America is sweltering. It is 115 back on the East Coast, say the papers. Local governments are mobilizing to try to prevent people from getting cooked. Boston is even said to have a system of automatic phone calls, urging people to check on their neighbors. And thus has even the spirit of neighborliness been hollowed out in the modern world, reduced to a phone message from a machine.

We recall the news from New Orleans after the flood. Six weeks after the event, a man finally decided to check on his own mother. There she was, it turned out, right where he left her - in her bedroom. But she was less talkative. Less warm and friendly. Less energetic. She'd been dead for at least five weeks. Too bad New Orleans didn't think of that automatic phone system.

The heat is said to be putting a strain on everything: energy, nerves, and money. Our guess is that everything is under strain already. The latest figures show consumer spending still going up, but barely. Meanwhile, inflation - even by the Fed's measure - is at its highest level in four years. If we're right, the higher prices and higher mortgage payments (minimum payments are now about 50% higher than they were a year ago) are forcing consumers to cut back. Consumer spending is two-thirds of the entire economy, so any pullback by consumers means an economic slump. Rising prices added to slowing economy equals stagflation.

If you are going to fight stagflation, you have a choice: you can strike at the stag or the 'flation, but not both at the same time. The stag needs lower interest rates to kill it; the 'flation thrives on them. To kill 'flation takes higher rates, but high rates just make the stag stagger even more. Is that clear, dear reader? Never mind. The point is, you have to fight one and then the other. And the one you have to eliminate first is inflation. To fight the stag you're going to need some kind of stimulus. But the stimulus won't work as long as people expect it to increase prices. Central bank legerdemain only succeeds by trickery. When people catch on, the magic disappears.

So, the Fed has to go after inflation. That is why Ben Bernanke has been raising rates; he knows he has to have inflation under control or he can't fight deflation. Short rates have been notched up 450 basis points already
- the most in 40 years. Is 'flation' beaten? Not according to the news reports.

But we will take an additional guess. Our guess is that the Fed cannot pursue the fight against inflation - even if it hasn't yet won, because the stag is staggering. The marginal consumer's knees are wobbling. He is feeling the heat already. Beads of sweat are on his forehead. His hands shake. Raise rates again and he will fall on his face. The rate hikes are over.

*** With global warming on the tip of everyone's tongue, it looks like Wal-Mart has found the perfect way to save its faltering public image...

According to Fortune magazine: "Wal-Mart...has decided to help save the earth."

Phew. Just when you thought all was lost, Wal-Mart swoops in with their new a public relations campaign to save the day.

We hate to be pessimistic, as the ideas for how they can cut down their waste and energy use looks good - on paper. But somehow, we get the feeling that this new green crusade might turn out like founder Sam Walton's 1985 "Made in the U.S.A" campaign - all talk. Think about it - how can you stick by your Everyday Low Prices without all that cheap labor from faraway lands?

We're all for change - and who doesn't want to try to save the environment? But how realistic is this green initiative? Eventually the question of what's good for the planet and what's good for business will arise - and you can bet business is going to win that battle.

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