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Is The Federal Reserve Just Blowing Smoke?

 Today has really been the first trading day since Ben Bernanke and the Federal Reserve Bank announced their quantitative easing program that two different people inside the central bank have spoke out against it. The central bank has pledged to buy $600 billion in U.S. Treasuries into the June 2011 time period. When Ben Bernanke announced the U.S. Treasury purchase program in late August the stock markets began to soar higher and have been rallying since that time. Copper, cotton, coffee, and many other commodities have sky rocketed to new highs since that time.

Even today the iPath Dow Jones-UBS Copper Subindex Total Return ETN(NYSE:JJC) remains at all time highs. This move by the Federal Reserve Bank has caused the stock markets to inflate sharply higher. On the flip side the program by the Fed has also caused severe inflation around the globe because everything in the commodity sector is denominated in U.S. Dollars.

As we have all seen in the media recently, there have been riots and protests popping up in various countries around the world. Bond yields have soared higher over the past week and this has occurred despite the Federal Reserve Bank trying to keep yields artificially low. When yields climb higher it is telling the world that the central bank is behind the inflation curve. Higher yields in U.S. Treasuries tell us that there is inflation everywhere. Look at the ProShares UltraShort 20+ Year Treasury ETF(NYSE:TBT), or the ProShares UltraShort 7-10 Year Treasury ETF(Public, NYSE:PST) over the past couple months. These short U.S. Treasuries ETF's have surged higher. This is what happens when the central bank continues to inflate the markets artificially.

Countries such as China, India, Brazil, Thailand, and other emerging market nations have all began raising interest rates in order to fight inflation. Just take a look at a chart of the iShares FTSE/Xinhua China 25 Index ETF(NYSE:FXI) as it has been declining since early November 2010. Inflation is everywhere and the Federal Reserve Bank better be careful for what they wish for.

Nicholas Santiago