Thread: England paying America

Sounds like you are thinking of the LEND LEASE ACT put it in your search engine on Google, and problem solved

I understand that during the war England became indebted to America and had to repay loans etc. One method adopted was for any English owned company to be sold and the money paid to the American government. Almost a form of nationalisation. But I don't know if I've got the whole story here or what the proper name of that process was.

Here's an extract from British War Economy, one of the post war official histories:

By the end of 1940, British commitments in the United States for initial orders and capital development without counting Programme B amounted to nearly $10,000 millions. This figure represented only a fraction of America's war potential, but it was much larger than the debt Britain had incurred in 1914-18, and far in excess of total British assets in the United States. The United States Treasury was informed about this. The warnings of impending dollar exhaustion that the Prime Minister had given the President as far back as mid-May were justified by precise figures produced during July by a senior Treasury official who had gone to America on Mr. Morgenthau's invitation. Thereby the Americans were confronted with a dilemma: either to withdraw support from Britain and consequently to impose upon themselves immediate and immense strategical dangers and war expenditures far greater than any they had yet contemplated: or else to continue and expand their aid to Britain irrespective of 'the dollar sign'. The United States Government never doubted what its ultimate decision would be; but it was intensely anxious to postpone the day of decision. The representative of the British Treasury telegraphed to London, 'Nothing before the election'. Until then, the United States Treasury encouraged the British to press ahead with war contracts they could never fully pay for, while all the time it put persistent pressure upon them 'to scrape the bottom of the barrel' so that they might meet the interim payments as they fell due. Some Americans tried to persuade themselves that there was more in the barrel than the British pretended; as late as 28th November 1940, Lord Lothian reported them to be 'saturated with illusions that we have vast resources available that we have not yet disclosed and that we ought to empty this vast hypothetical barrel before we ask for assistance'. The United States Administration was fertile of suggestions to the British for stripping themselves bare. They might raise some more cash by disposing of their 'direct investments' in America—the British-controlled enterprises, such as Viscose Corporation, for which there was no established market. They might sell their South American securities and their interests in Malayan tin and rubber. They might cash in at once on the stocks of whiskey intended for export to America during the next ten years. They might cash in at once on their stocks of Australian and South African wool. They might dispose of the Empire's gold stocks in anticipation of future mining production.

Some of these things the British did. They sold British ownership of the Viscose Corporation—not perhaps at a 'rubbish price', as was often said at the time, but certainly at a heavy sacrifice. This was partly because the time at which sale took place was unfavourable, but still more because the real value of Viscose fell as soon as it was separated from the parent British firm, Courtauld's Ltd. Would they not incur even greater losses by selling at knock-down prices their South American or Malayan investments? Mr. J. M. Keynes, in a pointed memorandum, discussed the economic issues. The Malayan investments, he said, represented living personal enterprises, not an automatic flow of dividends: if the Americans took over the dividends they would have to take over the enterprises, together with responsibility for the territories in which the enterprises were situated: otherwise the flow of production would dry up. And what about gold? Actually, the British were doing everything in their power to mobilise all available gold: on 5th January 1941 the United States cruiser Louisville put in at Simonstown and took off gold to the value of $149,633,653: on the very eve of the Lend-Lease Act, the Belgians came to the rescue of their ally by giving them an option on $300 millions worth of gold in Belgian possession. It was only by expedients of this kind, and by slowing down their contracts, that the British squeezed through the winter months without defaulting on payments that fell due. But were such improvisations sound in economics? Mr J. M Keynes argued that it was nobody's interest, most certainly not America's, that Britain should completely denude herself of gold. If the convention by which gold was used as a means of settling international balances came to an end, America's own stocks would become valueless. 'The convention depends', Keynes wrote, 'on not all the gold being in one hand. When in the game of "beggar my neighbour" all the cards belong to one player, that is the signal for the game to come to an end. The pack becomes worthless pasteboard: the fun is over.'

The economists who were attached to the United States Treasury no doubt saw these truths as clearly as Keynes did; but the Treasury according to British reports, insisted upon 'the psychological importance of the question' and argued that Britain must manifestly strip herself bare in order to strengthen the President's hand when he came before Congress with new proposals of financial aid. Mr. Churchill concluded that the time had come for him to approach the President again with a statement ranging wider than political economics. He reminded the President that the British Commonwealth in defending itself, was buying time for the United States to prepare their own defences: the future of both democracies depended upon successful British resistance during the coming year. The decision in the coming year would lie on the seas; Britain, having survived direct enemy assault in 1940, might be overwhelmed in 1941 by the less spectacular but no less deadly attack upon her shipping. Should she fall under this attack, the United States might not find time to complete their own preparations. The Prime Minister reiterated the urgent need for American help at sea—strategic help, through the transfer of American warships or the reassertion of the American policy of freedom of the seas, and industrial help, in the form of a ship-building drive comparable with the Hog Island programme of the last war. Industrial help was hardly less indispensable in the sphere of air and army production. This brought Mr. Churchill to the question of finance.

The moment approaches [he said] when we shall no longer be able to pay cash for shipping and other supplies. While we will do our utmost, and shrink from no proper sacrifice to make payments across the Exchange, I believe you will agree that it would be wrong in principle and mutually disadvantageous in effect, if at the height of this struggle, Great Britain were to be divested of all salable assets, so that after the victory was won with our blood, civilisation saved, and the time gained for the United States to be fully armed against all eventualities, we should stand stripped to the bone. Such a course would not be in the moral or the economic interests of either of our countries.

And from US Wartime Aid to Britain by Alan Dobson:

In the run-up to the introduction of the Lend-Lease Bill in Congress Morgenthau asked the British to sell something big to sweeten congressional opinion. Britain had already sold off considerable amounts of easily liquidated assets and the flow of sales had depressed the market; consequently, when Britain was more or less obliged to sell the Courtaulds owned Viscose Corporation of America to meet Morgenthau1s request, only approximately one third of its market value was realised. Once again the British felt hard-done-by and their suspicions and resentments towards America in their economic relations began to intensify.

The latter book goes in to quite a bit of detail. You can read some of it on Google Books.

BBC NEWS | UK | Magazine | What's a little debt between friends?

The UK is about to pay off the last of its World War II loans from the US. But it hasn't always been so fastidious.


On 31 December, the UK will make a payment of about $83m (£45.5m) to the US and so discharge the last of its loans from World War II from its transatlantic ally.
It is hard from a modern viewpoint to appreciate the astronomical costs and economic damage caused by this conflict. In 1945, Britain badly needed money to pay for reconstruction and also to import food for a nation worn down after years of rationing.

"In a nutshell, everything we got from America in World War II was free," says economic historian Professor Mark Harrison, of Warwick University.
"The loan was really to help Britain through the consequences of post-war adjustment, rather than the war itself. This position was different from World War I, where money was lent for the war effort itself."
Britain needed to rebuild



Britain had spent a great deal of money at the beginning of the war, under the US cash-and-carry scheme, which saw straight payments for materiel. There was also trading of territory for equipment on terms that have attracted much criticism in the years since. By 1941, Britain was in a parlous financial state and Lend-Lease was eventually introduced.

The post-war loan was part-driven by the Americans' termination of the scheme. Under the programme, the US had effectively donated equipment for the war effort, but anything left over in Britain at the end of hostilities and still needed would have to be paid for.
But the price would please a bargain hunter - the US only wanted one-tenth of the production cost of the equipment and would lend the money to pay for it.

As a result, the UK took a loan for $586m (about £145m at 1945 exchange rates), and a further $3,750m line of credit (about £930m at 1945 exchange rates). The loan was to be paid off in 50 annual repayments starting in 1950, although there were six years when payment was deferred because of economic or political crises.

Generous terms

It's easy to cough and splutter at the thought of our closest ally suddenly demanding payment for equipment rather than sparing a billion or two as a gift.
But the terms of the loan were extremely generous, with a fixed interest rate of 2% making it considerably less terrifying than a typical mortgage.

Still there were British officials, like economist JM Keynes, who detected a note of churlishness in the general demeanour of the Americans after the war.
Nobody pays off their student loan early, unless they are a nutter


Dr Tim Leunig

His biographer, Lord Skidelsky, says: "Keynes wanted either a gift to cover Britain's post-war balance of payments, or an interest-free loan. The most important condition was sterling being made convertible [to dollars]. Everyone simply changed their pounds for dollars. [Loans were] eaten up by a flight from sterling. They then had to suspend convertibility. The terms were impossible to fulfil."

Anne Moffat, the MP for East Lothian, asked the parliamentary question that revealed the end of the WWII loan after being pressed by an interested constituent. She is a little surprised that we are still paying the Americans off all these years later.

"It is certainly bad that no-one seems to have known about it. It seems to be a dark, well-kept secret."

Historic debts

Yet for Dr Tim Leunig, lecturer in economic history at the LSE, it's no surprise that the UK chose to keep this low-interest loan going rather than pay it off early.
"Nobody pays off their student loan early, unless they are a nutter. Even if you've got the money to pay it off early, you should just put it in a bank and pocket the interest."

And if it seems strange to the non-economist that WWII debts are still knocking around after 60 years, there are debts that predate the Napoleonic wars. Dr Leunig says the government is still paying out on these "consol" bonds, because it is better value for taxpayers to keep paying the 2.5% interest than to buy back the bonds.
In a 1945 state department survey on the US public's attitudes to its wartime allies, Britain was one of the least trusted countries


Dr Patricia Clavin


And while the UK dutifully pays off its World War II debts, those from World War I remain resolutely unpaid. And are by no means trifling. In 1934, Britain owed the US $4.4bn of World War I debt (about £866m at 1934 exchange rates). Adjusted by the Retail Price Index, a typical measure of inflation, £866m would equate to £40bn now, and if adjusted by the growth of GDP, to about £225bn.

"We just sort of gave up around 1932 when the interwar economy was in turmoil, currencies were collapsing," says Prof Harrison.
Nor were we alone. In 1931, US President Herbert Hoover announced a one-year moratorium on war loan repayments from all nations so the international community could properly discuss what it was going to do.

British resentment

Many Britons felt that the US loans should be considered as part of its contribution to the World War I effort.

"The Americans lent Britain a lot. Britain resented making payments," says historian Dr Patricia Clavin, of Oxford University.

And although Britain was unable to pay its debts, it was also owed the whacking sum of £2.3bn.
OUTSTANDING WWI LOANS
Britain owed to US in 1934: £866m
Adjusted by RPI to 2006: £40bn
Other nations owed Britain: £2.3bn
Adjusted by RPI to 2006: £104bn



These loans remain in limbo. The UK Government's
position is this: "Neither the debt owed to the United States by the UK nor the larger debts owed by other countries to the UK have been serviced since 1934, nor have they been written off."

So in a time when debt relief for Third World nations is recurrently in the news, the UK still has a slew of unresolved loans from a war that finished 88 years ago. HM Treasury's researchers descended into its archives and were unable to even establish which nations owe money. The bulk of the sum would probably have gone to allies such as nations of the Empire fighting alongside Britain, says Dr Clavin.

Nor is HM Treasury able to say why the UK never repaid its WWI debts - even though, at the time, many Americans took a dim view of repayments being suspended, for they had bought bonds which stood little chance of showing a return on their investment.
The Wall Street Crash helped plunge economies into chaos



Thus despite fighting on the same side in WWII, an air of financial distrust remained after hostilities ended.
"In a 1945 state department survey on the US public's attitudes to its wartime allies, Britain was one of the least trusted countries," says Dr Clavin.

During the crisis years of the 1930s, only one nation continued to pay in full - Finland. Perhaps a conscious effort to foster a good reputation with an increasingly influential power, Finland's actions generated thousands of positive stories in the American media at the time. Nor has it been forgotten; the Finns celebrated this achievement in an exhibition last year.
But for the UK, a reputation for reliability has taken longer to restore.


Second World War Debt - Politics UK

Whilst browsing books today I noticed a footnote commenting that the final payment to the United States of America from the United Kingdom for assistance provided during and in the aftermath of the Second World War is payable in 2006. I looked it up and found that Hansard records the remaining payments are December 2004 - 145 Million USD, December 2005 - 142 Million USD, December 2006 - 83 Million USD. Hansard further informs me that a total of 4.336 Trillion USD was borrowed comprising 3.75 Trillion USD Line of Credit and a Lend-Lease loan of 586 Million USD. Just thought it was interesting.