WW1 distorted capital, labour and consumption, towards smokestack industries.

Britain incurred hige war debts to the US, repayment of which depressed the economy in the 1920’s, and she found her continental European markets difficult to re-enter because America was preferred by Germay et al. (can’t imagine why, it was just a small war!).

However, the labour and consumption disasters were particularly long-lasting: WW1 wiped out a generation of managerial and skilled labour (the kind that made up to the post-WWII prosperity boom) while heavy industry workers were not drafted. The war, which did not significantly damage the US, Germany, central European and British industrial heartlands (although France got nicked and Belgium took a bullet), so at its end, the global economy found itself with a surplus of heavy industry and a lack of domestic consumption and foreign demand for a generation.

It would have taken more than a generation to restore, except WWII was the opposite kind of war, that flattened cities and industrial plant but left the people standing (relatively – and I ignore the civil wars and famine in Russia and China for the period WW1-WW2). So capacity was brought in line with consumption growth. Most of the capacity happened to be in the USA. Consumption growth in Europe was again fuelled by US finance (the Marshall Plan).

Only Britain was forced to fund recovery post-WWII from internal cashflow, and while her Empire was dismantled, but those were always explicit goals of America in WWII – brought about in part because of Imperial Preference and the use of tariffs, which were only tit-for-tat for Smoot Hawley.

“Fair trade” has some nasty consequences, especially for Empires rather than small trading nations….

For the heavy industrial areas in the North of England (especially the North-East), it can be argued the Great Depression started in 1919 rather than 1929.

(Perhaps parts of the US Rustbelt are in a similar position today. They’re not going to fall as far in percentage terms simply because they weren’t involved in the earlier rise.)

The world’s major oilfields were located in the Gulf and under British control. I don’t know the figures but I imagine the major part of European consumption came from Gulf fields (rather than the more minor Romanian and Caspian production, and US production that was presumably subject to tariffs). A non-discretionary import by your competitors is a helpful thing to have when devaluing.

NB: The balance of payments implications of the Anglo-Persian oil company were still important enough to justify the UK-promoted coup against Mossadegh in the early 50’s.

America today has an empire (the BWII dollar zone) and she has a reserve currency but she does not have oil exports. If America is determined to devalue, rather than deleverage, and the Chinese refuse to agree to revalue within BWII – for which they have ample cushion, given their recent growth has been in trade against the strong Euro – the USA will come closer to “the last devaluation” – i.e. forcing the dollar down through the floor imposed by reserve status.

The price of this will be the end of the US-Gulf compact, because the petro-dollars are mostly spent in Eurasia so why generate and hold oil revenue in dollars? Where the Gulf goes, China will follow, since her Euro trade is as important as her dollar trade, and BWII will have been replaced by a Eurasian Euro-bloc.

The US does not have the collective will power that would come with such a policy. Any way you frame it it is a collective downgrade in standard of living. youa re right that brezinski8 is focused on the Russian menace as he has always been. He is also the architect of his own middle eastern failures so hands off there wouldn’t be a surprise.

As for the US controlling Europe, this is exactly what the US is trying to do by imposing its detestable monetary policy on the rest of world. Trichet is resisting the urge but the chorus of appease me now folks declared mercy before the game started. The respnsible central bank in Europe will at some point put an end to the US folly. Berlin comes to mind.

The idea that the US is in a position to dictate terms to anyone is retrograde. Debtors don;t negotiate the terms. They abide by the settlement. I fear that time is approaching and no amount of smart bombs or nukes will stop it.

(I do not mean that I myself think it would be “good” protectionism, just that this is how it would be presented.)

Set a deadline.

All overseas holdings of US dollars are to be exchanged for Treasury IOUs.

Bring the paper money home. If it didn’t come in by deadline, it’s worthless. If it did, they got a Treasury IOU for it.

Burn half of the paper money.

Do the same thing inside the US.