In the laboratory of history, great inflation followed by great disinflation opens the road to monetary regime change. Sometimes the road leads to a better place. Think of the US return to gold in 1879 following the inflationary issue of greenbacks during the Civil War; or the era of the hard deutsche mark when the German Bundesbank responded to the great inflation and bust of the late 1960s and early 1970s by insulating its money from continuing US inflationary storms. At other times the journey to regime change has taken a wrong turn or headed into a cul-de-sac—witness the “2 percent inflation standard” adopted in the wake of the inflationary boom and bust following the Plaza Accord of 1985.
The history lab has yet to reveal what path the road will take

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