 87 (females).

Does your business have fire insurance? The odds of a fire are less than 10%.

We make efforts to mitigate risk with respect to many low-probability events. For a risk of about 10%, it's time to do some contingency planning. I have an old blog post with an audio track that outlines my four-step process for economic contingency planning.

I am not forecasting a double-dip, but I certainly recognize the possibility.