New-York tribune., 1920-10-04
BY 3. NJ. ANDERSON JRu Ph.D,
Economist, Chase National Bank.

Economist, Chase National Bank.
Our one-sided trade with Europe has
created wholly abnormal situation,
which may be summarized as follows:
On September 10, 1920, Europe owed
an unfunded debt Of over $4,000, 100000
to private individuals, banks and cor
porations in the United States. This
figure is in addition to the 100000 ,000,-
900 which European governments owed
to the United States government, and
in addition to the debts of Europe to
investors in the United States holding
European securities.
On January l, 1919, Europe appears
to have been creditor to the eXtenI of
perhaps as much as $200,0O00O0 on
current items. This is an uncertain
element. But between January /, 1919,
and September 15, 1920, net debts
| I72,C00,000 nave been created, swamp
ing the initial credit and creating net
unfunded debt Of something over 49,
00,0O0,O0O.
The main items involved in the COM
putation of the growth of the unfunded
debt of Europe in the period under
discussion (January l, 1919 to Septem-
Der l5, 1920 are, on the one hand, our
export balance (the excess of our ex-
ports over our imports) with Europe,
which was $4,000 900, ,000 and, on the
other hand, advances made by the
United States Treasury to our Euro
pean allies, which partially offset this
export balance. A large number of
other smaller factors on both sides Of
the account are dealt with in the bal
ance sheet below.
Piled Up Since 1919
The greatest part of the unfunded
debt of Europe has been piled up since
the middle of 1919, as the government
had practically ceased making ad-
vances for financing export trade by
that time. Since the middle of 1919
virtually the whole export balance has
gone on open account. and so has con-
tributed to the unfunded debt Long
time loans made by private investors
in America to Europe to aid the ex-
maturing in the period under discus
sion.
The growth of the unfunded debt
has been accompanied by a great col
lapse in the foreign exchange rates, a
collapse which first assumed dramatic
proportions in June of 1918
The creation of so great an un-
funded debt is something that no one
would have believed possible in the
first half of 1919. That it has come
about appears to be primarily due to
the lntewnediation of London, which
has largely assumed financial respon-
slblllty for the Continent, and which
has stood between the United States
and the Continent in the process. Lon
don has purchased with sterling Cor
with short term dollar obigations) the
I great bulk of the franc, lire and other
Continental exchanges created in the
United States, and has, in other ways
later to be discussed, provided dollars
-or the use of the Continent London
has also purchased great quantities Of
goods from the United States and
other parts of the non-European world
for cash or on short credits, which she
has resold to the Continent on long
credits. AS consequence of this,
sterling exchange has been unduly de-
pressed as compared with its intrinsic
merits, while Continental exchange
rates have been held above the figures
which they would have reached in the
absence of London's support
An unfunded debt of this magnitude
Aow TO invest 1t so as to bring in the
return mentioned Pr. W. NJ
ans" yOu 4STulIt per cent
on other thar short term securities,
you cannot expect to get soundest in
vestments, in our opinion. We believe
il is far better policy to be willing
to take from to 7 per cent and know
your principal is not in jeopardy. To
be sure, there are issues such as the
new French loan which now yield close
to per cent, but you say you do not
wish to speculate. On $4,000 the diff
ference between 8 per cent and 6b
per cent is but $50 year, a small
amount, we think, to cause you to in
sisr upon the former figure. Such
issues as United States Rubber per
cent bonds 1947, New York Dock first
per cent bonds 1851, New York Gas,
Electric Light, Heat e. Power per
cent 1898, American Smelling & Re
hning per cent 1947, United States
Steel Z per cent preferred stock,
Standard Oil per cent preferred stock,
Virginia Carolina Chemical per cent
preferred stock, Pressed Steel Car z
per cent preferred stock, all yield from
61a per cent to over per cent. Three
or four of these issues should form a
safe Investment for your purposes, in
our opinion.
No Advantage in Exchanging Bonds
: Ouestion--Would you advise the trade
Of two Dominion Of Canada 5 per cent
| bonds 1881 two Mort l.