Germany ended the war with massive debts, virtually all of which were never repaid. And what is the basis for Treasury changing its position OTL?
WI: German Government Supports Merchent Subs
- Thread starter Ariosto
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The German loans were internal loans to their own citizens totally different animal than foreign loans. As to lack of payment on them, do the math they were mostly 5 year loans worth about 300 billion marks. A more than minor amount of it was specialized paper that was in effect just fiat money. All the loans coming due 1919-1923.
As to the treasury we declared war thats what happened; without declaration of war that doesn't happen. I would have to check my books for what the allied investment equity in the US was and when it was used up; I am very sure it was gone by 1917 though.
Michael
Source Financing the First World War by Hew Strachan pg 202
Added Emphasis my own
Nevertheless on 1 April 1917 Britain's cash in the United States was all but exhausted. In New York, against an overdraft of $385 million and a weekly spend of $75 million Britain had $490 million in securities and $87 million in gold. At home the Bank of England and the joint stock banks could command a reserve of £114 million in gold. But just at the point when the exhaustion of Britain's fiances was about to cut the Entente's Atlantic trade Germany declared unrestricted U-Boat warfare, with the intention of achieving the same result. The effect was finally to precipitate the United State's entry into the war. Although Germany's U-Boat campaign represented strategic miscalculation at a number of levels, this was the most significant in the long term. The submarine constituted the most serious threat of the war to Britain's maritime supremacy, but on one interpretation it saved Britain.
Michael
Added Emphasis my own
Nevertheless on 1 April 1917 Britain's cash in the United States was all but exhausted. In New York, against an overdraft of $385 million and a weekly spend of $75 million Britain had $490 million in securities and $87 million in gold. At home the Bank of England and the joint stock banks could command a reserve of £114 million in gold. But just at the point when the exhaustion of Britain's fiances was about to cut the Entente's Atlantic trade Germany declared unrestricted U-Boat warfare, with the intention of achieving the same result. The effect was finally to precipitate the United State's entry into the war. Although Germany's U-Boat campaign represented strategic miscalculation at a number of levels, this was the most significant in the long term. The submarine constituted the most serious threat of the war to Britain's maritime supremacy, but on one interpretation it saved Britain.
Michael
They had made loans (about $2 billion iirc by end of 1916) secured on collateral in US or Canada, ie physically out of Germany's reach even if she were victorious. However, by the end of that year no more securities were available for that purpose , so any further loans would have had to be unsecured, ie dependent both on Britain winning the war and on her being able and willing to repay even if she did. The House of Morgan attempted to raise such a loan, but it fell flat after a warning from the Federal Reserve Board that such an investment would be very high risk.
No unsecured loans were made until May 1917, ie after the US declaration of war.
Suppose that when the German government learns of the merchant submarines the idea catches on they decide to build more and possibly convert most of their armed subs into merchant subs. If they made enough of an effort, it might just convince American business to attempt to replace some of their trade with the allies with German trade. If Unrestricted Submarine Warfare doesn't happen, and instead a significant, if relatively small, trade with Germany develops, the United States might stay out of the war altogether, eventually pressuring for peace so that they could collect their war debts.
If the u-boats aren't targetting British and allied merchant ships then the financial and economic position of the Allies is greatly improved.
Meanwhile Germany is actually worse off as the one way to strike at the UK has been butterflied away, in return for which an entirely hypothetical and certainly inadequate level of trade may have been established.
Meanwhile Germany is actually worse off as the one way to strike at the UK has been butterflied away, in return for which an entirely hypothetical and certainly inadequate level of trade may have been established.
See post #23, the Entente were in effect bankrupt. The 2nd round of submarine warfare didn't start to February 1st 1917. The site shows things on April 1st, just two months later. The million tons of lost shipping while nasty didn't cause that fund liquidity and equity problem; spending $75 million a week on munitions, food and raw materials did.
You mean the one that failed to work? That one? As to the trade level, I have my reservations on how much that helps the Germans as the key point there for them isn't raw materials as much as food imports. That is the deal breaker for them so to speak. I would have to take a look at the raw material situation it would help but how much I don't know. No the key point is the UK being bankrupt and a following collapse of the Sterling and Franc. Kissing off 20% or more of the allies material production is a real and tangible effect on the war.
I am sure JP Morgan tries to move heaven and earth as this takes him down with them but unless congress is enraged their default setting is to thumb their nose at the world.
Michael
miketr, we're talking far more than a mere million tons of shipping plus lost cargos plus efforts at convoying and other, usually unsuccessful, efforts to fend off the u-boats saved if the u-boats are never used against shipping.
There were two individual months were the British lost nearly 900,000 tons alone.
The other problem is how long is it going to take to design and build and crew and train up all of these merchant subs which, as you so rightly point out, won't begin to make a difference in the area that matters most to Germany?
How popular will this concept be of the costly German navy doing nothing but rot in port while all remaining naval construction is thrown into subs which will do no harm to the enemy but may be of some modest assistance to Germany, not in terms of the growing famine. You might as well have Tirpitz and the other top German admirals shot now before they all resign in rage and declare the war to be lost.
They won't be built in the US, powerful American interests will consider any weakening of the allies an extremely bad thing and act accordingly. Not to mention the pressure the Allies can bring to bear as they did OTL.
There were two individual months were the British lost nearly 900,000 tons alone.
The other problem is how long is it going to take to design and build and crew and train up all of these merchant subs which, as you so rightly point out, won't begin to make a difference in the area that matters most to Germany?
How popular will this concept be of the costly German navy doing nothing but rot in port while all remaining naval construction is thrown into subs which will do no harm to the enemy but may be of some modest assistance to Germany, not in terms of the growing famine. You might as well have Tirpitz and the other top German admirals shot now before they all resign in rage and declare the war to be lost.
They won't be built in the US, powerful American interests will consider any weakening of the allies an extremely bad thing and act accordingly. Not to mention the pressure the Allies can bring to bear as they did OTL.
Feb and March were a million tons between them. April 1st, 1917 the UK is bankrupt; look at the post. The 550,000 tons UK flagged and 881,000 world wide in April and 350K tons UK flagged and 596K tons world wide May and 417K tons UK flagged and 687K tons world wide in June and so on have zero impact on that April 1 number. Only the Feb and March numbers can have any meaning and I don't think they mean all that much to be honest as they don't matter for UK's equity situation in the US, the investments in US railways, industry, the stock market, etc those do matter.
Again look at the numbers -385 MILLION on their US bank account (thats JP Morgan), with 490 million in equity and 87 million in gold with expenses of 75 million per week.
490+87-385 = $192 million. So just under three weeks of cash left. The bankers know what the UK's cash situation is this is why they are refusing to give more loans. The UK can play some games to keep things going like nationalizing the £114 million in gold left in the UK. ASSUMING exchange rates hold, which they won't a run would follow on the pound if this is attempted, $4.57 to £1 means $534.69 million in gold in the UK and since 1916 neutrals had been balking at taking more gold as they already had so much of it. At any rate thats less than two more months. Lets be generous and call it a total of 3 months between whats in the US and London. July 1st 1917 the UK is out of cash and JP is rather deep in the hole.
So if the UK wants to do imports from that point forward they are limited to current revenue which is already in the negative and because we just blew the Pound out of the water to stretch things out this far and sent the last bar of gold over seas, pound has to go off the gold standard and the US treasury isn't there to support the pound so it death spirals summer of 1917, as a result any imports become even more expensive.
The UK could try exports to generate foreign exchange. With the pound in the hole UK manufactured goods are very cheap and as a result competitive but any increased UK export manufacturing means a decrease in war production; whats worse raw materials from anyone outside of the Stirling block are much more expensive and or require foreign exchange as the Pound has been wrecked.
Trust me this is FAR more devastating than USW.
It doesn't end the war by itself as the UK does go on and they will do something but its much harder and their industrial base is far less effective.
Michael
It seems to me that the real problem with this WI is not the practicality of the subs themselves, but what you have to do to make them worthwhile.
There is simply no point in bothering with them unless US neutrality is maintained, since otherwise they have virtually nowhere to go. But the consequences, especially the economic ones, of continued US abstention are so soopercolossal that the effect of a few (or even a few dozen) merchant subs will be lost in the greater change. It just won't be noticed - rather like somebody peeing over Niagara Falls.
There is simply no point in bothering with them unless US neutrality is maintained, since otherwise they have virtually nowhere to go. But the consequences, especially the economic ones, of continued US abstention are so soopercolossal that the effect of a few (or even a few dozen) merchant subs will be lost in the greater change. It just won't be noticed - rather like somebody peeing over Niagara Falls.
Nonetheless, it might have a greater appeal than the subs. Those early submarines were dangerous, not to mention highly uncomfortable for passengers. A big airship would probably "sell" far better, with the promise that Americans could sip champagne in the lounge, without the slightest worry about getting torpedoed by a u-boat or having their goods searched by a British warship. Even the aircraft would probably be a mile or so below them. I even wonder whether some crass airline might christen their ship "Lusitania II" with a sales pitch that "They can't sink this one". Probably too tasteless though.
One of my little fantasies [1] involves an airship sailing over the Western Front, with its passengers able to look down on the line of trenches and imagine the red ants and black ants (aka Allied and German soldiers) butchering each other on the ground. These American onlookers would be quite literally "above the battle", not participating in the war but (if they chose) contemptuously ignoring it, going about their lawful business unaffected by what those barbarous Europeans were doing down below. I suspect this might appeal to some, perhaps especially to a personality like Woodrow Wilson's.
[1] That's probably all it is. In real life, the airships would more likely go to somewhere like Sweden, then either turn south, across Denmark or the Baltic to Germany, or else continue across Finland if going to Russia. I doubt they would risk taking passengers (esp first class ones) directly over the battle zone. But you never know.
"Major, who are those people down there, in the overalls?" "Work battalions Mr. President. Mostly Chinamen and Negroes." "Close the shades" (insert *appropriate* racist diatribe here)
Thought that this might be helpful
German Raw Material Needs
Cotton: Pre-War 430,000 tons from the United States. Of which and estimated 300,000 tons were needed for explosives. Between imports from neutrals, seizing of stocks in Belgium and Northern France, Germany had assembled a stock pile of 700,000 tons; with 30,000 tons from Ottoman Empire. Production usage had been reduced by 180,000 tons. Also in 1916 the Germans were able to use wood pulp to replace cotton in explosive production. By 1917 the Germans had run out and their textile industry was cut by 90% of its pre-war levels. Lots of substitutes like paper for sandbags and the like.
So Germany needs at least 130,000 tons of Cotton from 1917 on to meet needs of industry.
Copper: Pre-War 220,000 tons of copper with an internal production of 40,000 tons. Had a pre-war stockpile of 150,000 tons. In 1915 Germany was able to import about 65,000 tons from neutral 3rd parties. By start of 1916 stock pile was reduced to 30,000 tons and imports from neutrals was expected to be no more than 12,000 tons; UK had been working hard to cut off supplies form neutrals. Another 7,000 tons was available from seized Serbian resource. Also old mines had been reopened and current ones expanded such that German copper production had risen to 79,000 tons in 1917. Germany faced a short fall of 40% in 1916 and 50% in 1917.
Pre-war use of Copper was as follows: 50% electrical plants, 38% for industry and 12% for house hold use.
Heavy use was made of Iron, Zinc and Aluminum as substitutes but with mixed results.
Manganese: Pre-War Germany used 671,000 tons with no internal production but there was a two year stockpile on hand. Between use of substitutes and bring on line of some local production need for Manganese dropped by 66%. Sill German steel production while able to meet war needs dropped from 19 million tons in 1913 to 14.4 million tons in 1914, 11.7 million tons in 1915, 13,2 million tons in 1916 13.1 million tons in 1917 and 11.8 million tons in 1918.
Lead, Zinc and Aluminum was never in short supply.
Tin: Pre-War 15,000 tons from Netherlands-East Indies and no domestic supply to speak of. By end of 1915 supplies had run out. Made heavy use of Aluminum as a replacement
Nickel: Pre-War 2,000 tons from Canada and New Caledonia with only minor domestic production. By using 3rd parties Germany was able to make it till end of 1915 but from then on it became more and more of a problem. Attempts to use bronzed steel, iron with high manganese and silicon content were tried. Still by 1918 all nickel based coinage had to be seized and replaced with zinc.
Platinum: 2 tons pre-war all from Russia. Germany was just able to get by seizing all private stocks.
Rubber: Pre-War Germany needed 16,000 tons annually. No stockpile or local production sources of course. Germany only got about 3,000 annually from neutral 3rd parties so there is a short fall of 13,000 tons of rubber. Germany did the following in the way of substitutes.
Synthetic rubber but it was far lower quality and five times as expensive as natural rubber. Lots of attempt to make wheels out of other products but with mixed success and at mixed cost.
In summation to run German industry at higher levels the following is needed.
tons
Cotton 130,000
Copper 110,000
Manganese 228,000
Tin 15,000 Unclear but this is a maximum need
Nickle 2,000
Platinum 2
Rubber 13,000
All industrial raw materials in tons 498,002
So over 700 trips per year would be need to be made by Submarine Merchant Vessels and get through. As show by Bremen's fate it was hardly a safe option. As shown by Deustchland's cargo list, 341 tons of nickel, 93 tons of tin, and 348 tons of crude rubber, certain minerals were easier to get.
If its just limited to Tin, Nickle and Rubber we are only looking at 30,000 tons which would be 43 trips.
Source: Appendix of: The Naval Blockade 1914-1918 by Lieutenant Louis Guichard (French Navy) published 1930
Once again this does nothing about the food and fodder situation unless the first round of USW is butterflied away and there is no Order in Council to add food to the contraband list.
Michael
German Raw Material Needs
Cotton: Pre-War 430,000 tons from the United States. Of which and estimated 300,000 tons were needed for explosives. Between imports from neutrals, seizing of stocks in Belgium and Northern France, Germany had assembled a stock pile of 700,000 tons; with 30,000 tons from Ottoman Empire. Production usage had been reduced by 180,000 tons. Also in 1916 the Germans were able to use wood pulp to replace cotton in explosive production. By 1917 the Germans had run out and their textile industry was cut by 90% of its pre-war levels. Lots of substitutes like paper for sandbags and the like.
So Germany needs at least 130,000 tons of Cotton from 1917 on to meet needs of industry.
Copper: Pre-War 220,000 tons of copper with an internal production of 40,000 tons. Had a pre-war stockpile of 150,000 tons. In 1915 Germany was able to import about 65,000 tons from neutral 3rd parties. By start of 1916 stock pile was reduced to 30,000 tons and imports from neutrals was expected to be no more than 12,000 tons; UK had been working hard to cut off supplies form neutrals. Another 7,000 tons was available from seized Serbian resource. Also old mines had been reopened and current ones expanded such that German copper production had risen to 79,000 tons in 1917. Germany faced a short fall of 40% in 1916 and 50% in 1917.
Pre-war use of Copper was as follows: 50% electrical plants, 38% for industry and 12% for house hold use.
Heavy use was made of Iron, Zinc and Aluminum as substitutes but with mixed results.
Manganese: Pre-War Germany used 671,000 tons with no internal production but there was a two year stockpile on hand. Between use of substitutes and bring on line of some local production need for Manganese dropped by 66%. Sill German steel production while able to meet war needs dropped from 19 million tons in 1913 to 14.4 million tons in 1914, 11.7 million tons in 1915, 13,2 million tons in 1916 13.1 million tons in 1917 and 11.8 million tons in 1918.
Lead, Zinc and Aluminum was never in short supply.
Tin: Pre-War 15,000 tons from Netherlands-East Indies and no domestic supply to speak of. By end of 1915 supplies had run out. Made heavy use of Aluminum as a replacement
Nickel: Pre-War 2,000 tons from Canada and New Caledonia with only minor domestic production. By using 3rd parties Germany was able to make it till end of 1915 but from then on it became more and more of a problem. Attempts to use bronzed steel, iron with high manganese and silicon content were tried. Still by 1918 all nickel based coinage had to be seized and replaced with zinc.
Platinum: 2 tons pre-war all from Russia. Germany was just able to get by seizing all private stocks.
Rubber: Pre-War Germany needed 16,000 tons annually. No stockpile or local production sources of course. Germany only got about 3,000 annually from neutral 3rd parties so there is a short fall of 13,000 tons of rubber. Germany did the following in the way of substitutes.
Synthetic rubber but it was far lower quality and five times as expensive as natural rubber. Lots of attempt to make wheels out of other products but with mixed success and at mixed cost.
In summation to run German industry at higher levels the following is needed.
tons
Cotton 130,000
Copper 110,000
Manganese 228,000
Tin 15,000 Unclear but this is a maximum need
Nickle 2,000
Platinum 2
Rubber 13,000
All industrial raw materials in tons 498,002
So over 700 trips per year would be need to be made by Submarine Merchant Vessels and get through. As show by Bremen's fate it was hardly a safe option. As shown by Deustchland's cargo list, 341 tons of nickel, 93 tons of tin, and 348 tons of crude rubber, certain minerals were easier to get.
If its just limited to Tin, Nickle and Rubber we are only looking at 30,000 tons which would be 43 trips.
Source: Appendix of: The Naval Blockade 1914-1918 by Lieutenant Louis Guichard (French Navy) published 1930
Once again this does nothing about the food and fodder situation unless the first round of USW is butterflied away and there is no Order in Council to add food to the contraband list.
Michael
One question to be asked is how you butterfly away the consensus within the German military's key men who were all certain that unrestricted u-boat warfare would certainly bring the UK to ruin, and that even if the US entered the war it wouldn't make a difference.
That state of mind suggests that rational alternatives may not be well received...
That state of mind suggests that rational alternatives may not be well received...
I completely agree with Wiking. Such a sub-campaign might have been more beneficial than building fighting subs.
In a war in which Germany was crap at PR, this would have been an excellent campaign at home and in neutral states.
No Lusitania.
Instead...unarmed German heroes crossing the Ocean trying to keep their country fed (there will always be exotic American foodstuff on board, just for the good pictures), chased by the gigantic, evil Royal Navy.
Fewer German-American tensions due to the submarine warfare, instead a more critical eye on the blockade.
No German fear of American intervention, thus no Zimmermann telegram.
All this makes an American entry very unlikely. And this is worth many, many tons of material...
I agree--the effects on American relations are more important than the actual importation.
But a Germany that thought this way wouldnt' have built up their navy and alienated the Brits either.
Deleted member 1487
Not to sound like a stoner, but what about hemp production? It could replace cotton for clothing and sandbags, requiring less manufacturing and was more durable. It used to be used in sails because it was the most durable fiber. It grows with little preparation just about anyway and was cultivated in large quantities in the 1600's in Germany. During a study abroad I saw some older painting of farming life in Bavaria during the late 16th century and the information related nearby indicated that hemp was a major product in Bavarian farming during that period demonstrating that it could be grown without much trouble in the European climate.
Furthermore, it can also be used for food, especially the seeds, which were used in European cooking prior to the 19th century. It could help make up for some of the deficiency in fats in the German diet.
http://en.wikipedia.org/wiki/Hemp
http://www.hempfood.com/iha/iha01211.html
Edit: according to the second link, which had only sparse information, Germany did do some hemp cultivation, though it seems to indicate that it wasn't pursued on a large scale.
Furthermore, it can also be used for food, especially the seeds, which were used in European cooking prior to the 19th century. It could help make up for some of the deficiency in fats in the German diet.
http://en.wikipedia.org/wiki/Hemp
http://www.hempfood.com/iha/iha01211.html
Edit: according to the second link, which had only sparse information, Germany did do some hemp cultivation, though it seems to indicate that it wasn't pursued on a large scale.
One question to be asked is how you butterfly away the consensus within the German military's key men who were all certain that unrestricted u-boat warfare would certainly bring the UK to ruin, and that even if the US entered the war it wouldn't make a difference.
That state of mind suggests that rational alternatives may not be well received...
You raise a very valid point here.
The first round of USW was purely the result of frustration in effect. The Germans were pissed that their pre-war assumptions on how the RN would conduct a blockade were so badly wrong and that the USA wasn't motivated to pressure the British on the subject. I don't see how its possible to avoid this. Subs would take to long to build to be a factor and no one is going to start building them till winter of 1914/15.
Now the second and final was based upon the following factors.
1) Scheer and the rest of the navy had given up on trashing the Grand Fleet.
2) An incorrect calculation on how much tonnage it would take to force the British out of the war. Germans just ignored the rest of the worlds tonnage and assumed out right starvation was possible; for whatever reason they figured the UK wouldn't grow more food.
3) X U Boats would sink Y tonnage of ships per month resulting in Z months.
4) The USA was totally discounted as being a factor in time to matter and if the UK had collapsed in a year they would have been correct.
In effect the only wiggle room we have is with #2. If the Germans have built submarine merchants in large numbers its going to have to bite into regular u-boat production. The more built the more the bite occurs. If we can hold off the Germans to the point where they wait say, 6 months then the UK will be in the middle of a Sterling Collapse and imports will be crashing in number. So the Germans will have lost much of their motivation to use USW on the British and wouldn't want to risk their own raw material supply lines to the USA.
Michael
OH a thought just occurred to me. I could see someone like Luddendorff suggesting that a new round of USW might be just the ticket to push the British over the edge and finish them if they are having currency problems and imports going down. The subs will strangle what little is left to import.
The problem with the Germans after Bismarck is that had the worst possible habit of making the absolute worst set of choices when looked at with hindsight in Diplomatic Terms.
Michael
The problem with the Germans after Bismarck is that had the worst possible habit of making the absolute worst set of choices when looked at with hindsight in Diplomatic Terms.
Michael
Flax cultivation went from 20,000 hectares in 1914 to 35,000 in 1917. Hemp went from 1,500 hectares in 1916 to 8,000 in hectares in 1917. 10,000 tons of fiber from nettles in 1917. The book notes that "they were but a drop in ocean."
Wool production also collapsed in Germany, no note on starting numbers, but by 1918 it was at 22,000 tons vs. a need of 200,000 tons. Also it notes that in theory Russia could have met Germany's needs in this and other area's but the Germans couldn't get the production.
Over all German farm production collapsed during the war so I don't see much hope for anything more out of that quarter. If anything if you grow more flax and hemp then it comes at the cost of lost food stuffs.
Michael
One question to be asked is how you butterfly away the consensus within the German military's key men who were all certain that unrestricted u-boat warfare would certainly bring the UK to ruin, and that even if the US entered the war it wouldn't make a difference.
That state of mind suggests that rational alternatives may not be well received...
They weren't really being irrational - just desperate.
The decision, remember, was taken before the Russian Revolution. As far as the High Command could see, 1917 was going to be a repeat of 1916, which had been an "annus horribilis" for Germany. Only this time round the British Army would be more experienced, and the Russians were finally getting their act together on munitions manufacture, so theirs would be better armed. There seemed no way Germany could survive.
Hence the readiness to buy a pig in a poke from the Navy. It was to all appearances their only hope, so they didn't inspect it too closely. As for the US, who cared? It couldn't intervene effectively in 1917, and as the war seemed certain to end that year, afterwards wouldn't matter. If USW succeeded, Germany would win in 1917; if it didn't she would lose in 1917, but either way, on the continent at least, 1917 would be the last year of the war.
So it won't be easy to prevent USW if nothing else changes first. Afaics, Churchill had about the best idea. If the Russian Revolution comes a few months earlier [1], so that the Germans see some light at the end of the tunnel, Bethmann has a chance to get USW put off one more time, or at least limited to armed merchantmen only (virtually all Allied ones by now were armed or in process of being) since even Ludendorff would probably hesitate to bring a new enemy into the war just as one of the old ones showed signs of cracking up.
Of course, it might only be a delay. If Russia doesn't collapse as fast as OHL want, they may start pushing again for USW. But at least its opponents now have some credible arguments, and if a combination of financial difficulty and deteriorating relations with the US leads to a drastic fall in Allied imports, they may soon have even more.
[1] There was a very hairy moment at the end of October 1916, when a general strike broke out in Petrograd, and soldiers who were sent in fired on the police instead of on the strikers. In the end, the Cossacks got things back under control, but if they hadn't - - -
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