Financial bubbles are about changes in relative prices. Temporarily, prices of internet stocks, real estate or even tulips (as the Tulipmania of 1637 proves) begin moving out of step with their fundamental value and all other prices in a market economy. The Fed is blind, because it knows nothing at all about changes in relative prices. The general price level is what keeps Fed-officials up at night, with all the consequences this might entail.

We are nearing a point of no return. The Japanese central bank, for instance, already owns over a third of all outstanding public debt. And Japan is no exception. In Europe, a similar tendency exists. Last week, the Bank of Japan decided to cap the interest rate on 10-year government bonds at no more than 0%. That implies that the Bank of Japan, every time interest rates rise above 0%, will continue buying Japanese government bonds. Until the central banks owns all outstanding government debt.

Miraculously, we have historical data on the evolution of interest rates in the Netherlands - arguably the birthplace of capitalism - dating back all the way to 1540. Yet during the past 476 years we have never experienced what we experience today: negative interest rates. After the European Central Bank (ECB) began charging negative interest rates to commercial banks (the central bank is the bank of banks), interest rates turned negative elsewhere as well. However, from the point of view of the ECB there exists an almost insurmountable hurdle: paper currency. The “war on cash” is about to erupt. This is what the ECB will (and can) do.