Hey, UK, Baby You Got My Money, 'Cause I'm Worried
C.R.E.A.M - The Origins Congressional and Military Indifference to Assisting Britain in 1940
Dear Readers,
Too often in the American imagination, the Second World War begins with the drama of Pearl Harbor or the stoic resolve of Lend-Lease, cast in black-and-white footage of Franklin Delano Roosevelt and Winston Leonard Spencer Churchill, shoulder to shoulder, freedom’s last hope against tyranny. True so far as it goes. But behind that staged camaraderie lay a deeper, more skeptical American attitude toward Britain, especially among US military leaders, rooted in betrayal after the Great War. In 1934, the United Kingdom defaulted on its First World War debts to the United States. That’s right, this was not an accounting error. It was a deliberate dishonor, an enduring repudiation of wartime obligations, and it left a bitter taste in the mouths of American policymakers and strategists.1
We still have not received our money. Still, in 2025. Let me explain.
After the armistice in 1918, Britain stood victorious but broke, okay, rather, deeply in debt. It had borrowed massively from the United States to fund its war effort: over $4.3 billion from the US Treasury and private banks. The expectation was clear and unambiguous when the war ended, Britain would repay what it owed. That was the deal. But Britain treated the debt as optional. Through the 1920s, it dragged its feet. Then in 1934, it defaulted outright. The United States, still suffering under the weight of the Great Depression, received no repayment and no apology. The default was deliberate and final. And the debt has never been paid, to this day.
When war returned in 1939, Britain once again needed American support, especially after France fell in 1940. But this time, the United States was not eager to open its arsenal or its wallet. Again it was the middle of the Depression and the British and the French could have stopped the Nazis long before 1939. The US military questioned why it was America’s business to help Britain fight when it was not alone. The idea that Britain stood alone was Churchillian propaganda, and the US War and Navy Departments did not believe it. At the time, the British Empire spanned 13 million square miles with a population of around 500 million. It was the largest empire in world history—larger than the Russian or Mongol empires. The British ruled about 25% of the world’s population, comparable to the Roman and Mongol empires at their height. If they could not turn that into victory over the much smaller German and Axis powers, it was not America’s problem, that was a problem of Britain colonialism. And the US military chiefs found their British counterparts to be arrogant, snobby aristocrats and imperialists. There was little sympathy for them, and considering history why would there be? Americans were and still are proud of the 1776 Revolution. In fact, much of the period before and after the Great War involved US military planners developing clever strategies for defeating the British Empire in case of war over trade or a border dispute with Canada: War Plan Red.
This is why the September 1940 Bases-for-Destroyers deal made sense. The US gave Britain 50 old Navy destroyers in exchange for 99-year leases on British military bases in the Western Hemisphere, including in Newfoundland, Bermuda, and the Caribbean. Britain desperately needed ships to defend against German submarines, but it couldn’t afford to pay and was running out of options. The US was still officially neutral, but it used the deal to strengthen its own defense position in the Atlantic against both the Germans and the British. With the deal the US Navy was now dominant over the Royal Navy in the Western Atlantic. FDR may have had strategic sympathies for Britain, but the Deparment of the Navy, the Treasury, and much of Congress remembered the default and our traditional rivalry, after all it was only half-a-decade before the UK ended up the new war. They had seen Britain borrow freely in one war, then walk away from its obligations. They refused to be drawn in again without safeguards and this fed into isolationism on Capitol Hill. Congress needed convincing, as did their constituents back home in the states.
Skepticism took concrete form in the Cash and Carry policy. Britain could buy American weapons and supplies, but only with cash and only if it handled transport independently. The US government refused to extend credit. To meet the terms, Britain scrambled to liquidate its gold reserves and hard currency. On Britain’s initiative the United States even sent the appropriately named USS Louisville to Simon’s Town, South Africa to collect British gold and escort it safely to the US Treasury. This was not a gesture of solidarity, we wanted our money. It ensured that payment was delivered without incident. This was a straight forward Yankee high-value asset transfer.
Even when the situation grew more desperate and the Lend-Lease program was being worked out in Congress, the Americans structured it to avoid creating another noncollectable debt. FDR may have compared it to lending a garden hose to a neighbor whose house was on fire, but, official Washington remembered what had happened the last time America handed over equipment without demanding full payment for the water bill.
By 1941, the British government was financially stretched, and Lend-Lease became a workaround to avoid demanding cash Britain could not get together in time. But the underlying Congressional position remained: this time, America would control the terms. American officials pressured Britain to liquidate its assets on US soil to demonstrate good faith. In late 1940, Treasury Secretary Henry Morgenthau Jr. demanded tangible signs that the UK was not holding back on its ability to pay as part of a plan to convince Congressional skeptics that Britain was serious about payment. So in 1941, Britain consented to sell off a US-based subsidiary company, American Viscose Corporation a major rayon manufacturer, and a division of the British firm Courtaulds the world’s top synthetic fiber company. It is commonly thought of as Morgenthau meanly holding the British over a barrel and stealing their assets. But the context is king. This was not US greed but rather it was fear; the Roosevelt administration was afraid that if Britain did not send the message that it was doing all it could then Congress would kill Lend-Lease. FDR went out on limb with the bases-for-destroyers deal because he did it by executive order and was attacked as violating the Neutrality Acts. The political circumstances are critical; FDR wanted to help Britain, but politically he was often alone. Congress needed convincing and the First World War debt was a part of the problem.
Again to many Americans, the British were a greedy spoiled empire that had made a mess of its geopolitical situation in Europe and was asking for handouts. You had to get Congress and the American people over that image, because that image had a lot of truth. If Britain was so desperate the idea went, then pull out of India and Africa and defend yourself or use those resources. This would later become an issue when Britain and France tried to maintain their empires after the war was won. Americans deeply resented their continued attempts to be superpowers when we had to save their actual homelands. “If you cannot defend your home country you do not need colonies” was the American perspective. And the British Empire did actually contribute a lot to victory, but that is a story for another day.
Within the American military, mistrust of British strategic aims ran deep. They believed British strategy prioritized colonial interests over the common cause. Their skepticism was based on experience of the Great War and the Versailles Peace. But we got through it and won the war. However, the financial betrayal still stands. In 1934, Britain owed the United States $4.3 billion. Officially it is around $16 billion they owe in 2025. But that is too generous and not in keeping with the true debt. The reason the US Treasury lists Britain’s unpaid Great War debt at approximately $16 billion, rather than the $80 billion it would amount to under continuous 3% compound interest, lies in how the debt has been passively handled since Britain’s default. The original 1922 agreement set favorable terms: no interest for five years, then 3% for a decade, and 3.5% thereafter. But after Britain stopped payments the American government chose not to pursue enforcement or update the balance with full interest compounding. Instead, the Treasury has maintained a static accounting figure, one that reflects the legal obligation as it stood in the 1930s, not the true financial cost of nonpayment over the following nine decades. Call it the Dishonor Discount. The $16 billion is essentially a frozen number, carried forward for formality, while the real debt, if adjusted for uninterrupted interest, now exceeds $80 billion. The obligation was never canceled, only ignored.
But that is just the interest. When adjusted for inflation estimates from 1934 to 2025, the real cost rises to $1 trillion. In my estimation that is the true burden of Britain’s unpaid tab, since they have not paid, consider inflation a penalty for bad dealing. Doughboys who shipped out in after 1917 expected our allies to honor their commitment. It was a bit of a slap in the face when the Conservative-led coalition government announced as part of the centennial commemorations of the Great War that the UK’s debt was finally paid off. Nonsense. Where is Uncle Sam’s money?!
It is important to note that countries remember when you break your word. Be warned America.
(L’esprit de l’escalier, updated July 31, 2025 with clarifications about the role of the US Navy, and why the sale of British-held American assets occured and the context of the demand. Thanks for the feedback.)
C.R.E.A.M = Cash Rules Everything Around Me IYKYK
Very informative!