"...Dark secrets known only to top-level officials; the public good trumping public disclosure; urgent action needed to avert disaster - haven't we been here before...?"

IN THE EMERGING economies of East Asia, governments face fresh rioting if food prices keep soaring.

Here in the rich West, politicians fear a 1930s-style depression if consumers stop borrowing as home prices sink.

In sum, says the head of the International Monetary Fund (IMF), the world is caught between "ice and fire". But does mean central banks must keep serving Baked Alaska for pudding?

The dilemma facing Western policy-makers looks stark enough. Monetize the credit bubble - by printing money to bail out the banks - and the cost of living will soar as the value of money evaporates. Or they can let the bubble slip into default, dragging the banks into bankruptcy, and destroying money itself in a new Great Deflation.

Hence the sloppy compromise cooked up by the big central banks. Don't lend cash directly to cover the investment banks' losses. Lend Treasury bonds instead...accepting toxic mortgage-backed bonds as collateral...and THEN lend out cash against the T-bonds instead!

"By swapping [UK] gilts rather than cash for [Residential Mortgage-Backed Securities], the Bank ensures that there is no direct effect on the stock of base money," notes Willem Buiter, a professor at the London School of Economics, in his blog for the Financial Times.

But "of course, the banks - who now find themselves with excess gilts - will sell them, either to other private parties who have pockets of excessive liquidity [meaning cash] or, more likely, to the Bank of England."

Here at BullionVault, we can't help but imagine Monty Python running this skit. First Michael Palin opens one teller's window - and swaps T-bonds for junk - before dashing to another to swap the new bonds for cash.

He could keep shouting "No cash for junk here, sir!" in an angry voice too, with all the inevitably hilarious consequences.

"Why do the cash for RBMS swap in two stages?" demands Buiter, a former Bank of England policy-maker. "Why make things simple when they can be difficult, transparent when they can be made obscure?"

There's a straightforward answer, of course; obscurity works to confuse the public. The Bank of England's new Special Liquidity Scheme - just like the Fed's Term-Auction and Term Securities Lending facilities - keeps the whole sorry sage safely buried in the pink pages.

Just swapping cash for junk, on the other hand, would be simple enough to make front-page news. But there in the headlines instead, shlock-horror wins out. Which suits both government and the investment banks fine.

"There is a 'growing case' for government intervention in the US housing market to arrest the deterioration of global financial markets and slowing economic growth," according to the British press.

Says who? Says "the association that represents global financial institutions," that's who!

"Given the magnitude of the systemic and macro-economic risks the US faces, there is a growing case for a finely calibrated public intervention, perhaps addressing both the demand-side as well as the supply-side of the problem," according to the Institute of International Finance.

Indeed, this is "the largest financial shock since the Great Depression" claims the International Monetary Fund. Which in turn props the door open for government rescues - and government meddling, of course. "The credit crisis has made the idea of cross-border supervision of the banking industry more palatable," according to the daily note from SIFMA, the US securities institute.

Says who? Says Charlie McCreevy, commissioner for internal markets and services at the European Union.

"The present crisis has really sharpened minds of European members about how we would handle a cross border financial crisis," McCreevy told reporters in Brussels. And no doubt Bear Stearns stood on one side of many cross-border derivative deals. So many, in fact, the Fed went to the "very limit" of its powers - as former chairman Paul Volcker puts it - because the option of letting Bear fail was simply too scary to contemplate.

"I do not know whether the risks justified the decisions not only to act as lender of last resort to [Bear Stearns] but to take credit risk on the Fed's books," wrote Martin Wolf in the Financial Times recently.

"But the officials involved are serious people. They must have had reasons for their decisions."

Hmmm, sounds familiar, no? Dark secrets known only by top-level officials; the public good trumping public disclosure; urgent action needed to avert global disaster.

Haven't we heard this line before? Right around...ummm...five years ago, in fact?

"My colleagues," announced Colin Powell - then US secretary of state - to the United Nations on 5 Feb. 2003, "every statement I make today is backed up by sources, solid sources. These are not assertions. What we're giving you are facts and conclusions based on solid intelligence."

As it turns out, Powell's "solid facts" came from one single source, an Iraqi defector known only as "Curveball", during interviews with the BND, the German intelligence service. Uncorroborated and in fact wholly false, his assertions found their way this week into a parliamentary hearing in Berlin. The Bundestag's Supervisory Committee is asking how-in-the-hell a man deemed "unreliable" by the British intelligence service wound up as sole justification of the US-UK invasion.

"Elements of his behavior strike us as typical of fabricators," said MI6 in its assessment. "In truth, he was a sex-obsessed alcoholic," screams the London press now. But no matter.

"The Prime Minister [Tony Blair] has made the case for the need to deal with Saddam for some years with consistency," as the left-wing Observer newspaper claimed ahead of the March 2003 invasion. "Accused of becoming America's poodle, Blair, in fact, sticks to a potentially unpopular course because he believes this to be right, and that the threat from Iraqi weapons is real."

Back here in April '08, we'd rather not say whether Blair, Bush and Powell actually knew their "facts" to be false. Similarly, no one can guess at the trouble if Bear Stearns collapsed.

But you might want to consider the mischief caused to your pocket by bailing it out.

"Many parts of America, long considered the breadbasket of the world, are now confronting a once unthinkable phenomenon," writes Josh Gerstein in the New York Sun: "Food rationing."

Okay, this is The Sun. But Gerstein points to per-customer-limits imposed by the Costco chain on rice in Mountain View, California. It's put customer-caps on oil and flour sales in Queens, New York.

"Due to the limited availability of rice, we are limiting rice purchases based on your prior purchasing history," read a sign when Gerstein found the chain's "largely Asian immigrant clientele" in Mountain View grumbling about the new limits.

Store manager Stephanie Gordon then told CBS News that in 21 years with the company, she's never "seen it like this before." Indeed, "we're actually starting to see shortages here in the US," confirmed Scott Faber of the Grocery Manufacturers Association on Monday's Early Show.

Then on Wednesday, Wal-Mart said it's rationing rice sales at its Sam's Club chain of wholesalers.

How ever did we get here? Shortages on US shelves make for great headlines of course. They also make it easy to blame third-world food riots and protests on a shortage of supply as well.

But "there is food on the counters and on the shelves in stores," said Paul Risley, a spokesman for the UN's World Food Program this week. The problem in Asia, instead, is that at these soaring prices, "there is a certain population that cannot afford that food."

"Supply is not the main constraint, but the huge price increases are," confirms Rajat Nag, head of Asian Development Bank. "That has a very massive impact on the poor and we need to focus on the huge price increases."

Back here in the West, "the Fed has lots of firepower left" says Greg Ip in the Wall Street Journal - almost like he asked to Ben Bernanke himself! In the developing world, in contrast, a "silent famine" now looms.

Two different problems with two separate causes? After the world's greatest bubble in money - with the greatest cash bail-out to follow - somehow it seems unlikely.