The Bubble that Broke the World by Garet Garrett

Author:Garet Garrett [Garet Garrett]
Language: eng
Format: epub, pdf
ISBN: 978-1-61016-084-1
Publisher: Little, Brown, and Company
Published: 1932-11-06T16:00:00+00:00

1 Since this was written Von Hindenburg has been reëlected president of the German republic.

OPERATING THE GOLDEN GOOSE

(POST MORATORIUM)

“The Federal Reserve System has been threatened with raids upon its gold supply by foreign nations, notably by France. There has been that threatening situation, the conjecture—and it is a conjecture—being that that country wanted to affect our situation with respect to reparations and with respect to her indebtedness to the United States. I do not make the assertion. I say that it is conjecture. The officials of the Bank of France have simply outwitted the officials of the Federal Reserve System of this country.”

—SENATOR CARTER GLASS,

Formerly Secretary of the Treasury, moving in the United States Senate, February 17, 1932, the Glass-Steagall bill, an emergency act to protect the American gold reserve.

To the further education of American credit abroad enter these autumnal sights and experiences, videlicet:

1. The gold honor of the American dollar impugned in Europe, where our lending of it had been so prodigal. Our credit impugned by our debtors! And for what reason? For the reason that we had been too free with it; precisely for the reason that our debtors knew they had borrowed too much on poor security.

2. The rationally impossible spectacle of debtor nations raiding the gold reserves of a creditor nation while the creditor is self-bound and helpless under an agreement not to collect its debts from them.

3. The strange experience of a creditor nation finding itself beholden to one of its principal debtors, the debtor undertaking on grounds of generosity and helpfulness to stop raiding the creditor’s gold reserves short of the point at which the creditor’s own gold solvency might seem to be in jeopardy.

4. The sight of public ovations in this the creditor country to the premier of one of its principal debtors when he comes to tell us that more of Europe’s war debts must be charged to the American taxpayer in a spirit of international friendship; more public ovations as he departs with our promise to consider it.

5. Experience of numbness and a sense of ill-being in the body of American credit, probably psychic.

And for all of this the narrative, beginning abruptly.

What with the American moratorium for a year on war debt payments owing to the United States Treasury, the relending of 700 or 800 millions of short-term American credit in Germany to save her from wretched default, a cash loan at the same time to the Reichsbank, then a cash loan to the Bank of England to save the gold honor of the pound sterling and immediately another to the British Treasury for the same purpose—with all of this we put no less than a billion and a half of American gold credit into Europe during the summer of 1931, thinking thereby to avert the disaster of a total financial collapse.

The specific intent of our loans to the Bank of England and to the British Treasury was to keep the mighty pound sterling on a gold basis—keep it, that is to say, at its full traditional gold value.

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