Clem Chambers: Huge debt mountain can be slowly shrunk by erosion of inflation

There are 20 million people – give or take – in private sector employment, and it is these people who will have to pay for government expenditure and pay off the vast new national debt.

Twenty million workers into 500 billion new debt is approximately 25,000 a head. As they say in the United States, that's a big ask when the average worker's salary amounts to about 25,000 a year.

It would be nice to imagine that there is someone else to pay off the debt, but in the end it all boils down to people in employment, through direct and indirect taxes.

Can we collectively pay an additional year's salary away in tax to pay this off, even, say, over five years? It really doesn't seem possible. So then how is it going to happen?

Actually, the solution is tried and tested and it isn't a private sector solution. It will be public sector employees who pay off the debt: the printers of banknotes.

Inflating away the debt is the only practical solution. Inflation is actually a flat tax that shifts resources away from the owners of money (lenders) to the controllers of assets (the borrowers).

Inflation does mangle economies, but it also makes big numbers small. After all, what's a few billion between friends in Turkey?

Solutions don't have to be all or nothing. High taxes and inflation would hardly be a novel approach. Once again the ghost of the 1970s looms large.

Strangely, if this happens it won't have to be bad for equities. Equities can be extremely tax-efficient if held for medium-term periods, and capital gains tax is low for now.

Listed companies are often well diversified internationally to make their sterling footprint low, so their profits and value will be hedged against inflation and sterling by their foreign currency sales and earnings.

In a stagflationary picture, bonds are not going to be a place to hide, so money flows will be equity-bound.

So it could be a perverse reality that, as we suffer inflation and high taxation, we will get a buoyant stock market. Funnily enough, the current strength in the market also seems against the run of play, even though I have been calling this rally for a long time.

It's only by taking the long view that things start to make sense. We have actually seen this all before – you just have to look far back enough.

• Clem Chambers is chief executive of stocks and shares website ADVFN.com. His second financial thriller, The Twain Maxim, will be published on 21 April.