Chapter 8, Surrounded with trouble (June 5 - June 10). The BIS board decides to grant a second credit to the BIS, but only after a prolonged discussion and it is made conditional on the placement of the Austrian government loan. There is increasing concern about the schilling as capital flows out of the country and the government issues take increasing priority, without being placed. At the same time, Germany’s reparations issues become ever more present as the German Chancellor Brüning meets with Prime Minister MacDonals at Chequers. Shortly before, Brüning published a statement saying that the burden on the German people has reached its limit. The international creditors too become increasingly nervous about the Austrian situation.

The dominant paradigm for analysis of macroeconomic fluctuations takes full-employment equilibrium as the norm and attributes temporary and self-correcting deviations from this norm to exogenous shocks. Notions of the natural rate of unemployment and rational expectations for inflation rest on an equilibrium premise, as do contemporary dynamic stochastic general equilibrium (DSGE) models. There is, however, another way of thinking about business cycles to be found in the historical literature. This alternative paradigm takes the movement of an economy through business cycles as itself the norm and views endogenous forces as driving the process. At the heart of the dynamic is credit behavior in a story that goes back to Bagehot (1874) and found renewal with Minsky (1986). In the boom phase of the cycle, credit expands, business is good, risk is rewarded, and asset values are bid up. But the process overshoots, and collapse ensues, to be followed by a cleansing of excess as businesses fail and the financial system retrenches. Bagehot himself proposed a synthesis of the two paradigms, and this approach works well to interpret the ups and downs of the Philippine economy historically.

Drawing together the book's analyses of public finance law and parliamentary constitutionalism, this chapter argues against the descriptive validity of the idea of parliamentary control of public money and observes the implications of that argument for democratic control of public finance. It begins by settling on an analytical framework for assessing whether parliament does indeed 'control' public finance built upon an idea of 'financial self-rule'. That framework is then applied to the legal and institutional practices which were observed in earlier chapters: concluding that parliaments cannot be said to have control of public finance in any studied jurisdiction. After discussing how broadly that conclusion can be generalised, the chapter evaluates different descriptive models of public finance in parliamentary constitutions: executive control, financial interdependence and parliamentary ratification. The chapter concludes that the latter 'ratification' model is most compelling and explains why that model secures a low level of financial self-rule.