The Day After Russia Attacks
What War in Ukraine Would Look Like—and How America Should Respond
THE moratorium on reparations and war debts, and the "standstill" arrangement of the Basle Conference under which existing short-term credits to Germany were extended, have given a new interest to the question of how much has been invested in Germany by the people of the United States. Because of recent financial troubles in the Reich this question can be answered more accurately now than was possible a few months ago. When a debtor is in financial straits both he and his creditors are likely to obtain a better idea of his total liabilities than they had when he was prosperous; and this principle applies in the case of the German debtors collectively.
The so-called Wiggin Report, prepared for the bankers' conference at Basle in August, gives careful estimates of the long-term and short-term credits extended to Germany by various countries. Since this report was issued the United States Department of Commerce has published its revised estimates of American investments in foreign countries. [i] The total security issues and direct investments for which Germany is a debtor to the United States is computed by the department at $1,420,957,000. The estimate of the German security debt alone is given as $1,176,988,000, and this corresponds closely with the estimate of $1,250,000,000 in the Wiggin Report.
The data compiled by the Department of Commerce also show that more American capital has been lent to Germany than to any other country of Europe. The amount is more than twice that invested in Great Britain and three times that invested in France, and it is approximately 30 percent of the total American investment in Europe.
In addition, there is a large volume of short-term loans, which became increasingly important after 1929 because of the difficulty of floating new bond issues in the United States. Returns compiled for the Wiggin Committee showed the amount of such loans from all countries outstanding on December 31, 1930, as 10,300,000,000 Reichsmarks ($2,450,000,000). The proportion of this which was supplied by American lenders is not stated, but on two later dates, in March and July 1931, the American proportion of the total of such loans obtained by banks is given, and each time it is 37.1 percent. If the American share of all short-term loans at the end of 1930 was about the same as on these subsequent dates, it would have amounted on December 31 to approximately $900,000,000.
If this sum is added to the estimated long-term obligations of the same date the total German indebtedness to the United States is seen to be, in round numbers, $2,320,000,000. This sum was subsequently reduced by the rapid withdrawal of short-term credit from Germany during the first six months of 1931. According to the Wiggin Report (Annex V), Germany's short-term bank credits obtained from the United States were $498,000,000 on March 31, 1931, and $387,400,000 at the middle of July.[ii] This would indicate, therefore, that when the Hoover moratorium was adopted Germany's obligation to American creditors on both short-term and long-term account was somewhat more than $1,800,000,000 -- possibly as much as $2,000,000,000.
The shrinkage indicated in the volume of short-term credits is of peculiar interest. During May and June 1931 many newspaper accounts attributed the flight from the mark, then under full headway, mainly to the withdrawal of French credits from Germany. The data in the Wiggin Report indicating the movement of short-term funds from Germany in this period fail to support such a sweeping assumption. As will be shown more fully hereafter, the amount of French credit to Germany was relatively small. If, then, the withdrawals had been confined to French creditors alone, the German financial position would not have been greatly disturbed. French withdrawals from the end of March to mid-July amounted to 72,000,000 marks, compared with 464,000,000 for the United States, 210,000,000 for Holland, and 204,000,000 for Switzerland. The Dutch credits in this period were reduced 38.4 percent, the Swiss 26 percent, the American 22.1 percent, the French 19.4 percent, and the British 8.8 percent. Of Germany's creditors the British appear to have been the least nervous. The fact that the French withdrew so much less than the Americans, the Dutch and the Swiss does not prove that they had greater confidence in Germany as a debtor. The French had much less at stake.
All the present German indebtedness to the United States has been incurred since October 1924, when the American quota of the loan to the Reich under the Dawes Plan ($110,000,000) was sold in the United States. It was then that German borrowing in the New York market began on a large scale. Germany had been only an occasional borrower in the United States before the World War. Most of these loans were for short terms. During the first years of the war Germany floated two loans of $10,000,000 each. The first, in 1915, had a maturity of nine months, and the second, in 1916, a maturity of one year. All the prewar loans have been retired.
During the seven years from 1924 onwards $1,315,692,000 in German bonds were floated in the United States. The trend of German borrowing in this period is shown in the following table of securities offered publicly in the United States, 1924-30[iii]:
|1924||$110,000,000||$ 8,000,000||$ 118,000,000|
The latest revision by the Department of Commerce of Germany's indebtedness to American creditors at the end of 1930 on long-term account is as follows:
|Portfolio debt (securities)|
Germany has obtained more than half of her long-term credits from the United States. According to the Wiggin Report, the geographical distribution of the German borrowings is as follows:
The striking feature of this exhibit is the small French investment in Germany, compared with that of the Americans and the British. For every dollar invested in long-term German loans by the French the British invested $2.30 and the Americans $11.04. For every dollar invested by the French in short-term loans at the middle of July 1931 the British had invested $3.51 and the Americans $5.45.
The American investment in both long-term and short-term loans to Germany was about as much as that of the rest of the world combined. It was roughly three and a half times the total British credits, four and a half times the Dutch, six times the Swiss, and nine times the French.
In the large American investment and the small French investment in Germany lies a partial explanation of the differing attitudes of France and the United States toward the proposal for a moratorium on reparations. American investors desired to maintain the solvency of their credits, even if this involved the government's loss of payments on the war debts, which came to the Federal treasury indirectly from Germany. The ratio of outstanding American credits to Germany to the current year's payment on the war debts was roughly 7 to 1, while the ratio of French private credits to net receipts on reparations was less than 2 to 1. The interest of the French Government in reparations was thus relatively large, and the interest of its citizens in private investments in Germany was relatively small. In Great Britain the situation was reversed. The government received very little, on net balance, from reparation payments. In the United States the government's interest and the private interest were both large, but private claims far outweighed the government's. This preponderance of private claims in the United States and Great Britain and the large government interest in France give a key to the course of negotiations over President Hoover's proposals last summer.
[i] "A New Estimate of American Investments Abroad." U. S. Department of Commerce, Trade Information Bulletin No. 767, 1931.
[ii] These figures are not complete. They are for the loans reported by banks covering about 85 percent of the short-dated credit transactions with other countries, and thus somewhat understate the actual borrowings.
[iii] These figures show the total borrowings, which exceed the amount of the bonded debt now outstanding because some of the obligations have since been retired.