We're convinced more stimulus is on its way this year. And when it arrives it will put a rocket under gold and commodity prices.

--It's peculiar then that the final Fed meeting that Bernanke presided over last week made no mention of the big problems starting to surface in the emerging markets…problems ultimately caused by the Fed's years of ultra-easy money.

--Do they think that it's not their issue to deal with? Maybe, but India's central bank boss, Raghuram Rajan, doesn't think so. As one of the biggest emerging markets, India is suffering the effects of capital outflows and had to raise interest rates last week to support its currency, the rupee. He blames the Fed and gave Bernanke a covert send off last week. From Bloomberg:

'"International monetary cooperation has broken down," Rajan, 50, said yesterday in an interview in Mumbai with Bloomberg TV India, noting how emerging markets helped pull the global economy out of crisis starting in late 2008. "Industrial countries have to play a part in restoring that, and they can't at this point wash their hands off and say we'll do what we need to and you do the adjustment."

'"The U.S. should worry about the effects of its polices on the rest of the world," Rajan told a group of students in Mumbai today in response to a question on how Indian policies affect other countries. "We would like to live in a world where countries take into account the effect of their policies on other countries and do what is right, broadly, rather than what is just right given the circumstances of that country."'

--While Rajan might have a point, he's just a typical central banker whinging when things aren't working out. It was Bernanke's easy money starting in 2008 that led to capital flowing into emerging markets, including India's. This pushed

down interest rates and led to booming conditions. It's what

helped emerging markets 'pull the global economy out of crisis'.

--Now that the money is starting to flow the other way, Rajan doesn't like it. Well, bad luck! We live in a globalised, US dollar-centric world. Emerging markets are highly dependent on US dollar based capital flows. They're locked into the dollar via trade and the financial system.

--This is what gives the US its great economic power. Ultimately, the ability to issue debts in your own currency and to have those debts considered a highly valuable asset by smaller economies is economic nirvana…for the US.

--And it's what allows the Fed to follow its perpetual policy of inflationism. Whenever there's a problem in the US economy, just issue more debt…someone will take it…they need quality assets! But at the first sign of tightening, no matter how small, prices change at the margin. And the emerging markets are on the margin of the global economy, which is why you're seeing problems there first.

--This is why we think the world is only a quarter or two away from another bout of inflationism. That's how long it will probably take for the Fed's ever tighter monetary policy to hit the US economy. When the signs do emerge, expect Janet Yellen to make her mark…to inflict her own brand of inflationism onto the world economy.

--But it will differ from past efforts. It won't be another round of QE. It will be something that seeks to get money into the real economy…not just financial markets. When it happens, or even before it happens, you'll start to see gold and commodity prices pick up. Not because the global economy is improving, but because capital will shift into these beaten down markets to profit from another wave of Fed inflationism.

--We make the argument here that 2014 will be the year when the Fed gets serious about trying to create goods and services inflation, as opposed to asset price inflation, which they are already very adept at. We don't know if they will be successful, but we're confident they'll give it a crack. That's because the philosophy of inflationism says that once you start you can't stop.

--You can try to stop, but it will only bring about asset price deflation and deleveraging…which is what the Fed and central banks want to avoid at all costs. So we'll go through another round of experimentation…another round of pushing the button and hoping it all works out.

--2014 will also be the year when the Fed starts to lose control. People will begin to see that the Fed hasn't a clue what they're doing. They're slogging 20/20 style in a five day Test Match. And if they keep it up, they'll all be out...

--Like Bernanke, walking back to his Princeton Pavilion. Well, good riddance, Bernanke…you've done enough damage. Take your bat, ball and your failed doctrine with you…

Regards,

Greg Canavan+
for The Daily Reckoning