We are en route to south of the River Plata, where we will be reporting on the latest news from Argentina.

What’s new in the financial world today? Well, we don’t have today’s news, so we’ll have to comment on yesterday’s news.

What is notable in the financial world is just what you’d expect: the dollar is losing its value, after Ben Bernanke’s paternity test came to light. The results, announced two weeks ago, made it clear that Bernanke is heir to Alan Greenspan, not Paul Volcker. That is, the Bank of Ben Bernanke will not fight inflation...instead, it will battle deflation to the bitter end.

Of course, we all knew that...but he could have been subtler about it. The Fed might have cut rates by only a quarter of a point. Instead, choosing to take rates down to 4.75%, the Fed chief left no doubts: the bank will take its lead from Alan Greenspan’s easy money era...not Paul Volcker’s tough love therapy.

As a consequence, the dollar is setting new records...

...never before has it been so low against the euro...

...never before has it bought so few commodities...

...never before has it bought so little oil...

And the last time it bought so little gold was 27 years ago.

That last bit of information sends a shiver down our spine – because we still recall those wayward days. It made us think:

Gold turned around on almost the very day that Ronald Reagan was inaugurated. We attended his inaugural ball, sure that the trends of the last 20 years would certainly last a few more years. Consumer prices had been rising steadily...and were now going up at 12% per year.

And gold had gone from $41 an ounce at the beginning of the ’70s, to more than $800 by the time the ’79 election results were in. How were we to know that that trend had run its course?

The new man at the Fed, Paul Volcker, meant business. The country had seen what stagflation would do to it. It had had enough. Even economists recognized the need for a change. Easy money policies were out of the question; the bond ‘vigilantes’ already had their eyes on M3, the broadest measure of the money supply. And consumers were ready to ditch the dollar. Volcker knew he couldn’t hope to go along and get along. He had to jack up rates to save the dollar; recession be damned!

As we explained last week, Volcker sent rates up over 20%. The economy went into its worst recession since the ’30s... But it worked; and the price of the dollar – measured in gold – rose for the next 20 years. Woe to the “gold bugs” who stuck with it...

...but wait, suppose the gold bugs actually did stick with it? Suppose they looked up on August 16, 1971 and read the handwriting on the wall. The day before, Richard Nixon had “closed the gold window” at the Treasury. Henceforth, you could rap on the glass all you wanted. Even if you were Charles de Gaulle, you still wouldn’t be able to trade your paper dollars for the gold you were promised.

This was a major default. And it clearly augured more bad things to come. Now that the dollar was no longer anchored to gold, the entire world money system – which was anchored to the dollar – was adrift. And you didn’t have to tell us gold bugs what that meant. It meant that the dollar would soon be worthless. Every time governments tried paper – pure paper – currencies, it was just a matter of time before the paper money sank to a value less than the paper itself.

But, dear reader, we bow our heads...remembering what idiots we were. “It’s Not That Simple,” is a motto that is so useful...and so profound. It should be recalled by every investor. And it should be branded onto the foreheads of everyone running for public office.

And here we are 27 years later. The dollar is falling against almost everything but U.S. residential real estate. The loyal gold bug has made 18 times his money. And gold is still going up...it’s rising against almost everything. And now, with gold back to where it was when the “Evil Empire” was still a going concern, is it time for another major switcheroo?

Probably not. This bull market in gold has only been running for seven years. Another big reversal in gold/dollar would imply that the fundamental equilibrium between the two was unchanged and immutable. It would imply that the dollar is fundamentally solid...and that our prejudices against paper money are wholly unfounded.

Alan Greenspan famously remarked that while he was running things, he made sure to pretend that the U.S. dollar was still connected to gold. He says he ran the Fed as if we were still on the gold standard.

How could this be? The U.S. money supply has been increasing at double-digit rates for many years. The last figure we saw was an annual rate of 14% – for the increase of M3.

The world’s available gold, by contrast, only increases by 1% to 2% per year.

And now, the new man at the Fed has a different problem. Now it is hard money policies that are out of the question. The feds have even stopped reporting M3 – hoping that the bond vigilantes won’t notice. Americans have too much debt; they can’t afford to protect the dollar. Interest rates of 10% would ruin them. Interest rates of 20% would probably lead to revolution.

The one major asset category that is bucking the trend is housing. Everything else is going up, in dollar terms. Housing is still too expensive for most Americans – but on the other hand, it is remarkably cheap to foreigners.

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