Gavyn Davies discusses the tail risk of inflation ("As Covid optimism grows, investors seek to hedge against inflation risk," Opinion, FT.com, December 13). While his advice to purchase inflation hedges is sound, it might not be sufficient.
Investors depend on central bank liquidity. If inflation returns, easy money would cease and risk premiums would soar. This would devastate not only developed country stocks and bonds but also emerging economy assets.
It is understandable that policymakers forgot the lessons from the 1918 Spanish flu. It would be tragic if they forgot the lessons from the Great Inflation of the 1970s.