FINANCE-PUBLIC & PRIVATE.
By ARTHUR W. KIDDY.
THE DEBT TO AMERICA. [To the Editor of the SPECTATOR.] Sia,—When all the untoward developments of the past few days are taken into consideration it can scarcely be a matter for surprise that Stock Exchange securities should have experienced a considerable reaction. For weeks past, while fully recognizing the force of the factors contributing to continued steadiness in stocks, I have been compelled to emphasize the indifference of markets to the political and financial chaos of Europe. We often censure America because she affects an in- difference and aloofness concerning European affairs, but it is, unfortunately, a fact that we who are much nearer the scene of conflagration show an indifference wholly inconsistent with the facts of the situation.
During the past week, however, the developments in many directions have been of a character which it has been impossible for the markets to ignore. The French adventure into the Ruhr has, apparently, complicated and worsened the political and financial chaos at every point, and one expression of that fact is to be found, not only in the fact that the German mark, which was quoted at about 40,000 to the £ before the adventure commenced early in January, fell during the past week to about 220,000 to the g, but that the French franc, which was about 63.00 at the beginning of the year, has since fallen to about 80.00—a quotation representing less than one-third of its pre-War value. Moreover, the Near Eastern situation has begun to get on the nerves of the City, and matters in that respect were intensified on Wednesday by reports that French diplomatic action was scarcely in harmony with the cordial relations which are supposed to still exist between our great Ally and ourselves. Developments in Ireland, too, have been of a character to add to the prevailing depression, while the final adverse influence was supplied by the anxiety felt with regard to the developments in connexion with the funding of the American Debt. I am not at all sure that this last point was not the most important factor of the week so far as markets were concerned, though no doubt it gained in emphasis coming on the top of other unfavourable influences. The City's view concerning that matter can be stated very briefly. Business men fully appreciate the manifest desire of the Cabinet to take a long view and carefully to remember the strain to the taxpayer which must be involved by the burden of the service of the proposed funding loan. Nor is the City unmindful of the excep- tional character of the Debt. It would even be prepared to admit that if all the International debts, excluding, of course, Reparation payments, were submitted to some perfectly impartial tribunal a decision might be given in favour of the gradual cancellation of the obligations without any interest charges whatever. The fact remains, however, that not only was our contract with • America a business contract, but those who were responsible for it on our side seem to have shown a recklessness with regard to its terms only to be excused by the exigencies of the War. Having regard, however, to the terms of the contract, the City considers that the American Commissioners have shown a commendable desire to be reasonable in the matter, and the case would scarcely seem to be one for argument but rather for acceptance. I am not at all sure, however, that if the Cabinet accepts the suggestions (for at present they do not amount to a formal proposal) of a funding loan for sixty-two years, carrying 3 per cent. interest for ten years, and 8.1 per cent. thereafter, with a sinking fund, that the measure would be ratified by Congress. The atmosphere in that respect has, unfortunately, been worsened by the distorted representations on the other side of the interview with Mr. Baldwin which appeared in the newspapers here at the beginning of the week. In that case, however, we could not possibly be accused of any unreadiness to fund the Debt. Inasmuch as the matter is an urgent one, I should imagine that before this letter appears in print our Government will have reached its decision, and I am inclined to believe it will be identical with the verdict of the City On the other hand, I should doubt very much whether this very tiresome question of the funding of the American debt will even then be finally settled for some little time to come. The ways of Governments, whether here or in America, are often difficult for the plain man to comprehend !
While I am not disposed, in view of the uncertainty of the outlook, to take a too optimistic view of markets, it is only fair that the comparative steadiness of stocks in the face of the events of the past week should be clearly recognized. For the practical point arising out of the recognition is this : that intrinsic conditions of markets are still fairly healthy ; that investment resources are considerable, and that given a dispersion of some of the more ominous overhanging clouds, the probability of a resumption of the upward movement can be admitted.—! am, Sir, yours faithfully, The City, January 81st. ARTHUR W. KIDDY. P.S.—Since this letter was written, the Cabinet has accepted the American terms.
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