CPs win WW1 due to no US entry, what happens to the US financial system?

[fasquardon]

So there were a couple interesting posts over in this thread:

Unfortunately that is not the case. The House of Morgan had hugely invested in the Entente war effort. Source: https://encyclopedia.1914-1918-onli...morgan#The_House_of_Morgan_during_World_War_I
Likewise, the banking consortium Morgan set up would be bankrupt in the case of CP victory. Whether we like it or not, the people who owned the US economy were invested in taking their money back and become the dominant financial cast in the globe. If there was substantial trade with the CP and the Americans hoped to obtain their assets, only then the situation would be different. Wilson indeed didn't want to participate in the war but what about those who had the actual power?

In general, France was able to increase their fiscal resources from 7,846 billion francs in 1918 to 12,515 billion in 1919. It is important to state that this increase came from indirect taxes and monopolies ( post office, matches, tobacco, powder, telephone and telegraph, etc). Indeed in spring 1917 the foreign assets of France were running short. However, the gold and silver reserves remained in France.

Too bad for Morgan he was a Republican and Wilson a Democrat. He had zero pull in the White House. Plus Morgan had his collateral and the Fed had warned banks making loans they were on their own in the case of default. The banks involved with the Entente didn't have any power left, given that they were heavily leveraged; you know the expression "If I owe you a million dollars I have a problem, if I owe you a billion dollars YOU have a problem". They made a bad bet and lost and Wilson didn't care because they weren't his donors/constituents anyway. Plus they tried to unseat him in 1916 and lost, so missed their shot.

So let's assume that things go as per OTL up to the point where the US decided to enter, and in TTL, the US stays out. Let's say there's no Zimmerman Telegram and that this is enough to make Wilson do his utmost to keep his promises to stay out.

Let us further presume that this allows the CPs to win (not unreasonable, I feel, but I know we could argue this, so let's not).

What happens to all the US banks that have been loaning heavily to Britain and France? Does this derail the rise of the US as a financial hub for long? What impact would this have on the rest of the world economy?

fasquardon

 

[matzeskatze]

What happens to all the US banks that have been loaning heavily to Britain and France?

Imo depends on how secure the Securities realy were. And how much was realy secured. But on the whole, I think that the Banks will have to suck some lemon and see how they get their money back.

Does this derail the rise of the US as a financial hub for long?

No, as I understand it, the USA has gone from debotor to lender in this case. So add that the States were undemaged and had all the potential, I think we will see a rise of the USA financial hub.
On the other hand this plays into the next point...

What impact would this have on the rest of the world economy?

Depends on how the whole of Europe and everywhere else plays out. If Europe manages to cobble something stable together and holds the nations somewhat afloat, I would think that the USA will go on like in OTL. So lending to all and making money off it.

On thing to consider is the impact of no entry on the later Depression, as I understand it, the whole mess was a cirlcy of lending, overproduction and greed... So we could see something like it, if maybe a little smaller as the USA got out of the war production early and less involved. Also I this case no unsecured loans should have been given, so maybe the Banks will not be so free with giving out money...

 

[TheMathGuy]

The loans prior to US entry were all asset backed. When the payments default, Morgan and Co take possession of railroads, ports, factories, etc. Perhaps they can turn those into profitable ventures as trade recovers after the war, and avoid completely failing. However, there will be a contraction in credit as loanable funds are mostly tied up in assets that they can't offload.

That means higher interest rates as projects chase dollars, less funding for electrification projects, and lower productivity growth. Slower rise of living standards from reduced productivity.

Now, if it takes Morgan down, then it could be 1893 come again. The newly established Fed probably fails to stop the bleeding. Wilson probably gets blamed, and the Progressive movement towards "scientific" bureaucratic governance is seriously damaged.

 

[fasquardon]

Now, if it takes Morgan down, then it could be 1893 come again. The newly established Fed probably fails to stop the bleeding. Wilson probably gets blamed, and the Progressive movement towards "scientific" bureaucratic governance is seriously damaged.

Huh. Now that would have interesting ripple effects.

fasquardon

 

[fasquardon]

One of my sticking points when considering this WI is that the sort of treaty the Germans try to impose will have a big impact.

And I wonder how much Germany could really impose upon Britain? As far as the UK and Germany, it could be a truce of exhaustion, since Germany doesn't have many options to bring pressure on Britain.

Of course, France and Italy are different matters, as is Belgium. I wonder if the world would essentially fracture into two financial blocks in such a scenario, with Europe becoming an extension of the German banking network, and Britain and its colonies (as OTL) being absorbed by the US financial system.

fasquardon

 

[The Undead Martyr]

The answer is probably "not much." The US can basically do whatever it damn well wants vis a vis enforcing its desires on a war weary Europe and Germany really can't say no to them- the key is to ask what exactly it wants to do.

Worse comes to worse the US buys Indochina (and maybe other colonies in SE Asia and the Americas) to make good on the Entente War debt.

 

[matzeskatze]

True much depends on how the war plays out in detail, like always...
In general terms I think Germany will go through a period of turmoil. Not realy destroying the system, but certainly realigning it towards more control for the elected offices. Not to forget the various pledges for reform made to keep the war going, like the Prussian Election System.

So I think we could see an end to the war when France is pushed over the line. But in this Germany is also as exausted as the Entente. And this I think could open the floor for a negotiated peace however loopsided, depending on the real situation on the ground.

As regarding to Britian, should Germany hold France and Britian is stubborn, I think the Germans may have better chances to compell the Britsh via U-Boot then in the WWII we know. Much depends for this on how the maritime theaters realy play out but I think without the USA and the various commitements, Hochseeflotte, Blockade and U-Boot War, I give it 50-50 for Britian to not be able to keep the subs in check.
One factor for this is that the U-Boots were a bloody menance then and hurting the British in, Imo, critical ways.

On the Banking Issue, I think you are right @fasquardon as there could be an emerging block for continental Europe under German leadership vs an British aligned one. Still the question is where the USA fall in this. On one hand the British are probably closer to what the USA are comfortable with, to a degree as the British will protect what they still have, and on the other the Germans are "controling" most of Europe. So who to make nice with?

And then there is the bear in the room, the Russian Ruin. What will come from that may or may not massivley influence what happens elsewhere. I could see several ways it plays out. One like OTL over a splintering of Russia into various smaller nations to a win for the Whites holding Russia and all that together somewhat. Again depending on too many factors and if written in an TL the desired / wanted / agreed to outcome.

 

[Paolo Giusti]

I wonder if the world would essentially fracture into two financial blocks in such a scenario, with Europe becoming an extension of the German banking network, and Britain and its colonies (as OTL) being absorbed by the US financial system.

fasquardon

Like what Germany is trying to do today? It would required a Weimar-broken UK: they never went full bankrupted untill after IIWW. And you have just shown me a good examples of how they could survive even the end of secured loans.

So there were a couple interesting posts over in this thread:




So let's assume that things go as per OTL up to the point where the US decided to enter, and in TTL, the US stays out. Let's say there's no Zimmerman Telegram and that this is enough to make Wilson do his utmost to keep his promises to stay out.

Let us further presume that this allows the CPs to win (not unreasonable, I feel, but I know we could argue this, so let's not).

What happens to all the US banks that have been loaning heavily to Britain and France? Does this derail the rise of the US as a financial hub for long? What impact would this have on the rest of the world economy?

fasquardon

IMO, this is the easier way to get a bankrupted USA: "Aw, you loan-sharked us? To bad we just won with commandered economy and discovered we can survive out the gold standard. Here, some new-Francs: Yes, they value 10%, but it would be a shame if someone rised his custom duty, wouldn't it?"

 

[Nivek]

The answer is probably "not much." The US can basically do whatever it damn well wants vis a vis enforcing its desires on a war weary Europe and Germany really can't say no to them- the key is to ask what exactly it wants to do.

Etto Germany never have debts usa thanks british meddling, meaning they've little power over germany

 

[The Undead Martyr]

Like what Germany is trying to do today? It would required a Weimar-broken UK: they never went full bankrupted untill after IIWW. And you have just shown me a good examples of how they could survive even the end of secured loans.



IMO, this is the easier way to get a bankrupted USA: "Aw, you loan-sharked us? To bad we just won with commandered economy and discovered we can survive out the gold standard. Here, some new-Francs: Yes, they value 10%, but it would be a shame if someone rised his custom duty, wouldn't it?"

France, after losing a world war, is not exactly in a position to pick a fight with the world's biggest economy. That's a good way to get the US "intervening" in France (and also, via inflation, ruining their economy and collapsing their government.) And for that matter it's a good way to get German troops crossing the border since they will almost certainly demand reparations and will be equally unamused by currency/protectionism shenanigans.
Any plausible CP victory is exceedingly unlikely to give Germany any say in East Asian affairs. Between Japan, the Royal Navy, the US, the MN, and the RM it has basically zero ability to project outside of Europe- not dissimilar to the dilemma faced by Napoleon and Hitler.

Etto Germany never have debts usa thanks british meddling, meaning they've little power over germany

There is more to US power than finance- Germany is an export dependent nation and the US is the biggest buyer in town. TBH I think they have far less reason to be antagonistic (at least with the US neutral) and at least some reason to cooperate- but only if Germany is willing to accept US hegemony in its sphere. In the context of power projection the US is a Pacific and Atlantic power- Germany an Atlantic power at best with zero bases in Asia (Japan and the British navy are exceedingly unlikely to allow Germany to regain her colonies in the region- particularly if Germany makes territorial demands in Europe).

 

[Paolo Giusti]

France, after losing a world war, is not exactly in a position to pick a fight with the world's biggest economy. That's a good way to get the US "intervening" in France (and also, via inflation, ruining their economy and collapsing their government.)

In a commandered economy, inflaction is doable, if not a benefit (inflaction favours the debtor). Expecially if the one who want to "interven" has just lost billions in a default. Of course, it would be France and UK, I should be more precise.

France, after losing a world war,... And for that matter it's a good way to get German troops crossing the border since they will almost certainly demand reparations and will be equally unamused by currency/protectionism shenanigans.

I am scared i was misunderstood:

Aw, you loan-sharked us? To bad we just won with commandered economy and discovered we can survive out the gold standard.

 

[Paolo Giusti]

There is more to US power than finance- Germany is an export dependent nation and the US is the biggest buyer in town.

If we want things to stay as they are, things will have to change.

 

[Nivek]

There is more to US power than finance- Germany is an export dependent nation and the US is the biggest buyer in town. TBH I think they have far less reason to be antagonistic (at least with the US neutral) and at least some reason to cooperate- but only if Germany is willing to accept US hegemony in its sphere.

They never cared the usa, will not care now, their focus is africa and central and east europe now

 

[Carl Schwamberger]

A minor point here. Thje US economy has been heavily dependant on exports to Europe. Typically some 60% of exports and and significant portion of US output in raw materials and finished goods. This was a major motivation behind the US financial backing of the Weinmar Republic and the Dawes & Young plans for reorganizing German finances in 1924 & 19289.

Any heavy handed US action that stagnates any part of Europes economy comes back on the US fairly quickly in the market place.

 

[Nivek]

Any heavy handed US action that stagnates any part of Europes economy comes back on the US fairly quickly in the market place.

Nice

 

[Historyrookie]

I wonder if the world would essentially fracture into two financial blocks in such a scenario, with Europe becoming an extension of the German banking network, and Britain and its colonies (as OTL) being absorbed by the US financial system.

fasquardon

That could happen in a quicker central powers victory, but IMO in 1917-18 is going to be impossible to ignite such a german continental system with such massive war debt volumes and hostility and restriccions to access to us and british empire markets.

 

[marathag]

A minor point here. Thje US economy has been heavily dependant on exports to Europe. Typically some 60% of exports and and significant portion of US output in raw materials and finished goods. This was a major motivation behind the US financial backing of the Weinmar Republic and the Dawes & Young plans for reorganizing German finances in 1924 & 19289.

I've seen figures that in 1928,US Exports were 5.2% of US GNP, imports 4.2% most exports were manufactured goods, and ag products for imports.

Of those numbers, with the size if the US Economy, meant that US exports accounted for 16.6% of World Trade, and Imports 13%
So when the US sneezed, the World caught Cold.

 

[Paolo Giusti]

I've seen figures that in 1928,US Exports were 5.2% of US GNP, imports 4.2% most exports were manufactured goods, and ag products for imports.

Of those numbers, with the size if the US Economy, meant that US exports accounted for 16.6% of World Trade, and Imports 13%
So when the US sneezed, the World caught Cold.

It look like a crash of Dow Jones average would have start a World Economico Depression...

 

[History Learner]

Up until April of 1917 all loans had been backed by securities, often in the physical sense; U.S. companies would liquidate those if the Anglo-French fail to repay. There was also some talk IOTL of giving over the Bahamas and other Caribbean territory as collateral/in exchange for loan repayment.

 

[Carl Schwamberger]

I wonder if the world would essentially fracture into two financial blocks in such a scenario, with Europe becoming an extension of the German banking network, and Britain and its colonies (as OTL) being absorbed by the US financial system.

fasquardon

That could happen in a quicker central powers victory, but IMO in 1917-18 is going to be impossible to ignite such a german continental system with such massive war debt volumes and hostility and restriccions to access to us and british empire markets.

Did Germany have a efficient enough banking structure, capitol reserves, and cash flow to build such a thing on?