The document discusses various perspectives on inflation and financial repression in the aftermath of the 2008 global financial crisis. It notes that high levels of private and public debt in western economies, as well as a lack of monetary certainty, could lead governments to pursue inflation as a way to reduce debt burdens. However, inflation would be bad for financial institutions and could result in fiscal and monetary repression. The document expresses the view that a combination of growth, austerity, debt defaults, and some inflation may be needed to address the situation over the coming 20 years. Maintaining social order amid these challenges is also highlighted as important.

1. of :1
FACTS AND FANTASIES ABOUT INFLATION :
THE ROUTE TOWARDS FINANCIAL
REPRESSION
Bruno Colmant, Ph.D.
Director at the Royal Academy of Belgium
1
Professor at Vlerick Management School, UCL, Faculté Universitaire Saint Louis and ICHEC
Email : Bcolmant@hotmail.com

2. • Crises are normal expressions of market economy discipline
• Economy is the efficient allocation of resources
• A crisis is a point of discontinuity between two provisional phrasings
of future anticipations
• It reduces asymmetries (informational, etc.)
• Crashes as expressions of future (stock market) values are
impossible to predict
2

3. Of course, the subprimes, but …
3

4. 4

5. … Origin of the crisis
• Crises = catalyst for the globalization
cycle
• Velocity of production factors :
capital, labour and information
– 1893 & 1907 : agriculture, train, car, telephone
– 1929 : urbanity, radio
– 1974-1982 : IT
– 2000 & 2008 : Internet and credit
• 2008 Credit leniency followed by
massive deleveraging
• 2008 = seismic replication of
2000 crash ?
• Deep dive into market economy
• Systemic risk, but non diversifiable/
insurable
5

6. The ill-fated convocation of history : 1929 The probable model benchmark : 1979
6

7. First European pitfall : Weimar (1923)
7

8. Second European pitfall : Laval deflation (1935)
8

9. of :9
9

10. Government are business counterparties
For a State, a reserve currency is the one of a competitor State
For a banker, a State is a counterparty, with two exclusive rights :
> Levy taxes
> Print money
How is Europe perceived by the Anglo-Saxon bankers ?
The euro is a market economy choice in highly state-controlled economies
10

11. Debt increases
Gross Debt % GDP
140
120
100
Canada
France
80
Germany
Italy
60
UK
US
40
20
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
11

12. The US example
12

13. 13

14. Remember Fisher…
14

15. 15

16. My personal intuition I
• Context of globalization is totally underestimated
• Unsustainable amount of private/public debt in western economies
• Mistakes of 2001 are being repeated (avoid deflation)
• Lack of monetary certainty
• Mix of solutions :
• Growth (like in post WW II)
• Fiscal/austerity adjustments
• Defaults and restructuring
• Sudden and significant hike in inflation (inflate the currency in order to
reduce burden of debt)
16

17. My personal intuition II
• Paper (=fiduciary) money is “debased”
• Inflation = silent fiscal adjustment + interest rate increase
• Point of attention : inflation solves public debt if :
• Interest rate are administrated (i.e. do not include full inflation
expectations)
• Public debt is fixed rate, long dates and no exponential need
• But what is the tipping point ?
• Inflation is bad for financial institutions
• Fiscal + monetary repression
• Defaults factored in some countries
• But some countries have the capacity to legislate their currency value
(USD)
• How long will this last : 20 years (?) taking into account the cost of ageing
population
• Significant bubbles to come (repetition of occurrence)
17

18. What will be really at stake in the coming years ?
Combination public authorities and markets
Inequalities in a world featured by mobility of production factors
Scarcity of resources and debt excesses
Two extreme cases : Social order or Monetary order
Social order always prevails
18