Fire or Ice?

Fire and Ice
by Robert Frost

Some say the world will end in fire
Some say in ice.
From what I've tasted of desire
I hold with those who favor fire.
But if I had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.

I doubt Robert Frost was thinking of the inflation/deflation debate when he wrote this, but he might as well have been.

Will the out-of-control money supply expansion of the last six years result in a credit contraction and ultimately something as bad as a deflationary depression, as Robert Prechter argues? (Ice) That seems to be the fear shared by the world's central bankers, who have collectively shoveled more than $300 billion of liquidity into the system in the wake of the subprime collapse.

Or will Ben Bernanke get into his helicopter to stave this deflation off, madly throwing out bushels of dollars and hyperinflating us all back to Weimar Germany? (Fire)

Neither, of course, would be great. And to paraphrase Frost, for destruction, either would suffice.

I am no permabear, and I am not a gold bug (although I am holding gold currently). But it strikes me as somewhat far-fetched that a US Federal Reserve that has said that the problem with Japan in the 1990s was lack of monetary stimulus can somehow be expected to sit idly by while the US money supply contracts.

Fire, or out-of control inflation, gets my vote as the more likely outcome.

Additionally, I am convinced by the Austrian permabear argument that the bull markets in virtually every asset in the world over the last five years does not indicate a miraculous period of everything getting more valuable, but rather suggests that all global assets are appreciating against all currencies, but especially the US dollar.

Further, global money supply has been increasing at double-digit annualized rates. The US is a relatively mild offender by world standards, rising at "only" 12%.

Still, even though the dollar might be better than other currencies, I frankly don't think it's safe to hold dollars any longer. I've moved into gold on the recent breakout, but if this gold rally fails, I will probably have my hands full of Swiss Francs (FXF).

Every dog gets his day, and the Gold Is Money gang's day is probably going to continue for the foreseeable future. Might as well be along for the ride . . .