The interesting news continues to come from two vastly different areas – the top and the bottom of the financial pyramid.

At the top, a small number of people are feeling the effects of credit squeeze. The people are few but the money is great. Nearly a half a trillions dollars’ worth of deals have been stuck...pushed back...or cancelled for lack of financing.

Not that the feds and the Wall Street hotshots aren’t doing all they can to make the deals flow. Bloomberg reports that the Fed ‘injected’ another $31.25 billion into the banking system yesterday. Still, the ‘deals, deals, deals’ at which we marveled earlier in the year seem to be very hard to do.

“Deals Boom Fizzles as Cheap Credit Fades,” says the WSJ.

The problem is that even though the feds are making money available, lenders are becoming reluctant to lend and borrowers are becoming reluctant to borrow. That’s why we see the London Inter-Bank Lending Rate – LIBOR – so far above the central banks’ base rates. The government, through central bank intervention, can set one rate. But the banks have one of their own. And right now, banks are wary about lending a lot of money to each other – because they can’t figure out what each other’s real financial situation is.

“We ran into the problem in our hedge funds,” reported our old friend John Mauldin, at dinner on Wednesday night. “The pricing mechanism for many of these investment positions broke down. No one knows exactly who owes what to whom. It will clear itself up, of course...but right now, people are a little scared.”

Meanwhile, down at the bottom of the financial pyramid the individual numbers are smaller, but the number of individuals is much greater.

Foreclosures hit another record high, says yesterday’s news. Here, too, the feds are ready to step in with more money. But lenders and borrowers have grown weary and skittish. Mortgage lenders continue to close their doors. And mortgage borrowers continue to miss payments. One in seven subprime mortgages are now in arrears.

This should reduce consumer spending...but there was no sign of it in yesterday’s news. Instead, Macy’s (NYSE:M) and Wal-Mart (NYSR:WMT) reported better-than-expected retail sales. Go figure.

While the central bankers make money available to distressed speculators, borrowers and Wall Street operators, they have another worry:

Yesterday, oil rose over $75. Wheat piled up above $8. And gold...yes...gold...soared up over $700.

In a credit deflation – which is what is happening at the top and bottom – you’d expect prices to fall. And so we do...expect prices on houses and financial assets, generally, to fall.

But what oil, wheat and gold are signaling is something else. They’re telling us to beware of inflation...and to watch out for the falling dollar.

Here at The Daily Reckoning, we do not really care for the hard work of investing...we are too busy watching what is going on. So, we try to take the sweat out of investing, by reducing it to one investment decision, one time, every 10 years. We call it the “Trade of the Decade.”

At the beginning of the current decade our “Trade of the Decade” was simply to sell the Dow and buy gold. This trade looked like a good one for the first two years of the decade. Then, as the Dow rose from its 2002 low, it looked less good. Now, it’s looking good again.

If you had held onto the Dow stocks you’d be slightly ahead in nominal terms...and slightly behind in real terms. (We haven’t done the calculation...but generally, the stock market has gone nowhere. Subtract inflation, commissions and taxes...and the average investor is probably down substantially.)

Gold, meanwhile, has risen approximately 170%.

We feel pretty good about our “Trade of the Decade.” So far. So good.

But the decade is not over. If Richard Russell and the bulls are right, we may regret sticking with gold for the rest of the decade. But what else can we do? Stocks are still expensive. And we doubt that the underlying trends that have pushed up gold to $700 have fully expressed themselves. The price of the metal was over $700 – if we recall correctly – the day Ronald Reagan was first sworn in as president, 27 years ago. Then, the dollar – against which gold is measured – was fundamentally much more solid than it is today. Back then, derivatives, the carry trade, private equity and diamond-encrusted skulls had scarcely even been invented.

No, dear reader...there’s no need to get fancy...no need to pay hedge fund managers 2 and 20...no need to increase risk or decrease sleep. We will stick with our “Trade of the Decade” like we stick with our business and our marriage – we want to see what happens next.

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