Yesterday, we were full of doubts…

But today, we're not so sure…

Ah, that's the trouble with growing older. You lose your dreams and youth. You lose your bearings too. We had lunch in the House of Lords yesterday, with our old friend Lord Rees-Mogg, who turns 80 next month. But more on that in a moment…let's first turn to the financial news.

Today's big headline concerns Fed chief Ben Bernanke. According the Financial Times, he broke with long standing tradition in order to express himself on the dollar yesterday. Alas, the fall of the greenback has "contributed to the unwelcome rise in import prices and consumer-price inflation," he said to an international banker's forum.

The headman at the Fed may want a stronger dollar…or a weaker one; it's usually not his place to say so. That's what the Treasury Secretary is for. Henry Paulson, of course, says the same thing; the United States wants a strong dollar. But nobody believes him. Investors seemed to take Mr. Bernanke more seriously.

Stock market investors sold shares and drove the Dow down 101 points. Over in the oil market, the black goo sank $3.45. And gold, too, was sold on the news…it sank $11 to $885.

But let's think about this. What could the Fed do to protect the dollar? Easy…it could raise interest rates. But if the Fed wanted to protect the dollar, why has it waited so long? The greenback has lost about half its value since 2000, why didn't it try to protect it sooner?

Ah, dear reader…the plot has become a bit confused. Let's see if we can remember it.

In the 15-year period known as the "Great Moderation" central banks could increase their supplies of money 2, 3, 5 times as fast as GDP growth. Normally, this would cause inflation. But it didn't, because globalized markets…along with a few other key trends…we're holding consumer prices down. So, the inflationary money went into asset bubbles…dotcoms, houses, and the financial industry.

But after the housing/finance bubble popped last year, consumer prices rose - even while the world economy softened. All of a sudden, the world seemed to be spinning in the wrong direction. Instead of holding down prices in the United States and Europe, China was increasing them. China's domestic inflation is running at more than 8%. And she's exporting her inflation to the rest of the world. Import prices from China into the United States are now rising at 4% per year…after falling about 1% each year during most of the 21st century. As for imports from the rest of Asia, they were falling in price as recently as the first half of '07. Now, they're going up by 4.3% per year.

And even as demand for basic commodities slows in the developed world, demand from the emerging markets makes them more expensive. Ai yi yi…globalization is no longer a force for good…but a force for evil! Now, earnings and housing prices fall in the United States, for example - while Americans are forced to compete with Asians for food, fuel and jobs too.

House prices in America are still falling. Foreclosures continue to rise - especially in places such as Las Vegas, which has the distinction of being the "mortgage fraud capital of the world." And now comes word that people are not only abandoning their houses - but their pets too. Yes, the Society for the Prevention of Cruelty to Animals says that owners are leaving their dogs and cats behind. And pet food banks, operated by the SPCA, are said to have people lined up down the block to get free food for their pets.

Meanwhile, Winnebago says it has had to put its Iowa plant in neutral. The company makes luxury land barges, which have been a big hit with Americans for many years, allowing retirees to take to the open road whenever the mood strikes them. Problem is, motor homes are expensive to buy…and now, with gasoline over $4 a gallon, extremely expensive to operate. In real terms, gasoline is higher than it has ever been in the United States…considerably higher than the $3 it hit (in today's money) in 1981.

On Wall Street, after Bear Stearns fainted, the other financial firms took smelling salts. But some of them are beginning to look a little woozy, nevertheless. Lehman Bros. is said to be looking for $3 to $4 billion in new capital. The company has nine times as much in level 2 and level 3 assets as it has in tangible equity. And it's not the worst. Merrill Lynch's level 2 and level 3 assets equal 2,565% of its tangible equity.

And dear readers, be aware: "There's another Bear Stearns out there," say our friends over at The Motley Fool. "You may already own it. And just as with Bear Stearns, chances are you won't see the collapse coming until it's too late."

The feds' response to this situation - so far - has been to cut rates, bail out financial firms, and hand out money (rebate checks). This inflation (along with robust demand from the emerging markets) has made itself felt, mainly, where the feds didn't want it - in oil, gold and commodity prices.

But now, commodities are looking toppy. Oil seems to be slipping. Gold too. And the feds are talking about reversing direction - raising rates in order to protect the dollar!

Has something important changed? Well, yes…and no. More tomorrow…

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