Not unexpectedly, Fed chairman Ben Bernanke’s decision to sacrifice the dollar in an attempt to soothe the financial, equities, and housing markets by cutting the Fed discount rate by 50 basis points had its effect. The dollar sank against pretty much every currency, with gold gaining some 3.7% this week alone, ending on Friday some 10% higher for the month so far.

Before September’s slew of worldwide economic and financial crises hit the fan, we had actually experienced a very sleepy summer in the gold market. Gold prices in the period of June through August kept to a narrow 5% range before exploding this month.

Prior to this month, gold traded above $700 only on nine previous occasions - seven days in 1980, and for a short two days in May of 2006. So far this month gold has traded above $700 for eleven consecutive days, and we’re still counting.

The dollar reached new historic lows against the Euro, trading at $1.41 per on Friday. It also sank below the level of the Canadian dollar for the first time in over 30 years. In fact, the last time that the US dollar traded at par (or worse) with the Canadian dollar was during Gerald Ford’s presidency. Does anybody today remember the “Whip Inflation Now” (WIN) campaign of 1976?

But gold’s rally over the past few weeks was not simply an instance of the dollar teetering. Gold so far this year is not only up some 15% in dollar terms, but 8% in euros, 10% in yen, and even 3% versus the relatively strong Indian rupee.

Barron’s online edition this week cites Citigroup’s John Hill as saying:

"After languishing during the initial phase of the credit crunch, gold has reasserted its safe-haven status. The equities anticipated the move, and have fully, finally participated.” Hill made the point that gold prices are rising against many currencies, which signals a true gold rally rather than a simple dollar correction, and went on to say that "If gold only rises as the "anti-dollar" and is flat in euro, yen and rupee terms, then it is not a true rally from the perspective of the buyers that control the market."

All eyes of course were on Ben Bernanke, whose fifty basis point rate cut gave a shot in the arm to the equities market, and also gold prices. It was a bold and dramatic move, and it may lead to “Helicopter Ben” henceforth being known as “Bubble Ben.”

All this occurred on the week of Alan Greenspan’s book release, his own write-up of his life heading up the Federal Reserve. I am not going to pretend to have read the Maestro’s book. But for those who will read it, there may be some surprises.

Alan Beattie, who supposedly has read the book, wrote in this weekend’s Financial Times,

“The appeal of Greenspan’s memoirs, “The Age of Turbulence,” should be relatively broad – they are at least more lucid than his famously opaque prose while in office. But what emerges from the book is that even he, who knew so much more than most, knew far less than most supposed.”

Mr. Beattie is referring, of course, to the prior spell cast by this enormous intellect, through his public statements during his reign - the mysterious, sometimes circular, and always oracular constructions of the English language that Chairman Greenspan was known for.

Ben Bernanke and Alan Greenspan, as chairmen of the Federal Reserve Bank, have held the most powerful unelected position in the world – steward of the US dollar. And because today’s dollar is a psychological construct without any grounding in gold, the Chairman of the Fed by his very deeds and words, give the dollar its definition, life, and value.

Obviously, the Fed chairmanship is not an easy job. Arguably the task of captaining a worldwide fiat currency is ultimately impossible, because eventually, on someone’s watch, the whole house of cards will collapse.

The last few weeks have certainly pointed up the fragility of today’s financial structures. Jim Kunstler, speaking particularly about the securitization and global marketing of subprime mortgages in his “Back to School” essay of August 27th, said,

“The damage to global structured finance has been done, and it can be stated rather precisely: a widespread recognition that it's not possible to get something for nothing, after all. And that when you hold a lot of paper that was gotten for nothing, and put it up for sale, nothing will be offered for it. What a surprise.”

“The task of people holding power now in the finance sector (which itself may be a conceit at this point) is to manage the rapid dissolution of hallucinated wealth in such a way that as few people as possible notice that x-trillions in dollar denominated pixels have vanished from the hard drives. Sooner or later, though, millions of shlubs dependent on pension checks, or annuities, or monthly payouts of one kind or another will notice that something has stopped landing in the mail box.”

But whatever happens, we wish Mr. Bernanke the best in his efforts. And by holding gold, we insure ourselves against the worst.