American markets continue to do what they do best: separating fools from their money.

Once again, derivatives are have become a weapon of mass destruction on Wall Street.

When central banks put in extra cash, it sounds vaguely inflationary. In fact, it is a sign of just the opposite.

Despite the Fed's intervention, in both London and New York the cost of money for most borrowers actually went up.

The supply theory of money is simple enough. The more dollars you have, the less each one will buy. So, the question for a dollar watcher is: how many dollars are there?

Goldman Sachs (GS) and Morgan Stanley (MS) are expected to write off about $1 billion. Deutschebank says the writedowns will be about $9 billion over the next 6 months. DB itself has more than $50 billion of leveraged loans to private equity on its books. Goldman has nearly $40.

The Chinese were going to put up some money to prop up Bear Stearns. There might be many explanations for why the Citic deal didn't go forward, but here we suggest one that is the most far-reaching: the foreigners are growing wary of the United States.

It took investors a while to connect the dots, but now they seem to have the picture: the Fed’s big bank bailout will not really wipe out losses, nor make Wall Street more profitable. What it will do is save the big banks from going broke, while destroying the dollar.

It is tempting to look at this market and come to a simple conclusion: the economy is declining and the feds are trying to stop the decline with more cash and credit.

Bill Bonner's hypothesis is that the Fed's efforts to inflate will show up more in the gold market than in the stock market.