This article has been adapted from the August 2010 issue of Motley Fool Income Investor.

I'm not an easy mark for surprises, but you got me in a recent poll on our Income Investor Watercooler Chat discussion board. I asked members whether you expected a double-dip recession -- and 40% of respondents said yep, it's coming.

Forty percent is significant. In a normal economy, this figure might be in the single digits. I've said before that I believe average Americans often have a better sense of the market's direction than the pundits, politicians, and Wall Street suits -- so does this poll mean we're headed for another recession? I'll share my take, as well as my suggestions for protecting your portfolio from the turbulence ahead.

My view: We're in a Depression
This may not be popular, but I believe we're not in a recession -- we're in a depression. (Before you call me a lunatic, hear me out.) A recession lasts a year or two, but it clears the decks for growth to resume. But when the bubble is huge and driven by debt (as it was recently), the decks can take years to clear, and that process, sad but true, is a depression -- prolonged economic malaise with high unemployment and pronounced drops in asset prices.

More important, without taking the painful medicine of economic contraction, the economy can't grow sustainably again. Policymakers go out of their way to avoid unpopular painful treatments, meaning the economy doesn't go through the most important stage in the healing process: the pain. It's a gigantic version of the Band-Aid theory: Everyone knows that if you rip a Band-Aid off, it hurts like the dickens, but you get over it quickly. But if you slowly peel it back, you're in smaller amounts of pain for a longer time. That's what is happening today, and until the Band-Aid comes off, don't expect our economy to perform to its full potential.

But that's not the biggest problem. That prize goes to powerful forces of consumption, debt, and unfunded government obligations that are starting to take over our economy. Here's a rundown of what we're up against as we try to pull out of this depression:

Short-term problems
Junk Investment Overload:
Put simply, our financial system invested in a lot of junk. From residential mortgages to commercial loans to private-equity deals, big finance made a lot of mistakes and hasn't yet accounted for them.

Confidence: The main problem right now is a lack of confidence, and I think it will get much worse before it gets better. Confidence is invisible but can drive tremendous growth -- the Internet boom being a perfect example. On the flip side, without it an economy can collapse like ours did in 1920-21 or during the Great Depression. Until it improves, the economy likely will stay in the doldrums.

Housing: The housing market was huge and has dropped to 15% of GDP, compared with 19% in 2005. But housing is worse than it looks, because it has been propped up by government. If that funding is taken away, the market could sink a lot lower, with consequences for the rest of the economy.

Powerful forces at work
Too Little Investment:
Building wealth requires savings -- and productive use of those savings. Consumption (the opposite of savings) has increased to 71% of GDP from 67% in 1995. In 2009, that increase added up to $560 billion. Imagine the economic strength we could build if we poured that $560 billion a year into nanotechnology, robotics, or quantum computing! In addition, areas like health care, energy, food, and leisure have grown as a share of GDP -- and could grow bigger, diverting funds away from investment.

Unproductive Financial Sector: Financial services have boomed over the past 30 years, to the point that before the credit crunch, the industry accounted for 35% of domestic profit. But it has become unproductive to society -- a dead weight, according to famed money manager Jeremy Grantham. Simply shuffling the wealth around isn't the same as creating wealth, yet thousands of funds do just that and charge monstrous fees for doing so. These fees suck away resources that could otherwise fund productive investment.

Growing Government: My view is that government for the most part doesn't generate economic wealth -- its activities are funded by taxes on the private sector. More government, broadly speaking, means a less efficient allocation of resources. U.S. government spending has ticked up from 19% of GDP in 2004 to more than 20% in 2010, which may sound paltry but adds up to hundreds of billions of dollars.

The government is also having trouble footing its bills. The forecast budget deficit for 2010-19 is a staggering $9 trillion. Major entities like the Federal Deposit Insurance Corp., Pension Benefit Guaranty Corp., Fannie Mae, and Freddie Mac are experiencing funding problems of their own.

Debt: We're swimming in it. Have you ever seen the government's balance sheet (yep, it does have one)? It lists assets of $2.7 trillion and liabilities of $14.1 trillion, but there's another $60 trillion or so in promised benefit payouts. That presents three problems: (1) Each dollar of debt has less impact to the economy; (2) Interest costs divert money away from productive uses; and (3) Without debt, growth over the past 30 years would have been lower than reported. This means we can't expect historical levels of growth without more debt, which might not be available or effective.

What to do
Again, we are in a depression -- so now what? To protect yourself, one approach is to invest in international companies such as Buy-rated Rogers Communications (NYSE: RCI), or companies that derive most of their earnings overseas like Hold-rated Coca-Cola (NYSE: KO) (just wait until the time is right to buy shares).

Another approach is to own businesses that will perform well in a weak economy, such as Buy-rated Kellogg (NYSE: K) or even companies in the defense industry. Moving funds into cash to protect against another market downswing could also be prudent.

Finally, you could shift wealth into non-financial assets like gold or silver, land, rental properties, or oil and gas companies like Buy-rated Chevron (NYSE: CVX). A full-blown depression would likely push financial asset prices down, and owning tangible, non-financial assets could be a way to preserve your wealth.

These moves could protect you from the heavy seas on the horizon. Still want to call me a lunatic? Come see me on the Watercooler Chat discussion board [Editor's note: subscription required] -- I'll see you there!

Andrew Sullivan does not own shares of any companies mentioned. Kellogg, Chevron, Coca-Cola, and Rogers are all Income Investor recommendations. Coca-Cola is also an Inside Value pick. The Fool owns shares of Coca-Cola. The Motley Fool has a disclosure policy.