Moratorium

Cold and imperturbable though they may be international bankers lost their tempers last week when Dr. Hjalmar Schacht. turtlenecked Reichsbank president, stuck out his knobby chin and barked announcement of Germany's expected moratorium (TIME. June n).

In sleepy Swiss Basle brisk Leon Fraser, go-getting young U. S. president of the

Bank for International Settlements, accused Germany of breaking the financial treaties of The Hague and of Lausanne. London banking ire crystallized in the Times which flayed Germany's "direct breach of good faith" and, after rehearsing the many moves of smart Dr. Schacht to beat Germany's creditors down, concluded by comparing him to "the murderer who, having slain both his parents, pleaded for mercy on the ground that he was an orphan." In the general burst of temper small notice was taken of the moratorium facts:. 1) Germany suspends from July i until further notice transfers into foreign currencies of interest on her medium and long term debts, including the Dawes Loan 7% and the Young Loan 5 1/2% series; but 2) all interest payments on the Dawes & Young loans continue to be made in Ger many in marks into trustee accounts from which payment to the creditors may ultimately be made. Chancellor Hitler, with the simple directness of supreme demagogery, blamed everything in his Volkischer Beobachter upon a Morgan Partner, sandy-haired Seymour Parker Gilbert who was Agent General for Reparations Payments (1924-30) before he received a partner's desk at No. 23 Wall St. "The former Agent General," cried Herr Hitler's mouthpiece, " bears the bulk of responsibility for foreign creditors' disappointments. . . . Germany's declaring a moratorium bespeaks an energy which Gilbert never possessed!" For his part Dr. Schacht, who works, eats and sleeps at the Reichsbank, had an elaborate thesis of accusation which he read out in the Reichsbank Central Com mittee Chamber, directly under his bed room. Drawing a deep breath for the cataract of words he was about to utter, Dr. Schacht cried: "Now that our colonies which were attaining before the War to increasing importance as sources of raw materials have been taken away in a fashion that practically excludes Germany as an exporter to these colonies, now that our major competitors have sought by voluntarily devaluing their currencies to force Germany not only out of their own markets but out of the world markets, now that through increased tariffs and import control German exports have become steadily smaller, the time has come when a continued transfer of exchange for payments due on the remaining foreign indebtedness has become wholly impossible. ... It is dishonorable to speak of German repudiation!" What laymen saw in all this was a pretty example of how historically their governments can turn out to have all been wrong. The purpose of the Dawes Loan was to let Germany hire enough hard foreign money to enable her to pull out of the quagmire of inflation, get back to profitable work and pay. In 1924, as now. Dr. Schacht was president of the Reichsbank and he performed what to Germans seemed a miracle. When they went to bed, a dollar was worth 42,000,000,000,000 old German marks. When they woke up, a dollar was worth only four new marks. The purpose of the Young Loan, product of 1929's "New Era" school of thought, was that Germany's pledge to pay Reparations over 59 years should be turned into quick money by selling it to the public in small lots. Only the first lot was ever sold. The leading governments of the world urged their central banks to aid firms of the calibre of J. P. Morgan & Co. in disposing of an issue to which Germany pledged her "full faith and credit." Though they dropped to new lows for the year last week, Dawes & Young bonds were far from going to zero. Dawes 75, once worth 109-c- on the gold dollar, closed the week at 53-c- on the paper dollar. Young 5 1/2s which have brought 91 were bringing 37 paper. Dawes bonds are worth more than Young bonds because they are backed by German customs and liquor revenues, tobacco, beer and sugar taxes. Meanwhile the Reichsbank, despite fresh batches of predictions from Berlin, Paris and London that the mark must now go off gold, maintained an attitude of stubborn insistence upon its so-called "gold standard" which has long been purely theoretical, since no one can get gold for marks. "We reject absolutely a devaluation policy!" barked Dr. Schacht. "Reports in the foreign Press regarding inflation or devaluation of the mark are irresponsible gossip." Meanwhile Britain led and France swiftly followed in a move to seize from Germans within their borders sums sufficient to meet at least the moratoriumed interest payments due British and French holders of Dawes and Young bonds. Since Germany sells to Britain and France vastly more than she buys, these Governments need only seize and collect payments which their citizens would otherwise make to Germany. In a stiff speech to the House of Commons hawk-nosed Chancellor of the Exchequer Neville Chamberlain explicitly threatened to do this, but gave Germany July 1 to mend her ways, amend her moratorium. Since the U. S. sells to Germany more than she buys, Washington statesmen could not take the drastic steps threatened in London and Paris, but the U. S. Embassy in Berlin was ordered to make ''vigorous protest."

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