I have often said that when someone is appointed to be a member of the Federal Reserve, they are taken into a back room and given a complete DNA change. They simply are not like you and me once they step out of that room, with the exception of Fisher and Lacker and a few colleagues who seem to be able to resist the infection. This week we will look at the recent action of the Fed and use that as a springboard to think about how effective Fed policy can be in an age of deleveraging. And if there is time, we simply must look at Europe. I started this letter in Texas and will finish it this morning in Spain.

But first, and quickly, most of you are aware of my annual Strategic Investment Conference, co-sponsored with my partner, Altegris, which we held last month. This year's David Rosenberg (and many attendees!) said this was the best conference ever, featuring a lineup of world-class economic and financial leaders. Our very enthusiastic attendees created a room full of energy that the speakers seemed to feed off of, and everyone brought their "A" game. It really was quite special. And now we have the videos.

For those of you who are members of my special program for accredited investors, called the Mauldin Circle, you can access the conference videos by going to the "My Information" section at the bottom of your personal home page, when you log into www.altegris.com. I can't think of a better way to sharpen your investment outlook than to partake of some of the best minds in the world, including Dr. Lacy Hunt, Niall Ferguson, David Rosenberg, Jeffrey Gundlach, Mohamed El-Erian … and even your humble analyst.

In order to view the videos, you must be a member of the Mauldin Circle. This program has replaced our Accredited Investor Newsletter Program. My partner Altegris and I have worked hard to enhance the program, which now includes access to webinars, conferences, special events, videos, accredited newsletters, and presentations featuring alternative investment managers and other thought leaders and influencers.

The good news is that this program is completely free. The only restriction is that, because of securities regulations, you have to register and be vetted by one of my trusted partners, which in the United States is Altegris, before you can be added to the subscriber roster. This will be a quite painless process (I promise). Once you register, an Altegris representative will call you to provide access to the videos, presentations, and summaries from selected speakers featured at our 2012 Strategic Investment Conference.

Click here to initiate your membership in our exclusive Mauldin Experience Program. After you have talked with the Altegris representative, you'll be able to view the first set of five videos, featuring Dr. Lacy Hunt, Jeffrey Gundlach, Niall Ferguson, David Rosenberg, and Mohamed El-Erian. We will have the rest of the conference lineup for you in a few weeks. And now, let's scrutinize the Fed.

There are times, my friends Michael Lewitt and Dr. Lacy Hunt agreed today at lunch, when the study of economics is best informed by a sound knowledge of history. Indeed, Michael's son wants to follow his father into the finance world, and Michael is starting him off in history. I have spent hours listening to Lacy stroll through economic history, detailing the path of economic thought from Fisher to Kindleberger to Minsky. The last few days have been one of those times when I realized how much I don't know and how much more there is to learn. Not only Lacy and Michael are here in Florida, but a long list of bright minds to learn from. James Rickards, who has recently written the tour de force book Currency Wars, Harry Dent, Doug Casey, Porter Stansberry, Greg Weldon, and John Williams of Shadow Stats, with whom I look forward to meeting (do I have questions for him!). And so many more.

And it is because I simply have to stop, listen and learn (and visit with friends) that this week I will kind of take the weekend off and instead send you one of the more remarkable essays I have read in a long time. It is a speech by Jim Grant to the New York Federal Reserve. The always erudite Grant takes us back in time to the very beginnings of the Federal Reserve, to show us how far we have strayed from the original intent. I really think you should read this. I have perused it several times and intend to read it yet again – and then some more.

Grant argued for a return to the gold standard in the very halls of fiat money! It seems the New York Fed is asking some of its critics to come and speak. I have read some of the speeches, but this is the best so far for several reasons, not the least of which is that it contains some very funny lines. If you find yourself invited to the lion's den, Grant seems to think it is best to make fun of their teeth! You really do have to admire his courage. I think I would be a little concerned that I might be on the menu!

I will make a few comments at the end of his speech and then note some upcoming speaking events in Atlanta and Philadelphia. But let's jump straight away into today's main event.

Albert Einstein is famously quoted as saying, “Compound interest is the eighth wonder of the world.” And compounding is indeed the topic of this week’s shorter than usual letter, but compounding not of interest but of inflation. As you might expect, I am giving a great deal of thought as to how we get out of our current financial dilemma of too much debt and deficits that are far too high. While I will use US data for our illustration, the principles are the same for any country.

Last week, in the first part of my annual forecast, I suggested that 2011 would be better than Muddle Through, with GDP growth in the US north of 2.5%. World GDP growth should be even better. This week we look at what I see as the real downside risks to that prediction. Oddly enough, the risks are not in the US but on the other side of both our oceans, in Europe and China. Plus, we will visit a few other items, assuming we have space (Bernanke’s recent speech just screams for some comments).

Two housekeeping items. First, I will once again be hosting, along with my partners Altegris Investments, our 8^th annual Strategic Investment Conference, in La Jolla April 28-30. Save the date. Each year the conference gets better. We have as strong a lineup of speakers as any conference in the country. I will announce when we will take reservations. It always sells out, so I suggest you do not procrastinate.

Secondly, between finishing my book and the holidays, I have been rather quiet the past few months in regards to my Conversations with John Mauldin, but that is getting ready to change. Over the next few weeks I will be doing conversations with David Rosenberg, Lacy Hunt (his quarterly will be next week’s Outside the Box), George Friedman of Stratfor, and John Burns and Rick Sharga to get the latest on the housing markets; and I am lining up some more very interesting Conversations, so that subscribers will get more than their money’s worth. Now, let’s jump into the letter.

My annual predictions letters for the last two years have been easy to write, and with one glaring exception, have been generally on target. I start with a basic premise - one key economic factor -- and work out from there. I look for the one thing I believe is going to affect the economy more than anything else in the coming year. If I am wrong on my basic premise, then everything else is likely to be wrong.