We’re already getting in the spirit of the New Age. That is, along with other baby boomers, we’re beginning to downsize...to simplify...to make do with less. Last night, for example, we put on a tuxedo to attend a fancy dinner. We found that we had forgotten to bring our cufflinks. We didn’t really want to invest in a new pair of cufflinks, so we went to the local hardware store and bought a couple small machine-thread bolts, with nuts and washers, for less than 25 cents.

Not only were they ingenuous, they were actually rather cool. At least we thought so. We proudly showed them to Elizabeth; she wasn’t impressed. She failed to see the funky elegance in them. She thought they should have stayed in the tool-chest...

But we are here to offer advice and opinions to our Dear Readers...so we will continue to pass along helpful hints and suggestions in keeping with the new downscaling, money-saving zeitgeist of the time.

Alan Greenspan came out with his own book on Monday – The Age of Turbulence. Not a very good title, in our opinion. Still, it is sure to knock our own tome off the shelves. Everyone wants to know what the Maestro was really thinking.

According to Bob Woodward’s review in the Washington Post, the Fed chief liked Bill Clinton. He thought the man from Hope did a good job of holding down federal spending. By contrast, he has harsh words of criticism for the Republicans:

“My biggest frustration remained the president’s unwillingness to wield his veto against out-of-control spending,” Greenspan writes. “Not exercising the veto power became a hallmark of the Bush presidency... To my mind, Bush’s collaborate-don’t-confront approach was a major mistake.”

Greenspan seems to see the Republicans as we see them; that is, as wimpy, stupid, opportunists. They might as well be Democrats! He says they deserved to lose control of the House and Senate last year: “The Republicans in Congress lost their way,” Greenspan writes. “They swapped principle for power. They ended up with neither.”

Of Republican leaders J. Dennis Hastert and Tom DeLay, who resigned after being indicted for violating campaign finance laws, Greenspan notes:

“House Speaker Hastert and House majority leader Tom DeLay seemed readily inclined to loosen the federal purse strings any time it might help add a few more seats to the Republican majority...I don’t think the Democrats won. It was the Republicans who lost. The Democrats came to power in the Congress because they were the only party left standing.”

He goes on to criticize Vice President Dick Cheney, who once remarked that, “Reagan proved deficits don’t matter.”

Of course, “deficits DO matter,” says Greenspan.

We don’t know whether anything in Greenspan’s memoir will come as news. We doubt it will save Greenspan’s reputation from the reappraisal it deserves. Deficits do matter, and the former Fed chairman is probably responsible for more deficits than any human being that ever lived. His emergency-low-interest rates made the whole world deficit friendly. Businesses ran deficits...and weakened their balance sheets. Greenspan blames Bush for the U.S. government deficits...but it was the Fed that helped make deficits so easy to finance. Individuals, too, ran deficits in their household accounts. Now, those deficits have hardened into iron-cold debt...

Today’s the big day. The Fed’s Open Market Committee meets to decide on interest rate policy.

The price of gold rose $6 yesterday – to $723. The euro ( EUR ) held above $1.38. Oil went back to over $80. And the commodity index rose to a new record high.

The Fed must be worried. If it lowers rates – as we’ve predicted – it risks lighting a fire under inflation. Oil could go over $100. Gold could go to $1,000. Not the end of the world – but surely a shock for the world as it is.

On the other hand, if it doesn’t cut rates, it runs the risk that the housing market will continue to slump...dragging the economy down with it. The risk is that a slight slump may lead to a deep one...and that – with all that iron around their throats and ankles – Americans may not be able to keep their heads above water.

One way could lead to inflation...the other to deflation. Clearly, in the financial world...the great credit zeppelin hit a utility pole this summer. Since so many speculative products are marked to model, not to market, it is still not clear how much deflationary damage was done. The housing market is much more transparent, but there the market functions very slowly. So we don’t know how much deflation is already in the system there either. Team Bernanke has to guess.

It has to guess, too, about how markets will react to a “Bernanke Put” signal – an apparent willingness of the Fed to protect speculators by increasing the supply of credit at the expense of inflation and the value of the dollar.

In past Daily Reckonings, we’ve reckoned that we couldn’t know which way it would go. Inflation? Deflation? All we know is that there is a heckuva lot of “flation” in the world economy. The mass of debt is a huge black hole of potential deflation. But the kinetic energy of cash and credit is a great source of potential inflation. One way or t’other, ‘flation’ is bound to happen.

“India is still a buy,” says our Bombay colleague, Ajit Dayal. “It went down hard in 2002. Everyone was running scared. But we said it was a buying opportunity. We were right. The index recovered...and now it’s higher than ever. And now people ask us if it isn’t a good time to sell out. We don’t think so. There could be a liquidity crunch in India, but the economy is growing...and that isn’t going to change. India is a very good long-term buy.”

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.