WORLD WAR I WAR DEBTS. During and immediately after World War I, America's cobelligerents borrowed some $10.350 billion ($184.334 billion in 2002 dollars) from the U.S. Treasury. These funds were used mainly to finance payments due the United States for munitions, foodstuffs, cotton, other war-related purchases, and stabilization of exchange. Of that sum, $7.077 billion represented cash loans extended prior to the armistice; $2.533 billion was advanced to finance reconstruction after the armistice; and postarmistice relief supplies and liquidated war stocks amounted to an additional $740 million. Total foreign indebtedness—including interest due before funding of the original demand obligations but excluding loans to Czarist Russia, for which no hope of collection remained—came to $11.577 billion ($206.186 billion in 2002 dollars).
In turn, the U.S. government borrowed from its own citizens, mostly through Liberty Bonds paying 5 percent interest. During the period of economic disorganization in Europe following the termination of hostilities, the administration of Woodrow Wilson agreed to grant the debtor nations a three-year postponement of interest payments. But it indicated that eventually the debtors would be required to repay the loans.
In February 1922 Congress created the World War Foreign Debt Commission, on which representatives of the House and Senate flanked the secretaries of state, commerce, and the Treasury. Congress directed the debt commission to seek funding arrangements providing for amortization of principal within twenty-five years and an interest rate of not less than 4.25 percent.
Disregarding this limitation on its mandate, the commission managed to reach agreement with thirteen European debtor nations before its five-year term expired. The settlements all provided for repayment of principal over sixty-two years. Assuming that the debtors would continue to pay for sixty-two years, the settlements as a whole were equivalent to cancellation of 51.3 percent of what could have been required on a 5-percent basis. Actually, those who drafted the agreements did not expect them to continue in force much beyond a generation, so that the true percentage of the debt forgiven was appreciably larger.
Nevertheless, the governments of the four principal debtor nations—Great Britain, France, Italy, and Belgium—believed that the debts should have been canceled altogether as the American contribution to a common struggle. They settled most unwillingly—Great Britain, to avoid losing its own standing as a creditor nation and banking center, and the Continental countries, to avoid being barred from access to American capital markets.
In 1931 the Hoover Moratorium provided for temporary cessation of all intergovernmental transfers to cope with the international banking crisis that accompanied the Great Depression. After the moratorium expired, the debtors found various excuses not to resume regular payments. By 1934 every European nation except Finland had defaulted. Congress expressed its displeasure in April 1934 by passing the Johnson Debt Default Act, effectively prohibiting defaulting governments from further borrowing in American markets for several crucial years. American policy planners later drew an opposite lesson. During World War II and its aftermath, they extended credits under Lend-Lease and the Marshall Plan without expecting integral reimbursem*nt.
BIBLIOGRAPHY
Hogan, Michael J. Informal Entente: The Private Structure of Cooperation in Anglo-American Economic Diplomacy, 1918–1928. Chicago: Imprint Publications, 1991.
McNeil, William C. American Money and the Weimar Republic: Economics and Politics on the Eve of the Great Depression. New York: Columbia University Press, 1986.
Stephen A.Schuker/a. g.
See alsoDebt and Investment, Foreign ; Great Britain, Relations with ; Moratorium, Hoover ; World War I ; World War II .
FAQs
Although the amounts borrowed by our World War I allies totaled approximately $12.4 billion at the time, the amount outstanding has grown to $31.6 billion by December 31, 1994, including accrued but unpaid interest and after deduction for all payments made.
How much debt was the US in after World War 1? ›
The Government also raised money by selling "Liberty Bonds." Americans bought the bonds to help the Government pay for the war. Later, they were paid back the value of their bonds plus interest. By the end of the war, the Government's debt was more than $25 billion.
What did war debt cause? ›
This borrowing has raised the U.S. budget deficit, increased the national debt and had other macroeconomic effects, such as raising consumer interest rates. Unless the U.S. immediately repays the money borrowed for war, there will also be future interest payments.
How did Germany attempt to repay its war debt after World War I? ›
In 1924, the Dawes Plan reduced Germany's war debt and forced it to adopt a new currency. Reparations continued to be paid through a strange round robin: The U.S. lent Germany money to pay reparations, and the countries that collected reparations payments used that money to pay off United States debts.
What was the debt situation from ww1? ›
During the period of reparations, Germany received between 27 and 38 billion marks in loans. By 1931, German foreign debt stood at 21.514 billion marks; the main sources of aid were the United States, Britain, the Netherlands, and Switzerland.
Did ww1 cause debt? ›
Suffice to say that after the First World War, many countries were in debt to the United States, and many countries (though not the United States) had claims on German reparations. Britain made payments on its war loans into the early 1930s, but it questioned the debt's legitimacy.
What country lost the most money in WW1? ›
Finances of the War
| Gross Debt of | Aug. 1, 1914 | Jan. 1, 1919 |
|---|
| U.S. | $ 1,000,000,000 | $ 21,000,000,000 |
| Gt. Britain | 3,500,000,000 | 40,000,000,000 |
| France | 6,500,000,000 | 30,000,000,000 |
| Russia | 4,600,000,000 | 27,000,000,000 |
6 more rowsThe economy was mired in recession in 1914 and war quickly opened up new markets for American manufacturers. In the end, World War I set off a 44-month period of growth for the United States and solidified its power in the world economy.
Which country suffered the most from WW1? ›
Varying estimates suggest that Russia may have suffered the highest number of military and total fatalities in the First World War.
Did the U.S. really grow out of its World War II debt? ›
All in all, our findings cast doubt on the common narrative that the US 'grew its way' out of its WWII debt. Over the 76 years from 1946 to 2022, economic growth without primary surpluses or interest-rate distortions would have reduced the debt/GDP ratio by only 22 percentage points, from 106% to 84%.
1 Foreign governments hold a large portion of the public debt, while the rest is owned by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and holders of savings bonds.
Did debt from WW1 cause the Great Depression? ›
THE U.S. INSISTED THAT THEIR FORMER ALLIES PAY THE MONEY. THIS FORCED THE ALLIES TO DEMAND GERMANY PAY THE REPARATIONS IMPOSED ON HER AS A RESULT OF THE TREATY OF VERSAILLES. ALL OF THIS LATER LED TO A FINANCIAL CRISIS WHEN EUROPE COULD NOT PURCHASE GOODS FROM THE U.S. THIS DEBT CONTRIBUTED TO THE GREAT DEPRESSION.
Who was the youngest WW1 soldier? ›
Momčilo Gavrić, in Serbian military from age eight; youngest soldier in World War I in any of the nations which fought in World War I. John Condon, from Waterford, Ireland: incorrectly believed to have been the youngest Allied soldier killed (age 14), but later found to have been age 18 at his death.
Was Germany to blame for WW1? ›
Article 231, otherwise known as the 'War Guilt Clause' forced Germany to accept responsibility for the First World War. Article 231, otherwise known as the 'War Guilt Clause' forced Germany to accept responsibility for the First World War.
Are Germany still paying for WWII? ›
Therefore, in September 1952, West Germany agreed to pay Israel three billion Deutschmarks (714 million USD) over the next 14 years. Furthermore, Holocaust survivors continue to receive restitution payments to this day. Indeed, from 1945 to 2018, Germany paid over 86 billion USD to these survivors.
How much total money did ww1 cost? ›
Finances of the War
| Total Cost, approximately | $24,620,000,000 |
|---|
| Credits to eleven nations | 8,841,657,000 |
| Raised by taxation in 1918 | 3,694,000,000 |
| Raised by Liberty Loans | 14,000,000,000 |
| War Savings Stamps to November, 1918 | 834,253,000 |
1 more rowWorld War I killed more people (9 million combatants and 5 million civilians) and cost more money ($186 billion in direct costs and another $151 billion in indirect costs) than any previous war in history.
What was the financial cost of World War 1? ›
One estimate (using 1913 US dollars) is that the Allies spent $147 billion on the war and the Central Powers only $61 billion, but Germany concentrates the largest industrial conglomerate in the Rhineland region.
What was the financial cost of ww1? ›
The total cost of World War I to the United States (was) approximately $32 billion, or 52 percent of gross national product at the time.
