Unsatisfied by the pace of the US recovery, the Federal Reserve seems set to launch a new round of quantitative easing. Well, the Fed can print all the money it wants – but it cannot dictate where it will go.

The first two rounds of quantitative easing fuelled a commodity bubble, increased income inequality and set a bad example for the rest of the world. During the 16 months of round one, up to March 2010, the CRB commodity price index rose 36 per cent, while food prices rose 20 per cent and oil prices surged 59 per cent. During round two, in the eight months up to June last year, the CRB rose 10 per cent, with food up 15 per cent, while oil prices rose a further 30 per cent.

It used to be the case that easy money reliably drove up the price of stocks, but not of commodities. However, since the Fed started to ease monetary policy aggressively in late 2007, hundreds of billions of dollars have flowed into new financial products (such as exchange traded funds) that allow investors to trade commodities the way they trade stocks. Now, there is a tight link between stocks and commodities, with prices rising and falling in lockstep.