The Dow is below 13,000.  Gold is below 1,600.  Oil is below 100.  The 10-year yield is just above 1.8%.  The roller coaster ride is continuing.

It looked like we were in the midst of a mini-inflationary boom.  While the Fed’s tripling of the monetary base in the last three and a half years has not produced massive price inflation, some of it has gone into certain sectors.

If you are an investor in the stock market, times have seemed somewhat decent lately.  If you are a middle-class consumer, then your trips to the gas station and grocery store have not been all that pleasant, as you see rising prices.  Rising prices affect different people in different ways, but overall it is a negative thing in the long run.

I don’t know where things go from here.  A few down days don’t necessarily make a trend.  With all of the massive malinvestment that has taken place, particularly in the last 4 years, we are going to experience pain in the future.  If the market turns back up from here and we continue a little inflationary boom period, it will just mean more pain later on.

However, it worries me the other way too.  We need a liquidation of the bad investment and a proper reallocation of resources determined by the marketplace.  In that sense, a downturn would be a good thing.  What worries me is different though.  If we go through a somewhat severe downturn, then I am afraid of what the Fed might do.  If the Fed goes into QE3 and creates a new round of massive monetary inflation, we might be in for some real trouble.  I’m not sure if Bernanke and company really understand the egg shells they are walking on.

It continues to be a fight between an artificial boom and a recession or depression.  The two sides are tugging back and forth.  If one side tugs too hard, everyone might go over a cliff.  I would rather go off the depression cliff, but I’m afraid that the Fed might yank us over the inflationary cliff, which would actually do more damage in the long run.

I expect the roller coaster ride to continue.