PUTTING THE SCREW ON UNCLE SAM

Star (Christchurch), Issue 18450, 28 April 1928, Page 11

PUTTING THE SCREW ON UNCLE SAM

GHOST OF OLD DEBTS RAISED BY BRITISH BONDHOLDERS’ MOVE. WASHINGTON, March 1. The vast and complicated question of international debt repudiation, going back as far as the British loans to the southern Confederate States, during the American Civil War, is expected to be revived by the new’ series of arbitration treaties which the United States has concluded with France, and is negotiating with Great Britain. The sum of £12,000,000, plus £36.000.000 interest, is still owing to British bond-holders, from loans which they granted to the Confederate States, beforfe and during the Civil War. ahd every effort made to collect this, or to deduct it from the war debt owed by Great Britain to the United States, has so far failed, because the problem could not be arbitrated under the arbitration treaty existing between the United States and Great Britain. This treaty, the Root-Brvce agreement of 1908, excluded from arbitration questions of “ vital interest and national honour.” And since an amendment to the American Constitution declared that all debts “ incurred in aid of insurrection, or rebellion against the United States . . • shall be held illegal and void,” the United States could claim, and did maintain, that the arbitration of debts incurred in aid of the Civil War was an affront to her national honour. Now Treaty’s Possibilities. However, the new treaty' just signed with Fra'nce, and to be concluded with Great Britain before June 23, when the old treaty expires, does not exempt questions of national honour. Its exemptions include domestic questions, those affecting a third party’, or affecting the Monroe Doctrine, or obligations under the League of Nations. None of these appear to include, by any' stretch of the imagination,’ the important subject of debts between the nations of two different countries. The descendants of the British interests w'hich invested in bonds of the southern States, have organised the British Corporation of Foreign Bondholders. and have made known their intention of renewing their claims for payunent. A circular letter setting forth the claims of this organisation has been sent to every' member of Congress. Century-Old U.S. Debts. In addition to the debts incurred by the Southern States during the Civil War, there are four other instances in which American States repudiated loans, held chiefly by British investors. These occurred before the Civil War. The State of Mississippi, for instance, issued £1,000,000 worth of State bonds for the Union Bank of Mississippi in 1838. In less than two years the bank was hopelessly insolvent, and in 184 i the Governor recommended that the bonds be repudiated. The Legislature followed his instructions, and the State was declared to be under no moral or legal obligation to redeem its bonds. The same fate befel an issue of £400,000 worth of State bonds issued for the Planters’ Bank.

These repudiations occurred just after a period of apparent great prosperity', when the bonds of American' States sold readily in Europe. Most of these State bonds were absorbed by British investors, and the European capital added to the already inflated bubble of prosperity, eventually caused a crash. Florida, Michigan and Minnesota also got. caught in this financial crisis of 1837.

Federal Government Not Responsible. Florida repudiated £BOO.OOO worth of railroad bond’s and £780,000 worth of bonds issued by the State for the banks. Michigan repudiated one-half of a £1,000.000 debt, while the State of Minnesota repudiated one-half of a £455,000 railroad bond, the issue and interest amounting to £350,350. Europeans who made these investments were not familiar with the dual system of government existing in the United States, whereby the individual States have independent sovereign powers, one of which is the right, to contract financial obligations. The Federal Government is in no wise responsible for State obligations, and has no power to enforce payment by' the States. Moreover, no individual, either American or foreigner, has the power to proceed against a State to collect repudiated debts. The Eleventh Amendment to the Constitution prevents this. Only One Po&'sible Course. The only recourse w'hich British bondholders ever had to collect their debts, was international arbitration. If the United States could have been manoeuvred into the arbitration of these debts, it w’ould have been obliged to accept the verdict of the Arbitration Court, even though the carrying out of the decision might have been in conflict with its own organic law. Arbitration, of course, was impossible under the old Root-Bryce Treaty', but under the new treaty the only move which can block arbitration of these debts is the opposition of the Senate, which, being the most powerful factor in the conduct of American foreign relations, may fail to ratify the new treaties altogether.