Stocks in the US and Europe are trading lower on new debt worries in Dubai and Greece.

The dollar rallied as traders reacted to heightened concerns about the ability of the Greek government to manage its fiscal debt. The crisis in Dubai is not going away and may take several months to settle.

In New York the S & P rose .7 to 1096.1. The Vix index, a measure of expected equity market volatility, rose 5.1% to 23.23.

In Greece, the Athens index fell 6% and the Dubai stock market fell 6.1% to a new 21-week low.

Ben Bernake has initiated the biggest cash infusion in Federal Reserve history -- a stunning $600 billion dollars that has been put into the US economy.

How did he do it? The Federal Reserve has been buying Treasury securities, which creates a credit on bank balance sheets and thus adds new money to the banking system. This in turn allows the banks to use the money for loans and mortgages. Plus, the Fed has been active with offering US Treasuries at auction, which have been scooped up by eager investors. Just today the "bid to cover" in the Treasury auctions was 4.4 percent. That means that there were 4 times more bids than the securities offered on auction. Investors are seeking safety in US Treasuries and are willing to accept a near zero rate of return.

So is this strategy going to work? The problem is that individual buying of US Treasuries does little to stimulate the economy. What is happening is a shift from lower quality securities into the safety of US government backed securities. A devastating side effect of these actions is that it drives down the prices of other lower quality securities.

One may guess that eventually this excess cash will work its way back into the equity markets but for now we are in a holding pattern.

There is an unprecedented change in U.S. bond prices to the upside. As the old adage says: stocks down, bonds up. This has never been more true than this past year. With stocks falling sharply, bonds have been rising to astounding heights.

The price of bonds moves in an inverse direction to yield, so as yields come down near zero, bond prices go up. The Treasury Bill is now at a minus zero yield and the 30-year bond at 3%. Usually, the longer the term, the higher the interest rate because of the greater risk of holding an investment for 30 years.

As the stock market fell sharply over the last few months and the Federal Reserve has cut interest rates almost to zero, the prices of U.S. Treasuries has soared to new all-time highs. For example, the forward contract in the 30-year bond that is traded on CBOT (Chicago Board of Trade), in early October traded at 112 and has since risen to 135. To give you an idea of what this means, the price increased 2400 basis points. Each 100 basis points equal $1000.00. So one bond contract is now up $24,000.00.

The government is printing money like there's no tomorrow and running record deficits. So why isn't inflation out of control? To answer that, we need look no further than Economics 101. When demand exceeds supply, prices rise and when supply exceeds demand, prices fall.

Up until July 2008, commodity prices were rising because institutions were able to borrow money to go long commodities and short the dollar. As a result, the demand for commodities exceeded their supply and prices rose -- contributing heavily to rapid inflation. For instance, oil rose from $24 a barrel in January 2001 to peak in July at $147 a barrel. But since then, this commodity trade has evaporated along with access to debt -- and oil now trades 70% lower at $43.

But this fall, there were some slight problems with the financial markets -- for instance, the government decided to let Lehman Brothers file for bankruptcy. This financial collapse has caused banks to clamp down on lending. And since consumers, which account for 70% of GDP growth, depend so heavily on borrowing to finance their consumption, an end to lending cuts way back on their purchasing power. So does their $10 trillion loss of housing and stock wealth in the last year. With the disappearance of debt, supply exceeds demand and prices tumble.