Indiana daily times. [volume] (Indianapolis [Ind.]) 1914-1922, 1920-01-17
FROM DEBTOR
TO CREDITOR
John Moody Cites Status of
u. S. Changed by War.

repute on financial matters, in his annual
: Review and Forecast issued today says
that imitation may be interrupted this
year, but no sharp depression in business
will result. European demand for Amer
lean made goods and the overwhelming
balance Of trade in favor Of the United
States will prevent any pronounced bust
ness slump. The Review says:
When the future historian Of America
writes the history of the world war and
its aftermath, he will characterize the
year 1919 as being remarkable for the
recklessness, wastefulness and extrava-
gance Of the people.
I'm order to clearly view the present
and future, we must fully realize the
changed position Of the United Sta-as as
related to the rest Of the civilized Y rid
were debtor nation; European investors
alone held in the shape OF American
securities something like ten billions of
dollars Of our national wealth. In other
forms, such as real estate, private enter
prises, etc, we know not how many
billions more
I'VE were then paying tribute to Europe
In interest, dividends, profits and APP
probation Of property values, at least a
billion year, and possibly great deal
more. We had no merchant marine of
our own, aud while our fore On trade
had been growing it was really a minor
item, and we paid TO Europe in freight
rates, both on exports and imports, large
amounts of money. The balance Of trade
was growing more and more in our favor,
1t Is true, as compared with earlier years
but relative to that Of England and Ger
many international trade with US was
but a minor factor.
PRIOR TO 1914 MONEY
DEPENDENT ON EUROPE.
"As a debtor nation we were dependent
very directly, prior to 1914, on the bank
ing situation abroad While New York
had grown to be a great banking center,
always closely dependent on conditions
In London. When the London money
market WIS disturbed, that of New York
was disturbed; when the Bank Of Eng
land raised its discount rate, this act
was always reflected In New York. For
while the United States had grown
taoulously In wealth during the prior
generation, we still looked to Europe for
the financing of our greatest enterprises.
/ Even as late as 1912 and 1913 It was
necessary for some of our greatest rail-
roTd companies to seek large amounts OF
new capital In the London and Paris
markets. and many important underwrlt-
ings were shared in by bankers and capt
tallsts Ia continental financial centers
like Berlin, Frankfort and Amsterdam.
In domestic matters, the situation was
also very different from that of today.
/ Not until late IN 1914 did the new federal
reserve banking system begin operations,
"AN We NNAf Sun CHIT wing on tue DuSA~
ness Of the country under the antiquatel
Z methods of the old systems The old bank
+ Ing system had carried us through panics
ana catastrophes, but, at frightful cost
II certainly never could have carried US
successfully through a great war
The financial problems of the govern
ment at that time were simple. Our to-
tal interest bearing debt on June so
1914. was hut 1851 ,953 $40. with annual
interest charges OF 500, SSf .497. Govern
\ ment income was we'll in excess of ex-
penditnres. The greater part OF the rev
enue came from impost taxes, for the new
income tax law had just been enacted
ana the revenue TO be produced from It
was not expected to exceed 500, 600 900
. per annum.
I'm 1919 we had become the one great
creditor nation Of the world. Our debt
TO Europe has been completely cancelled
and EuroDe's debt to us had mounted Co
\ a larger total th6n our old debt to her
our former annual tribute in the form
Of interest, dividends and profits had
Deen reversed and Europe was making an
annual tribute to US Of far greater
amount. our government had directly
loaned to the allied pations of Europe
approximately ten billions of dol
lars besides which our own American
, capitalists and investors had purchased
billions. New York bad become the
banking center Of the world. while Lon
don ana Paris, in more senses than one,
/ mad become its satellites.
Changes in the London money market.
which, before 1914. had been so vital
/ to us. meant little to us, while any
/ changes in the New York money market
had far reaching effects both at London
/ and Paris. Whereas, years ago, 1t was
! the problem of our foreign exchange
bankers and fnanciers to keep the dollar
up to par with sterling francs, It had
now become the concern of all TO prevent
/ too great depreciation in sterling and
/ francs.
I'm the meanwhile our own government
/ interest paying debt, which had ranged
/ below one billion dollars in 1914 had
risen to over $4,000, 100000 on June 80,
/ 1919, while the annual interest charges
/ rose to about $l,02SO00O0O. Our interest
/ charges in 1919 were larger than the en-
! tire government debt In 1914
But relative to the government debts
! OF other great nations of the world our
total burden was small. England, France,
Italy, Germany, Austria, Belgium. Rus
STA and the rest had run their debts I'D
to fabulous totals during the war and
after; and 1t will be found that at the
close of 1919, IL we offset the United
States debt withNxhe amounts ADVANCED
| to the allies and Nthe amounts already
repurchased by the treasury, our own net
| debt Is relatively but a moderate burden.
"In 1919 our federal reserve system had
/ been functioning successfully for five
/ years, and was the biggest single factor
/ in the bringing OF the war TO sue
| cessful conclusion and maintaining sta
bility in the country's business and
/ un3nCeS.
THE most striking contrast, however
between 1914 and 1919 was the great
fall In the purchasing power of the
dollar. Exact statistics are unnecessary,
/ but approximately the buying power of
the dollar has fallen so per cent. To-
day 1t costs an individual about twice
what 1t did in 1914 to live on the same
scale as 1914, disregarding war and other
taxes. And furthermore, 1t costs bust
ness man approximately twice what it
did in 1914 to make equivalent profits.
In other words, to retain the old pur$s
chasing power In his profits, he must
! today do twice the normal volume or bus
mess and pay twice his former expenses.
All business, and all human activities
are operating on new and enlarged
basis of values.
IAN increase during 1920 Of European
imports into this country, affecting, as
| it naturally will, the American price
level will have favorable effect on the
foreign exchanges. Sterling, francs and
marks may not recover materially until
the year Is well along; but a year from
now should be much higher than today.
In the meanwhile our own country will
be going through a period of subsiding
speculation; labor disputes will be less
frequent because of a growing labor
surplus; efficiency will be increased and
the tendency toward economy will spread
as prospects~of lower prices become evil
dent.
"This sort of process in industry is
similar to that which transpires in a
panic except that the results are OBJ
tanned suddenly in q panic, whereas they
develop slowly under a peaceful tendency.
If it were not for the peculiar European
situation we might reasonably expect q
orgy of wastefulness and extravaganza
FOR If the present inward swing of COM