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Downplaying Default Downplaying Default
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Paying for Rearmament Paying for Rearmament
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Cash and Carry Cash and Carry
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Lend-Lease Lend-Lease
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4 Financial Isolation, 1934–1942
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Published:October 2022
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Abstract
The immediate consequences of the British government’s default on its war debts to the United States were surprisingly limited. The extant literature understandably tends to focus on the dire political costs to incumbent governments as well as on significant economic costs. Yet most of these consequences appear to have been relatively limited for the United Kingdom. The British government reversed heavy increases in taxation as well as cuts in allowances of all kinds. Prime Minister Stanley Baldwin went on to secure another large majority in the election of November 1935. Britain had limited interest in accessing foreign debt immediately after default but was able to borrow from the United States immediately after the Second World War. Nor did default halt broader economic cooperation between the U.S. and the UK. Yet there was one profoundly negative consequence to British default. As the United States struggled through the Great Depression, the memory of unpaid war debts lingered. U.S. disappointment concerning Europe’s unpaid debts and disillusionment with the Continent’s drift to war produced powerful congressional and public barriers to international lending and diplomatic alliances, which hampered the United Kingdom’s attempts to balance economic stability with military rearmament.
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