Loans and Debt Resolution - Lend-lease

The reparations experience had a marked affect on the way in which the United States provided the bulk of its aid to nations fighting the Axis powers in World War II. Under the provisions of the Lend-Lease Act (1941) and in lieu of credits and loans, the United States supplied to more than thirty-eight nations whatever goods were certified by President Franklin D. Roosevelt as "in the interests of national defense."

After reelection in 1940, the president received from Prime Minister Winston Churchill a long letter setting forth Great Britain's financial straits. That nation was scraping the bottom of the barrel to pay for goods already ordered and would need "ten times as much" for the extension of the war. Churchill hoped that Roosevelt would regard his letter "not as an appeal for aid, but as a statement of the minimum action necessary to achieve our common purpose." The problem, as Roosevelt saw it, was how to aid England in the common cause without incurring such a breeder of ill-will as the war debt problem after World War I. After brooding over the matter for days during a Caribbean cruise on the cruiser Tuscaloosa, he came up with the ingenious idea of lending goods instead of money. He wanted, as he told a press conference, to get away from that "silly, foolish old dollar sign," and he compared what he proposed to do to lending a garden hose to a neighbor to put out a fire that might otherwise spread to one's own house.

In his "fireside chat" radio broadcast on 29 December 1940, Roosevelt depicted the United States as the "arsenal of democracy," and in his message to Congress a few days later, he made official the proposal that resulted in the Lend-Lease Act of 11 March 1941. The act, the complete negation of traditional neutrality, empowered the president to make available to "the government of any country whose defense the President deems vital to the defense of the United States" any "defense article," any service, or any "defense information." "Defense articles" might be manufactured expressly for the government that was to receive them, or they might be taken from existing stocks in the possession of the United States. Launched on a modest scale, the lend-lease program eventually conveyed goods and services valued at more than $50 billion to the friends and allies of the United States in World War II, and it left in its wake no such exasperating war debt problem as that of the 1920s.

Against the $50 billion of lend-lease aid furnished by the United States, it received approximately $10 billion in so-called reverse lend-lease from its allies. After the war the United States negotiated settlement agreements with most of the recipients. In general, the agreements stipulated that lend-lease materials not used in the war should be returned or paid for, but the settlements were also shaped by the proviso written into the original lend-lease agreements, that final settlement terms should "be such as not to burden commerce but to promote mutually advantageous economic relations …and the betterment of worldwide economic relations." Within a decade of the war's end, settlement agreements totaling more than $1.5 billion had been negotiated, on which $477 million had been paid. The Soviet Union, which had received $11 billion, did not settle its account until 1990, in the glow of glasnost and the end of the Cold War, eager to qualify for U.S. credits.