Friday, 25 September 2015

Cash For Carnage

There's debts and then there's debts. Many people these days kind of assume that the wars of yesteryear are just that, wars of the distant past .... never realising that we and others are still impacted by events of 70, or even 100 years ago. I am not talking about memories of granddad, or great granddad, fighting or dying in wars so long ago.

No, I am talking about the financial debts that fighting these wars cost us then, and ever since. I guess that many people just assume that the wars were paid for at the time, or covered by taxation, but of course all the participants actually borrowed vast funds from either their own populations, or international investors (yes financiers will make money from carnage as a commodity), in the form of war bonds.

These bonds were not just for munitions, ships or tanks, but for post war reconstruction as well, and have to be paid off ..... eventually.

British War Bond Poster

So it should come as no surprise to know, that Britain has been quietly paying off the debts from two world wars, for decades, and indeed centuries. Unlike the losers, who eventually were let off much of the debt, we actually were held to account for every dime and cent by both the US and Canada (our principal lenders and 'allies').

Under the lend-lease programme, which began in March 1941, the US gave Britain old ships and newer tanks etc, on the proviso that we paid for it all later. Strangely, despite the US finally joining the war later that year, Britain still had to offer repayment of any equipment it took from the US, right up until 1945 when the programme ended.

British War Bond Propaganda Poster

The US loaned the UK a further $4.33bn (£2.2bn) to Britain in 1945, while Canada loaned US$1.19bn (£607m) in 1946, both loans at a rate of 2% annual interest.

So in 2006, the UK was able to announce that it was making its last two repayments of $83.25m (£42.5m) to the US, and US$22.7m (£11.6m) to Canada, and thus completing a cycle of 50 repayments stretching way back to 1950, when Britain first started repaying money borrowed during the 1940's. We had been so bust in 1945, and on the verge of starvation, that we had to actually defer our first repayments until 1950.

Upon the final payments, the UK had paid back a total of $7.5bn (£3.8bn) to the US, and US$2bn (£1bn) to Canada .... not a bad deal for both those countries .... and now that seems a small amount, compared to our £1trillion+ current account debt.

Now you might have thought that would be the end of it, but in fact it was only in 2014, that we finally announced that we were to pay off the debts from the first world war ....  a moratorium on all debts from that conflict was agreed at the height of the 'Great Depression' in the 1930's, and no repayments have been made to, or received from, other nations since 1934, but there are still World War I debts owed to and by Britain.

War Bond Poster

So in March 2015, the government finally after 67 years, repaid the outstanding £1.9bn of debt from a 3.5% first world war 'War Loan Bond', which more than 120,000 investors still hold. The bond was issued by the then Chancellor of the Exchequer, Neville Chamberlain, in 1932, to refinance UK government debt accumulated during World War One. It replaced an earlier bond which paid 5% to investors, and the Debt Management Office estimates the government has repaid about £5.5bn in total interest on the 5% and 3.5% war loans respectively since 1917.

War Bond USA Propaganda

You might wonder about the 'losers' in these wars .... well after WWI, Germany was forced to agree to pay reparations of 132 billion gold marks (or 269bn gold marks according to other sources, which is the equivalent of around 100,000 tonnes of gold), to the 'Triple Entente' allies (the UK, France and USA), in the 'Treaty of Versailles'. The 1924 'Dawes Plan', and the 1929 'Young Plan', both reduced German debt to 112bn gold marks, and granted Germany loans to help meet its payments. The repayments were suspended before World War II by Adolf Hitler. However they were later reduced by the 'Agreement on German External Debts' in 1953. After another pause, pending the reunification of Germany, the last instalment of these WWI reparations was paid on 3 October 2010.

After World War II, the Potsdam conference in 1945 determined that Germany was to pay the Allies US$23 billion, mainly in machinery and manufacturing plants, which were shipped abroad (mainly to the USSR) or destroyed. Reparations to the Soviet Union stopped in 1953, after they had stripped the eastern part of the country. Oddly this form of reparations meant West Germany bought all new plant machines from the US in the 1950's, and so overtook the UK economy in the 1960's, and we have never recovered.

Liberty War Bond USA

Japan was apparently supposed by treaty and bilateral agreements, to repay around ¥1.03 trillion .... but it seems that it used its economic dominance in the region in the 1970's and 1980's, to enforce final settlements under much more favourable terms. These 'settlements' have occasionally unravelled as its power in the region has declined, and it may be that Japan will find itself paying more as court cases for forced labour etc are heard. This despite the financial aid it has given to China, amounting to 3,650bn yen ($35.7bn; £21.8bn) over the years .... this was always the danger of Japan using 'bilateral agreements', rather than one final settlement by general treaty.

But back to Britain ..... so that's surely the end of these old debts then? Well no actually. Britain is still paying interest on other undated gilts in its portfolio, including some debt originally issued in the 18th Century. One of these bonds was issued by William Gladstone in 1853, to consolidate the capital stock of the South Sea Company, which was founded in 1711, and which collapsed during the South Sea Bubble financial crisis of 1720, leaving behind it a lot of bad debt.

So we are still paying for that financial fiasco 300 years or so later ..... kind of rings a bell doesn't it.


  1. With such large sums you'd think that these debts would feature prominently in the yearly budget? Makes one wonder what else we're paying for and which is kept under the radar.

    1. I suspect that after 'X' number of decades, some specific debts simply morph into 'sundries' or 'consolidated' debts, with only the government accountants knowing what each part of those debts consists off. A good example is the incredibly ill thought out 'Public Finance Initiative' (PFI) scheme debts, which must eventually amount to billions of pounds, but which is almost never mentioned anymore.

      Give it a decade and they will just be accepted as part of general debts, and never identified anymore.

  2. Fantastic Artwork in those days. I guess they had to convey a message in just one glance.

    1. Yes, You can see why these posters are collectible. Thanks for the comment.


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