Between the end of September 2022 and the end of March 2023, my shares of a U.S. commercial real estate fund in which I am invested were devalued from $6.13 million to $3.81 million, meaning I lost $2.3 million in just six months. This was my largest loss ever on an investment .

It was primarily due to devaluations of office and retail properties in the U.S. as a result of rising interest rates. In the first quarter of 2023 alone, properties in the fund were devalued by 14%, but at a debt-to-equity ratio of 50%, that means a 28% loss at fund level.

And my painful personal experience is no exception. In fact, the fund is in a better position than other, more highly leveraged funds. Back in late March, Elon Musk warned that the state of the commercial real estate debt market is “by far the most serious looming issue.”

Musk had tweeted in response to a report that $2.5 trillion in commercial real estate debt will come due over the next five years and that many borrowers could default, resulting in big losses for smaller banks. This is because smaller banks hold about 70% of all U.S. commercial real estate debt. With so much debt coming due in the next few years, and with interest rates higher now than they have been in years, it is likely that landlords will find that their properties are not profitable enough to pay market rates on their refinanced debt.

We can now see the catastrophic effects of central banks’ policies. Let’s remember: After the dot-com bubble burst in the late 1990s and early 2000s, the U.S. Federal Reserve responded with substantial interest rate cuts, and interest rates moved toward zero.

In an opinion piece for the New York Times in 2002, Nobel Prize winner Paul Krugman recommended the following to the Fed: “To fight the recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

What an ingenious strategy from the anti-capitalist economist! He was advising the central bank to pursue a low-interest policy in order to create a house price bubble to replace the dot-com bubble. This policy created the next bubble, namely the housing price bubble, which, as is well known, burst in 2008-2009 and led to the great financial crisis. And how did the Fed respond? With even lower interest rates and the largest bond-buying programs the world had ever seen.

Five years ago, in my book The Power of Capitalism, I wrote about this financial crisis and the central banks’ response:

This is exactly what has now happened. The central banks have fallen into a trap: You can’t run the money-printing machines at full speed without sooner or later stoking inflation. Inflation first caused asset prices for real estate, bonds, and stocks to rise. Now it has reached consumer prices.

Central banks therefore feel obliged to raise interest rates. However, interest rate hikes lead to massive problems on the stock and real estate markets, as there are gigantic write-downs. The central banks have fallen into a trap of their own making, and it is by no means clear how they will get out of it.

Rainer Zitelmann is the author of the book In Defense of Capitalism .