The Financial Times reported yesterday, 103 years after the above fake report went out:
Clarification: On 23 November 1914, a piece published in the Financial Times claimed the UK government’s War Loan was “oversubscribed”, with applications “pouring in”. The item described this as an “amazing result” that “proves how strong is the financial position of the British nation”. We are now happy to make clear that none of the above was true.
Some superb digging by employees at the Bank of England has revealed that the UK government failed to find enough investors to fully cover its 1914 War Loan, and was forced to turn to the central bank to help plug a deficit of more than £100m in the fundraising.
Despite claims it was swamped with buyers, the 1914 War Loan raised less than a third of its £350m target, attracting a very narrow set of investors, according to BoE employees writing on the Bank Underground website today. They came across the cover-up by trawling through the bank’s old ledgers...
The government decided that news of a failed bond sale would have been “disastrous” to the general public, and so schemed with the Bank to plug the gap, the BoE now says. The central bank bought the outstanding securities on offer, and covered its tracks by purchasing the bonds in the name of its chief cashier, and listing them on its balance sheet as “other securities”.
The Financial Times played its role in convincing the public that the sale was a success, publishing a segment (which appears to be an advert) claiming that the debt was oversubscribed and offering “further particulars of this magnificent investment… upon request.”Could this be the only time FT has colluded with the government?
-RW
U.S. participation in WWI was financed this way and and it also led directly to the 1920 depression. We have Daniel Kuehn and Krugman vouching for that analysis.
ReplyDeleteThe austerity depression of 1920–21
During World War I federal expenditures ballooned and although the new income tax was able to partially finance the war effort, most of the financing was done through federal borrowing and by the highly accommodating monetary policy of the Federal Reserve. The role of the Federal Reserve at this time was expressed unambiguously by the New York Federal Reserve Bank Governor Benjamin Strong, who told a Congressional committee in 1921 that ‘I feel that I, or the bank at least, was their [the Treasury’s] agent and servant in those matters’ and further added that the wartime inflation caused by the low interest rates maintained by the bank were ‘inevitable, unescapable, and necessary’ for prosecuting the war (Strong, 1930).
http://bobroddis.blogspot.com/2012/08/daniel-kuehn-provides-factual-basis-for.html