If a depression is on your mind, here's what to do

Depressions are, technically, extremely severe business contractions. Before the Great Depression, all business downturns were called depressions. Economists started using the term "recession" after the Great Depression, because they didn't want to terrify the public, already scarred from the Big One.

The hallmarks of a depression are abnormally high unemployment, numerous bank failures and massive bankruptcies.

The term "depression" also carries the connotation of deflation — that is, a sharp decline in prices. Certainly, housing and stock prices have been marked down sharply in the past two years.

The bond market, too, is signaling lower prices ahead. When bond traders expect inflation, they push interest rates higher to offset their lost buying power. But the two-year Treasury note currently yields 0.62%, close to its all-time low. And the bellwether 10-year T-note yields just 2.95%. If inflation is about to rear its ugly head, the bond market isn't worried about it.

If you're concerned about deflation, then, the first thing to do is to pay down your debts. This is a good idea in any event, but it's a particularly good idea in a deflationary period.