Germany Benefits From Paper Marks

December 21, 2010 By Leave a Comment

A FEW weeks ago one of the foremost publicists of France made a statement to a member of the Outlook staff that Germany had received in gold as the result of the sale of the Government’s paper marks abroad more than Germany had paid out in reparations. In other words, Germany was engaged in a very profitable transaction as a result of the war, for she had sold worthless money for more than she had been willing or forced to pay in repair of the wanton damage she had done in her neighbor’s territory. Such an allegation coming from a French source might be answered by the argument that it was an ex-parte statement. Now the New York “World” in a copyright article gives figures based on information from German banks and confirmed by records in America, “checked by a canvass of the big cities of the United States and the scrutiny of eminent, thoroughly experienced banking and foreign exchange specialists” (to use the “World’s” own phrase), which thoroughly uphold that statement of the French publicist. According to the “World’s” article, all the German paper marks in the world are worth to-day, at the current price, about $175,000,000,000; and yet for the paper marks that have been sold in this country alone Americans have paid $960,000,000 in gold.

In the end of course such business as this can only bring distress to the German peoples as well as loss to the “investors;” but it is highly profitable to the German Government and to those speculators who have been getting their rake-off on the multitudinous transactions that have constituted this commerce in virtually worthless paper. So great was the business carried on at one time that the German Government printing-presses were unable to print marks fast enough to supply the demand. On an average, the marks were bought in America at $12 a thousand. Now they are worth less than 70 cents a thousand. The deluded American buyers have got the paper and Germany has received the gold. Most of those who bought these marks were Germans in America or Americans of German descent. This is the way that Germany has got the gold to pay her reparations. In fact, as the “World” article states, in this way the buyers of German marks “have given to Germany more than twice as much gold as Germany has paid in gold in war reparation payments to date, $365,637,000.”

All this does not lessen the suspicion that the German Government has been quite willing to find itself in what to a private business concern would be insolvency.

Source: The Outlook, 11 Oct 1922

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France wants Gold – not Paper Money

November 26, 2009 By

With the firmness of the money market the only disturbing factor in the present financial situation. Wall Street has been somewhat concerned over reports from Paris that the Bank of France will convert a material portion of its enormous holdings of foreign exchange into gold.

Withdrawal of the metal from this country immediately narrows the credit base since a dollar’s worth of gold is the basis for from ten to fifteen dollars of credit. This means that, unless offset by other influences, the credit supply in the United States would be reduced by from $2,000,000,000 to $3,000,000,000 if France were to buy $200,000,000 in gold here and take it home.

French banking authorities have no wish to embarrass other countries but if business in that country continues to expand the conversion of some of their exchange holdings into gold is inevitable. The Bank of France’s reserve ratio is now about thirty-nine per cent, only four per cent above the legal limit.

It is reassuring to know, though, that our Federal Reserve authorities could prevent any serious damage as a result of gold loss by purchases of Government securities. Such purchases have exactly the same effect on the credit market as gold imports.

Any business man and almost any Wall Street speculator is fairly well aware of the importance to him of the volume and price of credit. American industry and commerce are more efficient than they have ever been before and not the least important element in this efficiency is their economical use of credit. By skillful merchandising, by buying only to fill their immediate requirements, they are borrowing less in proportion to their turnover than at any time in their history. They have not, however, arrived at a state where they can progress without borrowing—and they never will. Plants and equipment must be expanded to meet the country’s growing consumptive capacity. Usually this expansion must be accomplished by the use of borrowed money.

Some able bankers and other practical economists are fond of saying that money rates never checked business prosperity or relieved depression. This is pure hyperbole. If pinned down, they would admit that their assertion is true only within limits. An advance from four to five or perhaps six per cent in the commercial paper rate probably would not have much of an effect but it would be absurd to deny that an advance to eight or nine per cent would not block expansion that might well be carried on in an easier credit market. In other words, business responds to wide fluctuations in money rates but not to small ones.

Christmas demands for both currency and credit are largely responsible for the current stiffness of the call money market but the fundamental rates are due chiefly to four causes—the activity of business, the loss of gold since the beginning of the year, Federal Reserve policy and the demands of the market.

Source: Outlook, 2 January 1929

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