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Inflation now a persistent problem

INFLATION is out of control almost everywhere. Central banks have been deploying loose monetary policies for years and the chickens are slowly coming home to roost.

Commodities price bubbles are one example. The cost of borrowing is another. Yields on 10-year US Treasuries have pushed up the borrowing rate by almost a quarter in just three weeks. That figure tells us that investors expect growth and fear inflation in the years ahead.

The central bankers claim that they do not see inflation on the horizon. This is a common pattern that was repeated many times during the last century.

Bloomberg pointed out last week that inflation during World War One went from 1pc in 1915 to 7pc in 1916 and 17pc in 1917 after the Treasury spent like crazy on the war. The situation was similar to today's mess, where the Federal Reserve created money and then pretended that its spending was offset by complex Liberty Bond sales and admonishments to citizens that they save more.

Many readers will remember the Department of Finance used to blame "imported" inflation when we had a problem at the start of the last decade.

We were always told it would subside but it became a persistent problem, which helped to underpin ludicrous pay demands and destabilise the entire economy.

Some economists are already suggesting that a bout of inflation would be no bad thing because it would make our debt burden easier to bear.

They forget that the European Central Bank will almost certainly use high interest rates to fight back -- something that could cause immense pain to anybody with a mortgage, and trigger a wave of defaults.

This will have very serious implications for all of us now that the Government has foolishly tied up the fate of the sovereign bond market with the mortgage market.

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