Finance
The American Debt
Ox June 15th the next half-yearly payment is due upon our War Debt to the United States and already the matter must be occasioning grave con- sideration here, while it is certainly occasioning a good deal of heated discussion on the other side of the Atlantic. If the full half-yearly payment were made, an amount of something near to £20,000,000 would be involved, but we know that for the two previous half- years small " token " payments amounting in all to about £3,300,000 were accepted by President Roosevelt and during the past week we have seen a decision given by the Attorney-General in the States to the effect that having regard to the acceptance of these token payments, Britain could not be considered as being in default. Nothing, however, has been said with regard to future payments and consequently all the greater interest and importance attaches to the arrange- ment which may be reached with regard to the matter.
Two MAIN POINTS.
So many difficult, and in some respects delicate, problems are involved in the War Debts to the United States that I only propose to touch upon certain broad considerations which are uppermost in the minds of bankers and others in the City, and I do not think that it is necessary to emphasize the point that nowhere more than in the City is there greater anxiety that British credit should be upheld to the uttermost. If it were to be decided before June 15th that America would not accept a token payment, then it would follow that we must either make the full payment or else be de- scribed by the United States, at all events, as "defaulters." Now there are two main points which are being urged at the present time with some vehemence in the United States concerning our War Debt and it is concerning these that I will offer some comments.
OUR " SURPLUS."
One point which is being urged by those in America who insist upon our making . full payment on the War Debt is that we have just had a Budget Surplus, accom- panied by some slight remission of taxation. Indeed, it so happens that the Surplus was for something exceeding the amount of the next payment due to America and, therefore, it is not, perhaps, unnatural that those on the other side of the water not possessed of all the facts should be maintaining that Britain can • well afford to meet payment of interest on the War Debt. And if it were true that our Surplus had arisen from some great increase in prosperity, there would, of course, be some point in the argument. As a matter of fact, however, the improved position in the Budget arose almost entirely from: the great reduction in the cost of the service of the internal debt owing to numerous Government debt-conversion -schemes. Those schemes, however, involved a great loss of income by investors, and, indeed, even the small reduction which has been effected in taxation represents a smaller amount than that represented by the loss of income received from Govern- silent securities.
CAPITAL RESOURCES TAPPED.
The other main influence responsible for the recent Budget surplus was the. windfall in the shape of Death riuties during last year . in connexion with the estate of the late Sir John Ellerman. - But for those influences and some economy in expenditure, we should have had. not a surplus but a-deficit.- It is true that as compared' with our moderate surplus America is now experiencing huge Budget deficits,. but that is entirely a question of her Government's policy connected with. the means it has been thought well to employ in dealing with the financial situation. Not .only so, but it :must be remembered that in this matter , of War Debts the problem is an international one, for during the period in which we have been making token payments to the United States, and even during the greater part of 1932 when we were making full payment on our Debt, we were. receiving no payment at all of the amounts due from France and our other debtors. This, of course, it may be said, is our concern and has nothing to do with the United States. Carefully considered, however, it has a great deal to do with America and all countries, for by pressing our claims upon our debtors we should have probably increased the difficulties which already suffi. ciently afflict international financial relations.
CRUX OF THE MATTER.
Inasmuch, however, as this War Debt, to the United States is represented by a definite contract entered into by this country, it may well be asked what are the circumstances which make it necessary for us to hold back from resuming the full service of the Debt. This, indeed, is the pertinent question which leads to the root of the whole matter. In the years which have followed the signing of that contract it has been plainly demon- strated that the contracts between the -debtor countries and -the United States were being rendered impossible of fulfilment mainly by reason of the policy of the people of the United States themselves. No large amount of international indebtedness can ever be -settled except by a full and free exchange of goods. and services. America, in the true sense of the word, never lent Europe money ; what she lent was goods and services, and goods and services, moreover, at war prices. Even, therefore, if America had been ' ready to receive goods and services in settlement of the Debt, the task would have been an onerous one owing to the fall in prices since the War; but by her policy of high tariffs she made the full settlement impossible, and by demanding gold in settlement she completely dislocated the whole 'international credit system. Consequently, it became necessary for the debtor countries to demand from the United States a conference and a reconsideration of the whole problem. So far as this country is-con- cerned, there has never been the slightest desire to repudiate a contract, but it has been necessary in the light of all the events of recent years to demonstrate the impossibility of the fulfihnent of the contract under present conditions. At one time it seemed as if America were beginning to realize this truth, but under the pressure of recent distress and as an accompaniment to the spirit of Economic Nationalism which seems to have swept over most countries, the truth has once more slipped into the background. It is, however, the truth and the facts which have to be faced, and it will be a happy day for the whole world when in the matter of these War Debts debtors and creditors can reach an arrangement which will not only fully establish the sanctity of contracts but will do so on lines conducive to the restoration of international financial facilities and to the settlement of international debts by a free exchange
Previous page
