This Week in... Venture Capital

Innovation Week Review 22/2022

The buzzwords these days are:

• Stagflation

• Inflation and

• Recession

Sometimes I also hear the word

• Depression

The economic outlook isn't good; actually, it is really bad.

First, the reserve banks printed money at scale in the aftermath of the crisis in 2008. The party didn't stop after the crisis was gone. Governments and banks kept it running until early 2020.

Many experts said that the money printing, aka QE, and low-interest rates were responsible for the biggest asset bubble in the history of stock markets. Everything went up, stock, real estate, and novel technology like bitcoin.

Then came the pandemic.

The global shutdowns disrupted the supply chains, and the response to ease the economic burden:

• Printing more money

The usual expectation was that inflation might rise due to the behavior of Reserve Banks in combination with the shutdown. But instead, asset classes surged, and until February 2022, the needle didn't move much on the inflation scale.

On February 24, 2022, Russia started attacking Ukraine the situation changed and inflation skyrocketed. At the same time, China issued a new wave of lockdowns. Both scenarios prolonged the disruption of supply chains worldwide.

Since the FED reverted its approach and started quantitatively tightening and increasing interest rates in Q2/2022, the asset bubble started bursting. Jerome Powell said, that the FED will do everything necessary to prevent inflation from rising further.

Tech stocks were the first to go down, including all cryptocurrencies. The first cryptos started even going bust — thinking of Terra. Everything that doesn't have functioning business models and eco-system is in danger during such corrections.

Some might say, in retrospect, it was inevitable, but the big question in the room is:

Where will we go from here?