Perhaps the oddest story to emerge from the financial crisis (although, heaven knows, there is no shortage of contenders) is the one about the professional investor who is buying World War I British government bonds.

These were sold to the public to help pay for the costs of the war. In return for “lending” the government their money, the purchasers received a fixed interest of 3.5%.

The quotation marks are because, unlike most government bonds, there was no promise to actually repay the money. It has never been repaid, so the bonds are still there, still paying interest. Perhaps not surprisingly, they are known as “perpetuals”.

It is not the interest rate, though, that attracts this investor. Paradoxically, because there is no date for repayment of the actual money value, there is no intrinsic limit to how much the value of the bonds could rise as other interest rates and inflation fall.

He believes, as most commentators now seem to, that UK interest rates will fall to zero, and inflation will do the same, adding greatly to the value of a 3.5% rate.

Strange times indeed. Many readers may have thought it was a misprint when we reported that Bank of England rates were as low as they had ever been since 1694.

Such mistakes have been known to happen, alas, but this was not one of them. Rates have never been less than 2% in the 406-year history of the Bank.

History is about to be made in a few weeks' time, with the next cut in UK rates. We shall have to see if anyone can figure out when last the cost of money was less than 2% in England (no United Kingdom then).

Was it Henry VIII? Ethelred the Unready?

There are rather more recent precedents for another odd thing which may be about to happen — the Bank of England and other central banks “printing” money.

That is an unfortunate phrase, because we are not talking about producing more of the coloured paper known as banknotes. But central banks do have the power to create money out of nothing.

My nine-year-old granddaughter Isabelle shrewdly asked me why, if everyone is complaining so much, they don't just make more money.

Finding a suitable answer was rather more difficult than writing a column like this. For you, I will merely point out that the practice is popular with the Central Bank of Zimbabwe, which also explains why it is generally frowned upon.

Yet the Bank of England has said it may have to introduce “quantative easing,” where, instead of just making money cheaper by cutting rates, it deliberately increases the amount of the stuff.

The most likely method would be for the Bank to lend the Government money, by writing very large cheques, instead of the normal practice of the Government having to borrow other people's savings.

The reason for all these oddities is the most fearsome oddity of all — deflation. ECB president Jean-Claude Trichet draws an important distinction between deflation and “disinflation”.

The latter is where prices fall for a time, but the falls are not part of a general, persistent decline which feeds parts of the economy.

It is the mirror image of inflation. Last year, Mr Trichet used to say that the rapid rise in oil prices was not inflation, even if lesser mortals called it that.

It was the ECB's job to prevent these rising energy prices turning into inflation, by affecting wages, prices of other goods and, critically, expectations of future price rises. The Bank of England and the Federal Reserve are clearly afraid that deflation threatens their economies, where falling prices for some goods feed into cuts in wages, falls in the prices of other goods and, critically, expectations of future price falls.

They can cut interest rates to zero, and probably will, but, after that, what has been called the nuclear option of “printing” money will have to be tried.

To see why they fear it, one has to remember that the observation by the economist Milton Friedman, that inflation is always and everywhere a monetary phenomenon, is still part of central bank orthodoxy.

What is true of inflation is also the case for deflation. The collapse of the US money supply was the key characteristic of the Great Depression.

The UK’s narrow money supply of banknotes and deposits is now falling.

So, incidentally, is the Republic’s. According to the Central Bank, the €197bn known as the M2 money supply in October was €5bn less than in the same month last year.

The “velocity” of money as it moves around the economy, which economists regard as an important indicator, is also falling. Credit is still growing, albeit slowly, and Davy Stockbrokers say the “pernicious” effects of falling credit must be avoided at all costs.

Ireland is certainly in for a bout of disinflation next year. Falling energy prices, falling interest rates and falling sterling will bring inflation close to zero and may turn it negative, where the cost of living is coming down.

There have been far too many sloppy references to “prices falling” when it was just the rate of inflation that was falling, but next year it may be true.

There must be a danger that negative Irish inflation, combined with the continued contraction in the building industry and the general global recession, could pitch the country into deflation.

The Central Bank can measure the Irish money supply but it can no longer increase it directly.

As a member of the euro system it has no nuclear button — always assuming it was ever willing to press one.

The only time I know of when the Central Bank “printed” money was to pay for Charlie Haughey's public service redundancy programme in the 1980s.

Now there may be another such scheme, but this time the Government will have to find the cash itself — presumably by borrowing.

The rules are different for Ireland, as a member of the euro, than they are for the UK.

The ECB set policy and deflation looks unlikely for the euro area as a whole. But it is not impossible for Ireland. There is one way, though, that the euro can help.

Foreign borrowing in the domestic currency, as is possible in the monetary union, is how the banks fuelled the boom.

Doing the same may be the Government's best chance to mitigate the bust.

Just how much borrowing it should do — and the terms on which it can raise the funds - are topics about which we shall hear much, much more in coming months.

Brendan Keenan writes for the Irish Independent