Newspapers hate giving credit to rivals, so when an article in one is cited in another you can guarantee that it is a significant piece of work. John Kay's analysis in the FT on the state of the public finances has already made it into the Times and the Spectator, and I can't say I'm surprised. It is jaw-dropping.This year, Britain is likely to incur a fiscal deficit of more than 12 per cent of national income. This figure is completely outside the normal experience of developed countries in peacetime...Even if there were a rapid economic recovery, there would still be a large deficit. At least half of the current deficit will need to be eliminated by cuts in public expenditure and increases in tax rates. These will have to be very substantial. After all, 1 per cent of gross domestic product equates to 3 per cent of public expenditure, two points on the basic rate of income tax and three points on the standard rate of value added tax. At least six such "units" of deficit budgeting will be required over the next few years.

Kay concludes that Britain and America will let inflation rip to keep the inevitable tax rises and spending cuts down.

"Inflation reduces the value of public and private debts and makes many adjustments easier. It is much easier to fail to keep wages and salaries in line with inflation than to reduce them outright. It would be a pity to throw away the gains from a successful struggle over two decades to squeeze inflation from western economies. But the governments of Britain and the US may separately and privately conclude that such a choice is less bad than the other options they face."

Inflation will indeed help indebted individuals and governments. It is not such a marvellous idea if you are on a fixed income, have savings or are working for an employer who cannot or will not compensate you with wage increases. Keynes's "euthanasia of the rentier" is on its way.