Late in January 1933, President-elect Franklin D. Roosevelt met separately with his predecessor, Herbert Hoover, and Britain’s ambassador, Ronald Lindsay. Each session focused on one issue: How would the new chief executive handle the nagging problem of war debts?

During the war, the U.S. had advanced European countries about $10 billion in goods and credit. Following the July 1932 expiration of Hoover’s yearlong moratorium of payments, international readjustment discussions were scheduled for March 1933. European representatives hoped the new U.S. government would then articulate fresh policies. Many nations sought a sizable writedown of principal and interest because further postponement of due dates had proved politically impossible in the U.S.

The Economist explained Britain’s position:

"The War Debts have been a major influence in bringing about the crisis; and even under the most favourable conditions their payment reduces the ability of the debtors to buy American goods."

Europeans couldn’t spend the same pounds and francs twice, once for debts and again for goods and services. Furthermore, if the debt payments were resumed, they would "make matters worse, and put another obstacle in the way of reconstruction plans.”

The Economist also argued that the U.S. had to realize that each of its chief debtors was also a creditor. These countries’ ability to pay back the U.S. was affected by what their debtors were able to pay them.

Those who owed the U.S. the most -- the U.K. and France -- found collecting their third-party debts, as well as German war reparations, almost impossible. A conference in Lausanne, Switzerland, in the summer of 1932 had reduced and rescheduled Germany’s obligations, basing future transfers on revenue from newly issued long-term bonds. But the bonds didn’t sell, and without that cash flow, Germany couldn't meet even the revised terms. 

In mid-December 1932, Britain made a war-debt payment of $95.5 million by earmarking gold in its vaults to that value, but not shipping the bullion westward. As historian Barry Eichengreen explained, "The veiled threat was that if the United States attempted to repatriate that gold, the Bank of England would liquidate its dollar balances." This would have deepened the financial crisis. The gold stayed in Britain.

Five smaller nations sent about $3 million to the U.S., reducing their accounts, but five more countries, including France, Belgium and Poland, defaulted on notes totaling $25 million. The international debt system was edging toward a breakdown.

Yet Lindsay was optimistic when his plane arrived in Atlanta on Jan. 28 for his informal discussion with the president-elect at Warm Springs.

"The debt difficulties of Great Britain and other nations are a paramount cause of the worldwide business inactivity," he said. "Needless to say, I am more than hopeful of the outcome."

While no decision was made then, Lindsay said he was impressed with how Roosevelt was handling the crisis.

"I like the way President-elect Roosevelt does things," he said. "It was late Friday before I knew he wanted to see me, and of course, I readily accepted his invitation. Twenty-four hours ago I had not the slightest idea I would be anywhere other than in Washington."

After years of what many regarded as Republican dithering while the Great Depression deepened, the U.S. voter had chosen a decisive, though sometimes impulsive, new leader. Old Guard Republicans fretted while progressives in both parties planned legislative programs.

Change clearly lay ahead. Yet how dramatic and transformative it would be, few could have imagined in early 1933.

(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)

Read more from Echoes, Bloomberg View's economic history blog.

To contact the writer of this blog post: Philip Scranton at

To contact the editor responsible for this blog post: Kirsten Salyer at