Let's make it criminal to increse the supply of money more than the supply of goods and services. Let's make the supply of money in circulation of nation be based on the net asset backing of that nation at all times.

Don't forget this world is made up of energy. It's only we do not want to fully use other forms of energy to replace oil or coal yet.

So the stupid man save his money, the smart man spends all his money, the even smarter man spends his future money at present, the oversmart man gamble his money for a bigger share of future wealth. The result inflation, then bubble, then stagnation, deflation, recession, and then inflation again, and so the cycle goes on...

Conclusion:
Inflation is forever, indefinite, absolute, while deflation, stagnation, recession are only temporary in time.

The Reserve Bank has raised its target rate, supposedly to tighten the availability of bank credit and hence bid up interest rates.

On the other hand, it is 'lending' securities to financial institutions in exchange for various 'AAA' credit derivatives, so they can 'balance' their books. Are these financial institutions not then able to treat these securities as assets and lend against them? If so, how does this tighten bank credit? If not, why the hell are they doing it? As far as I understand it, the business of a bank is to borrow short and lend long. If they can't then they are out of business.

Whenever The Fed (or any other Central Bank) cheapens the Price of Money, The Fed inflates.

The goal of inflation is to increase the Efficiency of Money and with that gained, Economic Expansion.

The Efficiency of Money can happen only when New Credit Growth for Output Swapped rises faster than the amount of Notes and Coins (money in circulation). Output Swapped consists of things of goods wanted (inventory that sells).

When inflation does not work as intended, new Credit Opportunties do not appear. Folks with piles of Money in Circulation bid up prices on future claims to resources for future manufacturing, future farming.

On Working Inflation
================

The rate of growth of New Commerical Capital in ratio to the money base (notes and coins) is the True Inflation Rate. Thus, the True Inflation Rate measures the Efficiency of Money.

Should inflation work, more New Issues of Preferred Stock, Commerical Paper and other investment instruments arise to attract Money.

Should inflation work, more folks gain goods and jobs as manufacturers, farmers, miners hire workers.

On Prices
=======
All swaps must have one commodity exchanged for another. When one thing gets calculated in terms of another, we call this a ratio. The result of the ratio, we call it a value. When we use money as one of the commodities in the swap, we give another name to the word value -- PRICE.

A rise in price means a change in the ratio has happened calculated at one time from being calculated at another time.

Only two ways can achieve a price rise:

[1] money bid and taken (bought) is rising quicker than the thing offered and given (sold)
[2] the amount of the thing offered and given (sold) is falling quicker than the amount of money bid and taken (bought)

On Inflation and Prices
=======================
Most folks will tell their false beliefs about inflation like this:

"Inflation is a rise in all prices."

or

"Inflation is a rise in the General Price Level."

Since there's no such thing as a monolithic "one-price" consumer price for all goods, it's impossible for consumer price inflation to be a true concept, a true belief about existence. In short, believing in a Keynsian Price Level is akin to believing in Tooth Fairies and Hobgobblins.

On Inflation and Money Supply
=======================
Other folks will tell their false beliefs about inflation like this:

"Inflation is a net increase in money supply"

or

"Inflation is a net increase in money supply and credit."

Folks never stop and then start to think about the phrase "money supply."

Buyers and sellers act and swap Commodities, one for the other.

Money is a commodity. It's the thing you trade for another thing, say oil for money and thus money for oil.

Where you find offers of money (supply), you find calls for money (demand). What gets swapped (sold) is money down now (notes and coins in circulation) for a promise to pay more money through time. We name this future money with any of these -- Capital, Credit, Debt.

On Economic Growth, Credit, Capital and Gambling
================================================

Good Commerical Credit built the world folks. When the focus of credit becomes Consumer Credit or Speculative Credit (margin money), moneyquakes follow.

The Many confuse gambling (secondary market speculation that hopes for price appreciation, e.g., 401k "buy and holders") with investment (cash rented for return; aka capital in primary markets).

Speculating men corrupt capital. Gambling men pervert capital. Only Investors and Shopkeepers grow wealth and prosperity.

I agree with your analysis about the Fed and inflation. The Fed is probably going to do a lot of talking about fighting inflation to manage ‘inflationary expectations’, while in reality doing very little about it. They will probably start raising interest rates by 0.25 at the end of the summer, but it won't do much to slow inflation unless they raised rates to 8%.

Malaysia's announcement of the 40% increase in fuel cost and a following 26% increase in electricity price has caused widespread resentment and small pockets of protests throughout the country.

Japan has fresh calls for increase in food self-sufficiency.

Other poor, developing nations in South East Asia are finding themselves caught in the midst of the global inflation crisis, with worsening poverty and faltering economic progress.

I think the worst has yet to come as oil inches towards $200.

However, while we are busy watching the price meter, let us remind ourselves that the issue of widening income disparity and poverty across the globe is a real cause for concern. They are imminent problems, waiting to explode.