Earlier this month, Fed Chairman Ben Bernanke delivered a big not-my-fault speech.

Speaking to the American Economic Association, Bernanke sought to debunk the widely held view that excessively lax monetary policy helped cause the housing bubble, which in turn created significant stress in the stability of financial institutions.

This policy occurred when Alan Greenspan was the mystical oracle leading the Fed. But Bernanke was on the Fed Board and strongly supported the policy. So, he's implicated in the criticism.

Bernanke does not dispute that the Fed pursued strongly accommodative monetary policy during the middle part of the last decade, following the 2001 recession and the 9-11 attacks. Instead, he sought to dispute the connection between lax monetary policy and the subsequent housing bubble.

Bernanke points out that housing prices began to rise disproportionally in the late 1990s, when the Fed didn't have its foot on the gas.

The housing bubble was global. Looking at the comparative experience of other countries, Bernanke said there was no correlation between the extent to which monetary policy was accommodative and the extent to which housing prices rose.

The real problem, according to Bernanke, was a deterioration in lending underwriting standards and the failure of regulators to rein in that and mounting risk in financial institutions.

To a large extent, Bernanke is intellectually shadow boxing. Few would dispute that deterioration in lending underwriting was the proximate cause of the housing bubble and excessive risk that of the subsequent stress on the stability of financial institutions.

Certainly bubbles can develop without easy money, as the tech bubble of the late 1990s illustrates. But when a bubble occurs in a commodity which is almost universally purchased using extensive borrowing, such as homes, it's fatuous to claim that easy money doesn't play a significant role. If borrowing is cheaper, there will be more of it.

The more disturbing feature of Bernanke's speech was that, looking back, he finds the easy money policy of the period "reasonably appropriate."

Now, it is one thing to defend the decisions based upon what was known at the time. After the recession and 9-11, there was reason for the Fed to put its foot on the gas pedal and err on the side of keeping it there too long. It is an entirely different thing to, with the benefit of hindsight, deny that monetary policy during this period was excessively lax for too long.

From the end of the 2001 recession to the beginning of the current recession in 2007, the dollar lost over 17 percent of its purchasing power, using the Fed's preferred measure of inflation (price index for personal consumption expenditures).

But domestic inflation isn't the only way to measure the extent to which the Fed was upholding the value of the dollar. Comparisons to the euro and the pound - currencies of other industrialized markets with independent central banks - are instructive.

During this period, the dollar depreciated an astonishing 64 percent compared to the euro and a nearly as startling 44 percent compared to the pound. For a population that purchases a large volume of imports, that's a real loss of purchasing power.

The conclusion of Bernanke's history lesson - there was nothing wrong with monetary policy in mid-2000s -- is deeply worrisome given the task ahead for the Fed.

The Fed has massively expanded the money supply to combat the current recession and the instability among financial institutions. One can argue about whether this was appropriate or overdone. But it exists and the Fed now has to decide when and how to roll it back. Do it too slowly and the value of the dollar will depreciate, perhaps sharply.

Bernanke professes not to see the debasement of the currency during the period of economic growth between recessions during the last decade as, even in retrospect, a mistake. That doesn't inspire much confidence that preserving the value of the dollar will be given much priority as a Bernanke-led Fed considers unwinding the massive monetary stimulus it has lately injected.