Government Supervision of Foreign Investments

November 19, 1927

Report Outline
Growth of American Foreign Investments
State Department Supervision of Loans
American Loans to Germany
Special Focus

One of the most important changes in the world situation brought about by the war was the transformation of the United States from a debtor to the leading creditor nation. The line at which foreign investments in the United States were equalled by American investments abroad was crossed during 1916. Billions of dollars in foreign loans were extended during the ensuing decade, first by the government and later by American private investors, so that the United States stands today a world creditor to the extent of some $20,000,000,000. The ability to control this flow of credit to foreign countries placed the government of the United States and American private bankers in position to exert a powerful influence upon the direction of European reconstruction after the armistice and upon the economic development of the nations of Latin-America and other parts of the world.

As early as 1916, when it became evident that American private loans abroad would establish a billion dollar record for the first time in that year, there was discussion among leading bankers of the desirability of establishing a governmental foreign loan policy in order that advances by American investors might not interfere with the political and diplomatic purposes of their government during the difficult period of American neutrality. No action to this end was taken at that time, and after the United States entered the war, as government loans to the Allies mounted higher and higher, private loans abroad rapidly declined, thus reducing the importance of the suggestions brought forward in 1916 for a system of government supervision of private loans.

Government loans up to the armistice were extended in accordance with the national policy of “winning the war.” It was required that the credits extended by the government be expended in the United States, and this condition was likewise imposed by American bankers making private loans abroad. In May 1919, when private loans again began to mount, the bankers were informed that this condition need no longer be insisted upon, but that the Treasury wished to be notified of all subsequent negotiations for the issue of loans in the United States for foreign borrowers,

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International Economic Development