Via Zero Hedge.
Today our central bankers are as confident in their ability to control inflation (Mr. Bernanke claims 100% confidence) as they were in the soundness of the financial system in 2006. Yet history suggests they shouldn’t be, for inflation goes back almost as far as we do. In the ancient Greek comedy, The Frogs, written in 405BC, Aristophanes writes that “the full-bodied coins that are the pride of Athens are never used while the mean brass coins pass hand to hand”. His reference to Gresham’s law predates Sir Thomas Gresham’s first observation during the medieval inflation of Henry VIII’s England by around two thousand years. As the play was written during the closing years of the epic Peloponnesian Wars which would have stretched the government’s budget, we can assume that Aristophanes and his audience witnessed inflation first hand.
Like credit crunches, there is nothing new about inflation crises. It’s not something which happened in the past but which we now understand well enough to ensure it never happens again, any more than systemic banking crises were. Yet when we talk about past inflationary episodes, whether in classical times, medieval times or industrial times we read of the same two villains of the peace each time: financially pressured governments and the politicised issuance of money. With the festering off-balance sheet liabilities threatening public sector solvency throughout the developed world, and central banks little more than fiscal puppets and economic cheerleaders (with the exception of the ECB, for the moment), we’re set to reacquaint ourselves with those villains in the flesh.
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