The policy agenda currently in vogue is to maintain the leverage and the asset prices by shifting all that debt from the private sector to the public. Why are we doing this? Because the near-term political heat from a deep recession and re-pricing of assets is more than any of our leaders can handle. Eventually that massive intervention and concomitant increase in the money supply will come with a hefty price tag.

Anna Swartz, co-author with Milton Friedman of "A Monetary History of the United States," addressed that question in a recent Barron's interview. She speculated that the deflationary impact of collapsing credit will be offset by the inflationary momentum of liquidity currently flooding in from the Federal Reserve and the Treasury. Pulling off that balancing act would be the central banking tour de force of the modern era.

We wonder if working that delicate arrangement isn't perhaps riskier than simply allowing the short and harsh brutality of the market to work its wonders of creative destruction."

Gold continues to track the Dow for the time being, and it remains caught in the bigger spiral of falling asset prices. At this point, the price tally points towards its worst weekly loss since 1983, and towards 2008 ending up as the first yearly loss it experienced following seven straight years of gains. None of this changes its role as the insurance anchor it ought to be in a portfolio worth protecting. It does, however, bring into focus the questions of what happens to it under conditions it never really faced in previous times.

A weekend to think during.

Jon Nadler is Senior Analyst, Kitco Bullion Dealers Montreal