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The Great Reversal into a higher inflation environment

Toxic combination of high debt and the shrinkage of central bank balance sheets greatly increases the risk of financial crises

THIS is not the 1970s, or so we are confidently assured by respectable economists. Granted, as we confront soaring levels of inflation, there are nuanced differences between then and now.

But the UK's strikes in rail, mail and rubbish collection point to one overwhelming similarity - namely, that stagflation creates winners and losers. When national real income is squeezed by oil price shocks as in the 1970s or the current food and energy price shocks, rival claimants in the economy compete ferociously to reclaim lost income. A wage price spiral results.

Milton Friedman remarked that inflation is "always and everywhere a monetary phenomenon". Clearly, money is an important component in the inflationary...

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