Whistling Past The Graveyard?

The Dreaded D-Word Makes An Appearance…

The site Wiktionary defines to “whistle past the graveyard” in two ways:

1. (idiomatic, US) To attempt to stay cheerful in a dire situation; To proceed with a task, ignoring an upcoming hazard, hoping for a good outcome.

2. (idiomatic, US) To enter a situation with little or no understanding of the possible consequences.

Both meanings seem to apply these days as mentions of the bigger, badder and far more frightening relative of “recession” begins making the rounds in the media. That would be “depression” … which is what Britain’s Prime Minister Gordon Brown let slip the other day:

“We should agree, as a world, on a monetary and fiscal stimulus that will take the world out of depression.”

We’ll give him credit for honesty, even though he probably didn’t mean it. Much like the brave captain of a sports team losing 100-0 at the half, he no doubt meant to exude confidence that everything was perfectly OK and things will turn around in no time at all.

A depression, after all, is a much more serious matter than a mere recession.

• The IMF now believes that global growth this year will be 0.5%, the weakest since World War II. (Even that number will probably prove to be quite optimistic, however, as pretty much every developed (and developing) economy seems to be going into reverse gear these days.)
• The U.S. economy has lost 3.57 million jobs since December 2007, the biggest slump in the postwar period.
• This year U.K. economy will shrink by the most since 1946.

These are not ordinary times. After all, U.S. Treasury chief Timothy Geithner has revealed an “improved” bank rescue plan worth as much as $2 trillion to absorb bad assets and restore credit.

Two Trillion

Another trillion here, another there, and soon he’ll be talking about some real money.

The new coat of paint on the renamed “Financial Stability Plan” includes a proposal to set up a public-private investment fund, in partnership with the Federal Deposit Insurance Corp, a bank watchdog, and the Federal Reserve. The “investments” include toxic assets from the banking system which stink so badly that no one else will buy them. What a great use of the funds.

There’s also another $50 billion to soften the blow of home foreclosures, which sounds nice. Hey, at last some bailouts for the little people, right?

But then again these homeowners are the same people who also decided that the best way to own a home was to borrow absolutely everything.

So in truth, it’s difficult to severely criticize the government, banks and other institutions for frying their financial brains via the debt drug when it seems like every man, woman and child in the country was doing exactly the same thing.

At least “the little people” are now pulling in their horns and trying to save (however belatedly). They don’t have much of a choice though.

But at least forced saving out of necessity is better than no saving at all.

The government’s spending habits are like a supertanker’s momentum by comparison. Not only can’t it change direction easily, but it doesn’t really need to change direction. It’s even more addicted to spending than Joe Average and Sally Soccer Mom since it gets to blow OPM (Other People’s Money) on its extravagant spending spree.

After all, when was the last time a politician voted to spend his own personal funds to finance his favorite pork barrel project?

Throwing Bad Money After Good

Logically, it would make sense that conserving cash, making astute investments and ensuring survival of the fittest would be the best way to prevent a recession from blowing up into a depression, right?

Apparently not. According to our leaders, spending more will correct the problems caused by previous over-spending. And it doesn’t matter what you spend it on. Discrimination is wrong - spending on anything at all will magically fix the problem by pumping more money into the economy.

At the risk of belaboring the point, this is like proscribing “hair of the dog” to an alcoholic who’s already approaching liver failure.

Not only is it hastening the early death of the victim, it’s also killing an opportunity to solve the problem and take steps toward a sensible treatment that will lead to a cure.

A Ray Of Light?

However, we do have an example of one treatment that’s at least trying to be sensible: Intel’s (INTC) recent plan to spend $7 billion on U.S. based manufacturing facilities over the next two years.

Intel is looking to the future in (we hope) a constructive fashion by investing in technology upgrades that will enable it to continue leading the way in chip development. By building upon its current strengths and looking for a way to ensure its competitiveness for tomorrow, Intel is doing exactly what any sensible business should be doing.

Intel is actually investing money with an eye to making a future profit, not spraying it around like financial diarrhea to soil everything it encounters.

Unfortunately, the market isn’t rewarding the company for keeping their head when everyone else is losing theirs, but we expect that Intel and companies like them will be recognized for their efforts at some point.

Normally $7 billion would be considered a lot of money (and realistically, it still is).

So why can’t the banks and government figureheads blowing hundreds (if not thousands) of billions more than Intel apply the same rational strategy? Why can’t they invest without taking the time to calmly and carefully evaluate what sort of return they can expect … and why?

There’s an easy answer. It’s not their money: it’s yours … and your kids’ … and your grandkids’ too. Debts like the ones being run up today are permanent.

Unless of course the dollar ceases to exist as a unit of exchange by that time, thanks to the staggering lack of foresight and due diligence being exhibited today. That’s a comfort, isn’t it?

Another Glow Of Potential Prosperity

Gold outlasts any paper currency, however. It’s the best long-term antidote possible when it comes to government and banking stupidity.

As we frequently seem to be a lone voice in the wilderness on this issue, we’re happy to report that gold is looking stronger all the time:

Thursday’s key breakout over $920 resistance is a welcome development. Even as the government destroys the currency and the economy, you can at the very least preserve your wealth and get ahead with the oldest and most reliable money known to civilization.

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