Benjamin Strong Jr. to Colonel House
Title
Benjamin Strong Jr. to Colonel House
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18563
Date
1917 July 7
Description
Benjamin Strong Jr. writes Edward M. House regarding allied loans.
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
My dear Colonel House:
In preparing a memorandum of our conversation of Tuesday, I find we covered so much ground that to do so with necessary brevity may impair its usefulness. The paper enclosed, however, will suggest the detail of our discussion and I hope will be of service.
As to certain difficulties which have developed:- What I stated to you was with a desire to be helpful, as every consideration is due to those who are trying to carry too heavy a burden of work to do it justice. The trouble was primarily due to failure to develop and conclude a program in advance of transactions actually taking place; such a program not having been developed both sides apparently failed to realize that without it misunderstandings were inevitable. Besides that, as I stated to you quite frankly, the Department is underorganized and badly needs skilled help with such division of responsibility and authority as will relieve the Secretary from the necessity of too detailed an examination of matters requiring final decision
.On the other hand, some of the representatives of our Allies have failed to consider that they are dealing with subjects with which they have had three years’, and we only three months’, experience and they have doubtless expected too much in the way of co-operation in these early stages of our participation in the war.
A misunderstanding of a rather serious character has developed in regard to the method of repayment of loans of the British Government negotiated through Messers. J. P. Morgan & Company, aggregating $400,000,000 which is carried by 67 banks and may be called for payment at any time. If it is paid out of advances being made by our government to the British Government, it would by so much expand the program of advances and shorten the period which can be covered by available credits. I have come to the conclusion, however, that it is absolutely necessary that these loans, or at least the greater part of them, must be paid off in cash and it should be done at exactly the right time. In fact, this payment can be utilized to our advantage in connection with future financing. If it could be arranged to repay these loans in installments of $100,000,000 each, timed so as to anticipate large further borrowings by our government, the effect would be to create easy money all over the country as it would at once reduce interest rates in New York, both to me and, demand, which would be reflected in every other money market in the United States. The money, at least in part, could be drawn from government deposits in other reserve districts.
My recommendation, therefore, would be to have the Treasury face this matter squarely, include the payment of the $400,000,000 as a part of the program of the next few weeks or months and let that be the means of preparing the market for future operations.
Admitting that this will necessitate application to Congress for further legislation, might not the President make this the opportunity of bringing the country to realize the gravity of the war situation, the immense demands to be made upon us if the war is to be won and frankly ask Congress for the financial support necessary? Hestitation in regard to this course has been expressed for fear of giving comfort to Germany. My own feeling is that whatever comfort they may get out of it is a small price to pay for the many advantages of being able to rush all of our resources to the front at the earliest possible moment.
The enclosed memorandum was dictated immediately on my return but I was obliged to go to Washington and its completion has been delayed until to-day
.I understand the tentative program suggested on the first page is now being considered by Secretary McAdoo, but he is very much hampered by the knowledge that the credits and cash at his disposal are inadequate to meet all demands.
My visit with you was a most enjoyable one and I hope will give me opportunity to repeat it. I am leaving for Denver on Sunday,
With kindest regards, I remain,
In preparing a memorandum of our conversation of Tuesday, I find we covered so much ground that to do so with necessary brevity may impair its usefulness. The paper enclosed, however, will suggest the detail of our discussion and I hope will be of service.
As to certain difficulties which have developed:- What I stated to you was with a desire to be helpful, as every consideration is due to those who are trying to carry too heavy a burden of work to do it justice. The trouble was primarily due to failure to develop and conclude a program in advance of transactions actually taking place; such a program not having been developed both sides apparently failed to realize that without it misunderstandings were inevitable. Besides that, as I stated to you quite frankly, the Department is underorganized and badly needs skilled help with such division of responsibility and authority as will relieve the Secretary from the necessity of too detailed an examination of matters requiring final decision
.On the other hand, some of the representatives of our Allies have failed to consider that they are dealing with subjects with which they have had three years’, and we only three months’, experience and they have doubtless expected too much in the way of co-operation in these early stages of our participation in the war.
A misunderstanding of a rather serious character has developed in regard to the method of repayment of loans of the British Government negotiated through Messers. J. P. Morgan & Company, aggregating $400,000,000 which is carried by 67 banks and may be called for payment at any time. If it is paid out of advances being made by our government to the British Government, it would by so much expand the program of advances and shorten the period which can be covered by available credits. I have come to the conclusion, however, that it is absolutely necessary that these loans, or at least the greater part of them, must be paid off in cash and it should be done at exactly the right time. In fact, this payment can be utilized to our advantage in connection with future financing. If it could be arranged to repay these loans in installments of $100,000,000 each, timed so as to anticipate large further borrowings by our government, the effect would be to create easy money all over the country as it would at once reduce interest rates in New York, both to me and, demand, which would be reflected in every other money market in the United States. The money, at least in part, could be drawn from government deposits in other reserve districts.
My recommendation, therefore, would be to have the Treasury face this matter squarely, include the payment of the $400,000,000 as a part of the program of the next few weeks or months and let that be the means of preparing the market for future operations.
Admitting that this will necessitate application to Congress for further legislation, might not the President make this the opportunity of bringing the country to realize the gravity of the war situation, the immense demands to be made upon us if the war is to be won and frankly ask Congress for the financial support necessary? Hestitation in regard to this course has been expressed for fear of giving comfort to Germany. My own feeling is that whatever comfort they may get out of it is a small price to pay for the many advantages of being able to rush all of our resources to the front at the earliest possible moment.
The enclosed memorandum was dictated immediately on my return but I was obliged to go to Washington and its completion has been delayed until to-day
.I understand the tentative program suggested on the first page is now being considered by Secretary McAdoo, but he is very much hampered by the knowledge that the credits and cash at his disposal are inadequate to meet all demands.
My visit with you was a most enjoyable one and I hope will give me opportunity to repeat it. I am leaving for Denver on Sunday,
With kindest regards, I remain,
Original Format
Letter
To
House, Edward Mandell, 1858-1938
Files
Collection
Citation
Strong, Benjamin, 1872-1928, “Benjamin Strong Jr. to Colonel House,” 1917 July 7, WWP18563, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.