MONEY FROM AMERICA.

New Zealand Herald, Volume LXII, Issue 19141, 6 October 1925, Page 12

MONEY FROM AMERICA.

LARGE FOREIGN BORROWINGS ABOUT 20 MILLIONS A MONTH. TOTAL NEARLY £2,000,000,000. [f COM OUR OWN CORRESPONDENT.] SAN FRANCISCO, Sept !). During the past 12 months, the United States has been lending money abroad at the rate of over £20,000,000 a month. Put another way, the amount lent to overseas countries in one year is greater than the national debt of Mew Zealand. Europe has been the chief borrower, and Latin America the next largest. The money invested abroad by Americans is now nearly £2,000,000,000. This does not include the money owed to the United States Government, about as much again. The role of world banker is new to America, for, up to the year of the outbreak of war the moneys invested were largely confined to agricultural and industrial enterprises in the neighbouring countries of Canada, Mexico and Cuba. As a matter of fact, America at that time was borrowing at a greater rate than she was lending, according to a statement of an officer of the Department of Commerce. The first big foreign loan was £100,000,000 to France in 1915. Britishers say " trade follows the flag;" Americans say, " the flag follows the dollar," meaning that foreign trade ind foreign policies are inseparable, The investment of capital abroad has an important, effect on America's foreign policy. Thus, a condition of the loans to Austria and Hungary was the control of their finances by the Leaguo of Nations. Even in the case of a strong country like France, the bankers who opened a credit for £20,000,000 to that Government in March, 1924, obtained assurances that the Administration would press certain fiancial reform measures in the Senate. The Loan to Australia. One wonders whether there was a political tag, concerning Labour legislation, to the recent loan of £15,000,000 to Australia. Bankers who contemplate floating foreign loans were asked early in 1922 to lot the American Government know, so that it might have opportunity to object, and, since that time, American bankers have taken the Government into their confidence. A default does not add to the good feeling between the two countries. The current flow of funds from the United States has been mostly across the Atlantic. It commenced on its present scale in the summer of last year, and grew largely out of the agreement on the Dawes plan end the prospects of more settled conditions in Europe. One hears very little these days about the losses made on the investment in German marks, but it is known that Americans were the largest losers. Having burned her fingers once, America was not inclined to send further funds to Europe when conditions there seemed to be going down bill, and no stabilising agreements were in sight. Rates of interest in Europe have been extremely high, as much tis 40 per cent, in some cases. But even the high rates were insufficient to attract American capital as long as the principal of the investment appeared to be insecure. Governments, although willing to pay high rates, found they could not borrow, as they were told by American bankers that if Government bonds bearing 9 or 10 per cent, were put up investors would regard the high rate with suspicion, and conclude that something was wrong. Sequel to the Dawes' Plan. When the Dawes plan was agreed to by the nations, the tap in the large reservoir of American funds v.r.fi turned on, and money poured into Europe in unprecedented amounts. The first large loan was £22,000,000 to Germany in October last year, of which the bankers received a commission of 5 per cent., or £1,100,000, The loan was oversubscribed, and its success encouraged the flotation of other issues. Most of the foreign loans in recent months have been at rates of interest that in prewar days would have been regarded as usurious. The first German loan bore interest of 7 per cent., and was issued at 92. The Hungarian loan of July, 1924, bore 7£ per cent., a»d was issued at 87.5. In nddition to Governments, European industries of ail types have been turning to America for their long-term financing. Buring the first six months of this year, corporate borrowings amounted to £27,000,000, or about one-fourth of the total foreign loans for the period. During the entire vear 1924, corporate borrowings totalled £30,000,000, or one-seventh of the total. Heavy Interest Payments. Assuming an average return of 6 per cent, on the two billions sterling invested abroad, America will be receiving an an j nual income of £150,000,000, or more than the value of the export trade of the six States of Australia for last year, It is a colossal income, but there is more. If the foreign debts to the United States Government are included, and an interest rate of 4 per cent, including amortisation, is assumed, the annual payments due to the United States amount" to more than £200,000,000, or an amount equal to that paid out for the whole of the civil services of Great Britain and Ireland for the year.