811.61311 Germany/1: Telegram
The Acting Secretary of State to the Ambassador in Germany ( Sackett )
123. 1. What follows is solely for your own consideration and your advice to the Department. No hint of it is to be given to the German Government, at the present time. Our intention is to inform you of a possible plan of ours whereby about $120,000,000 could be made available to the German people. At the same time this would assist the improvement of social conditions there, demonstrate our confidence in the future of Germany, and contribute to the restoration of confidence within Germany.
2. You are aware that the farm cooperatives are financed by the Farm Board. Our plan is to sell Germany about 1,100,000 bales of cotton and 70,000,000 bushels of wheat from the stocks of the cooperatives.
3. These supplies of wheat and cotton are for consumption exclusively within Germany. Payment will be made in dollar obligations of the German Government or some acceptable German institution. A period of 1½ to 3 years may be granted for full payment. Payments in reduction of the obligations may be derived, under some arrangement, from a portion of the realizations upon reexported cotton goods.
4. Through our observers we have learned that, owing to import restrictions, the amount of wheat consumed by Germany is approximately 70,000,000 bushels under that of normal economic times. That is, much more wheat would be imported by Germany under normal conditions than at the current rate. According to our information the bread is of an inferior quality. This circumstance has a depressing effect upon the people. If the quality of the bread were raised to the normal level, the entire social situation would be sensibly strengthened.
[Page 294]5. Considerable amounts of immediate cash would be secured for the German Government by the purchase of wheat on such credit, by re-selling it plus the import duty to the population.
6. By selling cotton to the spinning industries, the German Government would also secure considerable cash for the Treasury. If the manufacturers were given time for payment, they, the manufacturers, would be able to grant their customers easier terms.
7. If any such proposal were feasible, the price would be the difficulty confronting us. Ten cents is approximately the current F. O. B. price of these more than average grades of cotton for which the cooperatives have paid about 18 cents a pound. The F. O. B. price of wheat is about $.55; and the cost approximately $1.10 per bushel. Temporary difficulties in Central Europe are partly responsible for this great decline in the current price which in itself is temporary. For our cooperatives to sell at the present price would be ruinous. Because present price levels throughout the world are rapidly decreasing the acreage—the fall in world production of export wheat this year by 300,000,000 bushels and the shrinkage in cotton acreage by 10 to 20 percent—the prices of wheat and cotton are bound ultimately to rise. From this point of view, the cooperatives can hold until economic recovery.
8. It will be realized that sale upon such security is not very attractive now; furthermore, that there is a considerable element of risk involved. Moreover, it will be seen, too, that on time payments of commodities, commercial transactions with Germany now bring from 8 to 9 percent interest annually. Our contribution to the situation could be to make it possible for the cooperatives to set a low interest rate at a minimum of 4½ percent per annum. This we could accomplish by making use of our governmental agencies. These price difficulties could be approached by devising a formula which took into consideration that current prices do not represent fair values nor values apt to maintain in the future. Such a formula might provide:
- (1)
- that the delivery of the commodities would be made in equal monthly amounts for a period of 1 year, or more rapidly if the buyer so desired;
- (2)
- that, for the year of delivery, the average of F. O. B. prices in the open market should be determined; that this be established at the end of the year;
- (3)
- that the original cost price of these commodities, plus carrying charges, should also be fixed;
- (4)
- that the original cost price less half the difference between these two prices should be paid by the buyer. This amount ought not to exceed some figure per unit to be agreed upon.
9. By declaring a fixed price now derangement of commodity markets would be avoided by such a formula. Both the purchaser and [Page 295] the buyer would be relieved from the difficulties of stating the price under existing economic conditions.
10. The low interest rate and risk would be taken care of in the differential above the average market price as above.
11. The problem in suggesting a negotiation of this sort is that we might be charged with attempting to arrange a commercial transaction to benefit the American farmer out of this situation. In reality, the entire basis of it is an effort to give assistance to Germany now.
We do not believe that the moment is opportune for advancing the suggestion; consequently the above is solely for your own consideration and advice to us. Nevertheless, it is our desire that you be informed and that you forward your opinion.