Even though the regime has loosened some of the restrictions on currency exchange, inflation is still skyrocketing in North Korea. The government recently announced that it was moving to a new currency, and that the swap would involve a limit on how much could be traded. As a result, personal wealth was being consciously constrained, which led to the open questioning of the regime, defiance and rioting in some cases, and even a rare instance of flexibility among Kim Jong Il's subordinate decision makers.

Reports from inside the isolated communist state suggest that food shortages and price inflation have resulted from the new monetary policy, exacerbating a difficult situation with which the country already had to cope.

The timing couldn't have been worse. Just as a U.S. envoy arrived in North Korea to meet with the reclusive regime's officials, protests and violence are reported to have erupted. The country is reacting to a new currency issue that is being used to seize most of the citizens' money and savings.

On November 30, 2009, the regime announced that it would issue new currency and cap the amount that could be exchanged at the equivalent of $40. This effectively rendered the money held privately worthless.

For July, investors withdrew $5.5 billion from domestic equity funds, slightly more than in June, which followed $10 billion of withdrawals in May, according to a memo sent out by Tom McManus of BofA yesterday.

International investing also "screeched to a halt", as the $2.0 billion in weekly inflows into funds outside of the U.S. have stopped.

This morning, short-term lending rates, the rates for financial institutions to do business with each other, shot up in Europe -- another sign of tight money.

Retailers also released generally weak monthly sales data this morning, with a few exceptions.

We blogged yesterday that the Fed's objective is to control the psychology of inflation expectations, it appears from all the points listed above that the Fed has succeeded. Both the ECB and the Fed announced they are adding reserves to the system. Look for short-term rates to start coming down in September.