“The hottest places in hell are reserved for those who, in times of great moral crisis, maintain their neutrality.” ~ Dante Alighieri, Dante’s Inferno

War rarely begins with recession. It begins with interruption. A tanker route is threatened, an energy artery is questioned, insurance costs surge, freight is repriced, and suddenly the market is forced to rediscover a truth it had seemingly forgotten. Peace was embedded in every supply chain, every valuation, and every inflation forecast. The first effect is not collapse, but scarcity. The second is inflation. Only later comes the visible economic damage.

That is the sequence history teaches. The great oil shocks of the 1970s did not begin with recession. They began with a supply shock, then an inflation shock, then a prolonged period in which households absorbed the blow through falling real incomes and corporates absorbed it through margin compression. Policymakers hesitated. They have to. How can one support consumers when inflation is rising? Recession came later. It always does.

That is why the road forward is so dangerous. It is not binary. It is path dependent. In the near term, the most likely outcome is not immediate collapse, but a grinding repricing of vulnerability. Energy costs soar. Inflation expectations rise. Consumers feel poorer. Companies discover that pricing power is not infinite. Central banks then face the old stagflationary nightmare in a new and more fragile world: inflation is too high to ease aggressively, but growth is too weak to tighten without consequence.

And this is where the Fiscal Age becomes decisive. As we argue in our recent paper, we are no longer living in an era of monetary dominance, but one in which debt, demographics and political incentives increasingly subordinate central banks to fiscal necessity. The world is moving toward larger deficits, structurally higher state liabilities, greater inflation volatility, and the quiet erosion of monetary credibility. In that environment, the question is not whether policymakers remember Volcker. It is whether they can afford to behave like him.

Our view is that, medium- to long-term, they likely cannot. That leaves the most probable path as some form of financial repression: real rates held below inflation for extended periods, regulatory incentives pushing savings into sovereign debt, and the slow dilution of purchasing power used as the least visible form of default. Our Fiscal Age paper makes the point plainly: this is how debt burdens are most likely “resolved” — not through austerity, but through monetary dilution and recurring volatility.

That is why gold becomes so valuable now. Gold is not merely a hedge against inflation. It is protection against policy hesitation, fiscal dominance and the loss of trust that follows when states become too indebted to defend the value of their currency. In the Permanent Portfolio framework, gold and inflation-linked bonds sit precisely where they should: in the quadrant that protects against currency devaluation and loss of confidence. In an era defined by inflation volatility, energy scarcity and political uncertainty, gold stops being optional and starts looking indispensable.

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