Ben Bernanke and the Federal Reserve have been vilified lately, but perhaps they actually know what they’re doing. Is it possible their analysis of this situation is a bit better than we think?

Before you reach for your pitchforks, understand that it was a question, not a statement.

Here’s another question: Is the Fed willing to tear down a house that was built over the past century?

A lot has changed during the past 100 years. The United States emerged from World War I as a creditor as opposed to a debtor nation. We had a record trade surplus. Wall Street then assumed leadership as the investment capitol of the world, taking the torch from London. Today, China and Japan alone own $1.7 trillion in U.S. Treasurys. No more trade surplus.

The Federal Reserve system has also changed roles in the past century. In 1913, the Federal Reserve was established to “control credit and bring greater stability to the banking structure.” Today, they find themselves manipulating equity markets through permanent open market operations, or POMO — paying off the primary brokers/banks to push stocks higher or knock them down — and attempting to “stimulate” the housing market.

But purchasing mortgage-backed securities (previously referred to as “toxic assets”) and printing money to spend enough on Treasurys to keep interest rates down are not the only ways the Fed is attempting to stimulate housing prices.

Over the long haul, the dramatic inflation that should inevitably result from all of this greenback printing will cause the U.S. dollar to be worth much less.

What a Weak U.S. Dollar Means

During inflationary times, housing prices rise. Or at least it seems that way. It might cost you more dollar bills to buy a single-family home … but it might not cost you more in terms of copper, gold, silver, corn, potash or soy. While the amount of home you can get might decrease in terms of dollar bills (home prices rising), you may see similar buying power of a home in terms of commodities as currency.

It might seem to the layperson like prices are rising. And they will be. But home values might be a different story.

Perhaps home prices will rise faster than commodity prices, which is doubtful. But either way, real estate investments will probably be a great way to protect yourself from inflation down the road.

What Will Inflation Do to the Value of Our Debt?

Obviously, we won’t be paying China and Japan back in corn, although they would probably prefer that we did. Instead, the United States will return the number of dollars that it borrowed, which will be worth a lot less. It makes you wonder about the real agenda of the Federal Reserve, doesn’t it?

But for the time being, it’s not the United States’ economic disaster that is in focus. It’s the European economy that people are extremely concerned about.

If you compare a chart of the euro to that of the S&P 500, you’ll see a bit of a correlation because the euro tends to have an inverse relationship to the U.S. dollar index, and so does the S&P 500.

So when you are reading about yields on Spanish bonds jumping or Irish debt bailouts from the IMF and EU, or troubles brewing in the euro zone, and you’re trying to make sense of it and wondering how it affects the U.S. stock market, it’s pretty simple. It boils down to one thing: When investors are afraid of the euro zone, they exit the euro as the currency, which pushes the U.S. dollar index higher, which, in turn, puts downward pressure on the U.S. stock market.

At the same time, while investors are exiting the euro (an action that, by itself, pushes the dollar higher), they are also looking to store that value somewhere, and therefore, they often exchange it for U.S. currency.

Forty percent of the earnings in the S&P 500 come from overseas. Basically, when overseas markets get hit, it also hurts large U.S. companies. So while the longer-term agenda of the Federal Reserve will probably smash the U.S. dollar, pushing it lower, resulting in higher home prices, higher stock prices, and much higher commodity prices, the intermediate-term trend for the U.S. dollar is up.

But wait, everyone’s afraid of the Fed knocking the dollar down, aren’t they?

The United States emerged from World War I with thriving industries and a huge trade surplus while much of Europe lay in ruins. The British treasury surrendered London’s historic role of financing world trade by imposing an informal embargo on foreign loans because of the pound sterling’s post-war weakness. The United States, for the past century, has played the historical role of financing and world trade.

My question to you is this: Do you believe that the Federal Reserve of today is looking to single-handedly destroy this empire just to manipulate currencies and assets? Or do you think the Federal Reserve believes it’s making a bet that the U.S. dollar has enough relative strength, when compared to global currency, to satisfactorily maintain value even after the Federal Reserve buys another $600 million to $3 trillion in Treasurys?