Evening star., 1932-09-11
Conflict Between Lending
and Borrowing Nations Re-
suits in Credit Stagnation.
GERMANY NOW INCLUDED
IN LIST OF DEFAULTERS
But Loans of Reich Are Not Re.
garded as Excessive Compared to
Other European Debts.
BY DR.. MAX WINKLER.
Special Dispatch to The Star

Special Dispatch to The Star.
NEW YORK, September 10.-Events
in the world of economics and finance
during the last three years were char
acterized by a conflict of first magni-
tude between creditor and debtor ma
tions.
Some of the consequences of the
struggle included. in the opinion CT a
continental European authority on the
subject. the almost complete defeat of
economic forces by those of political
nature. Not only did the free flow of
credit cease, but creditor nations i'm
posed additional burders upon the de-
feated in the form of ever rising tariffs
which render increasingly difficult, If
not impossible. the payment of interest
and amortization on contractual obli-
cations held abroad
Cessation of service on foreign COM
mitments tends seriously to impede the
free commercial intercourse of nations,
which in turn prevents the few coun-
tries still able to take care of their in
ternational engagements from securing
the necessary foreign exchange.
Defaults Undermine Confidence.
Nothing tends to undermine con-
fidence in foreign investments more
than the distressing frequency with
which defaults occur. Russia. the
classic example of debt reputation, no
longer stands alone. She has many
followers. Hungary was the first
Greece, Bulgaria and Austria were next
in order. A Dutch corporation, the
Holland American line, also withholds
payments due American investors. The
Kreuger debacle consumes much space
in the press. BY the time funds will
be ready for distribution, original
bondholders will be gray, or in their
graves.
Germany is the latest country to
join the ranks of defaulters. Two
issues which became or are about to
become due for payment are not being
paid. Reference is made to the Saxon
Public Works per cent notes. issued
originally to the amount Of $4,000, ,000
Payment on account of principal was
not made, bondholders being told of
the existence of a governmental reg
ulation forbidding the expectation of
capital.
The bondholders are offered new
bonds bearing a higher coupon. The
proposed issue is classified as a short
term lnveStment-that is, one which
exists only in the imagination of the
optimist. Investors have no choice.
The other issue is the $25, ,0OO, 900
bonds of the Deutsche Bank, sold in the
American market in 1927. The notes
are due this month. Payment of prin-
cipal also will be withheld. Interest is
being taken care of, and the maturity
will be extended. One is beginning to
wonder why bonds continue to be called
by their maturity date which is, at best,
uncertain. rather than by the date of
issue, about which there can be no
doubt.
German Investments.
How about the future of international
investments in general. and German
investments in particular? Will Ger
many, as well as her political subdivi-
sions and corporations, follow the
example set by their less fortunate
neighbors in Central and Southeastern
Europe and plead inability to service
their loans, which are held by foreign
investors, among whom Americans play
quite prominent role? Thus far. not
a single loan sold to and held by Amer
lean investors, individuals as well as
corporations, on behalf of the Reich
the German states, cities and corpora
tions, has been permitted to default in
respect of interest payments. In most
cases. sinking fund requirements also
have been met in strict accordance with
the provisions of original loan contracts.
Whether this will hold true of the
future, one cannot state with definite
ness at this time.
At the beginning of the current fiscal
year april -, the total debt of the
German Government aggregated 81, ,529,-
10000 at par of exchange. OF the
total, S1,l07176,000 represented long
term obligations, the remainder consti-
tuting medium and short term indebted
ness. The growth of the country's con-
tractual commitments during the past
several years is presented hereunder Gin
Reichmarks):