, a combination of overseas lending and the liquidation of foreign-owned stock enabled the U.S. to emerge from the war as the leading creditor nation of the world, a position formally held by Great Britain (Moulton & Pasvolsky, 1932, pp. 4-18).
The immediate post World War I years saw a period of worldwide inflation fueled by the backlog of consumer and business demand from the war years. During this time, the U.S. continued to take the lead in international lending. European and South American countries, elated with easy credit, were actively soliciting capital (Kindleberger, pp. 54-57). However, while Great Britain's domestic economy had been completely dependent on the world economy prior to World War I, the U.S. had less of a practical need to subordinate domestic economic interests to the health of the world economy. The U.S. was much less dependent than Britain on either exports or imports to make its economy work. The end result was the U.S. had a choice as to how much it was going to involve itself in the world economy as well as the nature of its involvement.
One area of questionable U.S. actions at that time was the issue of war debts and reparations. Throughout the 1920s, the U.S. insisted on repayment of the loans made to Britain, France, and other allies during the war. As long as France and Britain were obligated to repay their debts, they insisted that Germany pay to them the reparations agreed to at Versailles. But the strain of the German economy of paying the reparations was serious and it threatened to disrupt the German political and economic order and weaken European stability. Thus it can be argued that the U.S. insistence on repayment of war debts was a major source of international instability in the 1920s and early 1930s (Kindleberger, 1973, pp. 34-51).
The U.S. contribution to the reparations issue was to lend Germany huge sums of capital which were then partially used to finance the repara...