@gopher, i think it is fairly clear, the British system has no constitution, it slowly chagned over hundreds of years taking power from the monarchy and putting it in the hands of politicians.

When the US gained their independence they took a system which the knew worked and enshired it in the American Constitution, they took the system which was based very closely on the British system at the time, and renamed the position of 'King', you call him the 'President'.

Ireland did the same, but we gained our independence only in 1921/2 Thus our constitution reflects a much more modern version of British Democracy.

The problem for both is that the constitutional system is too hard to change (though the irish government put two referendums before the people last month, in the time i've been allowed to vote there have been 7 different referenda, though two of the were about the Lisbon treaty, and one of them had been voted on before about the Nice treaty, both EU treaties which required changes in the Irish constitution)

Of the 7, 4 have passed. (With the treaties of Lisbon and Nice both passing the second time they were put before the electorate)

So to answer your question, the US oversaw the implementation of systems in Europe which they knew worked, while being unable to change the system under which they are ruled.

oh, and before i rant any further.

One thing should be clear, it is all about trust, a system you rust will work. A system which does not have the trust of the people, whether political or economic, will not work.

If that was 100% true then the US of A would collapsed in a heap and into the ash bins of history awhile ago! :P

I do not think that it is remotely healthy for every election to present the possibility of a policy revolution. The US system is remarkable conservative and that it its greatest attribute. Margret Thatcher never got more than about 43% of the vote and she was able to pretty much rip up the entire system. Say what you will, but that seems like a terribly unhealthy system to me. Similarly, the Republicans won comparable majorities in 1946 to Labor, overturning a similar 15 year regime that had won the War, and we got nothing comparable to the New Jerusalem government taking a wrecking ball to the system. There are reasons that Burke had nothing but kind things to say about our system. The difference between the British "Constitution" and our actual one is that ours was designed and debated and endorsed by thinking men who recognized and knew what they were doing and not some sort of haphazard emergent phenomenon. I have difficulty believing that anyone can read the Federalist Papers and the Anti-Federalist Papers and not view our system as being superior to British style systems.

I am very tempted to quote Hitler on the Great Depression and relate it to the modernday crisis, however a quick google search didn't find the quote I wanted :(

dont hope so

Well, the country that did the best in weathering the Depression was Japan. It is always worth remembering that the phrase "The New Deal" was coined by Oswald Mosley and FDR borrowed both the title and a good portion of the program from Mosley. For those of you who are not familiar with him, Mosley was the founder of the British Union of Fascists. His sister-in-law killed herself when WWII started, as she was supposedly in love with Hitler. Keynes said a great many embarrassingly laudatory things about Mosley and his good sense on economic matters.

As for Hitler's economic record it is worth remembering that Germany in 1914 was the Industrial power of Europe and none of their infrastructure was damaged as Belgium and Northern France (their main competitors) were devastated. Then the US loaned them three times their reparations payments, which mainly went into further developing their industrial infrastructure in the late '20s. France on the other hand got the booby prize out of WWI of taking an industrialized region from Germany that was totally integrated into the German economy. France got factories and mainly iron ore mines that required a constant supply of German Coal and weren't even connected to the French Industrial regions in the Northwest.

@gopher: thats not entirely correct, Germany was hit the hardest in the 20s, and Hitler revived the economy thanks mostly to the US loans, however Hitler and his band still got Germany out of the depression, reduced unemployment to 0 and turned Germany from the post-war embarrassment to one of the world powers.

Sure his racist anti-intellectual policies score a negative but his economic policies would have made Keynes proud, and did revive the German economy.

American loans were defaulted on in the early '30s. Hitler did not get a huge flow of American credit. Germany was the worst hit during the Great Contraction 1929-1933. That was a credit event. Huge credit flows from the US from 1924-1929 stopped abruptly. The memory of the hyperinflation caused Bruening to pursue policies that amplified the cyclical downturn. Hitler defaulted on the external debt and walled Germany off from the global economy. Import substitution generally works well for the first decade or so, as does cartelization and corporatism (for a shorter period), then growth stalls out. That is more or less what Hitler pursued.

Fasces, I am an International Macroeconomist. I teach Growth&Development and I spent three lectures about two weeks ago teaching all of this......The Great Contraction from a global perspective and the aftermath across the countries. My friend Matt wrote his Honors Thesis at Penn on the French Economic Policies from 1918-1926. We seem to end up talking about the post-Great War reconstruction at every cocktail party situation......and Minnesota is renowned in the Economics World for its obsessive drinking culture.

Even today, the Keynesians sill sing the praises of Imperial Japan in the early 1930s and did their master.

gopher to what level are there parallels between the hyperinflation of Weimar Germany and the current QE approach? Whats likely to cause a tipping point?

Hyperinflation ain't gonna happen. The only "real" country that has ever had hyperinflation is France, three times. And one of those was the Assignant (followed by the Mandat) during the Revolution, and so probably doesn't count. The other two times were the Mississippi Bubble that destroyed the Livre (when people really did not understand what was going on) and 1926. The Continental during the American Revolution did not deflate quickly enough to qualify, but again Revolution. The Confederate Dollar doesn't count since again the CSA was not a "real" country. Short of your country being invaded or a revolution dissolving the state, hyperinflation is hard to achieve in a functioning society. People forget that the famous period of the German hyperinflation was the occupation of the Ruhr by France and Belgium. At the time, 50% of the GDP of Germany passed through the Ruhr Valley at some point during production, so half of the economy shut down for like 9 months.

In the US, we changed the definition of inflation in 1994, switching from a true CPI (fixed basket) calculation to a GDP deflater. Think about a world in which you consume bananas, apples and oranges. Let's say everyday you eat 2 bananas, one apple (to keep the doctor away) and three oranges. One day the price of bananas triples, so you stop eating bananas and eat more oranges. The new way looks at what you buy rather than just looking at a fixed basket of stuff. However, I'm told that if you go back to the old way of calculating inflation, then we are at 1970s levels. I do know that the first half of 2008 equaled the first half of 1980, and supposedly, we are getting back to those levels. Having just gone grocery shopping, I know that the BLS's published statistics are either total bullshit or utterly detached from reality. One of the other wonderful statistical quirks of the system is that house prices aren't in inflation, but "imputed rent" is. So how much it costs to buy your house is not in inflation, but how much it would cost to rent your house is. Therefore, if you have overly low interest rates that spawn a credit driven housing boom and the homeownership rate heads for 70%, then the hundreds of thousands of newly empty apartments drive inflation down.

interesting stuff, is that inflation figure calculated the same way everywhere?

I know in ireland we had a huge housing boom, though rent actually continued to go up with the general rise in prosperity (not down as you would assume, it didn't come down until the housing boom collapsed and along with a massive drop in the cost of new houses - and people getting into negative equity situations)

Near hopeless, Europe will collapse and fall under a form of nationalism, the parts that don't fall under Muslim and Russian rule that is.

does that mean the moors will come back to spain? interesting theory.

It is important to remember that the US housing bubble was remarkably small. What distinguished our bubble was that it popped so much earlier. It is a major pet peeve of mine that "experts" in the US seem totally unaware of this fact. Talking to other Econ grad students at one of the top 5 Macro programs on Earth (or more properly listening to then talk) about our current crisis is enough to make one weep. They know nothing about what actually happened but have absolute certainty about the dynamics. Our bubble was nothing compared to the UK, Ireland, Greece, Spain, Portugal, Australia and South Africa, but was even significantly smaller than France, Italy, The Netherlands, Sweden, Belgium, Denmark and even Canada. Basically, Germany, Switzerland, Japan and Hong Kong are the only major markets that underperformed the US. And all people talk about here is Greenspan and the Fed or Fannie and Freddie and our "race" based housing policies. So it is always possible that the effects of these same processes have radically different effects (housing bubble on rents) once one crossed a certain threshold of magnitude. As for how the Eurocrats calculate inflation, I am blissfully ignorant. Gopher's fact of the month, which I have not checked, is that my research partner informs me that the OECD (the rich country club) has pulled down all economic statistics on Greece for the last few years, presumably because they are all just lies.

BTW, "Russian rule" will be greatly shrinking over the next few decades along with their population. And as for "Muslim rule", what is that? I'm unfamiliar with the concept. ;o)

To clarify my above point, I presume that if bubbles develop everywhere at the same time, then they probably have similar causes. If one wishes to argue that US policy cause the US housing bubble, then one needs a transmission mechanism to the rest of the world. And since the phenomenon was more pronounced everywhere else, one also needs a transmission mechanism that when it interacts with the other systems actually amplifies the effects. This is not an intellectually easy thing since generally transmission mechanisms diminish the effects and only amplify in very special cases where a small economy is unusually depended upon a much bigger one.

transmissions mechanisms don't necessarily diminish effects, at least in biological systems you can have positive feedback loops which amplify effects, and that would equally apply to social/economic systems. (or more importantly to complex systems in general; biological systems tend to be self-regulating)

From the little i know of the Irish housing bubble, one bank was lending large amounts, and when the other banks saw the amount of money being made they started to copy these practices.

The lending did of course increase house prices (because more money was available) and even generate more housing because developers wanted to make money from these increased house prices...

all in all this sounds like a pretty simple amplification mechanism.

Germany had also a hyperinlfation during the great crisis.
Also I think most important was the traety of versailles.

'the great crisis' - i'm not familiar with this term, is it synonymous with the great depression C1929-1939

interesting:
http://en.wikipedia.org/wiki/Smoot-Hawley_Tariff_Act

Germany had deflation during the Great Depression just like everyone else. Weimar Germany, had one hyperinflation right after WWI just as Austria, Poland and Hungary did and then it accelerated into the famous super-hyperinflation of 1923-1924, but neither bout really had anything to do with the Treaty of Versailles, other than Germany failing to deliver timber to Belgium and coal to France under the term thereof and them invading Germany.

It is worth remembering that on net Germany paid significantly more for food imports during the Winter of 1918-1919 than they paid in reparations. The root of the hyperinflation was the fact that the Allies paid for the war amongst themselves with heavy long term borrowing from the US. Germany paid its side all by itself with short term internal borrowing. Their expressed intention during the war as they were financing it was to crush France and Russia and pay off the accumulate debt by practically liquidating the economies of those countries. When that option was closed off, the result was massive money printing. Dr. Schacht ended up buying in the entire Germany national debt in 1924 for $300,000, both the normal accumulated debt and the entire cost of the war.

Versailles was not even remotely comparable to Brest-Litovsk or the Treaty of Bucharest.

@orathaic.....That is not a Transmission Mechanism. Things happened in Ireland that caused a housing bubble. A transmission mechanism would be Irish homeowners then took out home equity loans on their house price appreciation in order to buy vacation homes in Portugal. Now if house prices in Portugal then went up even more than Irish house prices then you would get the effect that I was talking about. In the US California can have that kind of effect on Arizona, Oregon, Nevada, Colorado, Utah and Idaho as people sell their houses in LA and move to Phoenix driving greater percent appreciation since real estate prices in California are much higher, so a 5-10% appreciation in LA can cause 20% appreciation in Phoenix, and New York can have that kind of effect on Florida to a degree.

I think Ireland had more to do with a banking system that historically was in the real estate credit business, because they were relatively unsophisticated banks in a small, poorer country. The Euro comes along and interest rates that have historically been quite high relative to say Germany begin rapidly falling to German levels, but are still a bit higher. With an ocean of German savings to tap, Ireland is effective a small open economy with internal interest rates slightly higher than the global prevailing rate and can now effectively borrow a seemingly infinite amount. Credit will flow into a banking system that only really knows how to do two things with money.....loan households money to buy houses and loan developers money to build them. Cue orgy. The problem with that story is the US, Australia, Canada, Iceland, India, Denmark, South Africa, Sweden and the UK, none of whom are in the Eurozone.

yes, i wasn't claimed that this mechanism lead to transmission from the US, just that it was an example of a transmission and such a thing is possible.

The irish story has one historic bit you missed, due to years of British landownership, and absentee landlords, the issue of owning one's home (instead of renting as in say germany) is one which hold cultural significance even now 150 years after the original land acts which greatly improved tenants rights...

It wasn't just a culture of unsophisticated banks, it was also a culture where home ownership was very important to every household...

That is still not a transmission mechanism. A transmission mechanism is what causes a phenomenon in one economy to jump the border into another. What you were describing was the phenomenon itself. The cultural stuff yields the kinds of bank that I was describing, but again, transmission mechanism. Nothing we've discussed explains how these phenomena in Ireland would lead to a similar housing bubble in the UK, much less Australia; therefore, I don't think that any of these explanations are correct. You are free to argue that a dozen housing bubbles happened all over the developed world at the exact same time for a dozen totally different unrelated reasons, but I think that the burden of proof for such a case is on you. And no I'm not claiming that you are arguing that consciously, and you certainly did not say what I'm putting in your mouth.. But to claim the uniqueness of Ireland, you must either claim everyone had a bubble due to global factors while Ireland had a local independent bubble or else everyone had a local independent bubble.

i don't think i've made any such claims, and though i'm sure there were irish cultural factors which contributed to the size of the irish bubble, that doesn't mean that there can't also be international factors...

i don't know, but i think business standards and practices can easily be copied across continents. Germany may have suffered less for having a large number of renters (so when the crash hit and rents went down individuals who didn't own their benefited) meanwhile german banks were still exposed to debts of banks in other countries.

I assume that the whole free trade thing applied to financial assets leads to the common sense of exposing one market to another's debts...

You made the claim implicitly. It is an inevitable consequence of what you said. Germany does not have an unusually high number of renters relative to half of the bubble economies, just Ireland. I'm probably a bit older than you are, but when I was in high school, it was an accepted wisdom that the Nazi era and the presence of the Stazi in the East made Germans obsessive about personal space and the "private garden" ideal. This Sociological argument was used to explain Germany's unusually high home ownership rates relative to the rest of Europe. As a Ropke enthusiast, I always liked those lines of bullshit. Ropke, btw, sketched out a picture of what we today would call suburbia and said that it was the greatest possible defense against Totalitarianism. In 1945, he explicitly advocated that Germany should rewrite its land use laws to encourage massive scale suburbanization much like what began at the time in Southern California and Long Island.

I'd say the biggest factor is rather that Germany had a housing bubble in the late '80s and early '90s much as Japan and Switzerland did. Hong Kong, which may be having a housing bubble now, was spared in large part by the super duper housing bubble they had in the '90s. The problem of course is that Sweden had a housing bubble in the late '80s and still had greater house price appreciation than did the US.

You also have to remember that European banks are in much worse shape and were much more reckless than the US banks. The ruthlessness of our markets simply exposed the problems more quickly. According to the Eurocrats, Dexia was the best capitalized bank in Europe. Collectively, the major European banks will need to reduce their outstanding loan portfolios by over a third, with no loss of equity, to get to the capital ratios of the big US banks. That is going to be economically painful. Given the Eurobanks' lending positions in Latin America and even in Asia, we may see major disruptions globally as this happens. I read something this week talking about if Deutsche Bank's US subsidiary were a stand alone institution. It would be a top 10 bank in the US and would have an implicit assets to equity ratio to imply 77-to-1 leverage in its operations and would be shut down by regulators, not to mention attacked by speculators and killed by the markets.

@ gopher - what do you define as a housing bubble? You mention Australia but while prices have marginally gone down the last 12 months there's been no collapse like what you generally see in bubble style markets.

interesting ideas concerning 3rd reich and stasi
maybe the massive protests against googlestreetview can be explained with that too