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.

… and saving? What’s that all about? Why bother, when we can borrow instead? Such thinking leads to curves like this one:

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:

Friday’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.

Disclosure: no positions

Comments

[socrateazz:]

Is the little guy saving? Really! I think the middle guy is saving and that is where the economy thrives when they spend. The little guy finds it hard to just keep up with needed bills.The big earners are holding back on spending for appearance reasons and psychological reasons. actually those decisions hurt the economy more than they know. Until those with the wealth allow that wealth to circulate more in the economy there will probably be problems

Feb 16 09:58 AM

[Jason Rines...:]

No skin in the game, you got it. And those with no skin in the game are being rewarded while the productive are being skinned and made into taxadermy pieces. But I agree, at some point there will be reward for the responsible and productive. Just expect to continue shielding as much as you can from those in power that have the ability to continue stealing your productivity and await for the right time to make your moves.

Feb 16 11:44 AM

[SW Richmond:]

Intel's action, along with Cisco's recent $4Billion trip to the well, IMO indicate their belief that now is the time to spend dollars. Is it possible that they expect to profit from dollar devaluation?

Feb 16 11:51 AM

[KSengineer:]

Great article! Telling it like it really is and with a bit of humor mixed in. I I wish those in charge would take what was written to heart:

"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."

I have no hope our leaders will ever do the right thing. But, then, "we the people" have asked for it. And we are about to receive it. The ultimate blame lies with US, collectively.

This country is in serious trouble and the current administration is doing all it can to hasten the demise.

Feb 16 12:04 PM

[doubleguns:]

If we are going to suffer our demise I would prefer to get it over with ASAP so we can get started on the rebuilding of our country and instituting some type of controls over congress like term limitations and budget controls. If this gets dragged out to long there wont be enough capital left in the country to rebuild with since it will have left for Canada or some other "more favorable" investing location.

I dont like this spend, spend, spend bill since it reminds me of the story about --Give a man a fish he eats for a day but teach him to fish he eats forever.

We need to get people jobs, handing them money is not fixing the problem and eventually some portion of the people get lazy and would rather take a handout then work if it goes on for too long. Once a mans dignity is gone its hard to restore it.

Bottom line is we have to end this quicky either at the bottom where it seems we are heading or some how fix the problem. Unfortunatly I havent heard any compelling solutions yet.

Feb 16 12:53 PM

[Bad Dog:]

I agree. We need to be giving people jobs. Just handing out tax cuts is pointless. We have lots of infrastructure needs. Rather than have workers sitting around in poverty, let's give them jobs to rebuild this decaying country. Time for a little patriotism!


On Feb 16 12:53 PM doubleguns wrote:

> If we are going to suffer our demise I would prefer to get it over
> with ASAP so we can get started on the rebuilding of our country
> and instituting some type of controls over congress like term limitations
> and budget controls. If this gets dragged out to long there wont
> be enough capital left in the country to rebuild with since it will
> have left for Canada or some other "more favorable" investing location.
>
>
> I dont like this spend, spend, spend bill since it reminds me of
> the story about --Give a man a fish he eats for a day but teach him
> to fish he eats forever.
>
> We need to get people jobs, handing them money is not fixing the
> problem and eventually some portion of the people get lazy and would
> rather take a handout then work if it goes on for too long. Once
> a mans dignity is gone its hard to restore it.
>
> Bottom line is we have to end this quicky either at the bottom where
> it seems we are heading or some how fix the problem. Unfortunatly
> I havent heard any compelling solutions yet.

Feb 16 12:59 PM

[Hutch:]

The government calculates savings by totaling up after-tax income and subtracting spending. The remainder is considered savings even if it is used to pay debts.

Consumers who can are paying off debt. So debt is shrinking (i.e. lenders assets are shrinking) and that which is left has a higher risk of default.

Feb 16 01:10 PM

[Doc 224899:]

What we are experiencing in the American market may best be described as a transition from "what's best for the economy" to "what's best for the individual".

The American economy is (has been) best served by people buying stuff they don't need, and paying prices they can't afford, with money they ought to be saving. That is what used to be called "wasting money like an idiot". That has been the basis of the consumer economy, and the basis of dollar diplomacy. This has resulted in people acquiring unprecedented levels of consumer debt, and basically borrowing on equity to pay for shoddy stuff fabricated by children and shamed women in foreign sweat shops. Banks and other lenders made money the easy way from exploitative credit card interest rates and service charges for lending money until pay checks were received, and basically gave up the prudent lending practices that had worked previously. After years of easy money, banks have forgotten how to earn money the old-fashioned way by judging whether or not a borrower is a good risk and has a good reason for borrowing.

The individual is best served by not wasting his money on stuff he doesn't need, and by not buying stuff he can't afford, so that some day he'll have enough money saved up to buy something good that he has a genuine use for. Believe it or not, people actually used to "buy" their cars, and there didn't used to be any such thing as "car payments" because if you couldn't pay for a car you just didn't buy it. This seems to be what people are returning to. If people are actually learning from their mistakes, they'll take the puny couple of hundred bucks they might get in a bribe check from the IRS sent by the Obama administration this year and buy gold miner stock or potash stock, and they won't flush it down the tubes by wasting it at WalMart or MacDonald's. This won't be "good for the economy", but it will be good for the American people. If this sort of prudent individual spending lasts for a sufficient number of years, the economy will re-set itself around more adaptive parameters. If it lasts long enough, maybe Americans will go back to work making things that can be sold to other Americans, and performing useful service activities that require skill and training. That would require our federal government to find a grown-up foreign policy agenda, and stop trying to buy friendship from people who want to see us dead. It would also require attorneys to make a legitimate living in some way that doesn't involve thieving litigation against everybody who does or makes something useful.

Feb 16 03:53 PM

[Blackstone:]

It has been said that the definition of "insanity" is "attempting the same thing again and again, expecting a different result". It seems as if the American Government has forgotten all the wasted money in the past, and is now running after a "new" plan... which turns out to be the exact same one that they have already tried.

Government spending is not the way to kick the economy into high gear. Reagan demonstrated the usefulness of tax cuts for businesses that can stimulate the economy to a greater extent than throwing $800+ billion down the rabbit hole ever would.

!Blackstone!

Feb 16 04:52 PM

[Moon Kil Woong:]

IU was hooked on his article until I got to the gold conclusion. Gold is not a productive asset like investing in a company that produces, sells, makes a profit, invests in technology, employs people, and grows like Intel. It just sits in a vault or on Paris Hilton's neck.

Yes the government's solution is spend more. It has been saying that since the 80's. In the 70's it was spend less because of Carter Inflation. However, our best interests is not served if our garages are all filled with more junk. And it is not the citizens that hold $50+ trillion in CDS and other silly derivatives. Blaming this depression on the US citizen is silly.

Over-leveraged citizens did play a part like in all cyclical downturns, but the banking and financial institutions are the ones that brought down the house.

Feb 16 09:55 PM

[Ferdinand E...:]

I'm not sure that I agree with everything in this article, but I read it twice, and as far as I am concerned it is beautifully constructed. I also like the insistence in the comments that when it comes to fixing the economy, employment should come first.

Feb 17 08:59 AM

[Jan Baker:]

Do you favor a 'hire American' clause, or do you think it doesn't matter who gets hired as long as they turn around and spend the money?

Feb 17 05:21 PM

[auto44:]

It's not just this country


On Feb 16 12:04 PM KSengineer wrote:

> Great article! Telling it like it really is and with a bit of humor
> mixed in. I I wish those in charge would take what was written to
> heart:
>
> "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."
>
> I have no hope our leaders will ever do the right thing. But, then,
> "we the people" have asked for it. And we are about to receive it.
> The ultimate blame lies with US, collectively.
>
> This country is in serious trouble and the current administration
> is doing all it can to hasten the demise.

Feb 17 06:54 PM

[henarl:]

Whistling past the graveyard? Seems like we took a little detour thru the cemetary today!

Feb 17 06:55 PM

[auto44:]

construte, I think the government/congress is the most culpable of all the crooks/dopes that got us to this point.

Feb 17 06:58 PM

[auto44:]

user244899, Wouldn't it be nice if we started teaching this in school. Great comment and take every opportunity to keep selling it. Wish i could give you more than 1 thumbs up.

Feb 17 07:05 PM

[Mad Hedge F...:]

Here is a nice early spring mustard seed. Intel (INTC) announced they plan to invest $7 billion in new factories in Arizona, New Mexico, and Oregon, hiring 7,000 workers. The company in the past has said that high costs, over regulation, and unreliable power supplies will prevent it from ever again building a major manufacturing facility in California. The plants will build low energy chips using the next generation 32 nanometer technology. At least this round is not going to China. Only the big cap tech companies have the cash to pull this off.

Feb 21 09:05 AM