Next shoe to drop: Prime mortgages

Bullion as antidote to bungling

Now to quote a recent Bloomberg headline that I thought was perfect and long overdue: "Gold beats financial assets on global distrust of central banks." That is why folks need to own gold. You can't trust central banks to preserve your purchasing power. It's taken quite a while to reach this point, but now we're here, and I think it's going to be extraordinarily difficult to get the genie back in the bottle.

When gold was $850 an ounce 28 years ago, then-Fed Chairman Paul Volcker was bent on breaking the back of inflation. His focus on controlling the supply of money created double-digit interest rates. Now the Fed is pursuing the opposite path. I have no idea how high the metals can go. But I think folks will need to own them for quite some time to come.

Streets paved with gold potholes

That is not to say there won't be shakeouts along the way. There will be. The next time we see a shakeout, folks who initially didn't understand the case for gold (and silver) -- which is that it's an insurance policy against Fed money printing -- will be able to start building positions.

For those readers who already have positions that have grown beyond what might constitute "insurance," a bit of active management may be in order. That is not to say that you're supposed to lighten up on a large position. Rather, you just need to have a plan for what you're going to do.

In the shameless self-promotion department, I would just say that in order to prepare for what lies ahead, folks need to understand the path that brought us here, which is one reason why I wrote "Greenspan's Bubbles."

Set out a chair for laissez faire

Finally, in light of all the government bailout attempts, I would just add my own suggestion: Let the government get out of the way, enforce the rules that exist, and let the markets decide who should get a mortgage and at what rate.

To think the government can fix the problem is similar to the Fed thinking that easy money can solve all problems -- when, to repeat, easy money is what brought us to this sorry state in the first place.

At the time of publication, Bill Fleckenstein did not own shares of any company mentioned in this column.

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