20th
The Financial Instability Hypothesis
Financial times has an article (thanks Francesco F.), that rightly focuses on increased sources of instability in the financial system as opposed to the inflation vs deflation querelle:
Once perceptions of rising inflation return, central banks might be forced to switch towards a much more aggressive monetary policy relatively quickly – much quicker than during the previous cycle. A short inflationary boom could be followed by another recession, another banking crisis, and perhaps deflation. We should not see inflation and deflation as opposite scenarios, but as sequential ones. We could be in for a period of extreme price instability, in both directions, as central banks lose control.
This is exactly what the economist Hyman Minsky predicted in his financial instability hypothesis. He postulated that a world with a large financial sector and an excessive emphasis on the production of investment goods creates instability both in terms of output and prices.
