Get out the cynanide capsules.

According to Forbes economic guru A. Gary Shilling (http://www.forbes.com/shilling), the current economy — which many experts are calling the worst since the Great Depression — is a long way from hitting bottom.

Shilling describes a four-phase process of deterioration in which the current housing and financial services failures are eventually followed by a depression of gross national product and finally, a global recession.

According to Little Mister Sunshine, American consumers are already curtailing their discretionary spending, even at the high-income levels. The rest of us, he says, are shopping at discount chains instead of department stores, and otherwise cutting corners (News flash: I stopped buying toilet paper at Nordstrom’s years ago.)

Shilling advises investors to purge their portfolios of stocks from companies that provide such discretionary products and services as “cars, appliances, air travel, cruises and vacation houses.” But if his bleak prediction is true – and current events suggest that it could very well be — how soon will it be before insurance becomes a discretionary expense for financially strapped consumers?

Recent surveys already indicate that many Americans are cutting back on medical visits to cut corners, and that businesses are bypassing some liability coverages because they think the cost exceeds the risk. If strapped consumers eventually just stop making payments on their credit cards, car and student loans as Shilling predicts, it’s not much of a stretch to see them giving up all but the legal minimum on insurance — if that.

All this speculation begs the question of what impact this will have on agents and brokers. Are your policyholders telling you they can’t afford coverage? Are you seeing more resistance to cross-selling and personal lines sales? And what are you doing about it?

If the “official” (read: “press release”) reaction from insurance industry trade groups about the Fed’s $85 billion-dollar bailout of AIG is any indication, the controversial move is quite simply a Very Good Thing. They point to the fact that there are safeguards — AIG has 24 months to pay off the loan with interest, most likely by selling off substantial portions of its business to who knows what investors. They say it will stabilize the markets and will not lead to the domino effect of more bailouts.

Then why am I so bothered by the principle of the thing?

We all work within the insurance industry, and we all want it to do well. But above and beyond our connection to insurance, we’re also consumers and taxpayers. And this latest financial fiasco should infuriate anyone who pays taxes, has a 401(k) and is watching their investments go down the crapper.

And the price tag is a lot more than $85 billion. According to blogger Hale Stewart:

Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday’s $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion.

Make no mistake, the suckers footing the bill for all of this are you, your children and your grandchildren.

We’ve been hearing for years about how free trade, unfettered business dealings and minimal regulation can only benefit the economy — and in turn, you. Big businesses have hammered the doctrine into our heads that too much government is bad. In the political arena, these same opponents of big government are also fond of the term “personal responsibility,” at least when it comes to welfare mothers, broke homeowners defaulting on their mortgages, and underinsured property owners who get hit with a disaster. (After Katrina, some of the comments made anonymously on insurance forums about hurricane victims by so-called ”professionals” made my blood run cold.) It’s funny how these same opponents of “handouts” for ordinary citizens don’t mind heading to the dwindling government trough when they’re in trouble themselves.

The big brains at AIG, who make a living specializing in risk, should have had an inkling that adequately insuring something as risky as mortgage-backed securities might be a problem. Even former AIG helmsman Hank Greenberg has blamed management’s failure to practice sound risk management as the reason for the meltdown.  

At this point, the big question is, who’s next? The pundits are saying that AIG’s loss will be its competitors’ gain. Unfortunately, the bottom-line losers in all this fiscal sleight-of-hand are the insurance buyers, who end up with fewer markets and more uncertainty. Oh, and the insurance agents and brokers who have to explain it all to them.

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As I’m writing this from drizzly and overcast Chicago, Hurricane Ike is bearing down on the Texas panhandle, predicted to strike late tonight and Saturday morning. In Galveston, which is at the epicenter of the approaching storm, half the island is already under water.

Garry Kaufman, president of Galveston Insurance Associates, took a moment to speak with me this morning about what his firm is doing to get out of harm’s way and prepare for the influx of claims (the agency is about evenly split between commercial property/casualty insurance and commercial lines).

 ”The office is secure, the employees are gone, and management and staff have gone 100 miles inland to set up shop,” he said.

Garry closed up his office yesterday and as of about noon, the agency had all its servers and computers on a trailer headed to College Station, Tex., 130 miles north of Galveston. “We rent server space at a housing facility, where we have 10 work stations and our management staff checked into a hotel there.” This means that the agency’s phones and Internet service will be working when his customers start calling with claims.

Garry himself plans to ride out the storm from his home 30 miles north of the city, where he will be able to process claims manually if needed. “I was going to stay on the island, but as bad as it’s flooding now, I didn’t want to get stranded,” he said. However, his office is ready with generators so the agency will be able to service its clients whether or not power is out.

Although the severity of the situation is similar to 2005, when Hurricane Rita struck, the area seems better prepared to handle evacuations this time. ”For Rita, I stayed in  Galveston, but my folks evacuated, and it was a nightmare,” he recalls. “This time, Galveston and Houston have done a great job and the highways are wide open.”

Garry’s agency has had a solid disaster plan in place for a long time, subscribing to Agility Recovery Solutions,  a nationwide company specializing in disaster recovery. The service can provide them with a double-wide trailer with 40 workstations if the office is destroyed, or assistance with generators and computers if damage is less severe.

Garry has nothing but praise for Fidelity National Insurance Co. and the Texas Windstorm Insurance Association, both of which do an excellent job in handling claims and having adjusters on the ground quickly after disaster strikes. “I wish I could say something nice about the big carriers, but they’ve all stopped writing windstorm and flood coverage in my area,” he adds.

When I compliment him on his disaster preparedness, Garry shrugs it off. “We can’t afford to be complacent. If our customers didn’t count on us, we could be, but we’ve got too many folks depending on us. We’ve been around since 1892, and we know we’ve got to do everything we can to help our customers. Most residents will have a flood claim, and our phone will start ringing the minute this is over.”