Johnson Debt Default Act of 1934

A U.S. law passed by Congress in 1934 prohibiting future loans to nations that had defaulted on repayment of previous loans to the U.S. This law came about following the collapse of the international financial situation created by the Dawes Plan and subsequently modified by the [Young Plan]] as a result of the Great Depression. The Dawes Plan kept the system of international capitalism afloat following the institution on Germany of war reparations. Because U.S. Republican leaders President Harding and Calvin Coolidge refuse to even consider forgiving the Allies' war debts to the U.S. (Calvin Coolidge once remarked in response to the question of forgiving war debts, "They hired the money, didn't they?"), Britain and France had few other good alternatives than trying to bleed Germany of every last cent.

By the time of the Great Depression, and the U.S. could no longer keep the international system of finance afloat with its own loans, Herbert Hoover suggested an international moratorium on war debt repayments and reparations until 1932. Britain, France, and Germany readily agreed. But after 1932, Hoover was unwilling to continue the moratorium. Furthermore, the conservatives had passed the Hawley-Smoot Tariff, a protectionist tariff which made repayment almost impossible during the pit of the Great Depression. Britain, France, and nearly every other nation that owed the U.S. debts from World War One defaulted. The U.S. was owed some $22 billions.

In retaliation, Senator Hiram Johnson introduced and shepherded the Johnson Debt Default bill through Congress. It passed on April 13, 1934. The law forbids any new loans to nations that have not repaid their World War One debts. This law further contracted the liquidity of international markets and contributed towards making the depression worse. Furthermore, since Britain was a principle defaulter, it made aid to Britain during the early years of World War Two particularly problematic; thus President Roosevelt and Congress had to resort to interesting ways around the law, such as the Lend-Lease Act.

This law is still part of U.S. foreign policy.