Friday, July 20, 2007

We've Learned Our Lessons

Last night a friend advanced the hypothesis that "we've learned our lessons." His implication was that the Federal Reserve Board is firmly in control of the money supply and there won't be a complete dollar meltdown. Ironically, that statement was made in the context of the Las Vegas housing market which is in the throws of a Fed-induced meltdown.

Even people like my friend that know we should all be as liquid as possible and heavily weighted toward hard asset investments aren't grasping the significance of the writing on the wall. The dollar is at all time lows, the current-account deficit is staggering, real price levels of staples (not the faux CPI-U which even ticked up hard last month) are rising incredibly fast, and, most tellingly, foreclosures are moving past sub-prime mortgages and cutting huge swaths in regular mortgages.

I think my friend treated the stats I threw at him incredulously, even though deep down he knows they are right. Not surprisingly, they are the exact stats that came up during Ben Bernanke's recent visit to the House Financial Services Committee (which I hadn't seen until this morning):

It doesn't appear to me that Bernanke has learned his lessons at all (even beyond the belief that the Federal Reserve can magically manipulate the money supply without doing a lot of damage).

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