The International Economic Order, 1929 - 1939: The Great Depression and its Aftermath ● How did the U.S. stock market crash affect international finances, lending, and repayment? ○ US govt. Not involved but US businesses and banks were involved in the reparation loans ○ Oct 1929: Germany says they can’t pay the reparations ○ US can’t lend at the same rate, America no longer loaning money to Germany, thus Britain and France no longer receiving war reparations ○ Abrupt termination of long-term foreign lending, which declined by 68% ○ Transatlantic flow of money has impact on the entire world ○ Cycle of money: ■ U.S. provides loans to Germany and German national Bank ■ Germany uses the money to pay reparations to ■ France, UK, Belgium etc. ■ European countries repay U.S. for War loans ○ Most nations did not feel impact of depression immediately ○ Germany was directly dependent on U.S. Bank and American businesses for investment; source of loans completely disappears overnight ○ Only beginning in the 1930s do western countries not as dependent on U.S. market begin to default on their loans ○ By 1934, every European country had stopped paying back the U.S. for borrowed money (except Finland) ○ Abrupt decrease in U.S. trade also led to a decline in British foreign investment ○ 12 European banks had enacted various types of restrictions on the transfer of capital abroad ○ British abandoned gold standard in Sept 1931 - marked the crumbling of the international monetary system that had been established after WW1 ○ New INTL Economic System: ■ 1. U.S., France, Belgium, the netherlands, and Switzerland, which remained on the gold standard and enacted protectionist tariff barriers ■ 2. Britain and its trading partners and imperial holdings, left gold standard and tied currency to the pound ■ 3. Germany and many of the impoverished non industrialized nations of central europe and latin america, imposed rigid exchange controls that rendered currencies inconvertible ● How did US and foreign govts. react to these developments? ○ The UK, France, etc. were not tied to the American economy ■ So not an immediate problem for them ■ LAter on they say they can’t repay loans to the US ○ 1931 Moratorium ■ Pres Hoover puts all loans on hold for a year ○ 1932: France and Belgium: “we can’t pay u back” ○ 1934: everyone, but one country (Finland) has stopped paying the US ○ Johnson Act: ■ Hiram Johnson ■ Any country who owes war debt to the US can not borrow in the US
■ American businesses, charities, and people stop investing (and visiting) in these countries ○ American liquidation: ■ 1929 - 1932: US banks sell off foreign investment ○ 1932: Bank Panic ■ Creditanstalt (Austria bank) assets frozen, declared bankruptcy: accelerated financial panic in European markets, first big bank failure, also good propaganda for Nazis bc the owners of Kreditanstalt were Jewish ■ American businesses, banks, and people leave Austria ●
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