The Bubble That Will Break America
Elaine Meinel Supkis

Today is May Day, the traditional day in Europe to celebrate worker's unity. But workers of the world are not united, they are chopped apart by sovereign boundaries and political divisions and have been set against each other in competition with each other across the planet thanks to 'free trade'. Then, to make the mix even more explosive, the leaders of many nations have opened their borders so illegal workers could flood in and dilute national powers of organized workers. This has done two things: allowed cheap lending for the great powers, expanded the profits of exporters, expanded the money base without sharing it with workers and prevented inflation. But now that process is crashing due to the inability of workers to sustain a modern manufacturing base in the 'developed' countries. So the only thing the G7 seem able to produce is prodigious debts. This is causing their entire banking and governmental systems to break down or slide into bankruptcy. To see how this works, we must use the Time Machine called 'books' to peer into the past yet again.

THE BUBBLE THAT BROKE THE WORLD Is a book the Mises Foundation has resurrected from its grave and given great prominence. I agree that this hither-to virtually unknown book is a great read. And the Mises Foundation has generously reissued it. At only $6, it is a good buy, I would say. In an earlier story, I recommended buying this book. This still stands. My admiration is very great. But of course, this book, written by an anti-Marxist, is anti-labor. This is a general weakness of much writing by 'pro-capitalists' just as Marxists can't understand labor if they leave out the need for savings and capital itself!

Today, I want to talk about international lending, excessive debts and the overhang caused by grotesque overspending by the military of leading empires. For the other key to understanding labor, finances and wars is to understand the nature and history of empires. Why do ALL empires go bankrupt? And why is this intimately tied into excessive debts, out of control wars that are increasingly futile as well as labor losing heart and losing market share? If we figure this out, we can see into the future and make accurate predictions. Also, we can suggest cures, not patches, on the existing systems.

Most American books about the Great Depression start here at home and focus on the stock market and examine internal data and events with great care. But this is a fatal way to examine this event. For it didn't start in the US. The roots lay overseas. And in specific, in two mighty empires that were exhausted by a tremendous and disastrous war, WWI. Both Germany and England were entirely dependent upon the US to fix their imperial collapses. And the tool being used was lending from the US to both empires. And this was unsustainable. As I shall explain later. First, let's take a hard look at the first chapter in THE BUBBLE THAT BROKE THE WORLD:

Take a text from the news as it was printed in the New York Times on Monday, June 23, 1931: "Led by New York, tremendous buying enthusiasm swept over the security and commodity markets of the world yesterday in response to weekend developments reflecting the favorable reception of President Hoover's proposal for a one-year moratorium on war debts and reparations. The world-wide advance in prices added billions of dollars to open market values, with stocks, bonds, grain, cotton, sugar, silver and lead in heavy demand. Pronounced strength developed in the German bond list, the gains ranging from 2 to 13^ points.... United States government bonds failed to participate in the move, all of them closing behind minus signs."

The last line fell obscurely at the end of a paragraph. And that was all the notice any one bestowed upon the most significant fact of a delirious day, namely, the fact that everything in the world went up with the single exception of United States government bonds. And why was that? United States government bonds were telling why, and telling it loudly to such as would listen. They were telling it in the language of quotations,and this is what they were saying: "Again this business of saving Europe with American credit! Do you ever count up what it has cost you already?

It is becoming more and more costly; and, besides, you may not be saving Europe at all. You may be only inflating her. Better may turn out to be worse." As it did. The world-wide rise in everything but United States government bonds was fictitious, a momentary delusion. Worse was to come. Specifically, the Hoover debt holiday plan was to save Germany from financial collapse and so avert a disaster that had been bound to react in a ghastly manner upon the whole structure of international finance.

This book was written in the very depths of the Great Depression. The author assumes the readers have a fair memory for what happened in the previous decade. This book was written for people who read the top New York newspapers. This was before most people got their news from TV. TV is very bad for the memory. People remember chaotic images but have no mental 'timeline' due to the eye processing information in a much less reliable part of the brain, the 'lizard' part deep inside instead of the cerebral cortex which is activated when reading. Since the vast majority of the readers today at Culture of Life were not alive back then, it pays for us to establish a timeline of pre-1930 events. There are a few good timelines on the internet. The one I prefer due to its emphasis on foreign banking events is DESCENT INTO THE DEPTHS (1929):

Let's start with the beginning of the international banking collapse. Namely, when various parties who waged WWI began to default on their debts to the US or in the case of Germany, demanded many more new loans at lower interest rates:

In 1926, French prime minister Poincare imposed austerity on the French economy in a successful effort to stop French inflation. This temporarily constrained French finances, but left France as the only major European nation with a relatively healthy economy at the time of the Crash of '29. The French economy remained fairly resistant to the Great Depression for about six months after the '29 Crash, but French tax policies limited French markets as a source of credit for foreign borrowers.

Several weeks ago, I did a GDP comparison of England and the US over the last 150 years. I was seeking to see if there was a direct connection between England's many depressions and the ones in the US. I discovered an interesting thing. There was a direct connection but the more important discovery was the length of England's depressions after wars. The Long Depression of the 1890's in England lasted only 3 years in the US. One of my ancestors, ruined by this depression, shot himself. In the case of the depressions of England, they were allowed to wallow onwards for very long stretches compared to France or the US. During all these depressions, England's EMPIRE grew greatly! This is true even after WWI.

From the end of that war until the Great Depression, England was...depressed! The GDP shrank or grew much slower than the population. Unlike the US or France, which grew. Since the Great Depression began in England in 1921, we must look sharply at England to see if they, not the US, led the world into the Great Depression. I suspect that when the US did finally fall off the equity cliff, it was only after England had dragged down half of the planet in her own wake. Since the English empire ballooned outwards during the 1920's, this meant their depression was spread even further since all these conquests were designed to pull outsiders into the English empire that was having a full-blown depression. And the point of all this was to have captive export markets that would feed the imperial center's industries with commodities such as cotton, minerals, lumber, etc. So as England expanded its grip deep into the former Ottoman Empire which was depressed from 300 years of imperial depression, it became worse. I might even suggest that the ugly long depression that ate up Ottoman wealth and power now sank the English empire into depravity and poverty.

Just as the chaos in the Chinese empire was transmitted back into the major empires, we see this today as the US attempts to control the still-depressed parts of the former Ottoman Empire. The wealth of oil has switched gears there from depression to inflation with little to no industrial development or expansion. Perhaps the only sector of the Ottoman empire that is seeing industrialization is Iran. The US/UK/EU empire's blockade has ironically forced Iran into self-sufficiency. Let's go back to the timeline:

England had not fully recovered from the financial aftereffects of WW I, and made matters worse by a disastrous attempt to go back on the gold standard at a level that was much too high to be sustained by the reduced purchasing power of the post WW I pound sterling.

As a result, only New York could provide significant amounts of capital. The Allies could pay war debts owed to the United States (more than $11 billion) only if they received reparations payments from Germany. Germany could pay these reparations (well over $30 billion) and meet her internal needs for capital only by borrowing from the United States.

Not only was Germany expected to pay for all of WWI but also triple damages. This was financially unsustainable except if Germany were allowed to grow its industrial base at the expense of the 'winners' of WWI. Since England was frantically trying to export all its war inflation to its captive provinces, this locked Germany out of 30% or more of world markets since England was by far, the world's biggest empire. Russia, a big market for Germany, was frantically industrializing after the Russian Revolution. The Western nations were embargoing Russia just like we are doing to Iran and this ironically helped Lenin and then Stalin to rapidly industrialize their backward nation which was mostly an agricultural exporter to Germany, England and France before WWI.

Note, please, how the ugly thought springs into darker minds: the US is rapidly turning into pre-revolutionary Russia. Thanks to free trade, we are rapidly being deindustrialized and are now a food basket for Europe and Asia rather than a modern capitalist power! OUCH. This is why looking hard at history is very, very important. This way, we can make comparisons and see clearly trends and how they end. And we are on the wrong, wrong, wrong path. Back to the Descent Into Depression timeline:

Under the 1924 Dawes Plan - by September, 1929 - Germany had paid almost $2 billion in reparations, but had had to borrow almost $1.2 billion from the U.S. market, and her state governments and private businesses had also borrowed heavily in the futile effort to keep her economy afloat.

In June, 1929, English gold reserves again started draining out to France, and U.S. broker's loans - already over $6 billion - began to rise.

Wall Street interest rates in excess of 10% attracted credit capital from all over the world, and the expectation of a substantial market recovery from the May decline attracted ownership (equity) capital as well.

However, the cessation of the capital flow out of New York was already disrupting the circular arrangement of world finances and causing a crisis in reparations and war debt payments. Foreign loans by U.S. lenders in 1929 would reach only 50% of the 1928 total.

The NYSE rose approximately 8% in June, 1929, to a new total value of about $77 1/4 billion. But broker's loans rose to $7 billion. An economist, B. M. Anderson, Jr., noted that the flow of capital to New York had already pushed European interest rates up to levels that were too high for many foreign borrowers.

In late July, the U.S. wrote off 61% of French war debts, decreasing the total from $4.2 billion to $1.6 billion.

Note several strange things here: France was raiding England's bank for gold. SIMULTANEOUSLY, France was pleading poverty and demanding the US make WWI finances into a gift rather than a debt! You can bet, they used this process to consolidate themselves with hard cash in the form of gold! But this elimination of debt KILLED THE MONEY CIRCULATION. Just as we see clearly today, when Magic Funny Money vanishes, the world banking and financial systems collapse. This is because money is valuable only if it is moving from one place to another, passing hand to hand while COLLECTING INTEREST. If this weren't so, we would have built up a financial system like they have in Japan today that runs on near-zero% interest despite raging inflation!

Of course, the Japanese solution doesn't work, it is destroying the entire banking system of all of Japan's allies. The use of gold as a controlling bellweather in the past worked. England was misusing its currency and overvaluing itself so it could lock out competitors but no one was fooled. They used the fake English currency to buy up gold. England was bankrupt. So the English solved this the old fashioned way: they locked the doors and refused to honor their currency! THIS is what caused all the banks in the West to collapse. France, who was also broke, managed to squirrel away enough gold to hold off the reality of bankruptcy but this didn't last very long. And France was so internally weak that a mere handful of years later, the Germans drove straight into Paris to seize all that gold and all of France. Just as the Japanese rolled right over the entire British Empire in the East just as easily.

Now that we are aware of the time frame, let's go back to The Bubble That Broke The World:

The first cost to us was reckoned at $250,000,000. That was the sum we should have to forego on account of war debts owing by Great Britain, France, Belgium, Italy and others to the American Treasury. We could not propose simply that Germany should stop paying reparations for a year to her European creditors. That would have cost Great Britain, France, Belgium, Italy and others too much. They could not afford it. If they had to forego reparations from Germany and still pay interest to the United States Treasury on their American war debts they would be hurt in their pockets. So what we proposed was that if Germany's European creditors wouldgive her one year of grace on reparations, the United States would give them one year of grace on their war debt payments to the American Treasury.

Even so there were difficulties, because it would still cost Europe herself something to save Germany. The situation was that France, Great Britain, Belgium and others had been collecting as reparations from Germany a little more than $400,000,000 a year and paying the United States on account of their war debts to the American Treasury a little less than $250,000,000 a year. Thus a general international war debt holiday to save Germany would cost them the difference, or about $150,000,000. Great Britain had been collecting from her war debtors only $50,000,000 more than she had been paying to the United States on account of her own American war debt; and she was willing.

But France had been collecting from Germany $100,000,000 more than she had been paying to the United States Treasury on account of her war debt, and she was unwilling. After long and painful negotiations it was agreed, for the sake of the debt holiday plan and to save Germany, that France should receive special treatment. An irreducible portion of her reparations money would be paid by Germany to the International Bank at Basle and then reloaned by France to Germany under a new arrangement. Everybody else took Germany's word for it.

Thus the plan took effect. It cost us $250,000,000. Well, a little more. While Germany's European creditors were debating the plan and higgling over what it was going to cost them, the Federal Reserve Bank in New York made a direct loan to the German Reichsbank to keep it open. Say, then, it had cost us altogether $300,000,000. Was it not cheap?

Several things here: the hard negotiations gained France profits. They made money off of the German reparations. Shifting this to the US was a great victory. From now onwards, the United States, not Germany, was responsible for French profits. As is usual in these cases, the French expansion in monetary gains meant the US took all the risks. And the US couldn't afford this due to internal risks growing. And this was due to the fact that the US displaced all the WWI inflation to US speculative markets which inflated rapidly. Remember: England, the other victor, created a huge DEPRESSION after WWI. So the US had to eat all the extra financing in the form of some sort of inflation.

We really thought we had done a grand thing; we read every morning in the newspapers that it was a grand thing. The diplomats and chancelleries of Europe were saying so, on typewritten slips, or in interviews, and the American correspondents were quoting them to us by cable. But the typewritten words of diplomats and chancelleries are purposefully suave. What people were really thinking and saying, even the diplomats, was very different. They were saying, among other things: "This is the beginning of the end of our hateful war debts to the U(ncle) S(hylock) Treasury."

Conservative British newspapers did play up to the official Downing Street tune, the more willingly because it happened to be the British season for hating France; all the popular papers were sarcastic. French opinion was caustic. These Americans, always saying they wouldn't and didn't, now again blundering their hands into the affairs of Europe, not understanding them at all. Interfering without knowing what it was they interfered with. Using their power of credit to dictate terms between France and Germany. Why shouldn't they lend their credit as credit merely, in a financial way, and otherwise mind their own business ? Besides, they were in bad manners, as usual, to propose that France should forego German reparations for a year without having first consulted France about it.

Comment in Germany was brutal and a little exultant. The Americans were obliged to save Germany from bankruptcy in order to protect the two and one half billions or more they had already loaned to her. It was to save themselves they were saving her and saving Europe. However, we still thought very well of it ourselves. And in any case, looking at it unromantically, the solvency of Europe was a bargain at $300,000,000, if really we had saved it. But in a little while it appeared very clearly that we hadn't. Within two weeks the whole of that $300,000,000 credit had been swallowed up and Europe was saying to us: "Now see what has happened! The Hoover plan was all right; the intention was good. Only it was inadequate in the first place, and then, unfortunately, the dilatory and public discussion of it by the nations concerned has advertised Germany's condition to the whole world.

This is why it pays to read old books! Note how the ENTIRE RESCUE operation was sucked down and vanished in less than three weeks! The Hoover rescue plan was gigantic for its day and unprecedented. Like today, the President and the Federal Reserve imagined, all they had to do was refinance and extend more loans and to open an emergency window for all the other nations and their banks to access and the financial collapse would end.

But all this did was open the Gates to Hell wider! This new money not only vanished, the INTEREST it created remained behind, unpayable! This meant the situation was worse, not better. Since neither Britain nor France wanted to declare bankruptcy after WWI and maybe divest themselves of key parts of their dying empires, both clung to the fiction of being solvent. This required infinite levels of debts to be produced and then handed off to them and which they then poured across the globe since both were global empires! None of this was 'local' in the sense of say, lending to Argentina. Argentina goes bankrupt like clockwork with little effect on the rest of the planet.

This also causes us to think horrid thoughts: Bernanke's supposed expertise concerning all things connected with the Great Depression. I have said, since day one, that this man is a total nut case with no authority and poor scholarship. Greenspan didn't even write a doctorate thesis and I would suggest Bernanke's Great Depression studies are pure lunacy that would not hold up in a debate with peers like myself! If we were to dispute the issue of central bank debt creation and how it was LACKING in the Great Depression, I could tear this man to pieces proving to him, there was TREMENDOUS debt creation! And every penny of it vanished in thin air since NONE of these loans COULD BE SERVICED! Anyone can make loans. But only solvent people can pay them back! How simple is this? As we go off the economic cliff with McCain and Clinton calling for endless wars and reducing taxes while consuming oil we can't afford, we must look very closely at previous lessons from imperial financial collapses that behaved the exact same way. A refusal to understand an empire has not the wherewithal to go to war anymore due to an inability to pay for these wars is the story of all empires.

In today's news, as our bankrupt empire votes to spend yet another $105 billion on our wars while spending a trillion on security and military, it is obvious where we are headed and why our banking system is collapsing!

Back to the Bubble:

Now all of Germany's private creditors are in a panic. American banks are calling their deposits out of German banks. The Germans themselves are in flight from the mark. What are you going to do about it? If after this you let Germany go down, it had been better to have done nothing at all. And if you let Germany go down, all of Europe may crash."

So there had to be a second Hoover plan to save Europe. The second plan was that American banks should stop calling their deposits and short-term credits out of Germany and relend her the money for a certain period, say, six months. That meant probably $600,000,000 more American credit. The cost of saving Germany was suddenly multiplied by three. Nevertheless, it had to be done and it was done under the direction of an American banker who was called to Europe for that purpose. Yet who could say what it was worth to save Germany, first for her own sake and then for the sake of Europe? It was no longer a bargain; still, thinking of the enormous investment of American money in Germany, now all in jeopardy, it might be worth even a billion of dollars - that is to say again, provided we had really saved the situation. But had we ? No.

In a few days more it was clear that what all this American credit had bought was only a postponement of evil. The German crisis had still to be met in some radical manner, or else what would happen at the end of the Hoover holiday, or, even before that, when the money perforce reloaned by American banks in Germany for six months was due again ? The only radical solution Germany can think of, naturally, is to get rid of reparations; then to borrow more American credit. And the only radical solution the rest of Europe can think of is to get their American war debts cancelled.

Here we are, peering into the Cave of Death: the wild attempt to keep the British and French empires that were hated by the enslaved nations and which were brewing revolutions and riots, the US was going to try to keep this mess afloat via lending. Originally, we were made richer this way. Money from Europe flowed to the US! It was used to strengthen our economy which took off like a rocket! But now, the whole system was crashing, money was vanishing as fast as we lent it because no one could pay the INTEREST on this money! Much less, the principal.

It occurs to me what the whole 'moral hazard' really is about. I was at the bank depositing hard-earned money that I as well as the readers here have carefully saved at personal cost. The interest being offered for savings were all extremely low. Thanks to the Federal Reserve. You see, they loot those who have the money and these people are SAVERS. When there are wars, the savers are savaged by the State to pay for all this. If they don't buy bonds, inflation is used to seize all the accumulated labor-produced wealth. The other trick is the present trick: to not recognize inflation yet still force us to save. The trick is hard, on the other hand, due to the desire to 'put money under the mattress'.

Europe was not delighted to be in debt to the US. First of all, the US used this as an excuse to not let European goods flood into the country! We could lock everyone out because they owed us, not the other way around. Today, for example, we have endless credit with the Bank of Japan but this is so they can flood us with imports. We can NEVER pay back Japan because we are in the red both in trade and banking with them. Ditto in spades with China!

Bubble:

But there had been hardly time to begin thinking of radical solutions before another crisis developed. There was an international run on the Bank of England for gold. Her gold began to give out. What could the Old Lady of Threadneedle Street do? What could save the credit of the Bank of England? Only American credit could do that. So the Bank of England came to New York and got a big loan from the Federal Reserve Bank. American credit had twice saved Germany, once for herself and once for the sake of Europe, and now it had saved the Bank of England - all in less than three months. And the cost had been roughly a billion and a quarter.

Who still could say it had not been worth it ? But again the sigh of relief was interrupted. After all that, another crisis. Germany was not saved; she had been only floated on a raft of American credit. Europe as a whole was not saved because Germany wasn't. And for these reasons the Bank of England discovered immediately that the loan she had got from the Federal Reserve Bank in New York was not enough. That is to say, the Bank of England itself was not saved. She had underestimated the amount of saving required. What to do? Everybody thought of the same thing at once, as if it were new - the same magic, the same miraculous fluid.

More American credit.

Note the horrible similarities! Today, the 'cure' for the 'lack of liquidity' was to create MORE red ink! But what was this sudden end to 'liquidity' anyway? It was, as in all great collapses, several. A trillion in housing loans were given to deadbeats who couldn't pay them for even one year! But the monster was the extra $4 trillion in US government debts, the wars and the monster trade deficits in the US. They all grew as swift as the wind on easy credit. Just like the brand new Federal Reserve gave European empires endless funds to murder millions and millions of soldiers, blowing them up in this monumentally stupid war, so it is today. This flood of red ink has turned millions of Iraqis into refugees, killed countless people, destroyed the US real estate markets and is sinking all our corporations under a sea of debts. And the cure?

MORE DEBTS! Now how is Bernanke different from back then? I see absolutely no difference! Why isn't his fellow Fed officers...aside from Volcker....yelling about this?

Bubble:

But now certain new difficulties. One is that the Bank of England cannot borrow enough. Besides, going to New York again so soon with more I. O. U.'s in her hand will hurt her credit. The American bankers may lift their eyebrows. The next idea is that the British Government itself shall borrow American credit to Save the Bank of England. The only weakness of this idea is that the Labor Government of Great Britain as it stands is not in good credit. It is a socialist government and year after year it has been closing the national account book in red ink. It spends so much money upon schemes of social benefit, particularly in the form of a public wage to the unemployed, that it cannot balance its budget. How will it look for the British Government to go asking for American credit when it is already spending more than its income and cannot balance its budget?

American bankers, indeed, had been sounded out to see if they would mind. They had not lifted their eyebrows, but they had said: "Really, before expecting us to float a British loan you ought to do something about your books. They are too much talked about. Can't you economize, spend somewhat less on these meritorious social schemes and balance your budget? If you did that the talk about the red ink in your national account book would stop and then it would be easy enough to float a British loan in America, or to give the British Treasury any amount of bank credit."

The writer of this book is quite good but has a classic blind spot the size of the planet earth. Britain was in trouble NOT because of social spending. Britain was far behind Germany in this regard. No, the problem was military: Britain was still at war! In Iraq, for example. Not to mention Asia and Africa. And unrest in India...no, the huge hole in the British bucket was the same hole that sinks all Empires: wars that bring not loot but losses.

Whereupon the British decided to change their government, adopt a program of social economy and balance their budget. This had long been indicated as a necessary thing to do. It was the insolvency of the socialist Labor Government, among other things, that was hurting the credit of the pound sterling. Nevertheless, the disagreeable task of reducing public expenditures was postponed until the Bank of England had exhausted its power to borrow American credit on its I. O. U.'s. Then it became imperative for the British Treasury to put itself in good standing as a borrower.

When the news came from London that the British had changed their government and now were going to balance their budget, Wall Street bankers were already discussing a loan to Great Britain. "They reiterated their preparedness," said the New York Times, August 26, "to provide a substantial loan if the new government requires it." Further: "The amount, bankers said, should be as large as can be readily supplied by the banks of the country and the credit should run at least a year. A number of bankers believe Great Britain would benefit from a long-term loan and a few of them believe British credit is still strong enough to make a public offering possible even in the present depressed bond market."

The next day the news in Wall Street was that negotiations had been formally opened and on the third day it was announced that American bankers had loaned the British Treasury $200,000,000 for a year. But what was the popular reaction in England? The Americans had used their power of credit to interfere in the politics of Great Britain, even to the point of demanding the overthrow of the Labor Government. That was the reaction. The Daily Herald, organ of the Labor Party that had been ruling England, said: "Among the reasons Mr. MacDonald advances for imposing new privations on the most unfortunate section of the nation is the 'pressure of public opinion abroad.' Whose opinion? Not that of the democracies of Europe or America, oppressed by unemployment and distress for similar reasons, but that of foreign bankers, who laid down to the British Government terms, including changes in the unemployment benefit scheme, upon which and alone upon which they were prepared to render financial aid to the Bank of England."

It said the Federal Reserve Bank of New York had put a pistol to England's head. Which was to say, the Americans had no right to name the terms on which they would lend their money to save the Bank of England or to save the credit of the British Treasury. They ought to lend their money and mind their own business.

How do people arrive at this ground of unreason - the English people, who before us were the world's principal creditors with a creditor mentality? It is not simply that political passions have distorted the facts. That is true. But the facts belong to finance and finance is lost in its own world. It knows neither the way to go on nor how to go back. Having raised international debt to a new order of magnitude, now it faces international insolvency of the same grand order, and it is appalled. It cannot manage the facts. The only solution it can think of is more European debt, more American credit. By itself it cannot create any more debt. If the resources of private credit are not quite exhausted, the credulity of the creditor is about to be. But there may be still some resource left in the public credit of Europe.

Finance at this point adopts the mentality of the crowd in the street. Let government do it. Let all the European governments increase their debts who can, to save them- selves and one another. This is literal. By agency of international finance Germany, in six or seven years, borrowed nearly four billions of dollars, two thirds of it from American lenders. It was much more than Germany could afford to borrow - that is, if she cared anything at all about her own solvency. Having procured this money to be loaned to Germany, having exhausted every kind of German security that could be made to look like a bond, international finance came to the sequel and said: "Germany must have more credit, for else her whole financial structure will collapse, and if that happens international finance cannot answer for the consequences. They will be terrible. But Germany has no more security to offer. Therefore international finance cannot float another German loan. But if Germany's creditors will collectively guarantee a German bond issue, international finance can float that."

Try going on from there. Suppose Germany's European creditors, namely, Great Britain, France, Italy, Belgium and others should guarantee a German bond issued for more American credit. When that credit was exhausted, what would happen? Perhaps then, in order to go on lending American credit to Europe, we should have to guarantee our own loans. And what better security could you ask? An American loan to Europe guaranteed by Americans!

Well, and what is so very strange about that idea? All the American war loans and all the American post-armistice loans to Europe were guaranteed by the United States Government. It borrowed the money on Liberty Bonds and guaranteed them. If Europe does not pay this debt the American Government will. It cannot be wiped out or cancelled or reduced. It can only be transferred from the European taxpayer to the American taxpayer.

If the American lender is not a menace to the financial sanity of the Old World, the least definition of him would be to say he is to Europe a fabulous enigma. Critical European economists say we are the worst lenders in the world, because we lend impulsively, in a reckless, emotional manner, not systematically. That is true. It is true that as lenders, simply so regarded, we are incomprehensible to ourselves and to other's. Beyond all considerations of an economic or financial character there is pressing upon us continually that strange sense of obligation to save Europe.

It seized us deeply during the war. It carried us into the war. We were going to save Europe from Germany, the German people from the Hohenzollerns, little nations from big ones, all the people of Europe from the curse of war forever. There were other motives, to be sure. We had money on the side of the Allies, though by such measures as we now use it was very little. Our sympathies went to the Allies. We hated the way Germans made war.

Some of us may have been a little afraid of a German Europe. Allied propaganda to get us in had its great effect. Yet for all of this we should never have gone in without the emotional thought images that made a crusade of it.

A war to end war. Where? In Europe. A war to make the world safe for democracy. Where was democracy supposed to be in danger? In Europe. A war to liberate oppressed nationalities. Where? In Europe. Not a war against the Germans - we said we had no quarrel with the German people - but a war to deliver them from the tyranny of their own bad war lords. And from no realistic point of view was any of this our business.

The allied nations were not interested in our thought images, or, if at all, in one only because it worried them, and that was the one about saving the weak from the strong, otherwise, the right of self-determination for little people. The Allies did not care what our reasons were.

We could be as romantic as we liked, only so we came in on their side, for unless we did the war was lost. They were not themselves fighting to make the world safe for democracy, nor to end war forever, nor to deliver the German people, nor to put destiny into the hands of little people; they were fighting to beat Germany, and with American assistance they did beat her. None of the things we thought we were fighting for came out. What survived was a continuing sense of obligation to save Europe.

I am including this to show how very angry Americans were with Britain after WWI. This is exactly why our government dared not jump in to save London from the Nazis even as they were bombing it. The US was very divided all the way up to Pearl Harbor when Hitler declared war on the US. I read the memoirs of General Stillwell who was in charge of the Chinese theater the first half of WWII. He says only terrible things about the British empire. He supported cutting the British empire into pieces and restoring sovereignty to the natives of Asia. After the war, both Britain and France demanded ALL of their colonies to be restored or else. They learned nothing from either WWI or WWII. Why should they? We were bankrolling them!

This is the same today: the US expects the world to bankroll all our invasions. We demand more, more and then more IOUs from every possible source, even potential rivals and obvious enemies! Hitler's war machine was built partially on US loans, for example. The same with Japan. Being the creditor nation, we could arm our enemies and then annihilate them! And come out richer. Today, we are the debtor nation. Every war bleeds us even more.

Bubble:

Our own exertions in a war we had been much better off to stay out of cost us twenty-five billions of dollars. Then, in addition to that, we loaned out of the United States Treasury more than ten billions to our own associates. Lending to Europe out of the United States Treasury ended with the post-armistice loans. Then private lending began - lending by American banks and American investors. Counting our own direct war expenditures, the war loans, the post-armistice loans, and then the private lending since, Europe has cost us more than forty billions of dollars in less than fifteen years. That sum would have represented one fifth of our total national wealth in the year 1914.

Cast out the cost of our own war exertions. Pass the war loans by the United States Treasury to the Allies out of the proceeds of Liberty Bonds. Say that under the circumstances we were morally obliged to make them, whether anything should ever come back or not. Pass also the postarmistice loans out of the United States Treasury, which were for cleaning up the wreck in Europe. These constitute the war debts for which now we are hated in Europe and which no doubt will turn out to be worth very little. If the United States Treasury went to Wall Street to sell the long-term bonds it took from the Allies in place of their promissory notes, it would be lucky to get twenty cents on the dollar for them. So consider only the private debt - that is, the American credit delivered to Europe since the war by American banks and American investors. All the terms were financial. The character of finance is selfish. Therefore, as to this private debt, representing five or six billions of American credit poured into Europe during the last eight years, it is permitted to ask: What have we gained thereby?

Definitely, in the first place, not the friendship or good will of Europe. On the contrary, we have raised against ourselves in Europe an ugly debtor mentality. This, you may say, is inevitable in the shape of human nature; creditors must expect it and allow for it. But what makes it much worse in Europe and gives it a sinister political importance is the prejudiced manner in which it is exploited, not only by the press and the politicians, but by responsible statesmen, by finance ministers who cannot balance their budgets, by governments when it is necessary to increase taxes.

Germany tells her people that if they did not have to pay reparations - called tribute - to the once allied nations, German wages would go up, German taxes would come down, German poverty would vanish, the German sun would rise.

The once allied nations say to Germany they are sorry; if they did not have to pay their war debts to the United States Treasury they could forego reparations, or in any case a great part of them, perhaps as much as two thirds. Yet all the time they keep saying to their own people that their troubles are multiplied upon them by the necessity to remit enormous sums each year to the United States Treasury on account of their war debts. That they collect these sums first from Germany as reparations is not emphasized. And the fact that so far there has been no payment of either reparations or war debts but with the aid of American credit does not interest them at all. American loans to Germany have enabled her to pareparations. Out of reparations from Germany the others make their annual payments on their war debts to the American Government. Anything we have yet got back from Europe was our own money, the worse for wear, and very little of that.

But if you say this to a European, even to one who knows, he is offended. Very few of them do know, as a matter of fact; it is easier to believe what they hear from those who exploit the debtor mentality. For a long time it was supposed that European feeling against America as the Shylock nation was owing to the nature of the debt - that it was a war debt and had a public character. Certainly there would be no such unreasonable feeling against a debt owing to private creditors. So we said, and saying it we continued to lend American credit in Europe until the weight of the private debt exceeded that of the war debt. Owing to its sheer magnitude this private debt now begins to assume a public character, and as it does there begins to rise about it and against it the same excitable popular feeling.

Why are Americans so rich? Where do they get all this credit? Do they mean to enslave the world with their gold? [Elaine: HAHAHA] This is the sequel international finance does not foresee. When it comes suddenly to the end of its own resources, as it did in 1931, it must call on governments to interfere; after that all talk of keeping finance free of politics is sheer nonsense. The real crisis in Germany last summer came after all nations had been relieved of war debts for one year, under the first Hoover plan. It was concerning the solvency of Germany in respect of her debt to private creditors that a seven-power conference of prime ministers was held in London in July. There the United States was represented by the American Secretary of State and the American Secretary of the Treasury, and there came forth the second Hoover plan, to save Germany from having to default on her debt, not to other governments, but to private creditors. The situation had got beyond the control of international finance; therefore, governments were obliged to interfere.

Again, later, when the British had to change their government in order to borrow American credit to save the Bank of England, a financial transaction with private creditors assumed a public character. The British Government borrowed the money, not from the American Government, but from American bankers. Nevertheless, because the American bankers had stipulated for public expenditures to be reduced in England and for the British budget to be balanced, it was possible, even plausible, for the British Labor Party to say the Americans had exerted their colossal money power to destroy the Labor Government of Great Britain; and there are hundreds of thousands of unemployed in England who will think American bankers responsible for their diminished weekly dole out of the British public funds.

A private international debt is easily denned; it repre- sents borrowing by private persons in one country from private persons in another. So also is a public international debt easily denned; it is a debt owed by one government to another. But debt may be private on one side and public on the other, as when the government of one nation borrows from private lenders in another. But let it be strictly a private debt, owing by the nationals of one country to the nationals of another, and yet if it becomes so large as to endanger the solvency and economic freedom of the debtor people, or so large as to alter their economic relations adversely, it will clothe itself with a public character and political consequences are bound to follow.

Our loans to Europe are of all kinds. They represent borrowing by European governments from the American Government, they represent borrowing by private persons and private organizations in Europe from private American lenders, and they represent borrowing by European governments and States and municipalities from private American creditors. Less and less do these distinctions matter, because more and more the character of an American loan is merely that particular aspect of one great body of debt. The political implications of it simply as debt take us unawares.

Since our lending to Europe bears us no friendship, only more and more dislike, and since it has caught us in a net of foreign entanglements contrary to our native wisdom, the question returns unanswered. What do we get out of it ?

Now the voice of foreign commerce, saying: "But our lending abroad did increase our export trade. Our loans to Europe enabled her to buy from us great quantities of goods that otherwise she had been unable to buy. This kept our factories going, it kept our own labor employed."

And it is so, it did for a while. There is probably no point beyond which your export trade cannot be still further inflated so long as you lend people the money with which to buy your goods. But if it is good business when, having loaned your foreign customers the money to buy with, the goods are no sooner gone than you begin to wonder if you will get anything back, unless again you lend them the money to pay you with or forgive what tfrey already owe - if that is business at all, then common sense is daftness and international finance has in itself the secret of wisdom.

Another voice is heard, saying: "But remember, this modern world is all one place. No nation may enjoy separate prosperity, not even this one. A war-haggard Europe was properly the concern of a country that had resources to spare. . . . That was reason enough for putting American credit at the command of Europe. Be- sides that it was our duty to do it, we should have been intelligent to do it on the ground of enlightened selfishness."

This high and excellent thought belongs to a harmony the world is not ready to play. There is first the probability that it will be embraced from opposite sides differently, by the lenders with one enthusiasm and by the borrowers with another, and that the transactions between them will not be governed by the simple rules of prudence, judgment and moral responsibility. When, moreover, you talk of lending as a duty, what do you mean? And how afterward shall you treat the contract? There is the further danger that the thought will be degraded to the saying that a rich nation, only because it is richer than others, is obliged to disperse its surplus among the envious and less fortunate. That idea, indeed, has been asserted by many European doctors of political economy, who either do not see or care not that international borrowing tends thereby to become reckless and irresponsible, and is soon tinged with the ancient thought ofplunder.

The US is now Germany and England, post WWI. Do we love China for holding trillions of US dollars out of world markets so the dollar isn't worth a penny? No? HAHAHA. We HATE China! Our media, as back then, is hammering the Chinese who, this very week, are now the World's Bank! China has ALL the top banks now when we look at capitalization! They are #1 and we are the #1 world BUMS. We are beggars, they are bankers! This news is NOT front page news in the US, of course. Part of the propaganda has to be, we are #1 and they are the bums! And we can defy them, humiliate them and even plot to destroy China by ripping it to pieces! Yes. This is the game.

Which we are losing. Other alarmed empires like India and Russia are very angry and alarmed at US attempts at splintering China into smaller pieces. Today, the price of oil is finally dropping. But not because the US stopped stupid things. It is because Switzerland, China, Russia and India have broken the back of the US-led boycott of Iran! And Iran wins yet another round in the game we are playing called 'Crater Your Neighbor's Economy.'

Every American should fall on their knees and thank the Chinese, the Indians and the Russians for saving us from an obvious economic disaster. Our own actions have created impossible conditions here at home. And all our own idiotic politicians offered us was to cut taxes even more. To create more red ink! To flood us with more IOUs. To drive the government not just half a trillion into the red but a full trillion into the red! And all this red ink will turn into blood. This is the awful magic of money: it comes from the Caves of Death. And there lives a Dragon. Right now, it speaks Chinese. But slaying our creditors is a doomed operation in the end. Both Germany and Japan tried this and failed. So will we fail.

There is one door and only one door out: to save money. To tax ourselves, especially the rich. Instead, we will have two multimillionaire warmongering nuts striving to see which one will rule our empire. This is why all empires collapse into bankruptcy.

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