Yes, I'm saying that "this time it's different." And those words sound very dangerous. But this time I do think it's different, because the link between gold and currency has been severed, and the sign on the gold window reads "Closed Forever."

Ultimately, reason must win out. Maybe not today, while gold kooks like yourself hole up in bunkers and bury ingots in the backyard. But a generation or two down the road, as the vestigial link between gold and currency fades from view, gold ought to return to its practical value. And every study I've found puts that practical value much lower than the current $600-$700/ounce. Maybe that's why gold is sitting flat, even as Helicopter Ben concocts the ultimate inflationary scenario with his "bail out the bozos" rate cuts.

Speaking of bozos ... one thing that's missing in all the coverage of the current credit crisis is a realistic assessment of where home prices are headed. There seems to be a consensus that we're past the worst, and that the real estate market will level off from here.

Am I missing something here?

I was just looking at the historical data on the Case-Shiller Real Estate Indexes, and decided to compare the performance of home prices during the 1990s and the 2000s (to date). The data is startling. The table below shows cumulative performance through May 2007, sorted by performance this decade.

Notice a difference between the two columns? Can you say, "reversion to the mean?"

People are panicking in these markets because prices have fallen 2-5% this year. What if we lop 30% off home prices? People dismiss that as ridiculous, but it would only take the market in Washington, D.C., back to where it was in December 2003. How about 40%, which would take Los Angeles back to July 2003? Or 50%, which would take Miami back to August 2002?

Fifty percent may be a stretch, but 10%, 20% or even 30% strikes me as entirely probably. Doesn't anyone remember the Internet bubble around here?