“If your daily life seems poor,” said Rilke, “do not blame it; blame yourself, tell yourself that you are not poet enough to call forth its riches.”

Yesterday, the markets were quiet. Gold is holding over $800. Oil is holding over $90. And the Dow is still refusing to crack. Of course, it depends on how you keep score. We announced our Trade of the Decade in 2000 or 2001; we can’t remember. “Sell the Dow; buy gold” was our simple advice. The ratio of Dow to gold actually hit a high in August ’99 – at about 44 ounces of gold to the Dow. Now, in terms of gold, the Dow has been more than cut in half. You can get the whole thing for only about 18 ounces of gold. The decade has another three years to run. We’ll stick with the trade, just to see what happens. The Dow has already run down in terms of gold. Our guess is that it will run down in terms of dollars too – probably in terms of nominal dollars and certainly in terms of real (inflation-adjusted) dollars.

Commodities reached a new high yesterday – another solid hit from the fist of inflation.

Inflation reeled, and then delivered a jab – foreclosures rose 68% in November, and then another jab – home construction is at the lowest level in 16 years. As a share of the GDP, residential construction has reverted to the mean – it’s back to where it was before the great property bubble began in 2001.

David Rosenberg of Merrill (NYSE:MER) connects home building to home ownership to consumer spending. In the bubble period, builders put up houses, sold them to people who had never owned homes before – homeownership went from 65% to 70% – and then the new homeowners started spending. They were able to spend more than ever before because for the first time in their lives they had an asset that was rising in price. Consumer spending went up with home ownership – from 65% of GDP to over 70%.

But now, homeownership rates are falling again. They’re reverting to the mean – which is about 65%. And consumer spending seems to be following, reverting to the mean too.

Rosenberg thinks this process of reverting to the mean in homeownership and consumer spending will be so painful, the Fed will drop rates back to 2% to try to combat it.

We think he is right.

But let’s keep moving; let us draw forth some richness elsewhere. Let us look at the big picture. Ah, here is where it gets very, very interesting.

The Reagan/Thatcher revolutions brought subtle changes to the English-speaking world. People said that these victories were triumphs for conservatism and for laissez-faire capitalism. But they missed the point completely. The Reagan/Thatcher revolutions brought new ideas that had little to do with conservatism or free market principles. What they really brought was a form of enlightened socialism, a way of harnessing market forces for the benefit of the state and the elites who control it.

That was the genius of Arthur Laffer’s celebrated curve. You could lower tax rates, he said, not because people should be allowed to spend their own money, but because it would actually increase tax revenues to the government! Likewise, reducing regulation in some areas would increase economic activity, increase GDP, increase tax receipts and result in more money and power for the politicians.

Clever. Very clever. And what difference did it make if their motives were not exactly those of true conservatives? They were headed in the right direct; that was enough. But now it is a quarter of a century later. Now, we are just beginning to realize what has been wrought: The horrors. The horrors still to come.

The old conservatives would have been happy to see taxes cut. As we old, fuddy duddies here at The Daily Reckoning put it: we’ve never met a tax cut we didn’t like. But the old conservatives insisted on cutting spending too. “Balance the budget” was an old-time conservative gospel lesson. The new conservatives ignored it completely. “Deficits don’t matter,” they said. As it turned out, they had another agenda. And that agenda required money, lots of money.

Then, when Mr. Alan Greenspan was brought in to manage the Fed, it looked to many people as though the government was going further in the direction of laissez-faire economics. Not so again. Soon the entire world financial system was set to work in a perverse new way.

If any readers think they know where we are going with this, please contact us immediately; we’d like to know!

*** Murray Rothbard had Alan Greenspan’s number a long time ago. (Many thanks to our old friend Marc Faber for bringing this gem to our attention.)

“I knew Alan thirty years ago,” Rothbard wrote in 1987, when Greenspan was first appointed to head the Fed. “and have followed his career with great interest since...Greenspan’s real qualification is that he can be trusted never to rock the establishment’s boat...at no time in his twenty-year career in politics has he ever advocated anything that even remotely smacks of laissez-faire, or even any approach toward it... Alan is a long-time member of the famed Trilateral Commission, the Rockefeller-dominated pinnacle of the financial-political power elite in this country. And as he assumes his post as head of the Fed, he leaves his honored place on the board of directors of J.P. Morgan & Co. and Morgan Guaranty Trust.”

It was pointed out that Greenspan had been a devotee of Ayn Rand, who had the quirky presence of mind to die on Alan’s birthday. But Randism is not laissez-faire-ism. Randism is looking-out-for-number-one-ism, a creed Alan Greenspan never forgot.

We are annoyed at Alan Greenspan, not because he set the U.S. middle class on the path to destruction but because his book, The Age of Turbulence, got so much more attention than the book we wrote with Lila Rajiva, Mobs, Messiahs, and Markets. Mr. Greenspan’s empty tome came out right after ours and promptly knocked ours out of its brief moment in the limelight.

But now others are getting annoyed at Mr. Greenspan too – for more serious reasons. Says Nobel Prize winning economist Joseph Stiglitz:

“Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time. He supported the tax cut in 2001, which is the beginning of these problems [deficits didn’t matter to him, either]...He encouraged people tot take out variable rate mortgages.”

The critique we leveled against the Greenspan Fed three years ago is now widely accepted; the feds saw the little recession of ’01 and panicked. They put out too much money and too much credit for much too long, causing bubbles all over the world. So free and easy were American banks and credit institutions during this period that bank robbers stopped wearing ski masks and carrying guns; all they had to do was to ask for the money like everyone else.

The free-floating loot produced a holiday atmosphere that looked to most people like real prosperity. “See,” they said to each other, “the free market works.”

“Greed is good,” said Gordon Gekko. Financial incentives were thought to be the key to everything – higher productivity, higher profits, growth, everything. You want an executive to perform? Give him stock options! You want an investment manager to make you money? Give him a piece of the action. You want to win over the poor and minorities? Let them get in on this great money making machine. Remember all those columns by Thomas L. Friedman that we made fun of? Friedman keeps telling us that the terrorists would come over to our side if they just had more financial incentives, if they had jobs, if they had university degrees, if they had credit cards and mortgages. But it emerged in England that of the terrorist suspects nabbed so far, the average one was a doctor working for the National Health Service!

Money isn’t everything. Especially the kind of money that the Fed creates.

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