Financial Crisis

I've been predicting it for the last ten years or so, a financial crisis was building up. Unfortunately for me, it has become true.

The reason, in my simplistic view is simple: Too much cheap global money. A lot of money means you're stuck in a casino game and without control that will be invested at those places with the biggest pay-off, which, almost by necessity, are those places with the biggest risk. And since companies, or banks, are driven by profit, they are, to some extend, forced to follow the lead of others, and invest, either direct or indirect, at those places.

The general feeling was that we had good control of the global economy; the bad implication of that is that that feeling alone means that risk builds up in pyramid schemes, and that means the following recession will only be deeper since it is inversely related to the summation of trust which has been build up in a badly controlled financial environment.

The current solution as provided by the US government is that they will introduce more money into the system, thereby making money more easily available, but also introducing the risk of inflation, which in turn might deflate their national debt. Another risk is that if inflation sets in, foreign countries will lose their trust in the dollar and the US economy will come to a grinding halt.

The Dutch cannot follow this scheme. We don't have a national monetary system, so we will need to follow the lead of the international markets. So far, the Dutch have pumped money into the banks, to avoid any major collapse. The Dutch are exceptionally wealthy, even if their national debt is not that much lower per person than the US'es, a nineteen-thirties like depression is unlikely. A problem with financing the banks is that our national debt has been raised, which may work-out good or bad pending US developments.

The Dutch government is puzzled by what they should do about the recession, but being a small country they cannot change global tendencies. A problem is that politicians are driven by simplistic ideologies, not economic consensus.

My personal take is that they should invest in something very un-Dutch: Nationalism. Enforce trust among local companies, keep employment high, very gradually minimize investments in US-related capital but spread it internationally and keep bilateral loans and investments in balance, invest in structural projects, heavily in small wealth-producing companies and international relations and just keep a tight budget.

(And, preaching for my own kind. IT producing companies are a rare industry where software sometimes has margins of 200% instead of most normal brick-and-mortar companies which often work with margins of at most 5%.)