Oh, the agonies and the ecstasies of being Ben Bernanke. What an emotional roller coaster he must be on, and all the while he controls, more than any other man, the fate of the economy.

That kind of power must be a heady thing. Yet he must use that power against extraordinary challenges. How would it have felt to have the power to save Lehman Brothers (or not), to save AIG (or not), and then have to make and live with the decision? Today, more than a year later, half the world blames him for saving AIG with taxpayer dollars, and the other half blames him for not saving Lehman. You just can't win.

This week, he was named Time magazine's "Person of the Year" -- a tremendous honor. Yet, as he fights for re-appointment to another four-year term as chairman of the Federal Reserve, he must abase himself before a bunch of nitwit senators who hold in their hands the fate of the man who holds in his hands the fate of the economy.

The seemingly nearly-senescent Jim Bunning, the lame-duck Republican senator from Kentucky who sits on the Senate Banking Committee, which holds life-and-death power over Bernanke's re-appointment, insisted that Bernanke answer in writing 70 questions -- yes, 70! One can imagine the beer bust that Bunning's staff must have had while coming up with all those questions (let's see we need one more how about boxers or briefs?).

And poor Bernanke actually answered them. He had to. Once every four years, he has a boss -- the U.S. Senate.

By the end of it, Bernanke must have been hallucinating from sheer exhaustion. Some good will come out of it. When he returns to Princeton someday to teach economics again, maybe he'll have mercy on his students during final exam time. There's another good as well. We investors get to read his answers and get a deep look into his mind -- from hallucination, truth!

I was particularly intrigued by one answer. I'm going to reproduce the question and then the answer in full here. Both are slightly technical. But if you'll follow along with me, I think you'll learn a lot about the way Bernanke is going to approach the next year or so of Fed policy. That will give us some important pointers about how to make money in markets.

Here's the question:

In a scenario in which unemployment remains uncomfortably high but the dollar continues to fall and commodities, including oil and gold, continue to rise, what would the Fed do? At what point do market signals take priority over hard-to-measure statistics like the output gap?

Let me explain. Bunning is getting at the idea of the Fed's so-called "dual mandate" to deliver both maximum employment and price stability (that is, low inflation). He's wondering what would happen if inflation warning signs -- like the falling dollar and rising oil and gold prices -- started to emerge at the same time when the Fed might want to run an extremely easy policy in order to boost employment. Would the Fed ignore the warning signs and rely on the theory of the "output gap," which is that low employment itself will keep inflation low no matter what those other signals are saying?

Here's Bernanke's reply. It's a little long, so I'll take it one section at a time.

The output gap is only one of many economic signals, including a broad array of economic data and market indicators that the FOMC consults in setting policy. It is difficult to predict what actions the FOMC would take in some future situation. Certainly it would be mindful of its dual mandate to foster price stability and maximum sustainable employment.

Translation: blah, blah, blah. Now on to the meat of it:

If declines in the dollar and increases in commodity prices were creating upward pressures on consumer prices and causing expectations of future inflation to rise, those developments would be taken extremely seriously by the Committee and would have to be balanced against the high rate of unemployment that you posit in your hypothetical.

Uh, what hypothetical? This is no hypothetical -- it's happening right now. We have a 10% unemployment rate, the dollar is falling, gold is a week or two off all-time highs, and oil prices have more than doubled this year.

So why is the Fed running the easiest monetary policy in its nearly 100-year history while ignoring the clear inflation warnings being given by currency and commodity markets? There can only be two possible answers. Either the Fed has decided that it has to make a hard choice: It can either control inflation or it can stimulate employment, and it has decided to do the latter. Or, on the other hand, maybe the Fed really is entirely persuaded by the "output gap" theory and believes that it can go ahead and stimulate because a high unemployment rate means there can't be any inflation anyway. Or maybe both.

Here's how Bernanke wraps up his answer:

But the clear lesson from the experience of the 1970s and from that of other countries is the high cost that a nation pays in terms of macroeconomic performance when it loses sight of the importance of maintaining a credible plan for the achievement of price stability and maximum sustainable employment in the medium and longer terms.

See what I mean about hallucinating? In case you aren't old enough to know about the 1970s, or are too old to remember, let me tell you: It was all about low employment and high inflation at the same time. And why? Because the Fed made the same mistake Bernanke is making now; it thought it could stimulate the economy with easy money. It turned out that it couldn't, and it caused a lot of inflation in the process of trying and failing.

But look carefully at the choice of words. Bernanke is saying that the Fed's problem in the 1970s wasn't that it tried to stimulate our way to prosperity with easy money -- the problem was lack of "a credible plan." Ah, you see, if only they had a plan! Just a couple pages in a three-ring binder would have made everything different. But if that's true, then why doesn't Bernanke have a plan now? If he does, do you know what it is? If I'm wrong and he does actually have a plan, why doesn't he tell us about it? It's nowhere to be found in any of the answers to those 70 questions.

You see, though, it's not really that he doesn't have a plan. He does. It's just not a "credible" one. The plan to avoid the mistakes of the 1970s is to repeat the mistakes of the 1970s -- to keep printing easy money in a vain attempt to stimulate employment.

That makes it so easy for investors. Just bet on inflation. Buy all the things that do well in inflation -- gold, small stocks, commodities, junk bonds and foreign currencies. Bernanke may not have a credible plan. But that's a credible plan for investors.