No US entry into WW I, does the Entente still win?

I may be wrong, but I thought the Wilson administration had a hand in organizing the collateral-based loans the Entente received before April 1917.


You're confusing an exercise in financial regulatory power with explicitly pro-Entente or Entente-only policies, which is completely understandable given your well known pro-CP biases.

The US government, acting through it's relatively new Federal Reserve powers, stipulated what level of collateral arrangements were required for the loans to be made. The consequences of not stating those regulatory requirements would have been Morgan and the banks making under-collateralized and unsecured loans and risking the US economy.

Seeing as the Entente was spending nearly all of the loans' funds in the US, it would have been negligent of the US government not to exercise it's regulatory power and stipulate the terms under which those loans could be made.

Though that money did not come from the government, it still involved the US government aiding the Entente in setting up loan payments.

The US was merely stating the requirements under which the loans must be made. There's a great difference between stating to the lenders as a regulatory body "As US chartered banks, this is what you must do to legally loan money to the Entente..." and telling the banks "Hurr durr give them the cash they want herpity derpity doo..."
 
I may be wrong, but I thought the Wilson administration had a hand in organizing the collateral-based loans the Entente received before April 1917. Though that money did not come from the government, it still involved the US government aiding the Entente in setting up loan payments.


Afaik, only in the negative sense of not actually forbidding them. Early in the war, Bryan called for this, arguing that "Money is the worst of all contrabands [of war] because it commands all the rest"; but the majority of the Administration was against him.
 
The most plausible consequence for an extremely isolationist US during WWI is a war-torn, revolutionary, communistic/fascistic, down-trodden, economic-depressed Europe.

EDIT: ... more than OTL.

EDIT: Maybe France'll join the ranks too.
 
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You're confusing an exercise in financial regulatory power with explicitly pro-Entente or Entente-only policies, which is completely understandable given your well known pro-CP biases.

The US government, acting through it's relatively new Federal Reserve powers, stipulated what level of collateral arrangements were required for the loans to be made. The consequences of not stating those regulatory requirements would have been Morgan and the banks making under-collateralized and unsecured loans and risking the US economy.

Seeing as the Entente was spending nearly all of the loans' funds in the US, it would have been negligent of the US government not to exercise it's regulatory power and stipulate the terms under which those loans could be made.

What makes you think the US banks would or could continue to issue loans without the Fed underwriting them?

Michael
 
What makes you think the US banks would or could continue to issue loans without the Fed underwriting them?


You missed the entire point of my post. The Fed didn't underwrite loans to the Entente until the US entered the war. The Fed regulated loans to the Entente instead.

What the Fed did was set regulatory conditions for the use of collateral by the Entente to secure loans. Rather than let Morgan and the other banks raise outright subscriptions, make unsecured loans, or make weakly collateralized loans, the Fed stepped in and basically said "For a loan of X, you need Y collateral under Z terms..."

In this regulatory environment, a US bank or Entente governments would first approach the Fed and ask if certain proposed loan passed regulatory muster. Once the Fed signed off on the potential loan package, the US bank or Entente government could then shop this approved potential loan arrangement around.

A US bank, for instance, would say "We've a Fed sign-off for a proposed loan of X amount for Y collateral under Z terms. Any takers?"

An Entente nation, for instance, would say "We've a Fed sign-off for Y amount of collateral securing a proposed loan of X amount under Z terms. Any takers?"

The Fed had the power to determine which loans were legal to make and which loans were not. This meant that the US banks and the Entente nations had the Fed review potential loan agreements before drawing up the paperwork. The Fed didn't tell the bank to make the loan in question, the Fed only told the bank whether the loan in question was legal to make.

As the war progressed, the Fed's requirements for collateral changed. When the Entente did well, the collateral bar was lowered, when the Entente did poorly, the collateral bar was raised, and, as the war dragged on, the collateral bar crept higher. In early 1917, the US Treasury was recommending higher collateral requirements for loans to the Entente, so high in fact that many of the loans the Entente had been receiving could not be renewed.

Part of that regulatory change was due to growing US fears that the war would end in a general economic collapse leading to default on pre-existing loans; the risks was now so high as to require a huge amount of collateral for any future loans. Part of that change was due to Wilson's increasing desire to force the war's participants to the negotiating table; controlling access to US credit and thus US supplies would lever the Entente to the peace conference.

Thanks to Wilhelmine Germany's utter stupidity, those proposed changes never took effect and the US governments began making direct loans to the Entente as a new ally in the war.
 
I think it would most likely be a draw in the West, With Germany perhaps picking up a few small French colonial possessions.

Germany and A-H carve up Poland and make Ukraine and the Balkans satellites. Germany gets the Baltic.

The interesting part comes when the war ends, A-H would be a very high risk of descending into civil unrest and rebellion by nationalists and communists. If A-H starts to disintegrate Germany would almost certainly intervene, straining the resources of a country exhausted by the war, and thus a communist insurrection in Germany is a real possibility in that situation.

following such an insurrection in Germany there would likely be a repression of the Left in Germany.

Thus you have a Germany that does not have revanchism, but does have political repression following a communist insurrection. You have an rickety A-H, likely with Bohemian autonomy, propped up by Germany and keeping down civil unrest by nationalists and communists.

I don't know enough about Italy after WW1 to make predictions there.

Economically the ATL would be fairly similar to the OTL, a short, sharp downturn followed by a US-driven boom followed by crash and depression in the late 20s, which then spreads to Europe as in the OTL.

In this situation I suspect that Germany goes communist (no revanchism = no Nazis = the commies get the upper hand) and A-H blows up into small states each with fighting between nationalists and communists. Communist Germany takes over Austria, AH-held Poland, and Bohemia. The USSR gobbles Ukraine.

Germany and the USSR forms a communist alliance and agrees to divide the Balkans between each other. France and Britain, in the meantime, have bewn going ballistic over the "Red Menace" and boost military spending. Spain falls into a 3-way civil war between liberal nationalists, Catholic reactionaries, and communists.

Britain and France, fearful of communism taking over the Balkans completely form a pact with Greece and Bulgaria. Germany invades Bulgaria in 1938. Britain and France declare war on Germany. The USSR declares war on Britain and France. World War 2 begins...
 

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In this situation I suspect that Germany goes communist (no revanchism = no Nazis = the commies get the upper hand)

The German communists never had enough support, especially in the warrior class of German society. Without broad support it cannot take over. The Nazis were just one of several militant right-wing groups that existed OTL and outnumbered the Communists by several orders. One such group:http://en.wikipedia.org/wiki/Stahlhelm,_Bund_der_Frontsoldaten
Stahlhelm probably still exists and we might even see Röhm pop up somewhere as an influential figure. The Communists cannot take over in a society that did not fall into revolution; the middle class and probably most of the working class would not fall behind it. OTL even the Spartakists did not garner wide support and were crushed relatively quickly. Even the so-called Bavarian Socialist Republic really only included Munich, which started to starve when the unenthusiastic farmers in the rest of Bavaria stopped providing it food. Then the Freikorps arrived...

The point is that even OTL the communists could not seize control when there existed much more instability. Germany, though it had a strong organized Socialist party that was growing, did not have a tradition of communism like the French. The Socialists in Germany betrayed their rhetoric when they supported the war in 1914 and would reap some of the benefits of a successful war here. However, with the social order intact and the military dictatorship of Hindenburg-Ludendorff not undermining the government's credibility there would simply be no way for the communists to have any influence in German society. The Socialists would probably grow to dominate the Reichstag and agitate aggressively for a limited monarchy, but they will just be working within the system to achieve their goals. However the right wing nationalists, which were mostly middle class professionals, will also be strengthened, which will prevent too much liberalizing.

Now in France, where there is likely to be a civil war based on any negotiated peace that leaves them without Alsace-Lorraine and has a history of communist uprisings, will most likely have a chance to go communist. The left was quite strong in France pre-war and with a blatant defeat and the destruction of an entire generation of men, the existing social order will collapse. France is not Germany though and will take a different path based on her own experiences; this means either a communist-type government with likely intervention from outside, a monarchy imposed by the rightists after major bloodshed, or a military dictatorship probably similar to Vichy France is outlook. Regardless France will be even more ground up by the civil unrest after the war and will not be in a place to start anymore trouble for several generations if not even later.

Russia won't be much better off, though Brest-Litovsk probably won't happen without the US keeping the Entente in the war into 1918. Ukraine will still be Russian, but there will most likely still be a civil war, though more weighted toward a While victory. I don't think the monarchy would survive, but whatever happens, Russia will be a mess for some time and won't be able to industrialize like OTL under Stalin. So don't expect a WW2.

Britain is going to be even more of a financial mess because of defaults by France, Italy, and Russia. Having taken out large loans from the US in their name and made even more from her banks, Britain mortgaged her entire treasury on victory; without it she is ruined. Expect significant violence at home that did not occur OTL, perhaps even communist/socialist troubles, not to mention the Irish or colonial issues. Perhaps Japan goes nuts in Asia early, realizing her former allies cannot protect their holdings...
 
As the war progressed, the Fed's requirements for collateral changed. When the Entente did well, the collateral bar was lowered, when the Entente did poorly, the collateral bar was raised, and, as the war dragged on, the collateral bar crept higher. In early 1917, the US Treasury was recommending higher collateral requirements for loans to the Entente, so high in fact that many of the loans the Entente had been receiving could not be renewed.

Part of that regulatory change was due to growing US fears that the war would end in a general economic collapse leading to default on pre-existing loans; the risks was now so high as to require a huge amount of collateral for any future loans. Part of that change was due to Wilson's increasing desire to force the war's participants to the negotiating table; controlling access to US credit and thus US supplies would lever the Entente to the peace conference.

Thanks to Wilhelmine Germany's utter stupidity, those proposed changes never took effect and the US governments began making direct loans to the Entente as a new ally in the war.


Can we take it that this would be much the same under President Charles Evans Hughes? Istr that Morgans contributed to his 1916 campaign, but doubt if he'd encourage Americans to subscribwe to questionable loans, merely to protect a campaign contributer.

I am assuming here that Wilson goes ahead with his plan to leave office early (along with VP Marshall) after appointing Hughes Secretary of State, so that Hughes is sworn in about the middle of November.
 
Can we take it that this would be much the same under President Charles Evans Hughes?


Yes. The realization that the US needed a central bank in the shape of the Federal Reserve system was widespread and support for the creation of the same was broadly bipartisan. Hughes or any other mainstream presidential candidate isn't going to stop the Fed from doing it's job and the Fed is going to control collateral requirements in a manner which will protect the US economy.

Several people have PM'd me asking for book recommendations on this topic. A book recommendation is easy as any introductory macroeconomics text will suffice. I first read about the Fed's management of the Entente loans in an introductory economics course decades ago when they were used to illustrate why the regulation of loans, and especially huge loans, are part of the core business of any central bank.

One recent book on the topic I can point everyone to is Modern Macroeconomics: Its Origins, Development And Current State by Brian Snowdon and Howard Vane, Edward Elgar Publishing (ISBN 1845422082).

Why should a central bank be inserting itself in the loan process between a bank and a foreign government? It has to do with the two levers a central bank uses to manage a national economy. Those levers are controlling the amount of money in the economy and controlling the speed at which that money can move.

The amount of money in an economy isn't limited only to the physical currency. In fact the amount of physical currency is only a fraction of the amount of money in an economy. The valuation of goods and services and the balances held in financial instruments, for example, use a "virtual" currency of sorts. Your bank doesn't have the physical cash on hand to cover the amount of money being held in it's customers' checking and savings accounts. Similarly, when you took out a loan to buy your car or house, the bank which gave you the loan didn't hand over a bag of physical cash to the seller of the car or house.

This means a lot of a nation's currency exists only on spreadsheets and in ledgers. It's "virtual" to borrow another phrase and a central bank needs to keep control over the creation of this "virtual" currency just as it controls the presses and dies creating physical currency. In fact, because there's is much more of this "virtual" currency sloshing between spreadsheets and ledgers than "physical" currency sloshing between wallets and cash registers, a central bank needs to exercise more control over the creation of "virtual" currency.

When money is created, whether "physical" or "virtual", the speed at which it enters the economy and the speed at which it moves through an economy become a concern. Almost all loans are small enough not to flood an economy, but huge loans - and the loans to the Entente powers were huge - can create significant problems with the manner and speed they enter an economy.

Think of a bucket of water slowly draining through a small hole in it's bottom. We can keep the bucket full by pouring in an amount of water equal to the amount draining. We can also dump in a huge amount of water, much more water than the bucket-hole system can handle, and watch the system fail. It was like that with the Entente loans. Once a loan was granted, the Entente powers still faced restrictions on how fast they could use the line of credit created. The "capacity" of a given market determined how much credit an Entente power could "dump" into that market. This was in the best interests of both the US and the Entente powers.

If Britain, for example, entered the dried pea market with 100 million dollars, the price of peas would quickly skyrocket to soak up all that money. That would be bad for the US economy as too many farmers would begin planting nothing but peas in the hopes they could sell them for the new obscene price. That would also be bad for Britain as they'd be paying far too much money for far too few peas. Britain would take it's next round of pea money to a market where it could get a better price and the US would be stuck with a pea glut.

In order to avoid problems like this, the Federal Reserve regulated the speed at which the Entente powers could access the lines of credit their war loans created.

When you stop to think about it, the larger the loan, the larger the amount of "virtual" currency created, the larger the effect on the economy, and the larger the need for a central bank to control the situation. When the Entente powers approached the US credit markets for huge loans, the size of those loans and their potential effect on the US economy made it the duty of the Federal Reserve to regulate how those loans were drawn up and spent.

So, this wasn't a case of the Fed intervening and assisting the Entente powers is raising loans in the US credit market and then spending those loaned funds within the US economy. It was a case of the Fed regulating the creation of "virtual" currency through loans and regulating the speed at which that new "virtual" currency entered the economy.

Loan regulations like collateral requirements are one method of controlling the creation of that "virtual" currency, controlling how it enters an economy, and controlling how fast it can move through an economy. When the Fed regulated loans from US banks to the Entente powers, it was the Fed doing it's job and not, as some want to believe, the US government making a political statement or stating a political preference.

Stating a political preference through economic policies would come later when the US entered the war and the US government loaned the Entente governments money directly and outside of the normal credit markets.
 
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