Debts to the us
This week is a red-letter day in the history of the British Isles. The government of the United Kingdom will by the end of this year close a wartime chapter that started nearly 60 years ago. The British government will pay back to the United States the last installment of the loans taken by the then British government under Sir Winston Churchill at the height of the Second World War. Thus the chapter on money loaned by the United States to Britain during the second Great War will be formally closed. This last installment is a repayment of the US war loan taken out under a 1945 agreement and would be completed by December 31 of this year.
The loan dates back to September 1945.The end of the First World War had left the European nations economies shattered. Even before they could recover a war of immense ferocity was unleashed by Nazi ruled Germany and its allies Italy and Japan. Because of economic difficulties Britain did not want another war on its hands. The British Prime Minister Neville Chamberlain had at the Munich peace pact of 1938 with Hitler declared that he had won peace for our time. However this didn’t happen and within a short span of time the entire Europe was sucked into a war of gigantic proportion. Hitler’s panzers quickly over ran the entire Europe and France was occupied in 40 days. Britain however stood alone. But the economic situation had become precarious. Britain needed economic help. The Americans quickly rallied to the British cause. This was a defining moment in world history. This American aid was crucial and helped Britain fight the war. Many generations from now historians and people will never forget the contribution of the United States in giving the famous war time loans as authorized by President Roosevelt under the lend lease agreement. From 1941, Britain and other allied nations had received large quantities of equipment and supplies from the United States.
Under the lend-lease program, which began in March 1941, the then neutral US could provide countries fighting Hitler with war material.
The US joined the war soon after the Japanese fleet struck the American Pacific fleet in Pearl Harbor. The program ended in 1945.
Britain received about $30 billion of goods just over 7 billion at the prevailing exchange rate during the war years, in effect gifts from America. But in September 1945 the US abruptly announced an end to the Lend-Lease program. This was despite the fact that Britain was on its knees economically.
However the Americans were generous and goods already in Britain or in transit were sold to the UK government at a heavy discount of nearly 90%. This worked out to 10% of the value of the goods. Even this amount was paid in the form of a loan. By 1941, Britain was in a parlous financial state and Lend-Lease was eventually introduced.
The amount, together with a line of credit, was $4.34 billion with a 2% interest rate, originally intended to be paid back over 50 years beginning in 1950 in 50 annual installments.
Some critics, including Lord Keynes (1883-1946), saw the loan as a means used by America to subjugate Britain after the war. Lord Keynes was a British economist whose theory called Keynesian economics, made a major impact on modern economic and political theory. Economists consider him one of the main founders of modern theoretical macroeconomics. Lord Keynes believed that the United States gave the loans with an eye to subjugate Britain. But this is a debatable point and all economists are not in agreement with it.
It’s easy to be churlish at the thought of Britain’s closest ally demanding payment for equipment rather than writing off the entire loan as a gift.
But the terms of the loan were extremely generous, with a fixed interest rate of only 2%. Such a low interest rate helped the British government immensely in its reconstruction plans.
The point to be noted is that Hansard records of the British Parliament record that the last 3 payments were December 2004 - 145 Million USD, December 2005 - 142 Million USD and December 2006 - 83 Million USD. We can further glean from records 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. Hansard is the traditional name for the printed transcripts of parliamentary debates in the Westminster system of government that is prevalent in the United Kingdom
Britain did have trouble in keeping up with the payments. There were six years when Britain perforce had to defer payment as a result of economic crises. But this week’s ?43m remittance will pay off the last vestige of this war time loan from a close ally.
It is difficult to visualize in the modern context the astronomical costs and economic damage caused by this conflict. In 1945, Britain’s economy was shattered and money was badly needed money to pay for reconstruction as well for import of food. Rationing was in force and Britain was down and out.
Many war loans are never repaid.
Britain borrowed money from America during the First World War but never fully settled the debt. This was because President Herbert Hoover declared a moratorium on all debt during the global financial crisis of 1931.There is also loans predating the Napoleonic wars. Government is still paying out on these "consol" bonds, because it is better for the Government to keep paying the 2.5% interest than to buy back the bonds.
The one stark fact remains as the British pay their last installment this week that the prosperity of present day Britain is to a large measure to the American assistance to Britain during the war years. Britain can never forget that. It will remain an eternal debt to the United States.
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