The wash of credit, which lifted spirits and asset prices all over the planet, is ebbing. And once begun, it is probably impossible to reverse it.

Suddenly, the question marks are back. What is the meaning of the credit crunch? Is Bernanke fighting inflation, or fighting deflation? Are stocks going up? How about the dollar? Is gold hitting another peak? And what is ANYTHING worth when EVERYTHING floats on a bubbly sea of shifting exchange rates?

There’s a little more than a trillion dollars worth of subprime mortgages outstanding. We’ve heard that as many as one out of six of them is in trouble. And after you put these mortgages in CDOs and embed some options in the derivative contracts and get mathematicians to gin up models so you can leverage them to high heaven, there’s no telling how large the losses might go.

We are witness to something that doesn’t happen very often – like the eruption of a volcano or the collapse of a bridge – the first stage of a credit contraction. So far only at the top and the bottom of the credit structure are people getting pinched, squeezed and punished.

The British pound hit a 26-year high against the dollar; it now costs $2.07 to buy a pound. So why is the pound so robust? Bill Bonner's answer: because it is not the dollar.

This bull market on Wall Street, such as it is, is getting old. Yesterday the Dow fell hard, down 362 points. Commentators said investors were disappointed with the measly quarter point rate cut delivered by the Bernanke Fed. What? Nine out of 10 economists saw it coming. The explanations don’t make much sense. But why bother looking for a reason? All bulls get slaughtered, sooner or later. That’s just the way it works.

The stock market celebrated the interest rate cut with a healthy rise, up 137 points. But remember, stocks are going up in Zimbabwe and Iraq too. We’re in a worldwide asset boom that has a clear and obvious cause. The Economist puts the rate of price inflation at over 16% per year.

“The U.S. is committed to a strong dollar,” said Treasury chief Paulson in India yesterday. What was he thinking? Maybe he spoke with a smile; at least the audience could have taken it for a joke. But press reports make no mention of anyone laughing.

America is probably getting cheaper. And Americans are probably getting poorer. Americans owe a fortune to foreigners. As their paper money is marked down, so is the fortune they owe. They will owe less. But they will own less too.