The lenders were individuals, who bought foreign bonds. Lots and lots of individuals, when you're talking about $30 billion. The bonds were floated by US financial institutions, but generally US banks didn't buy them. The lenders withdrew their deposits from US banks, and bought the bonds, and the commission stayed with whoever underwrote the bond and the rest went to the borrower, who spent it.
Heavy defaulters were Brazil, Bulgaria, Chile, Columbia, Costa Rica, El Salvador, Germany, Greece, Guatemala, Hungary, Poland, and Uruguay. Light defaulters were Argentina, Australia, Austria, Belgium, Canada, Czechoslovakia, Denmark, Finland, France, Italy, Japan, New Zealand, Nicaragua, Norway, Spain, and Venezuela.
There were quite a number of bonds US floated in the US, as well, but in the aggregate we were a creditor nation when the world defaulted.
The reasons for the Great Default are just as complex as the reasons for the Great Crash and the Great Contraction, and interrelated. The peak in lending occurred in 1927, and plummeted sharply - from $1.5 billion/year in 1927 to $100 million/year in 1931 - that's just for the US.
Why? 1) Early defaults caused risk aversion. 2) Tightened credit conditions. 3) Money preferentially going into the stock market and the call money market. Broker's loans could pay as much as 15%. 4) Worldwide crash in commodity prices - both cause and effect, that one is.
The drop in lending caused liquidity crunches that made it impossible for foreign lenders to repay. Remember, they had to repay in dollars, but there were no dollars to be had. No way to convert pesos or lira to dollars unless the bank had a surplus, and none did. And they couldn't ship us goods, we wouldn't let them (tariffs).
"Money" is only "money" in the US when it's dollars, or convertible to dollars. Without an effective foreign exchange mechanism, once the money is converted to foreign currency, it can't come back.
NB - there's also a little problem with the blind trusts, aka Ponzi schemes, but this is a trail I haven't followed yet. They were big in bonds towards the end, before the Great Default. |
