Dear Reader,

As I sit down to write this early morning, Mr. Market is teetering on the edge of his seat, waiting breathlessly for Fed Chairman Ben to open his bearded maw in order to issue a proclamation of such divine import as to determine the very fate of the global economy.

Finally, the world hopes, the Bernanke will step up to a microphone and intone words such as "stimulus," "intervention" and "liquidity" in the correct order - an order known only to those who have attained the highest levels of academic mysticism - to form an incantation of sufficient power to bring Harry Potter himself to his knees in awe.

So powerful, in fact, that once uttered, the Bernanke's incantation will sweep the globe, chasing away the gloom and opening the skies to a new era of global peace and prosperity.

As we aren't in Jackson Hollow where the Fed is meeting, we can't know what words the Bernanke will mumble later today, but we can paw through the entrails of his past incantations in the hopes of uncovering clues.

For instance, back in July 2005, when my dear friend and colleague Doug Casey was writing in Casey's International Speculator...

"... based on my review of various data, trends and anecdotal evidence, I am increasingly concerned that the wheels are about to come off the US economy. And maybe China. Elsewhere in the world, we have near total mayhem in the Middle East and confidence in the EU is (correctly) crumbling. If all the stuff that is, or could be, soon hitting the fan actually does so, we could witness an economic debacle on a global scale."

...the Bernanke was saying...

"We've never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don't think it's going drive the economy too far from its full employment path, though."

And in February of 2006, which, as you can see from the chart here, was within spitting distance of the very peak of the housing bubble, the Bernanke spoke as thus:

"Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."

src="http://www.caseyresearch.com/sites/default/files/resize/image2_34-490x259.jpg" border="0" height="259" width="490" />

(Click on image to enlarge)

And in March 2007, the very month that Doug Casey wrote in Casey International Speculator...

"As in 1970, 1974, 1980, 1987 and 2000, the economy is at a turning point. But this time there is no good direction for it to go. The gentlest we can expect is a monetary crisis as bad as any in living memory...

"Ordinarily a country threatened with currency collapse would lean toward tight money, perhaps contracting its domestic money supply. That would push interest rates upward and compensate foreigners for holding on to the currency despite the depreciation risk. And it would soften that risk.

"But this time things aren't ordinary... there is a difference that turns what might otherwise be a disturbance into the makings of disaster: the US economy's inability to endure high interest rates. As we'll discuss here, because of the grossly distorted US housing market, raising interest rates to protect the dollar would prove as calamitous as not raising interest rates."

...the Bernanke went on record as thus...

"At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

(For the record, roughly a year and a half later, the subprime princelings Fannie Mae and Freddie Mac blew up and were taken over by the government.)

Undaunted, in May 2007, the Bernanke reinforced his positive outlook with these fine words:

"All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable."

Then, in June 2008, almost to the day that Casey Research Chief Economist Bud Conrad was summing up our economic outlook for the inaugural edition of

Glancing over the Bernanke's academic achievements, we confirm that he didn't leave school early in order to pursue a promising career wringing chicken necks down at the local poultry house. So we can only surmise the man is not a fool; therefore he has to be a knave.

Yet Mr. Market still awaits his words with great anticipation. Becauuuusssse???

Well, on that point, we can only further conclude that Mr. Market doesn't know his hindquarters from a (Jackson) hole in the ground.

In fact, the record is stunningly clear that any time the Bernanke proffers an economic prediction, you should rush out and bet that exactly the opposite will come true - it's a sure-fire way to make a killing in the markets.

And with that, we turn our attention to the Bernanke's latest incantation, which has just now found its way out of the Hole in Jackson. Just minutes ago, he rose to the microphone and said...

"With respect to longer-run prospects, however, my own view is more optimistic. As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years." The Bernanke, Jackson Hole, August 26, 2011

So, with our newfound understanding of the inverse relationship between Bernanke's stated views and how things ultimately work out, how should we act?

I think this graphic pretty well sums it up. (For those dinosaurs among you still using devices unable to view graphics, the caption is "WE'RE ALL DOOMED!")

Well, technically, not everyone is doomed. Just those who actually still assign even a scintilla of credibility to Bernanke's words versus, say, listening to Doug Casey, Bud Conrad and others who, based on the record, actually understand what's going on and aren't afraid to say so.

But the truth of the matter should be apparent to anyone willing to have faith in their own powers of observation. The social fabric of this nation, and many others as well, is currently being held together (barely) by the weak glue of government deficit spending. As that glue is strained to the breaking point by fundamental economic realities... as the checks for the long-term unemployed stop... as municipalities around the nation follow Jefferson County, Alabama toward bankruptcy... as the banks are ultimately forced to eat their own toxic cooking... as the wealth of the nation's elderly is decimated by a combination of falling housing prices and the Fed's low interest rate policy... as it dawns on the youth of the nation, especially those of minority populations, just how the state education has let them down, and how poor their prospects are... we will begin to see signs of systematic failures in the monetary system and, in time, the status quo that has allowed the stulti fied government to continue to operate even though its negatives now outweigh any benefits.

Despite the Bernanke's fine words to the contrary, the outlook for the short term, the medium term, and unfortunately, even the longer term, is anything but good.

I know that is a strong statement, but based on the track record, I believe that it is a far more realistic assessment than anything that is likely to emanate from the Bernanke's mouth.

A dim view is called for considering the reality that the US, in parallel with many of the world's biggest governments, has built bureaucratic castles out of cards and placed them on towering piles of the dry tinder of unpayable debt.

The collapsing housing bubble - a bubble in no small part encouraged by the Fed's own loose money policies - provided the spark that set that bonfire alight. But then, rather than isolating the burning embers and letting the fire run its course, quickly burning away the bad debt and misallocated capital, the Fed stepped in and attempted to smother the licking flames with helicopter loads of newly created dollars, only making matters much worse.

With each passing day, the conflagration worsens. By the time it has singed Bernanke's beard and he retires in disgrace, it will have immolated the wealth of much of the populace.

At the risk of sounding like a broken record, tangible assets, ideally diversified internationally, remain the best bet for protecting your wealth against what's coming.

And holding those assets in tax-advantaged structures, as much as possible, will be seen in hindsight as a

Of course, of all the tangibles, gold has been most newsworthy of late, spiking as it did over $1,900 before falling back to just above $1,700, before rallying again to where it now trades, just over $1,800.

As I know gold has become important to many dear readers, I'd like to share a quick observation on the topic of volatility that may be of no use whatsoever.

When I was still imbued with the vigor of youth, I was an avid big-wave body surfer - the bigger the better. In order to avoid the potentially deadly beating the ocean is capable of delivering, you must learn to get in sync with the waves. That requires learning to look out to sea and being able to quickly assess which move to make next. Loosely speaking, those moves boil down to...

Making a modest adjustment in your position in order to intersect the wave at just the right point to catch it. Properly positioned, a couple of quick strokes and kicks allows you to tap into the rising force of the wave and enjoy the ride. Once the wave begins to collapse over you, a hard turn into its face allows you to pop out through the back of the wave unscathed and move back into position to catch another.

Swimming to safety. On seeing a monster wave cresting too far out for you to catch a controlled ride, which means it is likely it will crash down on you if you stay where you are, you never swim for the false safety of shore - because you'll never make it. Instead, you swim as fast as you can straight at the wave. Then, as the shadow of the wave towers over you, you dive for the bottom while continuing to swim toward the open sea.

If you move quickly enough, the wave will crash harmlessly just behind you. But sometimes, if you are a bit slow, the wave may crash just ahead of you, at which point you have to open your eyes underwater in order to see and swim around the tornado-like columns of white water created by the crashing wave.

Either way, once the wave has passed, you surface for air, take stock of the situation and decide on your next move... whether to try and catch the next wave or keep swimming toward the safety of deeper water.

Move closer to shore. While the maximum excitement from the sport comes from riding the giants, there can be long lulls between sets of the larger waves. During those lulls, if you want to catch waves, you have to move closer to the shore, settling for shorter and less dramatic rides.

Stay on shore. There were days following big storms when, as tough as we liked to think we were, swimming out into the surf would have been pretty close to suicide. Therefore, staying on the beach was pretty much the only intelligent move to make. And, stating the obvious, people who don't know how to swim or who are prone to panic when splashed in the face should as a matter of policy stay out of the water entirely.

Extending the lessons learned off the coast of Hawaii to gold markets, by virtue of your reading these musings, it's a safe bet you know how to swim. Which is to say, you possess sufficient intelligence to already understand the important role that gold has to play as a tangible store of value. But to avoid getting hurt, it is important to develop a sense of the tempo of the market.

There will be times - as there have been recently - where it should have been clear that the rush into gold was overdone. For instance, on August 22, gold rose to a new record of $1,917 - up over $300 from a month earlier, on July 22, when gold closed at "just" $1,602. At that point, trying to catch the wave will almost certainly end badly, at least in the short term, and especially if you were to use leverage.

But there will be other times, between sets, when you'll have the luxury of getting positioned for a long and exhilarating ride. Less-patient wave riders will have tired of waiting and have gone home, or will have been scared away by the volatility. But knowing you are in the right spot - which you very much are if you are investing in gold in the early stages of a monetary system collapse - and being patient all but ensures a long and very gratifying ride.

When will you know that it's time to get out of the water, either because it's too risky or the golden waves have retreated and won't be back for another generation?

Until and unless one of those scenarios begins to emerge, gold remains a critical component of every portfolio.

In the meantime, returning to my metaphor, if you are reading this, you are almost certainly in the right place to enjoy many happy returns.

Whatever you do, don't buy after sharp run-ups and then sell in a desperate attempt to make it to shore as the volatility picks up - you'll never make it.

The long wave is still our friend - enjoy the ride!

A week ago, Congresswoman and Republican presidential candidate Michele Bachmann told the country that, under her presidency, gasoline prices would fall to less than US$2 a gallon. Such a bold promise has invoked widespread criticism, with Bachmann accused of grandiosity, posturing and a failure to grasp the realities of the global oil market.

While those accusations may prove correct, the fact is that a US president does have the power to drive gasoline prices down, and Bachmann is not the first to promise to do so.

Candidate Bachmann has not yet provided much in the way of details on how she would slash gas prices almost in half, but we have dug through past and present to come up with her options. The long and short of it is this: $2 gas would be a lot more expensive, risky and damaging to America's households, government and environment than anyone would want.

But let's go through the options. One option comes from Newt Gingrich's 2008 plan: open the spigots on the country's Strategic Petroleum Reserve and dump the entire stockpile on the open market. The American government holds 727 million barrels of oil in reserve, on standby to power the country should supplies suddenly dry up (perhaps Saudi Arabia disintegrates into civil war, or Venezuela decides to stop selling its oil to America, or something else along those lines).

Dumping that much oil into the open market would absolutely depress crude prices, and gasoline prices might well dip below US$2 a gallon. But the effect would be short lived: the world consumes 727 million barrels in a month, so the glut would soon disappear, and with it would go cheap gas as well as America's strategic reserve.

Donald Trump also promoted a gas-price-reduction plan, during his short-lived White House run. He suggested seizing the oil fields of Iraq and Libya, and routing all of the production from those two countries into the United States. It's a fantastic plan, aside from being completely illegal. It also simply wouldn't work, as the seized oil would have to pass through the world market and so wouldn't be any cheaper than before.

Moving back towards the realm of reality, the one option that Congresswoman Bachmann has mentioned is increased domestic production stemming from America's shale oil resources, though she said it slightly differently:

"What Barack Obama has done is lock up America's energy reserves. We're the number one energy-resource-rich nation in the world. We have more oil in three western states, in the form of shale oil, than all the oil in Saudi Arabia. That doesn't include the Bakken oil field in North Dakota or the eastern Gulf region or the Atlantic or the Pacific or the ANWR or the Arctic."

Yes, there is a lot of oil in western America, but it is locked up tightly within rocks. To extract it, you have to super-heat the rocks to vaporize the oil, which you then capture and condense. Shale gas is a sector we can believe in, as extracting gas from shale formations is considerably less energy intensive. But don't confuse shale gas and shale oil - the energy bills associated with shale oil production are through the roof. Many companies have tried their hands at shale oil production, including majors such as Exxon-Mobil and Royal Dutch Shell, but almost all have walked away after realizing it is simply too expensive to make a profit.

So if America shifted its focus to shale oil, gas prices would go up, not down, because when production costs go up, oil prices go up and gas prices with them.

Congresswoman Bachmann could also open the Arctic National Wildlife Refuge (ANWR) to drilling. The US Geological Survey estimates there are roughly 7 billion barrels of recoverable crude in the ANWR that, if directed solely to the United States, would be used up within a year. In a similar manner to draining the Strategic Petroleum Reserve, pumping oil from the ANWR would reduce gas prices for only a short period, and at the end of that period, an important asset would be greatly diminished.

Another line that the congresswoman used in selling her $2-a-gallon dream was this: "The price of gasoline the day that Barack Obama took office was $1.79 a gallon. If the price was $1.79 a gallon just two and three years ago, certainly we can get it down to that level again."

Yes, we can - provided we're willing to spiral back down into a global recession that is still paining us today. That is the final option for reducing oil prices: economic calamity, complete with widespread unemployment.

So, as president, Michele Bachmann could force gas prices below $2 a gallon. The problem is that the costs outweigh the savings many times over.

Crude oil prices are slipping of their own accord. The market mayhem of late July and early August erased roughly 7% from the price of London-traded Brent oil and reduced the price of North American benchmark West Texas Intermediate (WTI) oil by more than 10%. But the slide is probably not over.

Several major investment banks have recently lowered their oil price predictions after downgrading their forecasts for economic growth and factoring in improving prospects for a return of Libyan supplies. JPMorgan, Citigroup and BNP Paribas cut their price forecasts, while Goldman Sachs and Morgan Stanley maintained their forecasts but added cautionary notes. Citigroup made the biggest move, slashing its price forecasts to among the lowest on Wall Street.

"Falling oil demand growth is paralleling recent macroeconomic headlines and points to lower prices ahead," the bank said in a note. Citigroup also said it thinks demand assumptions from other groups, such as the International Energy Agency, OPEC and the US Energy Information Administration, are far too optimistic. The bank cut its 2012 price forecast for WTI crude to US$72 a barrel and reduced its 2012 Brent outlook to US$86 a barrel, reductions of US$8 and US$14 respectively from its previous estimates.

JPMorgan reduced its 2012 Brent price projection by US$9 to average US$115 per barrel. BNP Paribas cut its 2012 average price for WTI crude by US$10 to US$107 per barrel and pulled its Brent forecast back by US$4 to US$124 per barrel. Morgan Stanley said a return of 300,000 barrels a day from Libya between October and the end of the year would push Brent prices down by US$4 a barrel from its US$120-per-barrel 2012 forecast. If Libya were to start producing 600,000 barrels a day before the end of the year, prices would decline by US$6.

Oil prices will remain depressed, relative to a few months ago, and may slide lower if the world continues to slip into another recession. But $2 gas is not in the forecast, and we should all keep our fingers crossed that it stays that way.