Moratorium

Late last week the White House stirred with sudden, mysterious activity. President Hoover had not been back 30 minutes from his Mid-West trip (see p. ioj before Secretary of State Stimson hurried in to see him. Soon a presidential message to Utah's Senator Reed Smoot in Salt Lake City started the Finance Committee Chairman at top speed to Washington. Connecticut's Representative Tilson, House floor leader, was asked to the White House for the night. Pennsylvania's Senator Reed was asked to report for breakfast next morning. Virginia's Senator Glass hustled up from his Lynchburg home to answer a Hoover summons. Massachusetts' Representative Treadway had to leave an Amherst alumni banquet because his President wanted him quickly in Washington. Acting Secretary of the Treasury Mills kept popping in and out of the President's office every few minutes. President Hoover talked over long-distance telephone with Senator Borah in Idaho, Senator Robinson in Arkansas, Representative Hawley in Oregon. Senator Vandenberg of Michigan, junketing in Canada, received a call from the White House in a Toronto drug store. Other Senators and Representatives, Republican and Democratic, trooped into the White House to confer with the President, trooped out again nodding their heads in silent approval. Secretary of the Treasury Mellon was reached by telephone in England for a long talk with the President.

Out of the commotion came word, vague at first, that President Hoover had started to Do Something about the worldwide Depression of which he had spoken so often, from which he had just again appealed in his Mid-Western speeches. For weeks he had been mulling over the situation. Germany, he knew, was in desperate straits. Ambassador Sackett had lately been home with first-hand reports and descriptions. Ambassadors Gibson and Dawes on recent White House visits had told of the bog into which Europe's economy, weighted by Germany, was sinking. Senator Morrow, just back from Germany, had brought word of the fear of an armed uprising there. The President had been reading in the newspapers of Chancellor Briining's visit to Prime Minister MacDonald at "Chequers" to seek relief from"Reparations (TIME, June 15). U. S. bankers with five billion dollars invested in Europe had long been prodding the White House to ACT, to avert Germany's economic and perhaps political collapse. Since June i, $250,000,000 in gold reserves had fled from the Reichsbank.

Well did President Hoover know that if Germany went under, her fall would submerge the rest of the world in a new flood of hard times. Between conferences and telephone calls, he wearily observed to a secretary: "I now know why the World War wasn't prevented." To still wild rumors about his plans, President Hoover first announced that he was considering "certain steps we might take to assist in economic recovery here and abroad," spoke of "strengthening the situation in Germany." In response, the New York stockmarket bounced up an average of eight points in the strongest single advance since the 1929 crash. At 4:30 on a dull Saturday afternoon, with the temperature 102DEG in the Washington streets, the Press was informed that the President would receive at 6 o'clock. At that hour the White House lobby was jammed with 100 excited correspondents. Five minutes passed--ten--15. Was there some mistake? Had the President changed his mind? Finally at 6:20 the President's door was swung open and in rushed the correspondents. The President's air-conditioned office was delightfully cool (70DEG) compared to the heat outside. Behind his desk stood Mr. Hoover in blue coat, white flannels, canvas shoes. Beside him stood Messrs. Stimson and Mills. The newsmen were so wrought up at the prospect of a big story that the President advised them to "relax and take it easy" because what he had to say to them was not for release until the next day when the country could ponder his words at its Sunday leisure. When all was quiet in the circular, greenish room. President Hoover slowly read aloud a clear, articulate statement in which he proposed a one-year moratorium on all War debts to the U. S. and on all Reparations from Germany. The President's plan was simple: The U. S. would forego one year's principal and interest payments, totaling $245.000,000, from Britain, France, Italy and the lesser Allied powers, plus $15,000,000 from Germany (for expenses of the Army of Occupation), provided the Allies would collectively forego a total of $385,000,000 in Reparations from Germany under the Young Plan for a like period. By implication the Allies were also to suspend debt payments among themselves. Declared President Hoover: "The purpose of this action is to give the forthcoming year to the economic recovery of the world and to help free the recuperative forces already in motion in the U. S. from retarding influences from abroad. The worldwide Depression has affected the countries of Europe more severely than our own. Some of these countries are feeling to a serious extent the drain on national economy. . . . There is an abnormal movement of gold into the U. S.-- which is lowering the credit stability of many foreign countries. These and other difficulties abroad diminish buying power for our exports and in a measure are the cause of our continued unemployment and continued lower prices to our farmers. . . . "The essence of this proposition is to give time to permit debtor governments to recover their national prosperity. I am suggesting to the American people that they be wise creditors and good neighbors. . . ." President Hoover concluded with a broad hint that "inasmuch as the burden of competitive armaments has contributed to bring about this Depression," the other powers had better give thought to arms cuts at next year's conference, if they want any permanent modification of the U. S. debts. Not alone could President Hoover execute a moratorium, even if the other nations accepted his proposal. War debt settlements are part of U. S. law and only Congress can suspend their operation. It was to win Congressional support well in advance that the President had summoned some Senators and Representatives to the White House, telephoned others. Adroitly he had averted political opposition by pitching his plan on a non-partisan level. In his statement he was able to list 21 Senators (twelve of them Democrats) and 18 Congressmen (four of them Democrats) by whom "this course of action has been approved." Next debt pay day is Dec. 15. Congress assembles Dec. 7. President Hoover was confident that, with the support already lined up, he could have the debt laws suspended in the first week of the session. As further political insurance, the President also had his moratorium plan approved by potent Democrat Owen D. Young, chairman of the committee which fixed German Reparations "permanently'' in 1929. Announced Mr. Young: "The proposal . . . is not only the action of a wise creditor but the helpful word of a great democracy. Coming at a time when we are all beginning to doubt whether a democracy could act promptly, wisely and helpfully, it is most encouraging.''

As Secretary of Commerce. Mr. Hoover was a member of the U. S. Debt Funding Commission which negotiated final settlement with the Allies. No one is more familiar than he with the Republican Party's long insistence that no legal or moral connection exists between the Allied Debts and German Reparations, despite the fact that 75% of Germany's $28,000,000,000 Reparation payments are destined to reach the U. S. as Debt payments from the Allies. The Hoover moratorium proposal was the first time a Republican President had ever admitted a connection between these two great items of international finance as a matter of practical economy. Trying to reconcile party policy and practical necessity, he offered this neat but ostrich-like explanation:

"We purposely did not participate in either general reparations or the division of colonies or property. The repayment of debts due to us . . . was settled upon a basis not contingent upon German reparations or related thereto. Therefore, reparations is necessarily wholly a European problem with which we have no relation.

"I do not approve in any remote sense of the cancellation of the debts to us. World confidence would not be enhanced by such action. None of our debtor nations has ever suggested it. But as the basis of the settlement of these debts was the capacity under normal conditions of the debtor to pay, we should be consistent with our own policies and principles if we take into account the abnormal situation now existing in the world. I am sure the American people have no desire to attempt to extract any sum beyond the capacity of any debtor to pay, and it is our view that broad vision requires that our Government should recognize the situation as it exists. ... It represents our willingness to make a contribution to the early restoration of world prosperity, in which our own people have so deep an interest."

How urgently President Hoover desires an early return of world prosperity was testified, next day, by his unwillingness to have the U. S. enter a world conference on reparations suspension. Speed, in his opinion, rather than diplomatic bickering was the desired psychological factor in the plan.

* U. S. gold supplies increased approximately $110,000,000 from June i to June 20.

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