GIFI Pop Still Has Steam

One of the first notes I received in response to yesterday's missive on government spending after Hurricane Katrina was one that predicted I'd end up getting more email on that column than nearly any other that I've written. That reader turned out to be correct.

Most readers were, thankfully, in agreement although many raised the same caveat: If the government stepped in to pay for the broken window -- by borrowing itself -- there'd still be a net stimulus. In fact, Pat Dorsey made this same point on "Bulls & Bears," noting that the government has a license to print money.

Following that scenario through, however, there are two points to consider. One, the government can theoretically print money. The problem is that the value of each dollar already in existence diminishes. In effect, more dollars are chasing the same amount of goods, resulting in inflation. Inflation, of course, raises prices across the board, increasing costs and eventually negating the original stimulus. If this were not the case, every Third World government in existence would simply keep printing money, eventually buying their way to super-power status.

Of course, the usual step is for the government to just borrow the money and that seems fine at first. But increased borrowing comes with a cost down the line, and that's one of ever-increasing interest payments. And who ends up making those interest payments? It is not some remote entity, but rather you and I through our income taxes. So, instead of your $500 going to buy a new suit, you get to send it to the U.S. Treasury to make interest payments on borrowed money. Again, there might be a short-term boost to the economy, but certainly the long-term net effect is flat or more likely, negative.

In short, catastrophic events -- wars, hurricanes, tsunamis -- are not, as many think, helpful to the economy. World War II, for example, did not pull us out of the Depression. No, events like that sap the economy until normal free-market forces step in to correct the decline. In fact, it is usually when government steps in to "correct" the wrongs that the economy ends up worse off than before.

Today, charts for the Nasdaq Composite, Yamana Gold (AUY - commentary - Cramer's Take), Gulf Island Fabrication (GIFI - commentary - Cramer's Take), Genesis Microchip (GNSS - commentary - Cramer's Take), ViaSat (VSAT - commentary - Cramer's Take) and Electronic Data Systems (EDS - commentary - Cramer's Take).

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Charts produced by TC2000, which is a registered trademark of Worden Brothers Inc.

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And that is the final word from K Street, where he's been pilloried in public, but I'd still like to hear ex-FEMA chief Michael Brown's side of the story.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Gulf Island Fabrication to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes a daily technical analysis column for RealMoney.com and also produces a daily premium product for TheStreet.com called The Chartman's Top Stocks -- click here for a free two-week trial. While Gary cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.