Investment Thought of the Day

Don Luskin appeared on Larry Kudlow's show Friday and announced the coming of $2000 gold. His argument is compelling. The Fed's "balance sheet" has been vastly expanded, and there's zero chance that it will be meaningfully contracted during any recovery. That would require an awful lot of political will, and might in any event be undermined by Mugabe, err, Obama administration policy a la Jimmy Carter vis-a-vis Paul Volker, c.1979-80.

In a "Clash of the Titans" moment, David Malpass begged to differ. He says that according to official Fed records, the Fed has already begun to suck up liquidity (presumably, by selling treasuries from its inventory). Luskin's response: "How do you know when the Fed is lying? Its lips are moving."

I think any rational observer must presume that when a government, any government, finds itself in a bind, it's going to do what comes naturally. Inflate. However, as a self-certified wannabe economist, I can't just let that go without a good, solid, "on the other hand". I have heard Bernanke speak at length on his scholarly efforts as a specialist in Great Depression studies (Prozac alert), and I can readily conceive that he would like to undo with much haste any monetary excess he necessarily, but regrettably, promoted. On the other hand, like I said, Carter's Treasury Department engaged in some monetary engineering to undermine Chairman Volker's efforts to slay the inflation beast, so I certainly wouldn't put such past President Hope-a-Dope.