Yesterday, driving back from a horse show in Bath, we stopped for gas. Britain has gone metric in order to stay in harmony with her European trading partners, but she still lists distances in miles. Gasoline is measured out in liters, just as it is in France, but it is priced in pounds.

The price for a liter of diesel fuel was 99.9 pounds. If we did the math right, this is equivalent to about $6.50 per gallon.

By comparison, we read today that the average price per gallon in America is $2.92. Gasoline is so cheap in the U.S. that Canadians are flocking across the border to fill up their tanks.

If the British are confused about how their gas is priced, the Yanks are certain they know where it should be - at rock bottom. The U.S. economy is set up for much cheaper gasoline. People have organized their lives and habits around the expectation of cheap fuel and cheap credit. They're understandably disappointed to see prices rise. But now, prices are rising; the dollar is falling; inflation is increasing. And we begin to see how the great Credit Bubble Boat ends, don't we? It runs into the iceberg of inflation.

It seems obvious.

College tuition, health care, commodities - all seem to be going up quickly. Last week brought news that even salaries are going up. Pay levels are said to be 3.8% above those of a year ago, despite very sluggish job growth. Why would salaries go up when there is no apparent pressure to recruit new employees or hold onto old ones? The answer is
simple: salaries are responding to inflation, not to job market. And on Friday, even stocks went up. The Dow rose 138 points. Are business conditions suddenly much better? No? Maybe it is just inflation.

Way up high, in the staterooms and luxury suites of this Titanic, the price increases are even more dramatic. One painting by Picasso sold for $95 million. Another sold for $34 million and still another sold for $18 million. That's a lot of money to pay for crude paintings of people with their noses in the wrong place.

But now, some fellow in China has figured out how to create his own gimmick. He's picked up the advertising cartoon, Joe Camel, and turned him into an art-world icon. Look, he explains, this modern art is simple; anyone can do it. In fact, you don't even have to do it yourself. He pays others to do the actual work. He just comes up with the idea.

You'd think the art world would be annoyed at the chutzpah; the Chinese hustler is clearly pulling someone's leg. But it doesn't seem to matter. Aficionados are either too dumb to notice or too rich to care. They're buying up the paintings of Joe Camel and hoping to score as big a coup as people who bought Picassos.

While prices rise, the dollar falls. Against yen, it dropped to a seven-month low on Friday. Against the euro, it fell again, last week - to $1.27 per euro. And against gold, the dollar plummeted. June contracts for gold sold over $684 on Friday. Overall, the dollar has lost 4.5% of its value in the last three weeks.

There is no question that prices are increasing. Nor is there doubt as to why. Central banks are desperate to keep up with the expanding supply of dollars. Remember, they can control either the quantity of their currencies, or the quality of it, not both at the same time. As the United States emits billions and billions more dollars, the foreign central banks have to produce more of their own currencies. Otherwise, the falling quality of the U.S. dollar will make the foreign currencies go up in price. This will put their export industries at a disadvantage.

All over the world, central banks are favoring quantity over quality. They are inflating their currencies. Consumer price inflation is sure to follow.

There might be more to the story. Yes, all central banks favor inflation. And yes, Americans would vote for inflation, if they could; they are deep in debt and would welcome inflation as a way out.

But for every debtor, there's a creditor. And for every fool who borrowed money to buy something he couldn't afford and didn't need, there's a lender who lent to someone who might not be able to pay him back. The big question is: who will turn out to be dumber - the lenders or the borrowers? We don't know the answer, but we suspect there is enough dumbness to go around. When the ship goes down, there will be plenty of losses for everyone.

*** As the public realizes that gas prices aren't going to go down anytime in the near future, many are turning to hybrid cars as their salvation. These cars are the most environmentally friendly - and supposedly fuel efficient - option for those who can't give up their vehicle and ride their 10-speed to work.

The Guardian tells us that a new report by Which?, a U.K. consumer magazine, shows that these cars aren't all they claim to be:

"The recently launched Honda Civic hybrid only managed between 28mpg and 34mpg on its test, well below the most fuel efficient petrol and diesel cars and nowhere near the 54mpg being claimed in Honda's literature. Tory leader David Cameron's new hybrid car, the Toyota Lexus RX400, recorded 25-34mpg during testing and consumed around twice as much fuel as the most fuel-efficient diesel car.

"The consumer body noted that its greenhouse gas emissions were 27% lower than a petrol Lexus, but said it was no less harmful to the environment than a standard family estate car."

So, if hybrids aren't going to save the world from high gas prices, what will? Outstanding Investments' Justice Litle argues that there is an oft-overlooked contender for the Car of the Future: the humble old diesel engine.

"When most people think about diesels, they think 'loud, dirty and smelly'
- a pollution nightmare. Except - surprise - those diesels you hear and smell are antiques. Thanks to new technology, diesels aren't so dirty anymore and the gas mileage is better than ever!

"You see, diesel gets about 30 percent more miles to the gallon than gasoline, and those savings are real, in any kind of driving conditions. What's more, people who worry about global warming prefer diesel because it emits up to 20 percent less carbon dioxide.

"This is all well and good, but the kicker is this: you don't need crude oil to make diesel fuel."

*** Last week, Barron's cover told us the Dow was going to 12,000. By Friday, the index did appear to want to go in that direction.

But if it's going, it will have to go without us. We see little profit in trying to squeeze a few more points out of the Dow - and much potential for loss.

This week's Barron's cover headline is: "Paying Up! Strapped for cash, U.S. states and cities are selling toll roads to foreign companies willing to pay rich prices."

The money leaves home a servant; it comes back a master. We buy flat-screen TVs and Chinese tea. The money does our bidding. But then, the overseas suppliers end up with a net trade surplus over $800 billion a year. What do they do with the money? It comes back to us. They buy our factories, our T-bonds...and now, our roadways. Now, we are their servants - their clients, their customers, their employees, their debtors, their lackeys, their proles, and their lumpen.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.