Central Powers win - effect on US banks?

Flubber

Banned
So back to topic :D does anybody knows if this loans for the british government were secured to 100% of value ?


Few if any loans are ever secured at 100% of their value.

The amount of collateral put up by the Entente for each loan waxed and waned over the course of the war as "informed" opinion; i.e. bankers and the Federal Reserve, waxed and waned regarding the possibility of an Entente victory. That means you can't say loans in 1914 needed X% collateral, loans in 1915 needed Y% collateral, and so forth. Each new group of loans would have had collateral levels set by the size of the loan, it's provisions, the course of the war, and other concerns at the time the loan was guaranteed.

One thing is certain in all of this however. In late 1916 the Federal Reserve had circulated a memo to US banks stating that all Entente loans made in 1917 would require collateral levels so high as to make those loans impossible for the Entente to receive. While the Entente wasn't exactly going to run out of money, the Entente's "credit card" was going to be frozen.

Then Germany restarted USW, sent the Zimmerman Telegram, and basically committed suicide.

Blondie pretty much explained what an Entente default or partial default would have meant to the US economy. There would have been a short, sharp depression, but not a Great Depression, because real assets, not those primarily valued by bubble prices as in the recent worldwide real estate crash, would still exist.
 
If the loans were indeed defaulted, would this disrupt the transatlantic trade?

And could britain instead switch to just trading within the pound area (empire/dominion). It would be harsh, but the switch to pure empire trading could in the long run have positive effects.
Although depending on how things are handled i could imagine a souring of the anglo-american ties.
 
It doesn't. It just means that the Brits ran out of collateral to securitize their loans during the war, but post-war they would be able to pay it all off within a couple-three decades, just like OTL. However, that means the war has to end in 1917.

Why does the war have to end? they could also offer higher interest rates, to be repaid with reparations.

Anyone who thinks you can't squeeze blood from a stone hasn't seen the conesquences of the Ruhr occupation.
 
As an aside, it's interesting ot me that people think the British were squeezing their population as hard as they could in the war, even though Britons were better fed and better financed throughout than Germans.

But somehow it's the Brits who are the ones who were this close from collapse, and not the guys who did.
 

BlondieBC

Banned
If the loans were indeed defaulted, would this disrupt the transatlantic trade?

And could britain instead switch to just trading within the pound area (empire/dominion). It would be harsh, but the switch to pure empire trading could in the long run have positive effects.
Although depending on how things are handled i could imagine a souring of the anglo-american ties.

No, the UK was pulling 100% of what it could out of the empire. People like to point to the vast amount produced by the empire, but a lot of this has to be consumed in the empire. India both produces and eats a lot of food. WW1 was a max effort war, at least after a few months into the war. There were no spare resources not used in the war that could realistically be brought on line fast. A way to show how strong the pull was to the war economy is a some of the more useful types of steel jumped 6 to 1 in price in the USA within weeks of the war starting. And then for many items, it would take years to begin production. Sure, India has iron and coal, and can produce steel if you build a steel industry which would take many years. Ammunition plants are quite specialized plants. Just look at all the quality issues the UK had expanding ammunition production. Now imagine green fielding a plant in India. And some things like oil are not available period.

The default would cause a recession, but be manageable. Most of the recession is caused by the orders going away, not the process of swapping the debt for the underlying real asset.
 

BlondieBC

Banned
Why does the war have to end? they could also offer higher interest rates, to be repaid with reparations.

Anyone who thinks you can't squeeze blood from a stone hasn't seen the conesquences of the Ruhr occupation.

1) The US Banking system would not take these bonds.

2) The much higher interest rates will bankrupt the pound and cause an immediate currency crisis. When you issue new bonds at 10% with old bonds at 5%, the old bonds plummet in value. The UK becomes much like modern Greece, in a few months time.

3) Issuing these very high rate bonds will tell the CP and neutrals that CP is winning.


You basically get very little spendable gold with massive downside. Now this is not to say the UK will not try, but it ends badly. Think in terms of a Norway flagged merchant ship. Issuing these high bonds tells him that the British pound is going to collapse, so why work for free. Same for Brazilian rancher. Now the UK does have options, they have to sell high value assets that were too valuable to sell. After I list them, you will see why they will negotiate with the Germans first. I looked at this a lot for my TL, and the UK just did not have anything left to sell that it would have been willing to sell.

1) Crown Jewels.

2) Hong Kong. Japan would love to buy. Or UK trade concessions in China.

3) USA might buy chunks of Canada.
 

BlondieBC

Banned
As an aside, it's interesting ot me that people think the British were squeezing their population as hard as they could in the war, even though Britons were better fed and better financed throughout than Germans.

But somehow it's the Brits who are the ones who were this close from collapse, and not the guys who did.

I see what you are missing here. It is France that is near collapse, kept alive by the UK purchasing stuff from outside the empire. The USA/Argentina provided the food for France so its farmers could fight. We provided it steel for its manufacturing. Despite this help, the French economy was collapsing in a similar manner to Russia, but with about a 1 year delay. The Army has mutinies. Sometime in 1917, France loses it ability to attack and will begin the decline to total collapse of society.

I understand the UK was not near starvation in OTL. It was near a situation where it would lose it two main allies, and this means a defacto German win on land.
 

BlondieBC

Banned
How did the UK finance WW2?

Well, instead of taking about 2.5 years to run out of money, it ran out of money in less than 6 months once serious fighting started. The USA banked rolled the UK in WW2. The UK had never really recovered financially from WW1 by the time WW2 started. By the late 1930's, the British Empire was a shadow of its peak power near 1895 or even its power level of 1913.
 
I don't think the Germans could have won because Britain defaulting on its loans. Britain would ask for an armistice beforehand. If it were clear that US loans are not coming anymore, the British could do what the Germans did (domestic war bonds, restricting consumption...). I doubt though that they would follow that approach very long given that Britain could anytime achieve a white peace.

So once the US told Britain that there'S no more money and that all collateral is used and once Britain experimented some months with more severe rationing and other German-style systems while at the same time attacking (the war has to end soon!), they'll ask for an armistice and Germany accepts. Britain will get out of this mess a lot better than Germany (likely still faces major inflation, economic turmoil and ongoing problems in their vassal states), France (likely defaults) and Russia (goes Red or civil war or bankrupt but likely all of those).
 

Deleted member 1487

Why does the war have to end? they could also offer higher interest rates, to be repaid with reparations.

Anyone who thinks you can't squeeze blood from a stone hasn't seen the conesquences of the Ruhr occupation.

It doesn't have to end, I was just suggesting that it would have to end in 1917 with the amounts already lent for the British not to have difficulty repaying the US loans if the CPs won the war. The war could go on for the British at a reduced rate without US loans relatively easily. The problem is the French, Italians, and Russians, as they could not continue the war without US loans and goods (they were only accepting dollars for their goods, which could only be obtained via loans). As was already mentioned the US government raised the collateral requirements beyond what the Entente could offer, pretty much pricing them out of US loans by March 1917. Of course banks could defy the Fed and still offer loans, but the consequences would be dire for virtually assured default, as the Russian revolution had already happened and US banks were quickly losing confidence in Entente victory/ability to repay under-securitized loans after the war.

The British could squeeze lots more out of their population, but would take a hit from not being able to get US goods at the levels they were used to. The French, Russians, and Italians were totally dependent on what the US had to offer, which the British could not make up on their own, nor produce enough collateral to cover the needs of their allies. So the war would have to end if the British didn't want to be the only one left in the war.

As it was the Russians and Italians stayed in the war only because of the entry of the US into the war and the unlimited flood of money and goods that the US had to offer, plus promises of post war loans for rebuilding their economies. The Russians later only left because their government was toppled in a revolution, but the Italians were shored up by the US, British, and French divisions that had no military effect, but huge psychological impact, keeping them in the war after Caporetto.

The French had squeezed their population out of all foreign tradeable resources to finance the war, so weren't able to make up the difference if the US stopped loaning them money. They wouldn't then be able to purchase US goods. Without US steel and oil, among many other things, the French would have been unable to fight. We've discussed this problem in nearly a dozen other threads on this topic, so if you do a forum search you can find all of the sourcing for this.
 
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