U.S. stocks are still down about 7% for the year. The NASDAQ has lost 12%.

The dollar is still near its all-time low against the euro, at $1.57. And the yen, too, is near an all-time high. And gold?

Maybe we just had our last chance ever to buy gold for less than $900 an ounce. And maybe what we have now is our last chance to buy it for less than $1,000. The price today is $931.

We are bullistic on gold because we are realistic about human nature. Give someone an opportunity to print money and you can be sure that sooner or later, come what may, he’ll take it.

The feds no longer tell us how much money they’re ‘printing,’ but experts say M3, the broadest measure of new money creation, is higher than 15% per year. Let’s see, money increases at 15% per year...and how fast is the supply of goods and services increasing?

Uh-oh...the IMF says the United States is headed for recession. Some economists think the country is already in recession. What that means is that the supply of goods and services is barely increasing at all. Which means, the extra money has to bid for the EXISTING goods and services.

No need to beat around the bush about it. What this means is that monetary inflation is driving up prices.

The price of oil is $112. Wheat, corn, soybeans, rice – all the grains are near record highs too. Many countries are banning exports. Many are controlling prices. Mexico, for example, has price controls on tortillas.

Of course, the real cause of rising food prices is a falling value of paper money. But only the European Central Bank seems to take its mission to protect the euro seriously – it’s holding rates steady. While the ECB tries to hold the line against inflation, the rest of the world’s central bankers are giving inflation all the slack they can. The Bank of England, following the U.S. lead, cut its key rate yesterday by a quarter-percentage point.

Let’s go back to our war analogy. It’s a battle between the forces of inflation and the forces of deflation, we keep saying – one side unstoppable...the other immoveable.

The Franco-Prussian war of 1870 was a great war. The French declared war on the Germans, for some reason that no one seems to recall. The Huns attacked, rolled up the French army ...and laid siege to Paris. In the city, residents soon had to eat rats and cats to stay alive. Parisians exchanged recipes and made the most of it.

The whole thing was over fairly quickly. The Frogs capitulated, agreed to pay reparations, and the Germans withdrew (keeping the Teuton-speaking area of Alsace.)

It was a nice war because it had a clear winner...and because it was over like a good street brawl, before the cops came. And the Germans were very civilized about it. They didn’t set up bases in France. They didn’t stretch out the war for years...or make the French learn to speak German. They won it fair and square, and then went back to their strudel and frauleins. Which made Europeans think that war was not such a bad thing.

Then, came WWI. Oh la la...this was a war of a different sort. It went on for four years. At enormous cost to everyone...millions of dead...trillions in financial losses...

...and who won? Nobody.

We bring it up because this financial battle looks to us like that kind of war. A war of liquidation...in which people lose money they thought they had – either to inflation or to deflation.

Yesterday, Lehman Bros. liquidated three of its funds. And, as mentioned above, a big part of the stock market has been liquidated. And housing gains are being liquidated at about 10% per year...

...and remember, inflation liquidates almost everything...including the value of American labor. As consumer prices go up and the dollar goes down, the relative price of American labor falls. The working man is liquidated.

But if this is a WWI kind of war...everyone gets liquidated – investors, lenders, borrowers, consumers, businessmen, householders, working people...everyone. People who worry about money will have less to worry about, in other words.

USA Today tells us that top CEOs may be presiding over disasters, but they are not about to share the misery of the shareholders. The pay of the chief executives of America’s 50 largest corporations averages about $15 million says the paper.

And it doesn’t seem to matter whether the shareholders are making money or not. Take the CEO of KB Homes, for example. The company lost $929 million last year. Its share price fell 70%. Still, CEO Mezger got paid , what? 1,000 times more than most working?

Go figure.

Bill Bonner