Brave New Year

I have not been writing here during the crazy pandemic years, but I thought it would be good to share an observation. It is today the 20th anniversary of the Euro as a currency in daily use. “20 years of stability, experience we did not”, as Yoda might have said it.

As I wrote in January 2020, the dominant theme of the decade seems to be “disappointment”. I think that the last two years have not panned out as most people expected. For us in the asset-owning classes, it has been a bonanza of government money handouts and all-time-highs on the major stock exchanges. The rich get richer, as the main theme has been since the 1980s. However, most people have seen their purchasing power go down.

In the Netherlands, where I live, house prices have ballooned with +20% during the last year, up from an average of +8% per year the previous five years. (While political leaders claim that the inflation is around 1%)

One of the drivers behind the asset price explosion is the money printing by the central banks, see ECB balance sheet in the graph below: [1]

Explosion of money – money printing by European Central Bank. Most other central banks do the same…

From 2007, before the Financial Crisis until 2015, the balance sheet doubled. Then it doubled again in 2018, and again in 2021. We have 8 times more money in the base of the euro system. But since we don’t have 8 times more houses now, the house prices are increasing to arrive to a new equilibrium. Those who own the assets are fine, those who don’t will see their rents continue soaring.
(I wrote about this in 2017, and at the time I could not imagine that these shenanigans would continue for so long!)

This is a situation that is very similar to Weimar Germany in 1922, one hundred years ago. Money printing was used to solve temporary crises, and since it worked fine in the beginning it was continued. It all ended with a well-documented hyperinflation and a restart with a new currency, see e.g. the excellent book by Frederick Taylor [2].

The situation today is not so similar with another interesting crash – of the stock market 1929 [3]. At that time, it was mainly “investors” and speculators who took loans to gamble on the stock market. This time, it is mainly governments and corporations that borrow money, like in the Weimar case.

One good resource that explains the dynamics of different kinds of debt crises is the 2018 book by Ray Dalio [4]. It gives a fascinating account of several crashes throughout history with contemporary news items and explains the governing mood of the times. It is spooky to read, since we know the outcome.

What do you think the next crash will look like?


Who provides the money/credit: investors, private persons, foreign investors

Who loans the money: Central bank

Where does the money go: Fill budget deficits (purchase gold for war reparations)

General media mood: Worry, civil unrest, demonstrations, communist uprisings

Crash: Strong inflation -> price controls -> market dysfunction -> hyperinflation -> useless currency


Who provides the money/credit: Private persons, investors -> “10% call loans”

Who loans the money: hundreds of thousands of stock-market speculators

Where does the money go: Price increase of stock market

General media mood: Optimism and fantastic future!

Crash: Stock market dip -> call loans default -> Calling back credit -> more dip -> lots of people lose all their savings.


Who provides the money/credit: Central Banks (in 10 years, 700% increase of balance sheets)

Who loans the money: Governments, 1000 large corporations, banks

Where does the money go: Budget deficits, price increase of real estate, stock market -> small group of owner class (the 1%)

General media mood: Crisis! Pandemic!

Crash: ??

Velocity and palm trees

Since you read until here, I would like to share another thought. I suspect that the trillions of euros that have been parked at various off-shore accounts will come back into the real economy this year. When inflation increases, the people who have stashed away their savings somewhere far away at 0% interest, will start to panic. When their savings are shrinking due to inflation, they will try to get their money back to purchase anything that stores value. Quickly. Transaction speed will go up. I suspect that real estate and other assets will balloon due to this phenomenon. What do you think? Is there any way to measure/monitor this?

Read more

  1. ECB Balance Sheet, ECB official data, from and
  2. “The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class”, by Frederick Taylor, 2014, Bloomsbury publishing, London
  3. “The Great Crash 1929”, John Kenneth Galbraith, 1955, Houghton Mifflin
  4. “Principles For Navigating Big Debt Crises”, Ray Dalio, 2018, Bridgewater
  5. House price statistics in the Netherlands,

3 thoughts on “Brave New Year”

  1. Hi Goran, like your sharp observations in historical perspective ! Chestnut trees are the best investment I guess. 😀

    1. Indeed. Nut trees and a dry place to stay, high above the waves of the ocean.
      Let’s see how the crash develops.
      What do you think? Up or down? Inflation or deflation?

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