Bankruptcy?

Discussions on the economic history of the nations taking part in WW2, from the recovery after the depression until the economy at war.
Felix C
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Bankruptcy?

Post by Felix C » 07 Apr 2015 01:18

Could one of the combatants in WW2 have gone bankrupt and have to cease hostilities? I am thinking of the UK in particular. Is this true or just myth?

Also, when reading on the Nuremburg Trials I read where some of the German documents indicated Germany was near bankruptcy in 1939. Is that correct?

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Der Alte Fritz
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Re: Bankruptcy?

Post by Der Alte Fritz » 07 Apr 2015 07:42

Technically in economic terms countries cannot go bankrupt as can firms or companies. Also the assets of a country are very large either tangible in the form of stocks, machines and population or intangibles in the form of minerals, intellectual property, etc.
Usually what they mean by this term is that they had exhausted their short term credit like Greece in 2014 so are unable to pay the interest and repayments on loans, bonds and other finanical instruments from other countries.

In 1940 the British Empire had a GDP (1990 $ prices) 568 Billion compared to the USA's 800 billion and Germany's 375 billion. While the second largest in the world, it did not preclude a 'cash flow' crisis as she spent a lot of gold very rapidly in the USA buying weapons.

Similarly Germany in 1940 had a balance of payments crisis because she was receiving most of her imports of raw materials from the USSR under the Molotov Ribbentrop Agreement, up to 70% at its peak and the Soviets wanted this paid for immediately. Payment was made either in cash (gold) but more often in finished goods such as weapons (Lutzow, etc) or machine tools, both of which Germany needed herself to fight the war. Yet to thwart the British blockade, Germany needed Soviet grain imports and Soviet exchanges of commodities such as rubber which Germany could not buy on the British controlled international markets. Germany was very slow in making these payments during the first six months of the agreement so had built up a deficit which the Soviets would not allow to continue during the latter half of 1940. Hence the squeeze.

pugsville
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Re: Bankruptcy?

Post by pugsville » 07 Apr 2015 15:51

They could find it very hard to import stuff from other countries, which could be very bad for Britain, but it's sort of sliding into the mud than any clear cut magic line. being 'bankrupt' for a nation is the refusal of others to extent any credit. Britain liquidated assets held by Britons in the US to pay for stuff under cash and carry early in the war before lend lease. I don't know exactly how this program worked. Anyone got details.

Sid Guttridge
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Re: Bankruptcy?

Post by Sid Guttridge » 07 Apr 2015 16:24

Hi Pugsville,

The British could go a long way on credit, which was what Lease-Lend effectively was. They also had an empire that was a negotiable asset, as the destroyers-for-bases deal showed.

The British had had the same evolving constitutional system for a millenium and had not declared national bankruptcy for hundreds of years. Thus even today the UK's debts are slightly discounted because creditors have confidence they will get their money back.

In WWII even neutral countries like Argentina and Iceland allowed the British to build up very large debts with them, which only had to be paid off after the war.

Cheers,

Sid.

Carl Schwamberger
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Re: Bankruptcy?

Post by Carl Schwamberger » 07 Apr 2015 18:56

One of the examples of British vs German finance is in the competition for the Wolfram or Tungsten ore out of the Iberian mines. The Brits made a point of paying well and swiftly, causing the price to inflate well beyond what the credit & cash strapped Germans could ill afford. I've heard a claim the Germans were paying smugglers a premium to steal from stocks purchased by the Brits because it was cheaper than what the Portuguese brokers were obtaining. I cant say how true that might be, but it suggests how fierce the competition was.

steverodgers801
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Re: Bankruptcy?

Post by steverodgers801 » 08 Apr 2015 18:45

Germany had little to offer in return for raw materials so they had to pay out of their limited foreign reserves. Since Germany cut them selves off from the international banking system they cut them selves off from the credit system. Since Germany was also spending so much on building up its forces they had little to spare to offer in trade. The Germans were badly behind in payments to the Soviets and sent over an incomplete cruiser as partial payment and was refusing to send over the goods they promised so they were needed for internal use. Except for Stalins insistence on sending every item promised Germany in hopes of bribing Hitler to not attack Germany did not suffer from their payment deficit.

GregSingh
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Re: Bankruptcy?

Post by GregSingh » 09 Apr 2015 00:15

Felix C wrote:Also, when reading on the Nuremburg Trials I read where some of the German documents indicated Germany was near bankruptcy in 1939. Is that correct?
This particular incident had nothing to do with Germany's balance of trade, but armament funding using mefo bills. The activity (which was a secret one) was stopped in 1938. That was the end of financing using "peace economy" methods. Some researchers (Niall Ferguson, for example) believe that in situation like this a war is forced and financing by debt is replaced by financing by plunder and a "war economy" - where you don't care if you are called a bankrupt - you are not going to pay bondholders in enemy countries for sure, you may also defer payments to local bondholders.

In early 1939 Reichsbank refused to finance payments to workers.
Here is a fragment of Wilhelm Vocke's testimony:

MR. JUSTICE JACKSON: At that time, there was something of a financial crisis.
VOCKE: Yes.
MR. JUSTICE JACKSON: Considerable difficulty, inflation was just around the corner, as you might say.
VOCKE: The Government was confronted with the 3,000 million mefo bills which were about to fall due and which had to be covered, and the Minister of Finance had a cash deficit of 1,000 million. The Minister of Finance came to see us and asked us to tide it over, because otherwise he could not pay the salaries on 1 January. We refused. We did not give him a single pfennig. We told him that the best thing that could happen would be that bankruptcy should become manifest in order to show how impossible it was to continue this system and this policy. He then received money from private banks.

Incident angered Hitler. He sacked a President and the Board of directors of Reichsbank.

P.S.
Ernest Hemingway said:
"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."
If we become increasingly humble about how little we know, we may be more eager to search.

Sid Guttridge
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Re: Bankruptcy?

Post by Sid Guttridge » 09 Apr 2015 16:14

Hi Greg,

In this connection it is worth mentioning the ASCI Mark.

This was a non-negotiable unit of currency used particularly by Latin American countries to buy German manufactured exports at discount prices in return for advance deliveries of raw materials.

When war broke out, Germany had received large advance deliveries of these raw materials, but Latin America had yet received relatively few of the discounted German manufactured exports in return.

The ASCI Mark was therefore another area where Germany had an economic reckoning ahead of it.

Yet another was over the Volkswagen car. German workers had laid down deposits and savings towards buying the new "people's car", but the state had diverted much of the money into propping up rearmament.

Cheers,

Sid.

steverodgers801
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Re: Bankruptcy?

Post by steverodgers801 » 09 Apr 2015 17:54

This inflation is a major reason for Hitler invading other countries so he could rob Peter to pay Paul

Felix C
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Re: Bankruptcy?

Post by Felix C » 10 Apr 2015 02:04

Thanks Folks Good answers all around. Makes one appreciate this Forum more than others.

ljadw
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Re: Bankruptcy?

Post by ljadw » 10 Apr 2015 06:47

I still am not convinced by the claim that there was in 1939 a financial crisis in Germany and that it caused Hitler to attack Poland :this is the old Marxist theory of Tim Mason who is explaining everything by economic,materialistic facts and is denying the influence of nationalism .

That Germany had economic problems (as all countrie have ) : YES

That Germany was bankrupt : NO

That this caused Hitler to invade Poland : NO : the invasion of Poland would not (and did not ) solve Germany's economic problems,it would (and did ) increase them .

ljadw
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Re: Bankruptcy?

Post by ljadw » 10 Apr 2015 06:53

Felix C wrote:
Also, when reading on the Nuremburg Trials I read where some of the German documents indicated Germany was near bankruptcy in 1939. Is that correct?

You could look at the debate between Overy and Mason. IMHO Overy is right and Mason is wrong .

ljadw
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Re: Bankruptcy?

Post by ljadw » 10 Apr 2015 06:58

Der Alte Fritz wrote: Germany was very slow in making these payments during the first six months of the agreement so had built up a deficit which the Soviets would not allow to continue during the latter half of 1940. Hence the squeeze.
Would the Soviets not allow ??

Germany needed imports,but the SU needed the exports just as much .The more debts Germany had to the SU,the stronger it became .

Sid Guttridge
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Re: Bankruptcy?

Post by Sid Guttridge » 10 Apr 2015 11:41

Re-reading the above, it appears that the German Government entered the war owing large sums for raw materials to almost everyone it traded with, except the Western liberal democracies and their colonies. Its creditors included millions of its own citizens, the USSR and all the major economies of Central and Southern America.

Sid.

ljadw
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Re: Bankruptcy?

Post by ljadw » 10 Apr 2015 14:52

This thus not mean that there was a causal effect between both .

2 other points:

The German import from the SU in 1938 was,compared to the total,insignifiant :it was 52.8 million of RM,while the total German import was 5415 million of RM ;thus only 1 % .

The German import from South America was going up from 440.6 million of RM in 1934 to 809.7 million of RM in 1938 and there was no indication that the countries of South America would refuse to export to Germany,because Germany was behind with payments .

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