We've only talked about this subject for about 150 posts in blog history; combine a World of Shortages with Western central banks who solve everything by injecting liquidity (paper money) into the system, sometimes at historic rates (thanks Uncle Ben!) and we were questioning why everyone was so happy with it (more rate cuts, more rate cuts!). No free lunches in the world, but the cruel reality is those who can afford it least (both in the US and worldwide) will be affected the most.

Again the good news for you Americans reading the blog, is we have very little inflation in America. This is a scourage that only affects the rest of the world (whew) As an aside most of the scuttlebutt of late is that the Federal Reserve has to raise rates - after all the futures market says so, so it must be. The same futures market DEMANDING Uncle Ben cut rates 3 months ago. Oh she is a fickle beast. Myself - I really doubt the POLITICALLY INDEPENDENT (ahem) Federal Reserve will raise rates ahead of the election. So if he does decide to pull a Volcker (increase rates into a slowing economy - err, no recession of course) it won't happen until after the election. If it happens before then... then you simply must say even the Federal Reserve does not believe the government's reports - which show little inflation ;).

• Inflation worries are heating up around the world and jolting financial markets in the process.
• On Tuesday, China's stock market was the latest to feel the blow, with the benchmark Shanghai Composite Index tumbling by 7.7%, to its lowest close this year. The drop came after the government announced steps to remove cash from the financial system in an attempt to tamp down inflation.
• Also Tuesday, officials in Vietnam effectively devalued their currency in a step aimed at easing market pressures related to soaring inflation rates.
• The price of the two year Treasury note, most sensitive to the Fed's moves, has fallen sharply (and its yield has risen) as investors grow convinced that the central bank may have to raise rates this autumn to contain inflation. On Tuesday, the two-year note's yield was 2.9%, up from 2.4% on Friday, marking a major jump in that rate.

• Meanwhile, the Bank of Canada surprised markets Tuesday by holding off on an expected interest-rate cut; the central bank said the risk of inflation, driven by high energy prices, had grown too great to allow for further rate cuts. The European Central Bank is also considering interest rate increases to fend off inflation.

• Developing economies -- some of which fought bruising battles to tame inflation in the 1980s and 1990s -- seem particularly vulnerable.