Never mind the Hun, we want our money!

Excerpts from A World Undone (G.J. Meyer)

from the Chapter: Background: Consuming the Future

   In addition to being the greatest bloodbath in the history of western Europe and the greatest in eastern Europe until the Second World War, the Great War was a process by which all the great powers, victors and vanquished alike, transformed themselves from bastions of prosperity into sinkholes of poverty and debt. Financially as in so many other ways, the war was a road to ruin....

   What was not foreseen was the ability of the industrialized nations to go on fighting year after year even while devouring themselves financially. As astute an economist as John Maynard Keynes was a year into the Great War before he understood that total war would not cause total financial collapse. “As long as there are goods and labor in the country the government can buy them with banknotes,” he wrote in September 1915, “and if the people try to spend the notes, an increase in their real consumption is immediately checked by a corresponding rise of prices.” The truth, he concluded, was that bankruptcy would never force the great powers to stop fighting. They could be stopped only by the exhaustion of their manpower, their physical resources, or their will to continue. The next few years showed him to be entirely right....

   Great nations found themselves unable not only to pay their bills but even, in some cases, to pay the interest on what they were borrowing. By 1917 the German government’s expenditures amounted to 76 percent of net national product; they had been 18 percent just before the war. Tax revenues were covering only 8 percent of the spending. That same year Britain’s military spending was 70 percent of national output, and revenues were about a fourth of expenses. France’s military budget, thanks to heavy borrowing, was equal to or even more than total output....

   The British and French were far more able than the Germans to repatriate money they had invested overseas, and because of the naval blockade only the Entente was able to buy and borrow from the United States. But gradually, inexorably, their treasuries were depleted. Questions arose in New York and Washington about their ability to make good on their debt. In November 1916 the U.S. Federal Reserve Board warned its member banks against continuing to buy foreign—which meant British and French—treasury bills. The result was a near-panic in which London retaliated by briefly ceasing to place orders in the United States and urged France to do likewise. By April 1917 the British were spending $75 million a week in the United States, were overdrawn on their American accounts by $358 million, and had only $490 million in securities and $87 million in gold to draw on to make good their debt. In short, they were only weeks away from insolvency.

   But this was a crisis for the United States too. American manufacturers and farmers had become dependent on sales to the Entente, and American banks were owed immense amounts. A British and French financial collapse—never mind the outright defeat of the two nations—would have been a disaster for the U.S. economy. Thus the German submarines were not Washington’s only reason for wanting to save the Entente. In purely practical business terms, it became dangerous for the United States not to enter the war.

The following is from ZeroHedge :

The Congressional Budget Office (CBO) on Dec. 14 projects that under current law, debt held by the public will exceed $16 trillion by 2020, reaching nearly 70% of GDP. The CBO also projects the combination of rising debt and rising interest rates to cause net interest payments to balloon to nearly $800 billion, or 3.4% of GDP, by 2020 (Fig. 2).