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Financial crisis


Time and again, a number of factors are mentioned to explain the 2008 world wide financial crisis: greedy bankers who took too many risks, a lack of supervision, financial deregulation, and so on. These causes have definitely played an important role. But they weren’t the root cause.


Too much loan money


At the core, the financial crisis was caused by a large amount of superfluous loan money (the ‘global saving glut’). Around the world, private individuals and organizations had built up so many savings that they exceeded the possibilities for productive investment. In other words, there was much more loan money available than companies could meaningfully invest in new production facilities. Companies either did not see any possibilities for meaningful investments in their particular branch, or they themselves had the money to make those investments.


In this situation, banks started to lend the superfluous money for non-productive purposes, and to individuals and institutions that in fact were not creditworthy. And because the supply of loan money was so large, interest rates went down, which made it more appealing to borrow.


Real estate


The superfluous loan money partly went towards mortgages taken out by poor Americans. In the past, they had not qualified for these mortgages, but because of the saving glut they suddenly did. And because of the low interest rates, they suddenly could afford them, too. The result of all these new mortgages was an increase in the demand for houses, and thus in the house prices. Here, the foundation was laid for the real estate bubble – a rise in property prices that went too far – which would burst later.


House prices, however, are connected to the prices of the underlying land. But land should not be bought and sold. Land should be managed by a neutral institution. The only task such an institution would have, is making sure that the land is used productively in a social sense. The users of the land (for example a farmer) should pay the management costs to the institution, but these would be considerably lower than the current ‘land prices’.


What’s the result when land can be bought and sold? In this situation, it has the tendency to “suck up” money, which makes the prices rise until they collapse. A lot of value is destroyed then. This is exactly what happened during the financial crisis.


National debts


Another part of the superfluous loan money went to financing national debts. Because of the low interest rates, it became easier for governments to borrow even more than they were already in the habit of doing. That went fine until national debts became so high that financial markets, partly because of the emerging financial crisis, lost faith in the ability of national states to repay all loans according to plan. They started asking higher interest rates to cover the risks, which created more problems for governments, which meant they had to borrow even more, which led to even higher interest rates, and so on.


Just like house prices, national debts in the West have been almost continuously on the increase. The global saving glut has accelerated this process even more. National debts are caused by the fact that states have taken on too many tasks. The tasks are so numerous that states cannot finance them from tax revenue alone. Time after time, they have to borrow to be able to execute those tasks.


If we look at the list of government tasks, we find many that don’t belong to the state at all. Education, arts, science, health care: they should all be a part of an independent cultural life. Gift money is the appropriate way to finance cultural life. Gift money is money that is donated without conditions to organizations and individuals that aren’t economically productive, but are in other ways productive for society.


The money cycle


And so we’ve come full circle. The many tasks that the state has mistakenly taken on, belong to an independent cultural life. That cultural life should be financed by gift money. And there’s plenty of gift money around: it is the superfluous loan money that cannot be lent towards meaningful purposes.


This superfluous money should be donated to areas of cultural life which develop, stimulate and take care of many things that are of importance to society. The creation of an independent cultural life, which takes over tasks from the government, considerably lightens the burden on the state. Consequently, governments will need less money and won’t have to borrow anymore. And independent cultural life can perform its tasks more ably and more efficiently than the state would do.


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