Yesterday, Brazil fell 3.5%. Mexico was down 2%. Japan, almost 2%. And China, down 5.3%.

Even the Dow went down - to under 11,000.

Over in the commodity pits, the action was mixed. But silver is already down 20%. Copper, too. And gold, yesterday, was selling for about $100 below its peak, set only a few weeks ago.

It's a "worldwide sell-off" says the International Herald Tribune, triggered by "disappearing liquidity."

And now, the papers are blaming poor Ben Bernanke. The new man on the job at the Fed let it be known that inflation was "unwelcome." This is widely described as "tough talk," though to us, it seems rather gentlemanly. It is also, of course, a bald-faced lie. What would really be unwelcome is the absence of the inflation...the lack of increases in consumer prices...the sudden stiffening of the usually pliant U.S. dollar.

The Japanese lived through such an era for the last 10 years, with Ben Bernanke watching. Fed chiefs would sooner poke their own eyes out than have to watch it here in the United States. For they know as well as anyone, the Japanese could afford it; Americans cannot. Americans are too deep in debt. They need inflation. It keeps the cash coming to pay interest, while lightening the debt load, little by little, over time.

No, there's no real danger of Ben Bernanke suddenly becoming Paul Volcker. Even with lifts in his shoes, he lacks the stature. And he's 30 years too late. Volcker could turn off the money taps in the late '70s, because America was still a healthy economy back then. It could take a little dry weather. Three decades later, his successor, plucked from Princeton's towers like a sprig of ivy, will wilt quickly.

That is why the "worldwide sell-off" is likely to have very different results for the bond, the dollar and stocks on the one hand, and commodities, selected emerging markets and gold on the other.

As Jim Rogers puts it in Barron's, "[Ben Bernanke] is an amateur with no knowledge of markets whose academic work revolved around how nations could avoid depressions by printing more money."

Put the new man under a little pressure and the lifts in his shoes will disappear overnight. Rather than imitate the straight-talking giant, Volcker, he will hunch over and mumble. Yes, dear reader, Alan "Bubbles" Greenspan will be back. But, alas, without the old magic. For now all that liquidity that the maestro pumped into the world market is leaking into consumer prices (which is why central bankers are so eager to mop it up). And adding more liquidity now just makes the situation worse or better, depending on how you look at it. If you are invested in Dow stocks and the dollar, you will suffer. If you are invested in commodities, gold, oil, and maybe even a few carefully selected emerging markets...you will rejoice.

This bull market in commodities is likely to be far bigger than the last one, claims Jim Rogers:

"Add to that [American consumption] 1.3 billion Chinese and 1.1 Indians - all walled off from the global economy during the last commodities boom - joining the global scrum for natural resources...it's delusional to deny that competition for commodities will continue to heat up as a result of China's pell-mell rush from a peasant economy to economic giant."

We have a feeling that China, not looking where it is going, is going to fall on its face. But we don't dispute his main point: there are a lot more people bidding for copper, cotton and gold than there were when Paul Volcker ruled the Fed. And we also agree that a lot of those people are not particularly keen to protect the dollar, nor the U.S. economy.

This news item came across our desk yesterday:

"President Vladimir Putin, a frequent critic of U.S. dollar hegemony, has ordered the Russian central bank to raise the gold share of foreign reserves from 5 per cent to 10 per cent.

"Russia's reserves have surged to $US237 billion, the world's fourth biggest, after rising 61 per cent in 2004 and 40 per cent in 2005. With a current account surplus of 10 per cent of GDP, it must buy a big chunk of the world's gold output just to stop its bullion share of reserves from falling."

We recall also last week's report that China's top economic advisor urged the Reds to move more of their money out of the dollar and into gold, oil and other useful commodities.

Bad news for the dollar, U.S. bonds, U.S. housing...and the Dow.

"After years of being called crackpots in tin - or gold - foil hats, GATA (the U.S.-based Gold Anti-Trust Action Committee) seems to look saner by the day, next to the thorough-going loopiness of the financial establishment. The latest evidence is an IMF report that shows how IMF rules wink - if they do not actually blow kisses - at central banks that double-count the gold reserves they've lent out for sale in the open market. Apparently, being a central bank means never having to say you're short.

"Aha, says GATA, which has charged all along that the IMF along with the U.S. Federal Reserve and other central banks have tried to hold down gold prices. The shady rules suggest that when they lent gold out for cash, the banks actually got to double their reserves by counting the leased gold as an asset on their books, as well as the cash. That was pretty sweet both for the lenders - the central banks, who got a small return for their gold
- and for the borrowers, the bullion banks who got to sell and reinvest the proceeds for a higher return in what's called a 'carry trade.'

"Even the IMF report admits, delicately, that IMF rules have encouraged 'overstating reserve assets because both the funds received from the gold swap and the gold are included in reserve assets.' But except for a lone article yesterday in The Financial Express in India, (Sangita Shah, Double counting of gold may have aided the price suppression, June 7, 2006), the mainstream media has ignored the story."

So much the better. If people really knew what was going on, the price of gold would already be over $1,000 an ounce. We tip our hats and bow in thanks; the manipulators give us an extended opportunity to buy at deep discount.

*** As reported last week, the Japanese are said to be at the source of the worldwide sell off in investment markets. After many years of making cheap money available to hedge funds and Goldman traders, Japan is thought to be tightening up. If so, the yen carry trade that has brought the world so much cash and credit, may be coming to an end.

"Carry trading" is not something the average dear reader is likely to run across in his spare time, so we will expand. What it amounted to was borrowing yen at low interest rates, converting them to dollars and re-investing the money at a higher rate of return. Simple enough in theory, but you need large amounts of money to do it. And it involves a fair amount of risk; while yen lending rates may be low, a rise in the value of the yen could wipe you out. It helps when you have friends in high places, which is why Goldman is happy to have its top man at the U.S. Treasury department. Goldman's traders do not have to ask for "inside" information from Mr. Paulson. They all know exactly what he will do. They are all insiders now.

As the real cost of money rises in Japan (the Japanese economy is growing...the Nikkei Dow is up 80% in the last three years), the yen carry trade stops working. It needs to be "unwound." In anticipation, speculators sell their high-yielding investments (that is why the papers are reporting a world-wide sell off). But the process of unwinding carry trades does not affect all assets equally.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.