"Central banks warn about inflation." Thus the Financial Times, with gloomy satisfaction.

We don't doubt that there is inflation - even the kind that makes headlines. What we doubt is that central banks, particularly our own, are serious about stopping it.

That they solemnly affirm the opposite in public tell us merely that a grand public spectacle is in progress. For, every great Public Spectacle begins with precisely such a lie, progresses into farce, and culminates in disaster. The investment markets furnish countless examples, especially suited to them. The financial industry, central bankers, and the free press all have one characteristic in common: all work together to deceive as many people as possible.

Why? Because in order for markets to function as they do, most investors must be wrong most of the time. Otherwise, they would second guess their own actions and stop history in its tracks. So, a developing bull market requires that most people disbelieve it. And a market top requires that most people be bullish at the very moment when bullishness is the least profitable sentiment to have. If they knew any better, the result would be a kind of sterile Spectacle Interruptus, with neither swagger nor slump. With no satisfaction. There would be no boom, nor bust, and we would be deprived of our daily amusement. All the future would stand discounted, marked to market, shrunk to a single moment: now. Time would stand still.

The fraud at the heart of this spectacle is central banking itself. In every other aspect of economic life, everyone knows that central planning doesn't work. Price fixing by government officials we know is stupid and counterproductive. And fixing prices in the private sector we regard as a crime no less than taking a dive into a prizefight or rigging an election. Nonetheless, it is accepted without a squawk when officials collude to fix the single most important price in an economy: the price of credit.

How do central bankers know at what rate borrowers should borrow and lenders should lend? Should it be 5.75% or 6%? They have no idea at all. But they have hearts and brains as full of overweening ambition and vain scheming as the next guy. They are prey to every weakness to which flesh is heir and as prone to give in to temptation as the rest of us.

Thus, they are tempted to believe they can outdo even Jesus at Galilee. Jesus at least had water to work with. And, the only thing he did to the loaves and the fish was to multiply them. Central bankers, on the other hand, manage to conjure their money out of thin air, while assuring the masses it is the real thing. On this deception hangs the latest installment of our story.

You see, it is one thing for a Wall Street speculator to lose money. Easy come, easy go. No tears are shed. No petitions are passed around. No politicians gas about it. The speculator takes his losses like a man, gets drunk, goes home and kicks the dog.

But when the proles lose money, it is a big deal. In no time at all, politicians are gassing about "crosses of gold," "debt relief," "stimulating the economy." There are not enough real speculators to elect a county sheriff, but the lumpen are another matter. They can do real mischief at the ballot boxes. So when they howl, politicians feel their pain.

And there you have the real problem with the fight against inflation. It would mean taking aim at voters in the middle and lower classes, who've come to depend on housing price inflation. These are people who've managed to acquire more ARMs than a Hindu god, but no legs to stand on. Already, they're beginning to wobble. One trillion in ARMs will be reset this year, with payments 25% to 60% higher. Another $1.7 trillion are to be reset next year. Subprime borrowers - the most lumpen of the lumpen - can't make the payments.

This week, the Bank of Ben Bernanke is expected to raise rates for the 17th time. He is testing to see how much ammunition he loads on the truck before the wheels fall off, while the whole world looks on. Maybe this week's charge will be the last of it. Maybe, if things still look good, he will try for another quarter of a point in August.

But make no mistake, dear reader. This is not so that he will have firepower to fight inflation. It is so he'll be ready to blast away at deflation when the crunch finally comes - and let inflation run wild.

*** The big news comes from New York, where Warren Buffett joined Bill and Melinda Gates at the New York Public Library. Any meeting of the world's two richest men is a source of interest to the press. What were they doing? Fixing prices? Colluding to corner a market? Joining forces to squeeze out rivals?

Alas, no. The two men were not doing anything against the public interest, it turns out. Instead, they were collaborating on an ambitious scheme to make the world a better place.

Long time Daily Reckoning sufferers will read that phrase with the skepticism it deserves. Almost always, when a man comes forward to improve the world, he most often aims to pick your pocket. One can reasonably expect to improve one's own world - it is a matter of hard word, self-discipline, clear thinking and luck. Improving the world is most often an undertaking of fools, cads and miscreants.

But along come Buffett and Gates, not proposing to pick anyone's pockets but their own. Buffett said yesterday that he would give $31 billion of his own money to Gates' foundation - already the richest in the world. What will they do with all that money? Give it away. They aim to develop cures for major diseases, lift the poor out of their misery, and improve the quality of education. Thus do they join the great tradition of philanthropy begun by Andrew Carnegie and John D. Rockefeller.

Rich men often feel the need to "give back something." They feel lucky. They feel like making a magnanimous gesture of gratitude and compassion. Even we, here at The Daily Reckoning, with our widow's mite, feel very grateful to the gods who have given it to us. But unlike Buffett or Gates, we have no desire to give it back. We figure the gods will do that soon enough.

Buffett could give his vast wealth to his children. It is such an enormous pile, it would take a few generations to work it down. Or, he might undertake some vast new indulgence of his own - perhaps building a paradise island of his own in the South Pacific: Buffettville. Or, he could support charity efforts to make the world a better place.

One way or the other, the money is going to go from his hands into others' hands. If it doesn't go into his children's hands, it goes into the hands of other peoples' children. If it doesn't go directly to a hospital endowed by Buffett, it might go there indirectly, passing first into the pockets of a riveter who helped to make a luxury airplane to ferry Buffett's guests to his paradise island.

All water runs to the sea, all electricity runs to the ground, and all wealth runs back where it came from. The only question is how it gets there.

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