French indemnity debt to Germany, 1870

Rough question:

Can an analogy be made between the level of current U.S. debt to China and the French debt as Franco-Prussian War indemnity to the Germans in 1870?

A few years ago I read a book about the Franco-Prussian War. It included a few paragraphs about the aftermath. I wonder if this relates, by analogy, to our own modern situation of debt to China?

Details:

–In 1870, the French badly lost a war with Germany. Paris was besieged and forced to surrender (followed by its seizure by the Left as the Commune, requiring recapture by the French Army). Germans crowned their first emperor at Versailles, the French seat of political power, and held a victory parade through Paris, including under the Arc de Triomphe, built as a tribute to Napolean. (The Germans were Prussian-led by Bismark, who as a university student once forced a man who had laughed at his dog to apologize to the dog on his knees or face a duel with Bismark, a well-known and brutal fencer).

–One of the consequences of this crushing defeat was a huge indemnity owed to the Germans by the French to get them to go home. Germans continued to occupy part of France as collateral that the debt would be paid.

–I don’t remember figures, but the author said the debt was absolutely crushing, and the French expected it would take more than a decade to pay it off.

–In fact, the new French Republic set out with a Will to pay it off as soon as they could. Nothing was spared. The government was ruthless. In the end, France paid off this indemnity in a year or two, to the astonishment of all observers. This was said to be a remarkable achievement, one well-worthy of historical note.

Full Question:

So, does anyone know the detailed figures of this event, and can analogy be made to the level of U.S. debt to China today? Can this episode tell us anything useful about our own ability to pay off our massive debt to China if we get as serious about it as did the French with Germany in 1871?

No, no, and no.

An indemnity after a war is not parallel in any way to our current status.
Why should it be?

China, like many other countries in the world,buys treasury bills and notes. Bonds are not mortgages. The most sensible way to understand the bond market through analogy is that they have invested money in the U.S. They invest money through the variety of treasury programs we offer. The money gathered that way is used by the government to cover other expenditures, many of which may produce net profits on their own. A share of these net profits go back to the investors to pay them off with interest, Once that happens they are no longer owners in any way. Call them seed money, because it is in everybody’s interest to keep the U.S. productive.

It is false that the Chinese own the country. It is false that the Chinese can call in all investments at will and not risk losing all the interest money that made the deal worthwhile in the first place. It is unlikely the Chinese can suddenly cut the country off without repercussions that will limit their abilities to invest their money elsewhere. They do not have the largest economy in the world. The U.S. does. China may have more liquid assets but those are worthless unless property placed.

The current situation does not seem to allow any pathway that would lead the Chinese to economic dominance or U.S. bankruptcy and failure. The lessons of the world of the 1870s are not applicable for a host of reasons.

Moved Elections --> Great Debates.

Where did you get this from? The German armies were coordinated by Field Marshall von Moltke and led by Karl-Friedrich von Steinmetz, Friedrich Karl von Preußen and the crown prince Friedrich Wilhelm. Bismarck was not a General or Field Marshal. He was a lawyer and diplomat, not a military leader.

The story about the dog is complete “Unsinn” (as we say in Germany). Here (warning: PDF!) is an article from 1898 that describes how Bismarck himself knew his dogs were ugly and laughed about it.

It sounds more like someone is conflating the story with the youth of Friedrich der Große, who was also Prussian, and was forced by his father to watch the execution of his best friend.

In the case of trade debt, the US has received assets from China in exchange for its debt. That wasn’t true in the case of the postwar expropriation cited.

Think of it this way: In one case, you sell me your car for $25,000, which I agree to pay in installments over five years. In the other case, you sue me for libel and win a judgment for $25,000, which I am ordered to pay over five years. My level of debt is the same, but I am better off in the one situation than the other.

who received what assets in which case is immaterial, especially since the worth of American assets nowadays is anyone’s guess.

The fundamental difference is in the structure of the productive economies of the debtor nations. France after 1871 and Germany after 1945 were de facto looted by the conquerors but they retained or quickly rebuilt their productive capacity. And when you are rich, what’s a few billions amongst friends?

America by contrast lost a lot of its productive capacity and keeps losing what’s left of it through concerted anti-business government policy. And the worse things get, the more insane and destructive we should expect that policy to become. That’s the key difference. There is no Ludwig Erhard or whoever were French leaders of the 3rd republic on the horizon. We got a mix of Marxist looters and “in bed with the government” capitalist looters running the country instead.

The French indemnity was set at 5 billion francs at a time when France had a GDP of about 20 billion francs, so the indemnity was 25% of GDP.

The United States has not yet reached this level of indebtedness to any single creditor. The Chinese central bank owns about $1.1 trillion of Treasury securities, equal to about 7% of US GDP.

More to the point, unlike the German indemnity, Treasury bonds are not callable. There is no way to target a specific subset of the debt (such as that held by China) for early retirement, even if we wished to do so.

And of course, we don’t wish to do so. We have neither the political will nor the desire nor the practical ability even to stop borrowing further, much less to retire existing debt.

Which country do you think has a larger manufacturing sector, measured in dollars–the United States, or China?

which country’s manufacturing sector is to a great extent working for a monopsony (the American military) receiving prices for its wares that do not necessarily reflect world market prices for the goods involved, but do reflect overheads for lawyers, lobbyists and “compliance”?

And if that manufacturing is so darn great, why don’t we hear about their mighty export accomplishments? I heard a lot about exports of Chinese consumer goods, German industrial equipment and Japanese cars. Why don’t you fight my ignorance of American manufactured exports - what is exported, to whom and in what quantity? Try focusing on the countries that are not buying American weapons with money borrowed from America.

I’m asking the questions here.

The answer is that the US manufacturing sector produces approximately twice the value of the Chinese manufacturing sector.

Well, I was perhaps too “rough” in posing my question, my interest being the fiscal analogy. I’m also running on memory of a book I read over two years ago.

Yes, I know Bismark was an advisor to the German Emperor–as I understand it–who was crowned at Versaille itself after the Prussian victory (or so the book claimed). I can’t speak to the truth of the dog anecdote: that was what the author reported as a telling story about Bismark’s character. The book I read had good reviews by serious historians. Still, I note what you say on this and I’m reading your citation.

I know the story of Frederick the Great and his young male friend who was executed–I’m currently reading, or misreading, a book about Frederick. I’m not conflating these two. I would have thought that “schiesse” would be the word you might use in strong objection. Never heard of “unsinn.”

On the analogy itself: I’m interested in the comparison of numbers and the weight of the debt more than the political or historical circumstances. I may not have been clear on this. Alternately, this might simply be an odd idea I have in my head that defies answer.

Interesting responses anyway; thanks for taking the time to address this.

Wei Jei I appoligise for my ignorence of non European names as to call you Mr. or Ms. That being said I have been thinking the exact same thought about the French ideminaty in relation to our own debt and the 400 Billion in intrest it is causing and why we should do what ever it takes to retire it for the good of the nation.Why nobody is talking about re evaluating the actuarie tables for ssi and medicare,re adjusting military pensions and rethinking our overseas commitments before they bankrupt the nation. I also think we sold our souls on the alter of low intrest rates. What would happen if these rates rise. Bank savings rates force people to chase one bubble after another for a chance of higher yealds.