Debts & Dissent

Last May President Hoover let the International Chamber of Commerce, meeting in Washington, know that so far as the U. S. Government was concerned the War Debts were a closed book and their revision out of the question. Last June President Hoover proposed his one-year Moratorium on War Debts and Reparations. Last week President Hoover asked Congress to open the War Debt book again and prepare to readjust the $11,598,501,461 account therein.

As Secretary of Commerce Mr. Hoover was a member of the World War Foreign Debt Commission which funded $9,811,094,094.03 worth of international obligations on a "capacity-to-pay" basis. As President. Mr. Hoover requested Congress to bring the W. W. F. D. Commission back to life to deal realistically with the debt problem as it exists today in the light of Depression. In a special message on foreign affairs the President talked about the World Court, Manchuria, the St. Lawrence Waterway, Nicaragua, Haiti et al., but these topics were all pushed into the background of public interest by what he had to say on War Debts. Excerpts:

"The effect of this [moratorium] agreement was instantaneous in reversing the drift toward general economic panic. . . . I am confident it commends itself to the judgment of the American people. . . . Payments from many countries fall due Dec. 15. It is highly desirable that a law should be enacted before that date to postpone all payments during the year. . . .

''It is clear that a number of governments will be unable to meet further payments to us in full pending recovery in their economic life. It is useless to blind ourselves to an obvious fact. Therefore it will be necessary in some cases to make still further temporary adjustments. . . . In order that we should be in a position to deal with the situation, I recommend the re-creation of the World War Foreign Debt Commission, with authority to examine such problems as may arise in connection with these debts."

President Hoover had taken the precaution to poll most of Congress by telephone and telegraph last June on his Moratorium. He knew 68 Senators, 276 Congressmen were already pledged to legalize the postponement of $246,000,000 owed the U. S. this year, too many to make the opposition of such men as Speaker Garner in the House and California's Hiram Johnson in the Senate really threatening. But the Democratic House had no intention of speeding up its machinery to give the President the law he wanted in a hurry. He had refused to call a special session of Congress to deal with the Moratorium. Now he would have to wait until Christmas or later for his authorization.

President Hoover's proposal to reopen the debt problem and, in all likelihood, scale down payments raised a hostile howl in Congress. Likewise any suggestion that the Moratorium be continued through a second year was drowned out by a booming chorus of dissent. Back at the White House was thrown this general argument: the War Debts were settled for 50-c--on-the-dollar. Europe has used what it saved in these negotiations for armaments, heavier today than ever. Reduced debts mean increased U. S. deficits requiring increased U. S. taxation. An outright repudiation of its debt by Europe would be better than reducing its obligation to the cancellation point. Let Europe at the Geneva conference in February show an honest desire to disarm and save money before the U. S. considers forgiving any more of the debts. Familiar to the President was this thesis because it approximated his own position of last summer on debts and armaments.

Senator Borah, as usual, took the lead against the White House. He declared: "I'm not in favor of any further extension of the Moratorium and I'm not in favor of readjusting these. debts upon a capacity-to-pay. ... I don't see any evidence that Europe proposes to reduce armaments or that she proposes to adjust reparations upon any proper basis. We adjusted the debts on the basis of capacity-to-pay and cancelled about seven billion dollars of obligations. Under tl present policies pursued in Europe another readjustment would about wipe out tl debts. . . . The whole program of reopening the debt question is as dead as Julius Caesar and buried so deep the Ang Gabriel couldn't rouse it."

Declared Republican Senate Leader Watson: "It's unthinkable that the American people should shoulder Europe's debt to enable those nations to build navies and equip armies literally with our money."

Senator Howell of Nebraska stated tl extreme nationalist view when he declared: "We've already had wholesale cancellation of the principal of these debt Now it's proposed to have piecemeal cancellation of the interest. Repudiation would be better for the cause of peace because European nations then would never be able to borrow another dime from the United States for future wars."

Chorus by Georgia's George, Montana Wheeler, Mississippi's Harrison, Washin ton's Dill, Texas' Connally, Pennsylvania Reed et al.: "I am opposed!"

O. P. M. Into the debt question the Senate last week suddenly injected a ne and serious complication when it unanimously called for an investigation of private international finance. Sponsor for this inquiry was Senator Johnson, sworn foe of President Hoover and his who debt program. To U. S. investors, large and small, have been sold some $15,000,000,000 in foreign securities which have depreciated in value to about $12,000,000,000. Senator Johnson wanted know: Who issued these foreign securities in the U. S.? What was their cor mission? Did they retain any for ther selves or dump them all on the public? What political dickering was behind each issue? How much did worthless foreign bonds have to do with bank failures? The Senate Finance Committee prepared answer these questions by summoning ranking officers of the following big banking houses: J. P. Morgan & Co.; Kuh Loeb & Co.; National City Bank of Ne York; Chase National Bank; Guaranty Trust Co.; Dillon, Read & Co.; J. & A Seligman & Co.; Equitable Trust Co. Lee, Higginson & Co.; Chase Han Forbes Corp.

Senator Johnson's purpose was fait evident. He hoped to show that the U. S. investing public had been mulcted by "foreign bond racket," with issues float during the last decade merely on the strength of reductions secured by foreign powers on their War Debts to the U. He hoped thereby to start a backfire against any further debt reduction. If could, he wanted to show that private financiers were anxious to bring about go ernment debt reduction for selfish re sons. He wanted to show how the U. S. had been what its businessmen and ban ers are now sheepishly admitting, "the world's champion sucker."

Popular support for precisely such investigation has been gathering headway as the result of a series of articles ("T Rescue of Germany," "As Noble Lenders," "Opening the Golden Goose") written by serious little Garet Garrett and published by the Saturday Evening Post. With excellent hindsight and a closely-woven argument Mr. Garrett has depicted U. S. finance recklessly dumping Other People's Money into Europe and then turning frantically to international politics to be rescued. Not satisfied with the Post's huge circulation of the Garrett theme, Francis Patrick Garvin, president of the Chemical Foundation and a good hater of German industry, distributed 500,000 reprints of the first two articles in a pamphlet entitled "O. P. M. The Greatest American Racket."

The prospect of this investigation, together with the wave of dissent against any debt ''adjustments," thoroughly alarmed President Hoover, who saw he had another losing Congressional fight on his hands. To his defense Secretary of the Treasury Mellon rallied with a ringing public statement in which he harped on "realities." He pointed out that Britain funded her War Debt for about 80% in gold dollars. With sterling at par her debt payment this year would be -L-32,800,000 but now it would take -L-48,100,000 for her to meet her obligations.

"From the standpoint of the British taxpayer," declared Mr. Mellon, "he is asked to meet, not the obligation as established by our debt commission but an amount considerably in excess. . . . What intelligent businessman or banker would blindly refuse to investigate or consider the altered circumstances of a debtor whose unsecured obligation he held?"

Because the Moratorium would not be legalized by Dec. 15, nations owing the U. S. $125,000,000 then would stand in technical default on that date. Undersecretary of the Treasury Mills hustled up to the Capitol to see if Congress would not informally help the White House put a better diplomatic face on the delay. With him he took along a paper designed to reassure debtor governments that nonpayment would not be default. Most Senators and Congressmen got the impression he wanted them to endorse the document. This they all emphatically refused to do. Speaker Garner threatened to turn the paper over to the grinning Negro doorkeeper of the Ways & Means Committee if Mr. Mills dared to bring it to him. Senator Borah declined to commit himself while Senator Johnson reiterated that President Hoover would be breaking the law if he relieved other governments of their Dec. 15 debts without consent of Congress. Mr. Mills returned to the Treasury with the idea that Congress would share no responsibility with the White House on debt payments until the Moratorium was actually passed, that it was thoroughly disgruntled at the President's extra-constitutional methods of dealing with Debts without its official sanction.

As a diplomatic formula to meet the situation, Secretary of State Stimson was prepared to inform debtor nations that "under the special circumstances a postponement of Dec. 15 payments, pending action by Congress, would not be subject to any just criticism."

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