As the debate rages over who the next Federal Reserve chairman will be, it seems Ben Bernanke’s legacy will not just be that he saved the world from financial calamity five years ago: he is also likely to bequeath stagflation, or at least a mild form of it. It is not possible to keep real short-term interest rates negative for this long in the face of even modestly positive real economic growth without generating financial imbalances and inflationary excesses down the road.

The great secular bull market in bonds started in 1981 with inflation and bond yields at 15 per cent, and expected to head higher. With the benefit of hindsight, it is clear the consensus of forecasts at the time underestimated the resolve on the part of Paul Volcker, Fed chairman, to slay the inflation dragon.

It took him four to five years to do so, and it was not until the mid-1980s, when bond yields finally broke below double digits, that the investment community bought into what the Fed was trying to achieve, which was disinflation, followed by price stability.