Dr. Kellner: Take Two (Policies) and Call Me Next Year

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Good Afternoon,

Gold's early morning progress was rudely interrupted by hawkish dollar comments coming from Messrs. Paulson and Plosser. The P&P duo's unusually forceful dollar-defensive statements had the greenback surge 0.61 up to 72.50 on the index and up to 1.578 against the euro. No chicken-or-egg theories will be tendered here today, but whether Dolly avoiding oil installations in the Gulf presented oil sellers with a timely window to sell black gold off to the tune of some $5 on the day, or whether it was the official dollar jawboning that slammed crude, the end results were the same.

Once oil gave way, the early gains we saw in bullion turned to snowballing losses and the metal promptly found itself visiting the $943.00 area in lieu of the $980 it appeared to be targeting when the trading day started. Chalk some of this roller-coaster up to options expiry, some of it to nerves, but -please, once again- not to sinister manipulation. The aluminium helmet teams take every down-day opportunity to lament about hidden gold suppression only to chest-pound the next day when the metal rises. Believe what you will.

Geopolitics fell somewhat silent as Iran was taking its time dissecting what appeared to be an offer it can't refuse - one that worked for Libya and N. Korea in past crises. The bright news from the region was that Iraq appears to want U.S. forces out by the end of 2010, thus adding a boost to Sen. Obama's plan to do the same roughly within the same timeframe. The White House dismissed the 'timetable" label as probably "poor translation." The boost that Mr. Obama got out of his Iraq trip stood in sharp contrast to Mr. McCain's Iraq-Pakistan border gaffe. Some dollar bulls see the end of Iraq war expenditures -whenever it comes- as a boost for the currency and the US economy. Age over reason, experience over judgment. Who knows what the world (of politics) is coming to...

New York spot bullion was last seen showing an $18.00 loss, quoted at $948.50 per ounce, as participants focused less on the woes of WaMu, Amex, and Wachovia and more on the sharp losses in crude oil and the growing odds of the "Volcker medicine" being administered in the not-so-distant future. Silver lost 46 cents to break under the $18 mark $18.61 while the noble metals turned south once again and lost $38 and $6 respectively - to $1794 in platinum, and $407 in palladium.

While stock futures were showing signs of possible triple digit losses amid weak earnings outlooks among a wide variety of firms. Apple, UPS, Amex, TI, UPS as the day commenced, the Dow remained generally calm after the breathing room provided by slumping oil prices. As noted, Treasury and Fed talk were once again in high gear this morning, with Mr. Paulson expressing confidence that the U.S. is on the 'right path' to end market disruptions and the housing maelstrom, but at the same time asking the American public to be patient as the game of "Operation" continues, and needs a very steady hand. The clincher words of the day still remain the take-home assignment as we head for the midweek sessions: "A strong dollar is very important" (Paulson) and "The reversal [of interest rate cuts] will need to be started sooner rather than later" (Plosser).

If you think these gents are the only ones to suggest a vacuuming campaign for the excess liquidity that has been pumped into the system since a year ago, think again. Marketwatch brings us the prescription offered by

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Commentary: Solutions for today's problems might come from the 1980s

One way of dealing with today's problem of accelerating inflation along with slowing economic growth is to look back to see how we handled this in the 1980s, the last time we had to grapple with these two issues simultaneously.

Until now, the spotlight has shown almost exclusively on the Federal Reserve. It's as though the central bank has been delegated sole responsibility for battling both inflation and recession. That being the case, the pundits, politicos and the press are fond of reminding us that success against one usually comes at the expense of the other. If the Fed were to loosen monetary policy to combat recession, it would risk juicing up inflation through rapid money growth. And if the monetary mavens were to rein in money growth to battle inflation, they could very well push the already-weakened economy into a recession because of tight credit and high interest rates.

To this I must ask, what about fiscal policy? Given half a chance, it can help, too. Now before you inundate me with a flood of emails, let me tell you that I am aware of the arguments against using fiscal policy as a tool to manage the economy. These range from the government's already-humongous budget deficit to the difficulty of getting the politicians to act in a timely manner.