The global situation resembles the 1970s. The Fed engaged in easy money policies in 1971 and 1972, in part to facilitate the reelection of Richard Nixon. High inflation did not emerge immediately. Money illusion prevailed and behavior was slow to change. But a series of geopolitical events in 1972-1973 culminating in the Yom Kippur War in October 1973 led to an oil embargo and sharply higher oil prices. In turn, that raised inflationary expectations.

Economists ever since have blamed the “oil shock” for the inflation of the later 1970s. But a proper understanding is that easy money before the embargo created dry wood and the oil embargo was a spark that lit the fire. You need both the wood and the spark to have the fire of inflation. The same is true today. The Fed and other central banks have printed trillions of dollars of money in the past four years. So far, inflation has been relatively tame. But the printed money is only the wood; a spark is still required. Events in the Middle East, Ukraine and China today may provide the spark.

The result may actually be the worst of all possible worlds — higher inflation and weaker growth, called “stagflation.” The Fed is between a rock and a hard place. If they withdraw ease by tapering the money printing, they will puncture asset bubbles. If they keep printing, inflation will gather strength. As weak data emerges over the rest of this year, the Fed will realize it has tapered into weakness. This will cause them to launch new money printing, or QE4, in 2015.

By then, a geopolitical witches’ brew will have emerged, and act as a spark for inflation that will race past the Fed’s expectations. Stock and property bubbles will burst, banks will be in distress, and the safest assets will be energy, gold, land, natural resources, agriculture and other hard assets.