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As deadly as any bullet

May 14, 2015

Anti-biotic Crisis – the alternative staring us in the face

 

The crisis in effective antibiotics available to us in the future has again hit the headlines today with news that the British government is poised to tackle what is sees as a looming crisis in the longer long term.

To that end economist Jim O’Neill, who had been appointed by Prime Minister David Cameron to head a review, concludes that far more money needs to be pumped into global (and British) drug research if we are to avoid modern surgery, e.g. hip replacements and cancer cures, being a thing of the past.

Future generations will perhaps look aghast at how we threw away our competitive advantage and neutralised our scientific and surgical advancements purely because of our lazy approach to our consumption of antibiotic medications.

The problem is most entrenched in the Third World where medications have to be paid for and where the poor cannot afford to buy a complete course of antibiotics pills so instead they buy only as many as they can afford. Consumption of antibiotics in this way makes them not only less effective for the ailing person but in addition, and as a by-product, then renders their immune system resistant to a course of the same antibiotics pills.

This not only is the infection unable to be checked but unexpected variants of the diseases arise for which the West or advanced countries have no suitable antibiotics. With global travel so universal these days and relatively cheap the prospects of a pandemic are possible with all the ingredients simply awaiting their cue.

To combat this potential the pharmaceutical industry in Britain has been urged to set up a £1.3bn (US $2bn) innovation fund to develop new antibiotics (http://www.bbc.co.uk/news/health-32738332 May 15th 2015).

This blog is usually reserved for military matters and military hardware but on this occasion the medical implications must prevail. Gangerene has always been a problem faced by every Army through the ages and Malaria caused more deaths and pulled more men out of the line than bullets and mortars in the jungles of the Far East. The Ebola panic tell us that other infections are just waiting for their opportunity to flourish. For all the spit-and-polish and shiny new toys every global armed force needs to be well-fed, well-kitted-out, and kept in peak fighting condition.

If the world’s new and old policemen (Russia, China, America and Britain) are to flex their muscles, settle disputes, and defuse hotspots, the deployment of forces must be guaranteed and disease free. So this whole subject is a strategic as well as a tactical matter.

In Sept 2012 I predicted that, “in a few years time there will be no antibiotic available to counter the simplest of infections” (https://motoristmatters.wordpress.com/2012/09/15/34 ), and now this is the view of many others. The Royal Pharmaceutical Society (RPS), in a new report calls for new initiatives to spur companies into discovering new antibiotics, or people will quote start “dying from simple surgery.”

Part of the problems is money. Pharmaceutical firms tend to make drugs that are more profitable, i.e. for long-term conditions, e.g. diabetes, and given that developing a new medicine is a “costly and lengthy process” one can understand that. It can cost up to £1bn to take a drug from an initial idea into the market, in a process that can take 12 years and many other drugs will often fail to reach their true efficacy somewhere along the development process. [1] But overall the cost to any nation of not having effective antibiotics could run in to billions of pounds – not to mention the human misery and devastation affecting every family.

According to Prof Jayne Lawrence (chief scientist at the RPS), the incentives for developing new antibiotics were currently “very poor”, adding that antibiotics were “only used for short periods” and so the volume of sales was lower (than, say, for diabetes sufferers).

The plan

In a series of recommendations, Jim O’Neill says the gap between spending on cancer and antibiotic research needs to be closed. He has estimated that drug-resistant infections will kill an extra 10 million people a year by 2050 and he believes the global cost will spiral to US $100 trillion  (£63tn). [2]

History is not on his side; between 2010 and 2014 the US spent US $26bn on cancer research. In the same period US $14bn went to HIV, yet just US $1.7bn was spent on antimicrobial resistance. The news today is that the British government may be prepared to set aside £1 bn (US$ 1.4bn) as an incentive to the pharmaceutical industry to increase its research activities.

That is all very well but no mention is made of the alternatives to antibiotics, namely, phages. When I wrote my first article on phages in April 2005, none of the health care journals were interested or were simply just ignorant of what phages were and what they could do (and to be fair at the time very little was published in the public domain, see https://motoristmatters.wordpress.com/2012/09/11/33/).

The current plan sees a series of proposed recommendations aimed at tackling resistance. They include:

  • A global “innovation fund” of around $2bn to support new ideas
  • A reappraisal of existing drugs
  • Reduce unnecessary prescriptions through better testing
  • Train a new generation of scientists in the field
  • Track how resistance is spreading

Mr O’Neill said many practices of modern medicine – from chemotherapy to surgery – are only made possible by antibiotics.

  • “I am calling on international funders to allocate money to a fund that can support blue sky science and incubate ideas. Antibiotics research is the poor relation to studying chronic diseases of the developed world but, without antibiotics, treating those diseases can be compromised too.”

Prof Sir John Savill, the chief executive of the UK’s Medical Research Council, voiced his concerns:

  • “Picture a world where a cut finger could kill you, you don’t have to look far – only 100 years ago, a quarter of all deaths were due to bacterial infections. We know there’s no magic bullet to the antimicrobial resistance problem. Real change needs proper global investment. We need to act now.”

Why phages ?

Phages have characteristics not found in antibiotics and tend not to be blunted in their effectiveness even over a long period of time. An excellent reprise of how phages work can be found at “History of Phage Therapy” (http://phages.org/ ). To summarise:-

  • During World War 1 phages were discovered and used to fight bacterial infections. In 1923; the pharmaceutical company Eli Lilly began the commercialization of phage therapy in the US during the 1940s. During the World War 2, phages were used to treat bacterial diseases among Soviet Union soldiers, particularly gangrene and dysentery.
  • Viruses and bacteria evolve over time and can develop a resistance to antibiotics. In theory, this resistance can also apply to phages but it is less difficult to overcome compared to antibiotics because phages are ‘target specific.’ This means as only a one or very few bacterial strains are targeted upon, it is easier to develop new phages than new antibiotics. A time period of only a few days or weeks is needed to acquire new phages for resistant strains of bacteria, whereas it can take years to obtain new antibiotics.
  • Compared to antibiotics, phages go ‘deeper’ into the infected area. Antibiotics have concentration properties but these quickly decrease as they go below the surface of the infection. The replication of phages is concentrated on the infected area where they are needed the most, while antibiotics are metabolised and removed from the body. In addition, secondary resistance does not happen among phages, but happens quite frequently among antibiotic use. Secondary resistance is acquired and occurs when there aren’t enough blood drug levels.
  • Certain infections in people and experimentally infected animals have been proven to be more effectively treated with phage therapy than using antibiotics. Since 1966, the average success rate of studies that used phages in various ways (systematically, topically, intravenously, or orally) is from 80% to 95%, with minimal or no allergic and/or gastrointestinal side effects. The infections studied are from E. coli, Acinetobacter, Psuedomonas, and Staphylococcus aureus. Multiple side effects like allergies, intestinal disorders, and yeast infections have been observed when using antibiotics.

There is, of course, always a down side and this is referred to as “bacteriophage infections” and is found in industries connected to industrial bio-processes such as milk and egg production. Specialist firms have been set up to quickly control and eradicate such bacteriophage invasions/infections in food or other sensitive material.

  • Bacteriophage infections of microbial processes (an unwanted invasion) are relatively common but can be economically devastating. If the designers and operators of bioreactors have an understanding of the biology and ecology of bacteriophages the risks and hazards of bacteriophage infections can be minimised. If an infection should occur it is important to recognize the fact as soon as possible. The symptoms of a phage infection and the procedures for cleaning-up infected bio-process plants are established and well documented.

 E N D

 

REFERENCES:

  1. http://phages.org/
  2. http://www.scientificamerican.com/article/could-bacteria-fighting-viruses-replace-antibiotics/
  3. http://news.bbc.co.uk/1/hi/health/4162119.stm
  4. http://news.bbc.co.uk/1/hi/health/371522.stm

 

 Footnotes:

[1] “Call to discover new antibiotics to stop global crisis” by Pippa Stephens Health reporter, BBC News, 8 May 2014 http://www.bbc.co.uk/news/health-27323474

[2] http://www.bbc.co.uk/news/health-31128971 by James Gallagher Health editor, BBC News website , 5 February 2015

The future of naval warfare ?

September 16, 2014

Littoral warfare

 

i.e.  conflict that takes place in shallow water, coastal waters, in-land seas or lakes

 

“. . . An’ the dawn comes up like thunder out of China cross the Bay”

– ‘Mandalay’, by Rudyard Kipling

Within the last few days the US Navy has announced that it is conducting littoral warfare manoeuvres (operation “Valiant Shield”), with allied forces  around the island of Guam. [1]  In all but name this has to be seen as a direct response to China’s posture of developing an anti-access, area-denial strategy which seeks to keep ships out of large areas Asian Pacific waters. This  she  intends to do with ballistic and cruise missiles, according to the this year’s Pentagon report to Congress.

Naval warfare is changing and may never be the same again.

Gone are the deep-sea set battles that characterised the 19th and the fleet interceptions of the 20th century. They are now as obsolete as the once revolutionary Dreadnoughts and Ironclads. [2]

Gone too, in all probability, are those vessels that were formerly the mainstay of any self-respecting and respect-inducing navy; vessels with massive fire power, impressive missile defence umbrellas, multi-tasking; capable of high-speed and able to slice through even mountainous waves.

Welcome then to the 21st century and the advent of Littoral Warfare where ‘littoral warfare vehicles’ will proliferate. The term ‘vehicles’ is consciously made for in future it will be vehicles in every imaginable shape and form (and not just vessels / ship) that will find themselves engaged in this new theatre of combat.

Increasingly navies are being called on to provide the right of innocent passage for friendly ships, to protect vital installations such as ports and offshore oil and gas production facilities, as well as to provide support for armed forces during littoral amphibious operations. There has been a growing recognition of the vital role navies will have to play if they are to take control of the littoral (inshore) environment, an area where the traditionally limitless open water battle space suddenly becomes tightly compressed, more complex to manage with hostile shore batteries air cover (see http://www.mbda-systems.com/mediagallery/files/maritime-superiority_brochure-1349259407.pdf

1. Maps hold the key

The reason why this shift is underway becomes clear when examining the sea charts of the several principal ‘hot spots’ of today (see world map below). The circled areas represent shallow seas and with the current tension in the  Black Sea (see ‘Update Baltic’ below), and China Sea they pose potential areas for conflict.

littoral_world

 

Russia’s illegal annexation of the Crimea highlights a Black Sea Fleet that is now bottled up and for all intents and purposes ‘neutralised’ as an effective power. The Black Sea in not much more than 500 feet deep which complicates ASW, though not quite so much surface-to-surface engagements.

littoral_1Moscow will, by now, know the dangers of mining the straits into the Sea of Marmara leading to Istanbul and should be making contingency plans.

Right: The Black Sea (click to enlarge)

Equally with an eye to influencing Georgia and Ossetia and possibly Moldova in the near future NATO members will be nervous to have a countervailing force available for the game of Black Sea blackmail, should they arise again.

For all the TV coverage and world condemnation there is hardly a mention of the similarities with the onset of hostilities in Georgia (Aug 2008) when South Ossetian “separatists” (?) committed the first act of violence when they blew up a Georgian military vehicle wounding five Georgian peacekeepers. Followed by a campaign of ‘ethnic cleansing’ against Georgians. This was proceeded by the war in Abkhazia (from 1992 – 93) where Georgia lost the region of Abkhazia to separatists backed by the Russian Army (Moscow). And in a repeat of Eastern Ukraine, those separatists appeared already equipped (as if by magic), with T-72 tanks, BM-21 Grad rocket launchers, Sukhoi Su-25 attack planes, and helicopters.

littoral_2JPGThe Gaza Strip region, always a tinderbox, is another region of comparatively shallow waters and which carries a high  risk of conflict.  Its waters are as shallow as the Bay of Biscay and the Black Sea (see map above).

Left:  China and the independent nation states that border the China Sea (click to enlarge).

On the other side of the world, the emergent nations of Singapore, Malaya, Indo-China, Indonesia, India and Philippines are facing what Japan and Taiwan have faced for some years – China.

In common with the Black Sea blackmail gambit China is intimidating neighbours into striking less than favorable deals. But also in common with the Black Sea in the lack of sea depth which puts China at a disadvantage.

The trump card those smaller nations hold is the control of the Malacca Straits – the choke point of China oil supplies and equivalent to Russia’s Black Sea bottleneck.

2. Above us the waves

Underwater we can expect to see a whole gamut of strange and weirdly wonderful craft emerging rapidly from the experimental stage into the mainstream. There will be a step change in design and performance from this depiction of a rather old-fashioned looking Italian human torpedo (and British navy’s ‘Chariot’) of the 1940 era littoral_X_craft(left) and the original X-Craft (for more background see previous article & http://www.secretscotland.org.uk/index.php/Secrets/X-Craft). Between then and the Israeli version of the human torpedo, circa 1967 (below), there has been no radical reinvention especially when compared with the futuristic visions of new mini-sub designs outlined in the previous article (see https://rwhiston.wordpress.com/2014/09/07/16/).

For a new era we have new phrases and new craft – the ‘diver propulsion vehicle’ (or DPV). Diver propulsion littoral_3aJPGvehicles in common with their predecessors are used in special operations to deliver teams of varying size against a specific target.

Currently, US standard issue DPVs look something like the one depicted here  (left) ,where the diver is dragged along behind the motor (similar to a James Bond film). In more elaborate version a team of 6 or 8 sit inside the cockpit of a much larger craft (see below right).

littoral_3JPGThe future will bring advanced in technology and design and future DPV may well look the one shown here albeit in less bright recreational colours (see left). Those technology advances could be in the form of hydrogen power, AIP, plasma or litoral_colourpolymer assisted propulsion, and swivel water jets instead of propellers and rudders.

Left: Recreational use of a DPV

Existing modes of transport such as hydroplanes and hovercraft may undergo evolutionary transformations.To be added to that list will be craft in prototype stage and craft formerly not considered suitable for naval or military use.

Right:  special forces vehicle designed to deliver personnel close inshore (see USN SEALs)

However, the changes will not stop there and it will be the navy with the best innovations coupled to outstanding engineering that will better set to dominate.

3. Nimble and stealth ships

Surface ships riding not under but through the waves will similarly be radical if not revolutionary in design. The new era will welcome not just ships and surface vessels but other craft that will not only have shallower drafts and higher turns of speed but in some cases no drafts at all.

The US navy has realised it needs to address its littoral warfare capability and as a result has introduced Littoral Combat Ship (LCS). These are ultra-high tech, high-speed, combat vessels. Intended for littoral skirmishes – but they are ultra-high expensive. The Americans have decided to go for ships which displace around 3,000 tons unlike their Asian or European counterparts which have focused on 1,000 ton vessels.

LittoralLaunched in 2009 the USN’s Freedom-class littoral combat ship weigh in at 3,000 tons; have a length of 378 ft;, a draft of 13 ft; and fitted with four 4 Rolls-Royce water-jets as propulsion, achieves 47 knots.[3]

Left: USS Freedom

Stealth alone has been the hall-mark of ships built with Vee cross-sectional hulls (monohull), until quite recently with stealth determining construction techniques, overall shape, radar and sonar techniques used (see above).To these craft will be added multi-hulled surface ships (catamarans and tri-marans), some of which are already in service, and in every instance these will be combined with ‘stealth’ technology and function will dictate design leading to some inspired outlines

littoral_4This new generation of craft will include the already in service multi-hulled surface ships (catamarans and trimarans). In some instances these will be combined with ‘stealth’ technology and function will dictate design leading to some inspired outlines.

Typical of this is the USS Independence (picture right).At 2,000 tons and launched in 2010, she is a stealthy, trimaran designed to hunt submarines in and near shallow water (one of the US Navy’s new Littoral Combat Ships). She is not intended or armed to fight conventional sized warships but to engage with small boats. However, her defence capabilities can be ‘swopped out’ and she can be re-configured up for a multitude of other roles.

Another incarnation, the USS Zumwalt, Pictured right) is borrowing techniques from stealth aircraft technology. She was floated out of dry dock on Oct 28th 2013. (14,500 tons, 610 feet long and 80 feet wide, littoral_6_Zumand cost US$3bn).

However, some years earlier, in 1984, the Sea Shadow (IX-529), was built by Lockheed for the US Navy as a prototype stealth ship to test out how a low radar profile might be littoral_5 achieved (453 tons, 164 ft long).

Left: the Sea Shadow

She was decommissioned in 2006 and scrapped in 2012.

Norway and Sweden both with coastlines made up of deep fjords have nonetheless built fast shallow-draft craft for inshore fighting. These tend not to be as large as the new styled US sized coastal Corvettes (to use a wartime term).

The Swedish Navy’s Stockholm class corvettes (approx. 380 tons), have a speed of 30 knots and were built in the mid 1980s. Stockholm class corvette such as HMS Malmö (pictured below) was commissioned in 1985. HMS_MalmoThey were lightly armed but had missile and torpedo capabilities and were first fitted with basic stealth technology in 1999 – 2000.

Left: HMS Malmo, Stockholm class corvettes, 1st generation stealth technology (1985).

Stealth features were also incorporated into its successor the Göteborg class (e.g. HMS Gävle, 1989) displacing 425 tons. The latter being 187 ft long with a beam of 26 ft. Today, they have been replaced by five Visby-class corvette of 640 tons (236 ft long and a top speed of over 35 knots).

Somewhat surprisingly and according to Global Firepower , Sweden had a total of 313 warships (in 2012), making it the fourth largest naval power in the world after China, North Korea and the USA. However, counting the individual categories, ie  destroyers, corvettes etc, a total of only about 190 could be found.

Norway has, reputedly, the fastest corvettes afloat. However, the Skjold-class corvettes could equally termed an advanced or enlarged MTB (motor torpedo boat) weighing in at only 270 tons and a length of 156 ft. Most distinctively, it has a draft of only 3.3 ft.; is constructed of glass-fibre and carbon composite materials and rides like a hovercraft on an air cushion between its two hulls.

littoral_8_NorThe Skjold class corvette is designed as a ‘surface effect craft’ where buoyancy is augmented (when underway) by a fan-blown skirted compartment between the two rigid catamaran-type hulls. This provides an alternative solution to the planing hull and Vee cross-section hull compromise: the air cushion reduces wave slamming into the craft at high speeds while presenting a low-drag profile at the waterline. In calm seas it is thought that its top speed is in the region of 60 knots (about 70 MPH).

The adoption of new ways to benefit from air cushions brings about another chapter of quite separate technical development.

4. Sea-skimming

Hydro foils for water taxis are not new but their adoption by the military is recent. Shown blow is Juliet Marine Systems offering, based on the ‘Swath concept’ (Small Waterplane Area Twin Hull) [4] called “Ghost.” It is a 21st-century warship that they says can protect large Navy ships from attacks by small boats and at a fraction of conventional ship building costs – a mere the $10m or so Juliet Marine claim. It is further claimed that it can deploy 18 special forces troops without drawing too much attention.

littoral_9_GhostRight: ‘Ghost’, a prototype military hydrofoil by Juliet Marine Systems

The 60-foot long stealth inspired silhouette of the Ghost is shown here slicing ‘effortlessly’ and ominously through the water. But its speed which is in the region of 50 knots (57 mph) is not due solely to its hydrofoils but to the surrounding of each ski in a ‘bubble of air’ that helps it cut through water much easier than regular boats (this is yet another usage of the concept called super-cavitation).

‘Ghost’s’ promotional literature describes it as “bristling with weapons” yet is operated by only a 3 man crew. Reportedly the vessel can also operate without any crew, if so needed, i.e. by remote control from a nearby ship or control centre.

5. Ship-to-shore connectors

Up until this point the focus has been on suitability of vessels and their ability to seize and control hostile inshore waters. But assuming the enemy’s vessels have been swept aside there is always the next phase namely littoral_11_HoverFrntlanding troops on the shore.

littoral_10_HoverIn obviate this would have been undertaken by landing craft and that procedure produced casualties getting to the shore and gaining a foothold. The landings in Normandy and the Pacific theatre bear testament to how precarious that one phase can be. The US Marines have invested heavily in huge (180 ton and 87 ft long) hovercraft capable of not only carrying troops but their trucks and armoured vehicles. Their advantage is to obviate the need to disembark into water and fight inch by inch up the littoral_14_Rigidbeach (see left and right). Their drawback is that they are very noisy, offer a large target and as can be seen in the photos, offer a large spray and wake which given the experience of World War II was a constant source of locating the precise location of the enemy.

Left: the ubiquitous Rigid Raider used to carrying small groups ashore

In fact, all of the vessels and craft mentioned so far – barring those designed to operate underwater – leave a tell-tale wake. However even this might be a thing of the past.

6. Wake-free warfare

Any vessel that has a single hull, be it a twin hull, a trimaran, has a stepped hull, or is a hydro foil will leave a wake of churned water and given the right circumstances this will glow (bio-luminescence) at night. In the littorasl_wakePacific theatre (1942 – 45), where aircraft were used extensively to locate and destroy ships (and when Radar was in its infancy) the give-away, even in bad cloudy weather conditions, was often a fleet’s wake as this aerial photo (right) demonstrates, eg Battle of Midway; Coral Sea etc.

Troops carried in LCTs were equally defenceless against aerial attack as this picture from the same era show (see below).

littoral_15_LCTRight: WWII era landing craft

In the Falkland conflict British forces (esp. the Royal Marines) landed using the ‘Rigid Raider’ (pictured here). With its hull of robust glass-reinforced plastic it is the most widely used assault craft and operates successfully from the Arctic to the Equator. However, littoral_12_Rigidas is obvious from these three pictures it leaves behind a tell-tale wake (left, right, & below).

littoral_13_RigidWake suppression, if it could be realised, would therefore be a prized ambition with its total elimination as the Holy Grail.

The only vehicles that do not leave a wake, and are not pure aircraft, gooseand which could get troops ashore without leaving a wake are small amphibians, such as the Grumman G-21 Goose of the 1930s, or Ground Effect Vehicles (GEV).

The Grumman Goose was designed as an eight-seat “commuter” or taxi aircraft for businessmen – in a military role with troops and kit it would probably carry half that number at most.

7. Ground Effect Vehicles

Presently, Australia and Germany seem ahead of the game in this niche market.  Grounds affect vehicles are alternatively referred to as ‘WIG’ (Wing in Ground) craft which is a rather awkward and misleading name and it does them a disservice but is the term applied to Ground Effect Vehicles (GEV). For an outline on the principles of GEV see http://www.ikarus342000.com/INTRO2.htm

Ground effect vehicles come in many shapes and sizes, from a craft best suited to a lone saboteur (artist’s impression, right) to one where an agent or operative can be dropped off and later collected (see Hoverwing UH-19XRW, below)

littoral_16_artistRight: Lone raider

Their other use, of course, would be to replace fast motor boats designed to pick up pilots or crews who have ‘ditched’ in the sea.

littoral_17_UH19Left: Hoverwing’s UH-19XRW

However, on an altogether larger  scale is a craft such as the Airfish-8 seen here on a demonstration run at Cairns (Australia). The Flightship company have calculated that operating as a civilian water-taxi, and using its 6 litre engine, the costs are US$) 14 cents per person / per mile, and in cargo mode, only 0.13 cents per kilo / per mile (much less when compared with other modes of transport). The Airfish-8 can carry 8 passengers or up to 800 kilo of cargo.

littoral_airfishRight: Airfish-8

Like a hovercraft the advantage is that GEV such as the Airfish-8 can transition from water to dry land seamlessly. Indeed, with a greater ground clearance than a hovercraft troops and equipment can be pushed further in-shore and even onto higher ground that would prove difficult for a hovercraft. However, in common with traditional skirted hovercraft one littoral_18_Airfish_2suspects they present a noise problem generated from the propeller blades.

Left: Airfish-8 shown flying high enough to clear small boats and sandbars

Airfish is only one of several successful manufacturers and the use of a single hull should be noted. While it may be suitable for in-shore landing and wide estuary assaults it is inflexible when compared to a double hull variant which can negotiate narrow rivers and even channels connecting different parts of large harbours.

littoral_FS50Right: Flightship FS50

The promotional video for the Flightship FS50 shows how the double hull provides a cushion of air between its two hulls so that it can transition into a boat moving on the water with wings that can be folded upwards (like those on a carrier borne aircraft), enabling it to enter confined spaces, eg canals rivers and harbour (see below).

Ditching into the sea always hit and miss affair, and is a far less ‘soft landing’ than is usually imagined. GEVs delivering troops even when damaged or engineless can still glide and thus avoid casualties. GEV are all highly manoeuvrable even when there is a lot of sea traffic and fast-moving targets. Sudden turns which might dip a wing tip into the sea and would be fatal for most air craft are not for GEV which clittoral_FS50_2an fly on unaffected.

Right: Flightship FS50 showing forward doors opening on both hulls, it also has rear and side doors

Although the impression gained is that GEV are limited to fly only a few inches or feet off the surface they can in fact fly much higher – just how high is governed

When even the Armed Services are becoming sensitive to fuel costs the prospect of using 50% less fuel for the same given task in highly attractive. And the more so when the GEV craft has the equivalent speed of the fastest surface patrol boatl and some are comparable to ‘fast’ helicopters (approx. 200 mph).

littoral_XPWhatever the individual layout, wing span, power  used or purpose it is designed for,  all GEV have to conform to a set of aerodynamic laws that make their motion possible.

Left:in flight, the Fischer Flugmechanik Hoverwing 2VT (Germany)

One of the main determinants is the  particular size of the wing, which largely determines its ‘flying’ altitude. Flying is used advisedly here because GEV are actually classified as boats and not aircraft so no  pilot’s licence is required to fly them. As one might imagine with so many permutations on propulsion, hulls and air cushions, there is a range of categories and for  GEVs there are 3 broad headings to reflect this diversity (see later).

Non-Occidental forces

Outside of the West there are comparable advances in China and Russia – and India which is emerging as a large economically strong nation. Indeed, GEV can now be found in Iran (see Bavar-2) and Korea (see Aron-7)

littoral_CaspianHowever it is Russia that has long been associated with GEVs, the Caspian Sea Monster (1966) of Cold War fame which so puzzled Western analysts for years come quickly to mind.

Right: : the MD-160, Russia’s huge ekranoplan (aka Caspian Sea Monster)

The MD-160 was the sole Lun-class ekranoplan built to this gargantuan size. Nikita_Khrushchev had visions of it flying under the radar to land, say, 1,000 troops or it being used to carry and then launch ballistic missiles close in to the America coast. Notable though it is – at 540 tons, a tail littoral_aquaglideplane 5 storeys high and yet capable of 400 mph – Russia has had others ekranoplans of varying size.

For instance the recreational; Aquaglide-2 (left), circa 2006, and the “AQUALET” (below right), both manufactured by ‘Aquagen’, based in Russia (see http://www.aquagen.ru/eng/ ).

littoral_aquajetAnd whereas the Caspian Sea Monster could fly at a significant altitude, the variants made by Aquagen merely skip the waves (see above).

Right: Aquagen (2011)

By contrast the ‘A-90 Orlyonok’ was a Soviet era ground-effect plane first commissioned in  1979, which shows just how far ahead of the game they were, despite the State bureaucracy which doomed most bright ideas to failure.  The Russians classified it as Ekranoplan Class B and the public specifications show it could achieve an altitude of Littoral_Orlyonok3,000 m (9,800 ft), placing it between Class A – which is limited to ground effect, and Class C, which exploits the ground effect only during take-offs and landings.

Left: a beached A-90 Orlyonok

Which bring us fortuitously to the definitions and differentials. Some GEV are designed for wave skimming and no more, while some others are deigned to fly a little higher and some much, much higher.

The International Maritime Organization recognises three classes of ground effect craft: [5]

  1. Type A: a craft which is certified for operation only in ground effect;
  2. Type B: a craft which is certified to temporarily increase its altitude to a limited height outside the influence of ground effect but not exceeding 150 m above the surface; and
  3. Type C: a craft which is certified for operation outside ground effect and exceeding 150 m above the surface.

Any notion that Russia and the West are giving GEV a priority is countered by photos from Russia (courtesy of (http://ruslet.webnode.cz/technika/cinska-technika/ekranoplany/xtw-4/ ) of what is reported as China’s Littoral_chineseentrance into the niche market. Shown here is the XTW-4. This is said to be a prototype and no detail or date is yet available.

As has been stated earlier, a littoral warfare vessel must be fast, agile, well-armed, full;y able to defend itself and have a very shallow draft.

So far we have looked for these attributes in surface vessels and GEVs. The combination of agility and speed is not so important under water if the craft remains undetected.

However there are common features and a commonality of components in the materials and propulsion needed for littoral warfare and those will be outlined later (see Commonality). For the meantime a review of some of the fast patrol boats of potentially hostile nations needs to be included.

One gun for all reasons ?

The USS Freedom and Independence are typical of this new style of craft designed for this particular theatre of operation. And they will be met, in theory but hopefully never, by Russian and Chinese corvettes and fast patrol boats which have the same speed, armaments and level of weaponry sophistication as this Veer class littoral_veercorvette (shown left) supplied to the Indian Navy.

Left: India’s Veer class corvette

The Veer class corvette (circa 1993), is reputedly a customised version of the Soviet Tarantul class capable of 32 knots, with a displacement of 455 – 480 tons, and a length of 56 metres (approx. 150 ft). The original Tarantul class was reportedly able to achieve 42 knots.

Variants differ but the Indian version has the Russian made AK-176 (76 m/m, 3”) fitted and is effective against incoming missiles as well as shipping.[6] This gun platform has been shown to shoot down an AT-2 ‘Swatter’ which is a small and relatively high-speed Russian made anti-tank missile of the Soviet era, i.e. the 1980s. This would simulate a Harpoon anti-ship missile.

litoral_BAeThe AK-176 has a high rate of fire for a naval gun; it can be increased from 30 rounds per minute to 120 rpm (compare this with the rate of fire for the automated BAe Mark 45 naval gun of 20 – 25 rounds per minute). [7]  However, the high-speed achieved by the Russian is possible when firing a burst of 75 shells and then letting the barrel cool down for 30 minutes.

Left: BAe Mark 45 naval gun

The Veer class corvette which is found in many navies – from Yemen to Vietnam and Bulgaria to Poland – has actually sold well for Russia with around 30 launched, 12 of which were commissioned by India.

It is armed, as are most ships of this ilk, with a single forward facing main gun and backed up by torpedoes and missiles. The BAe Mark 45 naval gun (AK-176 ), is designed to down aircraft, sink shipping, LCT, drug runners, littoral_Buyansmall pirate boats (re: Somalia) contraband smugglers and suicide attacks using rigid rubber inflatable boats (ref USS Cole, Oct 2000). The Gulf states have long had littoral craft because they best suit Middle Eastern demands and territorial waters

Right: Buyan M class corvette

Traditionally ships of this size, i.e. under 500 tons, would be considered as “fast patrol craft” but the demands and evolution of littoral warfare is blurring the distinctions and resetting definitions (ref Norway’s 270 ton Skjold-class corvettes above).

Of a different order of magnitude is the Russian built the Buyan M class corvette (shown below firing a SAM missile). This has a displacement of 600 tons; a hull 62 metres long; a top speed of 28 knots; and is armed with a 100 m/m (4”) gun which has a range of 20 miles and can fire varied ammunition. Begun in 2004 there are thought to be 6 of this class.[8]

littoral_frigateAnother Russian designed and built ‘corvette’ is the Steregushchy-class. But at 2,200 tons and 343 ft long, it is far larger than Buyan M class corvette and is too large to be termed a corvette. Quite properly it is regarded as a frigate by NATO planner.

Right: Stereguschy class ‘corvette’ of the Russian Navy

As one might expect, Sweden with its proximity to Russia, takes a rather Saab-like approach to ships of this class. Overtly the Visby-class corvette has no visible armaments even for self-defence. However, it is fitted with the Rheinmetall (German designed and made), MASS, which littoral_Saabstands for Multi Ammunition Softkill System.

Left: Sweden’s Visby-class corvette

Apparently, MASS is a naval self-defence system and is connected to the ship’s sensors and protects ships from attacks by advanced, sensor-guided missiles. Decoys that operate in all relevant wavelengths on the electromagnetic spectrum are launched to confound the incoming ordinance (i.e. ultra violet, electro-optical, laser, infrared and radar). This does rather beg the question as to whether any material advantage is gained by having this technology on craft to make them almost invisible to radar, invisible to sonar and visually leaving no wake, when all the time the eye-in-the-sky –  satellites – can see everything, day and night. Is there a method of blinding or disabling satellites ?

Panzerschiffe flaw ?

As we have seen, littoral surface vessels are armed, almost universally, with a single forward facing main gun, backed up by electronics, torpedoes and missiles. There is no doubt that the BAe Mark 45 naval gun. for instance, which is widely used (including by the USN) has rapidity of firing and flexibility in its targeting of threats. Nevertheless, would or could such vessels be overwhelmed by sheer weight of numbers or clever littoral_panzerelectronic wizardry ? Faced with multiple targets we know what happened to the Graf Spee.

Would it be fair or reasonable to compare the armaments of the pocket battleship of the 1930s with littoral craft today ? At first sight perhaps not but both concepts features a single turret / gun platform (11”), with secondary armaments along the hulls, eg 8 x 6” guns.

The Panzerschiffe was supposed to out-gun anything that could catch it and out run anything that might vaguely out-gun it. In the final analysis that is not how things worked out – albeit for external reasons. But the main argument against the Panzerschiffe concept was that it could not HMS_lionsuccessfully engage multiple targets, even when augmented with its eight 6” guns. Is there a scenario where this same dilemma will face littoral surface vessels ?

Left: Battle damage to the battlecruiser HMS Lion. Turret damage after the Battle of Dogger Bank, Jan 1915

There must come a time when the barrel needs to be changed, ammunition runs out, the electronics have taken a direct hit and all air defence missiles have been fired. What happens then ? Does one cut and run knowing that any speed advantage over your adversary might no longer exist  ?

RighNew_orleanst: USS New Orleans after Guadalcanal 1942, the bow and turret A were completely blown off. Seen here is what remains of Turret B. [9]

Historically, naval engagements have seen ships have some or all of their main turrets knocked out of action leaving them with the option to flee or close in and use their secondary fire power.

Holed hulls, internal fires, wrecked engine rooms,  compromised  auxiliary systems, jammed rudders and shredded superstructures are all to be expected in larger vessels, and can be managed in the majority of cases.

littoral_lutzow

 

Left: pocket battleship Lützow

However, on much smaller inshore craft  will such back-up system still be operable ? One suspects not.

It is perhaps ironic to learn that the first generation in-shore craft, the American PT boat, ended up being slower than the top speed of the Japanese destroyers and cruisers they were designed to harry and sink. This was in part due to a built up of algae and debris on the hulls and part due to rudimentary forward servicing facilities.

PT_109Many will be familiar with the fate of PT 109, cut in half by the bow of a Japanese destroyer at night, and captained by John Kennedy, later to be US President (see artist impression left).

Limited to 20 mm and 37 mm cannon PT boats were not a match for the larger calibre guns carried by destroyers and nor could they out pace them because destroyers had a much longer effective range.

In order to have a chance of hitting their target, PT boats (and the British original the MTB boat) had to close to within 2 miles (3.2 km) to make telling shots – well within the gun range of destroyers, frigates and corvettes etc. Compare that with today’s weaponry capable of hitting a 16 ft target from 20 miles away.

A far more formidable adversary was the German E-boat which was about twice the size and had twice the range (920 miles), of PT boats (range 500 miles). German E-boat were thoughtfully armour plated and not solely reliant on a plywood construction and had better rough weather handling.. In addition they had another edge – that of a then secret rudder system utilising what was known as the ‘Lürssen Effect’. This gave the E-boat the advantage of more efficient turning (better manoeuvring) at high speeds over MTB boats.

NB. More recently during the Falklands War, the Battle of Goose Green (28th to 29th May 1982)  demonstrated the shortcomings of relying in a warship armed with only one single barrelled turret. The  4.5 inch (114 mm) Mark 8  single barrelled naval gun of HMS Arrow (3,250 tons), was supposed to provide supporting and suppressing gunfire for the attack led by ‘2 Para’ and which ended in a higher than expected casualty list. HMS Arrow, a type 21 Frigate, had been assigned the task but her gun became jammed after just a few rounds.  Her only other useable armaments were her two Oerlikon 20mm cannon of elderly 1939 design (range approx. 1,000 yards)  or her very expensive Exocet missiles, of which she had four. This calls into question the preponderance of naval designs which favour only one traditional shell firing emplacement. Covering fire could have been provided by FIM-92 Stinger missile with a range of 5 miles, or, and more cheaply,  a Mk 19, 40 m/m grenade launcher mounted on deck, with a range of 2,000 yds. Or there could have bene some belt-fed self-stabilising 20 m/m heavy cannon which also would not have needed deck penetration to install.

Commonality

Overriding these technological advances is the synergy in strategic warfare thinking and the realisation that 1). the old ways are history, and 2). cost control has to be smarter – not more brutal.

Battle_philippHence, we see a common supplier, e.g. the prolific use of the BAe Mark 45 deck gun, and the dual use of propulsion units, e.g. the same Rolls Royce power plant that is used in aircraft is also used in large ships.

Propulsion systems are converging on diesel engine, pump-jet which give a high-speed and/or hydrogen in pure combustible form or for use in fuel cells. The need for specialist and sophisticated high-tech engines has gone – a motor car’s V-8 is enough for many of these craft and commercial diesel for many others.

The trend in armaments is that it should be rapid-firing and of medium calibre, say, a 35 m/m or 76 m/m cannon, accompanied by anti-ship missiles.

The materials used for stealth craft to shroud their location are used by aircraft, helicopters, ships of all sizes and GEVs. Further, the conning tower on the Swedish A26 submarine uses the same material to avoid detection when on the surface.

To underline the changes required, this a map of the Battle of the Philippine Sea, 1944 (shown right),  illustrate the nuances of fleet inter-island fighting and potential for ambush

One of the latest developments is in the use of the Brimstone missiles. Originally an RAF air-to-ground “fire and forget” missile intended for formations of enemy armour and moving targets; it is now proven effective when fired by aircraft at shipping. Rationally, its “fire and forget” potential may eventually see it being used in purely ship-to-ship encounters.

Dropping paratroopers behind enemy lines runs the risk, as at Arnhem, of them being picked off by ground fire before they hit the ground. Many of the craft her mentioned could perhaps deliver paratroopers and marines more safely.

It took the military a long time to accept that hovercraft widely used in civilian roles could be a useful addition to frontline vehicles. Currently GEV broadly fall into that category and their adoption into military usage will depend on strategic thinking and on perceived future threats. In the mean time many of the craft listed in this article, e.g. GEVs, would be ideal as coastal taxis, coast guard cutters, and patrolling off-shore oil rigs. Delivering staff to off-shore oil rigs using GEVs would have none of the fatalities normally associated with engine failures in helicopters crashing into the sea.

 

E N D

Update: The Baltic, Tuesday 21 October 2014.

Swedish PM ups defence spending as the search for ‘Russian submarine’ continues

The Swedish Prime Minister, Stefan Lofven, has said that the country will increase its spending on defence, following reports that a suspected Russian submarine had been spotted of its coastline.
Mr Lofven also spoke of Russia’s increasing military presence in the region but added that “we do not regard that as an immediate threat to Sweden”.
After the fall of the Iron Curtain, the Nordic country scrapped some of the resources it had been using to hunt Russian submarines, including helicopters equipped with sonar and anti-submarine weapons.
The Swedish military have confirmed none of the helicopters used in the current search have that equipment.

Ref. http://www.independent.co.uk/news/world/europe/swedish-pm-ups-defence-spending-as-search-for-russian-submarine-continues-9809266.html?s2email=_email__&utm_source=indynewsletter&utm_medium=email22102014 .

References:

  1. http://ruslet.webnode.cz/technika/cinska-technika/ekranoplany/xtw-4/
  2. http://en.wikipedia.org/wiki/Freedom-class_littoral_combat_ship
  3. https://ukdefencejournal.org.uk/brimstone-missile-impresses-fast-inshore-attack-craft/
  4. http://www.stripes.com/news/valiant-shield-a-lesson-in-inter-service-communication-and-capability-1.303719
  5. http://defencyclopedia.com/2014/08/17/littoral-warfare-ships-part-1-introduction/
  6. http://www.ipen.org.br/downloads/XXII/trabajos/22%20-%20Grannemann,%20Fritz%20COMPLETO%20%28Mexico%29.pdf
  7. http://www.marineinsight.com/marine/marine-news/featured/press-releases/flight-ship-the-flight-ship-technology/
  8. http://www.hovercraft.com/content/index.php?main_page=index&cPath=2
  9. http://www.youtube.com/watch?v=LSeZ1eQzDvI
  10. http://www.ikarus342000.com/INTRO2.htm

 

Notes:

Battle of Leyte Gulf,  23 – 26th October 1944,

Battle of the Coral Sea, 4 – 8th May 1942, where neither side’s ships sighted or fired directly upon the other.

Battle of the Philippine Sea, June 19 – 20th 1944

 

Appendix 1

WIG ( Wing In Ground) Technology

http://www.ikarus342000.com/INTRO2.htm

WIG Wing in ground effect crafts skim very low over the surface. Typical at a height of 10 % of the wing span. At this height the aerodynamic drag is almost diminished. Due to the pressure increase under the wing at this low height about 80 % more lift is generated compared to a wing out of ground effect.
This double effect makes wing in ground effect craft extreme efficient vehicles. Because of this the use about 50% less fuel in relation to an aircraft. No very fast ship can match the speed of a big WIG-craft (about 210 miles per hour). WIG-craft settle between aircraft’s and very fast ships. Depending on the type of WIG-craft, the can use normal harbor facilities. For medium distances the can match the overall traveling time of air transport.  WIG-crafts are no aircraft’s and can be certified as boats. Actual, our Skimmer 2 is provisional certified as boat.

Why use WIG-craft’s  

Wing in ground effect crafts skim very low over the surface. Typical at a height of 10 % of their wing span. At this height the aerodynamic drag is almost diminished. Due to the pressure increase under the wing at this low height about 80 % more lift is generated compared to a wing out of ground effect.
This double effect makes wing in ground effect craft extreme efficient vehicles. Because of this the use about 50 % less fuel in relation to an aircraft. No very fast ship can match the speed of a big WIG-craft ( about 210 miles per hour). WIG-craft settle between aircraft’s and very fast ships. Depending on the type of WIG-craft, the can use normal harbor facilities. For medium distances the can match the overall traveling time of air transport.  WIG-crafts are no aircraft’s and can be certified as boats. Actual, our Skimmer 2 is provisional certified as boat.

 

Footnotes:

[1] September 18, 2014 http://www.stripes.com/news/valiant-shield-a-lesson-in-inter-service-communication-and-capability-1.303719

[2] She was also the first capital ship to be powered by steam turbines, making her the fastest battleship in the world at the time of her completion. In itself this sparked an ‘arms race’, esp. with a Germany run by a Kaiser envious of the Royal Navy.

[3] See http://en.wikipedia.org/wiki/Freedom-class_littoral_combat_ship

[4] See http://www.ipen.org.br/downloads/XXII/trabajos/22%20-%20Grannemann,%20Fritz%20COMPLETO%20%28Mexico%29.pdf

[5] ‘Ground effect vehicle’ http://en.wikipedia.org/wiki/Ground_effect_vehicle#cite_note-4 “International Maritime Organization.” International Maritime Organization. (30 Dec 2011).

[6] After the First Gulf War, when British Lynx helicopters armed with short ranged Sea Skua anti-ship missiles flying below the radar destroyed or damaged 12 Iraqi ‘Osa’ Mk.I fast patrol boats (250 tons), the Soviets realised the need for a replacement for their 1950s era craft which would have to be larger, more seaworthy and have better guns and air search radar.

[7] Taking an average of 25 rounds per kill, see http://en.wikipedia.org/wiki/AK-176

[8] See http://covertshores.blogspot.co.uk/2010/08/21st-century-russian-navy.html  and also http://defencyclopedia.com/2014/08/17/littoral-warfare-ships-part-1-introduction/

[9] See http://www.military.com/HomePage/UnitPageHistory/1,13506,701841|704537,00.html

Inshore surveillance – the new X-Craft ?

September 7, 2014

 Robotic mini-subs

 

By Robert Whiston   FRSA

under construction

 

Of far more interest than the Chinese military’s claim to have designed a supersonic submarine, is the development of a 33 foot long unmanned “robotic” mini-submarine to be powered by a fuel-cell.

The advantages are clear, not least the ability to forsake highly dangerous nuclear fuels (with no toxic waste to be disposed of later), in an effort to give subs more ‘on-station’ duration. A fuel-cell, depending on its configuration, could be the happy compromise bridging the gap between cheaper traditional subs while at the same time giving endurance far superior to diesel-electric – though perhaps not as good as nuclear powered subs (SSNs).

For many countries the price is affordable allowing many nations to close the gap with the boys in the big league. To many people this is far more appealing and sensible than a supersonic submarine and the concept of fuel-cell power offers far more flexibility.

Breaking new ground

To put the present proposals into context we have to turn to the news that Japan together with the US are to look at developing a submarine to be powered by a fuel-cell. The ambition is to create a vessel able to stay submerged for up to a month without the need for re-charging. But this will not be any ordinary sub, au contraire, the proposed variety of sub one will be, a). unmanned and b). not more than 40 feet long. [1]  Japan will set aside, it is expected, around $25 million over the next five years  to fund the project.

Sweden, Holland and Germany are all known to have worked on ‘air independent propulsion’ (AIP) for submarines and as a result a variety of options are available. Germany is currently one of the world leaders in the development in fuel-cells in submarines, the Type 212 (commissioned in 2005), This is powered by nine PEM (polymer electrolyte membrane) fuel cells providing between 30kW and 50kW and giving the 1,800 ton craft a submerged speed of 20 knots.

mini_sub6The “X” arrangement of the stern planes give the vessel the capability of operating in as little as 17 metres of water, much closer in-shore than most traditional submarines.

Left: German Type 212 submarine

Russia has also joined this new club with their project 877 “Varshavyanka” sub. It appears to be an improved version of the Kilo-class submarines (Project 636), deeply modernised with advanced stealth technology, and with even lower levels of noise. “Voice of Russia” unabashedly claims that Western naval experts have nicknamed the project 877 class the “black hole” precisely for its quietness (though collaborative sources have yet to be found). [2] What does seem to be the case is that the Royal Navy’s ‘rafting’ suppression techniques for propulsion systems and the rubber blocks and harmonic dampers (sometimes used in car engine bays) have been widely adopted first by the USN and then presumably via them to Russia and China (see US spy John Walker, operating between 1968 – 1985 who sold the secrets for peanuts).

Reality check

There is certainly a political undertone to the decision by Japan and the US to develop this new sub together. Both are wary of the threat of China, which announced in March it would increase its military budget for 2014 to almost $132 billion, a 12.2 % rise over last year, the New York Times reported.

If defence journals and ‘promotional’ material produced by defence contractors to would-be customers are to be believed, navies are increasingly being called on to protect shipping lanes, not just the old Freedom of navigation rights, but to provide the Right of Innocent Passage for friendly ships (for a definition of Innocent Passage see footnote). [3]

Both of these internationally accepted norms are being put in jeopardy by China’s recent belligerent behaviour in treating all of the China Sea as if it were a Chinese inland lake. It has embarked on a campaign of harassing aimed at vessels and maritime aircraft that dare to use any part of the China Sea. We can imagine China squealing the loudest if international waters around, say, Saudi, India (vital for its oil consumption) and/or California (vital for its manufactured goods) were closed to its shipping.

Blueprints have yet to be determined but it is proposed that the submarine would primarily be used for patrolling the seas around Japan looking for any potential threats (for which we can currently read China). Japan has scrambled its planes over 400 times in the past year to ward off Chinese ships circling the archipelago and Taiwan has suffered incursions for decades.

In keeping with Japan’s non-offensive military posture for troops and hardware the proposed sub is initially intended to be a purely ‘reconnaissance’, with no torpedoes or other weaponry on board capable of damaging other vessels. However, we cannot rule out future variants which may have this capability.

It is likely that the sub will be Japan’s oceanographic eyes and ears in the China Sea and surroundings, and will put it back on a par with China’s ocean floor hydrophone system (no doubt copied from the American system), circa 2012. [4]

X-Craft

Small submarines, (e.g. ‘X-craft’ from World War II) have a proven track record but none have been used in this way before. At around 30 tons and 50 feet long X-craft proved useful in sinking capital ships and mini_sub1reconnaissance, de-mining and soil sampling for the 1944 D-Day landings. However their Achilles heel (in fact there were several) proved to be their lack of duration, cramp working conditions, poor sea-going capabilities and low-speed. Midget submarines such as the X-Craft, and the human torpedoes (‘Chariots’) were designed for the same purpose, the attack of enemy shipping while in harbour to render the vessels inoperable. However, midget submarines are very adept at delivering ‘swimmers’, e.g. small team of saboteurs or spies to specific points and isolated locations. Indeed, such underwater delivery of key personnel is still used today (by all accounts) by both the US and Israeli navies. A variation on the proposed Japanese-US mini-sub could very well have a compartment set aside for such swimmers. and could look like this purely fictitious illustration (below left).

mini_sub7The weapons used on-board the original “X- Craft” were two side-cargoes – explosive charges held on opposite sides of the hull (each of 2 tons of amatol) with options to carry ‘limpet’ mines. Unless robotics arms are used limpet mines might not be a practical alternative but light weight torpedoes might very suit such a craft.

mini_sub2What exists today and did not in the World War II era are vital installations such as offshore oil and gas production facilities, oil and gas pipelines as well as the telephone and internet cabling – though one operation by X-Craft did cut the underwater phone cables out of Singapore and Hong Kong. [5]

Right: illustration of the entire hull, with side charges, two hatches, periscope and single screw, of the original batch of X-Craft.

 

A maritime drone ?

Any future variant of whatever Japan and the US are now planning for an autonomous, self-regulating vessel, geared for continental shelf monitoring and in-shore surveillance, may be totally unarmed and have good hydrodynamic performance (water flow management), as its priority – but equally self-defence capabilities from predatory enemy subs and surface vessels might prove attractive if not essential.

In keeping with X-Craft being used to identify underwater and coastal defences long before D-Day and lay beacons for on-coming shipping to avoid German mines etc, a present day variant could also provide support for armed forces during amphibious operations (sometimes called “littoral” operations).

A growing recognition has certainly led to some navies re-thinking ‘engagements’ scenarios in and taking control of, the littoral environment. This is an area of maritime operation that puts warships designed for traditional ‘open water’ battles at a distinct disadvantage. So the role of existing vessels, and their size, is being reassessed. In littoral environments, battle space will be at a premium and engagements tightly compressed (possibly more complex to manage), and where timing of asset interdiction / reaction will be pivotal to an outcome. [6] The effectiveness of both E-boats and MTBs from the World War II era are perhaps illustrative of this dimension.

The depositing of 2 tons of amatol by a mini-sub against the hull of a vessel in harbour is no longer a viable sole option. Mines or missiles in the form of lightweight (or hybrid) torpedoes seem preferable. A small charge at mini_sub8depths is all that is need to disabled even the largest of submarines. These could be carried in-board or out-board of the hull.

Right: Illustrating just what be carried externally

Weighing in at just 610 lbs The US Mk 54 lightweight hybrid torpedo (LHT) is not the conventional 21” torpedos but a new standard of just 12.75 inch (324 mm). Designed for anti-submarine warfare (ASW) the acoustic homing torpedo is used by the several navies including the US.

A slightly more expensive alternative would be the European MU90/IMPACT which is an advanced lightweight anti-submarine torpedo (used Germany, France, Italy, Denmark, Australia and Poland). It is designed to compete with and out-perform the US-built Mark 46 (NATO’s standard issue) in the anti- submarine role, and has also been developed in a special MU90 Hard Kill version for anti-torpedo defence (see photo below). Then there is Sting Ray, a slightly smaller, quieter, cheaper and faster option.

The actual range of the original  X-Craft itself was 500 nmi (930 km) surfaced and 82 nmi (152 km) at 2 knots (3.7 km/h) submerged, though of course they could be towed thousands of miles before being activated.

The actual range of the original  X-Craft itself was 500 nmi (930 km) surfaced and 82 nmi (152 km) at 2 knots (3.7 km/h) submerged, though of course they could be towed thousands of miles before being activated. But whereas the original midget submarines (the X-Craft), and Chariots (the human torpedo based on an Italian inspiration), were both designed to penetrate enemy harbour defences, to attack shipping and render target vessel(s) inoperable, the envisaged new mini-sub will be of the ‘watch and wait’ variety.

Different again will be the range of the new mini-sub. It will be able to traverse great distances using its near-endless supply of water converted into hydrogen. The quietness of such a propulsion unit will make it mini_sub3difficult to locate. With hydrogen as the fuel and no need to maintain reserves of breathable oxygen not only would the range but also the duration be many old greater that the original X-Craft.

And whereas modern submarines have to have ‘slippery’ hull aerodynamics uppermost in the designer’s mind to achieve silence, distance and stealth, this is not so true of robotic mini-subs. Yes, they will have to be on-station as quickly as possible but the nature of their work means they will be deployed long before situations turn hot.

They can thus afford to carry munitions in-board or out-board, ie attached to the hull. These could be  a single, double, or triple assembly, such as the MU90 shown above, could be fitted to the hull (assuming drag to be of secondary importance) or accommodated internally.

Prospects for political engagement

The EU foreign relations Dept published an analysis in Feb 2014 headed, “China Analysis: China’s neighbourhood policy.” In it they stated that:

  • “Over the past decade, relations between China and its neighbours have undergone dramatic changes. China’s emphasis on developing a favourable regional environment has been replaced by a new kind of foreign policy: Projecting assertiveness on maritime issues and pursuing a muscular trade policy. But how do neighbours react to this new neighbourhood policy ? Is China becoming the nucleus of regional economic integration or the key player in a series of different regional conflicts ?” [7]

A singular feature of China’s foreign relationship ties is its dependence on bi-lateral treaties. With its immense size and economic performance this can only be an intimidating factor in any deal struck with a smaller power.

University of Nottingham’s ‘China Policy Institute’ (School of Contemporary Chinese Studies) has formed the opinion that “For a long time, China did not handle its relations with neighbouring countries from a regional perspective, but from a bilateral perspective.” [8] Adding that:

  • “Traditionally China did not have the concept of “region”, instead it had the concept of “neighbouring areas from the perspective of Sino-centrism.”

In other words, it tends (like so many other countries) to mistakenly see itself of the centre of the universe.

However, it should be said that by the mid 1990s, China began to warm up to the idea of “region” and started placing its strategic emphasis on East Asian regional cooperation through ASEAN – though even to this day it is not an ASEAN member and is still averse to multi-lateral and regional solutions.

A huge objective of China – though it remains unstated – is that it seeks the respect and deference deserving of a major regional, if not global, power which is the status it believes it has now achieved.

Rewriting the established order.

With this mindset one suspects that the oil and gas necessities of China are driving it into the arms of confrontation. In Nov 2013 it unilaterally announced an ‘air defense identification zone’ (ADIZ) extending over the East China Sea. This gave the US and China’s neighbours an unexpected challenge to the peaceful use of international waters.[9]

The next month later (Dec 5th), China announced that its aircraft carrier, the PLAN Liaoning (formerly a Soviet built carrier) and other PLAN vessels had barred the Aegis cruiser USS Cowpens (one of the U.S. Navy’s premier surface ships), from what the spokesmen called the “inner defence layer.” [10] The USS Cowpens had, apparently, “broken into the Chinese navy’s drilling waters in the South China Sea” – island s and waters china has only recently claimed as sovereign. [11]

mini_sub5

Prior to this, in Dec 2012, a Chinese civilian surveillance plane conducted an aerial patrol of the islands for the first time, entering what Japan regards as its air space. Japan responded by sending F-15 fighter jets to intercept the Chinese aircraft. The risk of an incident further increased in early in 2013 after China also began scrambling air force fighter jets in response to flights over the islands by Japanese aircraft.

The underlying fear is that unless halted China will be tempted to extend this ADIZ to the South China Sea and bump heads with other nations over free navigation rights. The difficulty is that the West’s allies,

e.g. Japan, South Korea, Philippines, etc all face public provocation by China in having to identify themselves to the Chinese military (at sea and in the air), in what is legally their own air space. How to handle China and keep them resorting to Putin-style tactics is the conundrum.

Although at this distance, and from our perspective, it is difficult to see China contesting areas along India’s border, that reportedly is the fear local and regional sources have articulated. For some reason the co-operation between India and the US has increased tensions with China over navigation routes in the Indian Ocean. Does China see this as a possible choke point for its imports of oil ? If so, China would be well advised to adopt or learn better ‘social skills’ and better diplomatic manners than she presently possesses if she is serious about being accepted one day as a super power.

Why China is risking all

Apart from oil and gas that would see it almost self-sufficient in fuel and guarantee its economic prosperity into the medium to distant future there seems little other driving forces for its hostile attitude towards it neighbours.

Tibet is perhaps a perfect exemplar of the Chinese government mindset when it comes to territories which others countries believe are sovereign and independent

China claimed Tibet under “Suzerainty which occurs where a region or people is a tributary to a more powerful entity which controls its foreign affairs while allowing the tributary vassal state internal autonomy. Tibet had always kept itself isolated and independent and, in part, one can see that China may have wrongly thought this was acquiescence for its claim to and hold over Tibet.

  • The dominant entity in the suzerainty relationship, or the more powerful entity itself, is called a suzerain. The term suzerainty was originally used to describe the relationship between the Ottoman Empire and its surrounding regions. It differs from sovereignty in that the tributary enjoys some (often limited) self-rule. A suzerain can also refer to a feudal lord, to whom vassals must pay tribute

This seems very much at odds with China’s democratic and communist heritage (and its public persona of friendship to adjacent countries), and it may be wrong but it does provide one rationalised and quasi legitimising view of what it is presently doing.

China claims to total sovereignty over all of the seas off its eastern coast rely purely on maps drawn up in the time of Imperial China – sometimes 500 – 900 years ago. The problems with this is that they may have been drawn to please the whims of whatever Emperor was in power and they were certainly not done in joint agreement with neighbouring states. Additionally, China has lost bits of the Empire it once had, e.g. Indo-China, and has been forced into signing treaties which limited its role from its glory days. The Communist government now wants to resurrect those ancient maps and ancient imperial claims to legitimise it claims over seas and island outcrops where oil and gas deposits now lie alluringly.

China should realise that this is as likely, and as legitimate, as Iceland giving back traditional fishing rights to British trawlers in the north Atlantic, the Egyptians handing back the Suez Canal, or the Americans complying with a British ADIZ off New York and the eastern seaboard because it was once part of Britain.

China has signed up to the UN as a full member yet wants to be treated as a ‘special case’, an exception, from its rules about ownership and use of the sea where everyone loses but China wins handsomely. This is not how a responsible member of the international community is expected to behave.

Geography of conflict

Having mapped out the separate external factors that may yet combine to create conflict and the propensity for an ensuing littoral warfare the theatre of operations are now worthy of consideration. The depth of the China Sea (being in the main a continental shelf) is similar to that of the Mediterranean Sea, i.e. around 600 feet, with the majority rarely exceeding 6,000 feet. Both have areas of shallow clear azure seas often making submarines in coastal regions visible with the naked eye from the air.

Such was the water clarity, and thus the risk of being spotted from the air even while underwater, that British submarines were painted dark blue on their upper surfaces to make them less visible from the air when submerged at periscope depth. [12]

A ‘Green-water’ navy is the term used to describe a naval force that is designed to operate in its nations littoral (coastline) zones but which also has the competency to operate in the open oceans of its surrounding region. It is a relatively new term, and has been created to better distinguish, and add nuance, between two long-standing descriptors: blue-water navy and brown-water navy (for more on brown-water / riverine warfare see https://rwhiston.wordpress.com/2010/03/18/2/).

The depiction below of an inshore cross-section is the geological difficulty China faces. Running from left to right the water deepens but only to the limited depth of the continental shelf (600 to 6,000 feet), and to the right of the illustration (not shown) are the islands and coastlines of Sarawak, Philippines, Japan, Vietnam etc.

mini_sub4

Littoral warfare refers to the skills needed to fight a war in areas of the sea close to mainland coastlines and around islands. Both give rise to restricted and / or shallow bodies of water for manoeuvering. This type of warfare differs drastically from conventional open ocean or deep ocean naval warfare for which a ‘blue water’ navy is designed.

The main reasons are self-evident but are perhaps worth listing: [13]

  1. The water bodies are usually confined, such as in areas like a gulf region, or island chain etc. As a result larger vessels cannot use their speed advantage. These same larger vessels tend to have a higher centre of gravity and roll under heavy manoeuvring. As a platform they become less effective.
  2. Conventional large vessels have a deeper draft making then stable in most seas but unsuitable for inshore working. The shallow waters and limited space will therefore require the use of tactics which are significantly different from those of the open ocean.
  3. Midget submarines and quiet diesel submarines can lurk in the shallow water and hide without making noise, diesel-electric can completely shut down and sit silently on the ocean floor. If this is presently possible, how much better suited would be a robotic mini version ?
  4. For surface vessels, since it is close to the coast, the enemy will use fast attack boats armed with missiles (and or lightweight / fast torpedoes). The missile attacks in an Agincourt style ‘swarm’ can overwhelm even the most modern air defence systems and manoeuvring away from several torpedoes may not be possible.

Modern non-nuclear submarines are potentially stealthier than nuclear submarines; a nuclear ship’s reactor must constantly pump coolant, generating some amount of detectable noise. Non-nuclear submarines running on battery power or AIP, on the other hand, can be virtually silent.[14] Diesels electric subs were once considered too noisy and too slow but modern sound suppression systems, improved designs have resulted in the diesels being considered the deadliest submarines in littoral warfare especially because if their ability to shut down their generators and produce almost no noise. [15] They can stay ‘dead’ in the water for about a week to avoid detection and if we add in the factor of a heavier-than-water robotic unmanned sub, detection becomes even more difficult (in deep water ASW the amount of salinity can affect sonar effectiveness but this isn’t applicable in shallow waters).

Modern technology like Air Independent Propulsion System (AIPS) have enabled the diesels to do stay underwater for a period of almost a week compared to the 1-2 days underwater endurance of the non-AIPS equipped subs.

As a potential super power China in particularly vulnerable. As has been previously pointed out on this blog site it has a limited length of coastline (less than Britain’s) and all of it is girdled by a shallow continental shelf. Indeed, at the edges of that continental shelf are a necklace of island that are foreign countries and so an undetected escape into deep water by either a surface vessel or submarine is more problematical than for other powers. However, she does have one of the largest fleets of deisel-electric submarines.

End note

Submarines have long been used for spying on enemy (unfriendly) installations, intercepting radio traffic and activity in general but size and noise have always lent an element of danger to such operation. Robotic mini- subs remove many elements of the dangers posed to crewed subs. In the final analysis they are relatively disposable and offer a degree of deniability should they ever be discovered.

 

References:

  1. http://defencyclopedia.com/2014/08/17/littoral-warfare-ships-part-1-introduction/
  2. http://www.mbda-systems.com/mediagallery/files/maritime-superiority_brochure-1349259407.pdf
  3. http://rt.com/news/178936-japan-submarine-fuelcell-navy/

 

 

Footnotes:

[1] This is according to AFP, which cited the Japanese daily Yomiuri Shimbun. See also http://rt.com/news/178936-japan-submarine-fuelcell-navy/

[2] See http://voiceofrussia.com/news/2014_01_18/Russian-fleet-to-recieve-powerful-submarines-to-guard-Black-sea-and-Mediterranean-basin-7837/

[3] Innocent passage is a concept in law of the sea which allows for a vessel to pass through the territorial waters of another state subject to certain restrictions. The UN Convention on the Law of the Sea defines innocent passage as: “Passage is innocent so long as it is not prejudicial to the peace, good order or security of the coastal State. Such passage shall take place in conformity with this Convention and with other rules of international law.”

[4] It is believed that China began installing sensitive hydrophones on the floor of the China Seas (known as “fixed ocean-floor acoustic array”), in 2012, in an effort to detect and track submarines belonging to other navies. https://medium.com/war-is-boring/china-has-begun-listening-for-american-submarines-448f7e04bbe1

[5] For more background see http://www.secretscotland.org.uk/index.php/Secrets/X-Craft

[6] See http://www.mbda-systems.com/mediagallery/files/maritime-superiority_brochure-1349259407.pdf

[7] See http://www.ecfr.eu/publications/summary/china_analysis_chinas_neighbourhood_policy

[8] See www.chinapolicyinstitute.org

[9] BBC “Why China air zone raises risk” http://www.bbc.co.uk/news/world-asia-25086345

[10] See “How the US Lost the South China Sea Standoff” http://thediplomat.com/2013/12/how-the-us-lost-the-south-china-sea-standoff/

[11] The USS Cowpens incident probably took place near the Senkaku/Diaoyu islands. China’s maritime law enforcement agencies started to regularly patrol this area crossing into the UN mandated 12-nautical-mile territorial zone around the islands, with the intention of allegedly ‘protecting China’s sovereignty.’

[12] The Royal Navy, mostly operating from Malta, lost 41 submarines between 1939 and 1945. The German Navy sent 62 U-Boats into the Mediterranean, all were lost in combat or scuttled; 9 were sunk trying to get through the highly defended Straits of Gibraltar and a similar number damaged so severely they had to limp back to base (62 – 18 = 44). See http://en.wikipedia.org/wiki/Anti-submarine_warfare

[13] See http://defencyclopedia.com/2014/04/27/anti-submarine-warfare-part-2-diesel-electric-submarines/

[14] See http://en.wikipedia.org/wiki/Type_212_submarine

[15] See http://defencyclopedia.com/2014/04/27/anti-submarine-warfare-part-2-diesel-electric-submarines/

‘Supersonic’ subs – reality, pipedream or propaganda ?

September 1, 2014

A flight of fancy !

 

by Robert Whiston FRSA   Sept 2014

Some thoughtful soul, possibly from the Tampa Bay Enquirer (or Reuters) posted news on the “Torpedo Technology” [1] blog page of an allegedly ‘super-sonic’ submarine. Allegedly, a Chinese professor at a China based institute had claimed that it was theoretically super-sonic submarine travel was possible and that they had it under development.

This happened a few days ago and so it has been able to scan other news sources and the ‘Harbin Institute of Technology’ (the originator of the claim), is not a name that leaps immediately to mind

Bow wave

Coverage of the claim has met with serious doubts and reservations, if only because the physics are almost insurmountable at present. Eradicating bow waves have always posed problems for submarine designers and the management of water flow around submarines is a science unto itself.

On a conventional submarine layout (see the profile below), the water flow first has to meet the bow, then the Super_son1conning tower (fin) before finally hitting the turbulence aft and the screw (or screws, aka the propeller).

The new technology that Harbin Institute scientists claim to have developed is comparable to, if not based on, the technique deployed on the Russian “Shakval” torpedo of the 1980s (with an estimated speed of 200 – 370 mph). In their proposed submarine it also shrouds itself in air bubbles to reduce the friction and resistance of water. The downside of the “Shakval” torpedo is that it reputedly travels only, or at best, in a straight line and might only have a range of only 4 – 8 miles. Will these limitations dog Chinese efforts ?

Far fetched ?

Apparently, after reaching a speed of 47 mph or more, the vessel could enter the ‘supercavitation’ high speed state and could theoretically travel up to 3,600 mph while underwater. [2] This would be made possible by a man-made liquid membrane on or over the vessel surface which would help steer as nozzle directional controls create different levels of friction on areas of the submarine to create turns.

It this is a rather contradictory or opaque explanation, Li Fengchen, professor of fluid machinery and engineering explained that:

  • “Our method is different from any other approach, such as vector propulsion, or thrust created by an engine. By combining liquid-membrane technology with supercavitation, we can significantly reduce the launch challenges and make cruising control easier.”

Super_son2One suspects that the supersonic submarine would, like the Shakval torpedo, fly in its own gas bubble created through “supercavitation. Critics have pointed out that a rudder would be useless on a Shakval torpedo, (being inside the water-free bubble), and any wire guidance system would be suspect or unreliable.

However, a cross-section of the torpedo does indicate ‘cavity piercing’ fins for steering “the missile” (see right). And in common with the proposed Chinese submarine, a rocket propellant is being considered as the motive force and at 3,000 MPH that too must be considered more of a missile than a ship.

While artist impressions are just that and can therefore be very misleading, the depiction of the proposed Chinese submarine (shown below) appears to have a supercavitation envelope extending well to the stern of the projectile.

Super_son3Prof Li acknowledged that there are many technical problems that needed to be solved before supersonic submarine travel could become feasible. Not least of which is the control issue (with the need of a redundant system always to be on hand).

At present a ground-to-air missile has a disproportionately large propellant tank and one can only imagine the size of both the propellant motor and the fuel tank required for a submarine to cut through the denser water. Even if the water density is reduced by bubbles and polymers, if the large distances envisaged are to be travelled, this will raise other considerations. We have no idea how these bubbles will be manufactured by the craft as its spans the great oceans but one can imagine a massive amount of air will be used up and that air cylinders or air generation equipment will eat into cargo space unless a regime of air bubble manufacture using something like hydrogen extraction from water is utilised.

The Concorde experience

When supersonic air travel became a reality with the Anglo-French Concorde it came at the price of many things including flying blind at mach 2, drag, blind landings and air fame expansion and contraction.

Super_son4For supersonic travel nose cone shapes needed to be aerodynamic as shown in the following pictures of two prototypes. However, it was not long before a mechanical nose droop and nose up option was chosen as the best synthesis. This resulted in the very distinctive Concorde nose.

Super_son5

Pictures courtesy of “Heritage Concorde” (http://heritageconcorde.com/technical-2/nose-visor).

Similarly pioneering problem will attach to submarines travelling at very high speeds. It will need to see where it is going and needs to be able to avoid not bird strikes but underwater strikes with sunken wrecks, mountainous regions, fish and large sea mammals.

Propaganda case

The news of this startling maritime proposal comes against a background of China continuing to fall out and bully her immediate neighbours. It’s quite likely this ‘super-sonic’ news has more to do with intimidation than any practical application and follows hard on the heels of the contradiction in China’s avowed ‘friendship’ foreign policy agenda.

All this blustering, posturing and serious threatening by China has involved territorial water disputes with its immediate neighbours. Of course, under those waters lie the gas and oil reserves China desperately needs and which were highlighted by this author some years ago (see “Shi Lang’ – a new page opens”, 2011).

China does not want to be ‘import dependent’ like her immediate and economically more advanced neighbour, and arch rival, Japan

China and the CPC (Communist Party of China), have long attached great importance its ‘friendship’ stance of being a good neighbour, of being helpful and friendly to all in the China Sea area.[3]  As recently as Aug 25th 2014 Beijing restated the country’s policy is to help its neighbours prosper and according to the Communist Party of China seek peaceful coexistence with all. [4]

China is quick to point out its peaceful co-existence, principle with neighbours like India and Nepal yet rides roughshod over, say, Vietnam or Tibet, the latter of which never wanted China’s invasion in 1950 – though in true Marxist style the Chinese see it as ‘a war of liberation’ – and later (in 2006) its direct railway connection. In between such dates The Dali Lama became and remained a hunted man.

With an eye to history, China’s policy to work in cooperation and help its neighbours prosper. Her plans to aid them grow economically (e.g. Fiji, Tibet, Taiwan, India, Pakistan), also involves their growing away from their traditional allies and source of support i.e. the West, usually in the form of the US or Europe.

All this rather smacks of Japan’s infamous “Greater East Asia Co-Prosperity Sphere” of the 1930s which actually replaced one colonial landlord with another and had nothing to do will liberation, self-determination or democratisation or economic greatness (except for Japan).

So China’s claim to islands in the China Sea, driven not by integrity by a lust for oil, and its laissez-faire approach to investment in Africa and African governments (which are some of the cruelest), rings hollow.

Since the 1980s we have seen China blackmail dozens of countries into not trading with Taiwan (they found it almost impossible to get submarine replacement for its World War 2 Guppy’s). This precedent of letting the Chinese government find its feet so it could join the ranks of the international community and begin to act sensibly, has backfired as can be seen in its heavy-handed approach to its near neighbours like the Philippines and Vietnam.

However, bullying tactics are not confined to small states but has drawn in larger countries like Australia which publicly “chastised” Taiwan (with an Aussie trade deal in the offing?) for continuing to push for its independence. [5]

The crushing of HK

And even closer to home, Hong Kong is another case of, “We told you so.” Many of us can recall the unbridled enthusiasm for a ‘One China’, exhibited by our Chinese colleagues at the prospect of Hong Kong being handed back to China – and their even greater delight on the day it happened. They totally overlook the inept way the PLA entered HK and took control with poor taste and a bad grace. This was all the more magnified by the unruffled, dignified lowering of the colours in what was a seemingly effortless British ceremony in HK harbour economising the respect for the individual and of promises made.

Over the subsequent years Hong Kong has endured a series of snubs and Peking directives with the latest one (Aug 2014) being the reneging of a promise to Hong Kong that it could pick its own political leaders. Hong Kong’s dram of a democracy while remaining within China, is now finally crushed.

Until more is known this idea is just that; an idea, and this flight of fancy should be binned in the ‘science fiction’ category until we hear to the contrary.

 

E N D

 

Footnotes:

[1] “Torpedo technology” https://rwhiston.wordpress.com/2011/10/13/9/ Oct 13th 2011

[2] See ‘Chinese Military Claims to Design First Supersonic Submarine’ http://news.bestoftampabay.com/chinese-military-claims-to-design-first-supersonic-submarine/

[3] See “Neighbours high on China’s foreign policy agenda”. http://www.ekantipur.com/2014/08/25/top-story/neighbours-high-on-chinas-foreign-policy-agenda/394053.html

[4] See http://www.ekantipur.com/2014/08/25/top-story/neighbours-high-on-chinas-foreign-policy-agenda/394053.html

[5] See ‘Aussie-Chinese poker game’ http://www.australianbusinessjournal.com.au/aussie-chinese-poker-game/

The Great ‘Harrier’ Disaster

June 12, 2012

The certifiable ‘incompetents’ we call “bankers” could not make as many mistakes as Britain’s Ministry of Defence (MoD) – though some would argue that America’s Dept of Defense (DoD) would run it a close second.

All three deal in money that is not theirs and the amounts of money run into the billons. Not only that but when they’re in a hole they never know when to stop digging.

The difference between bankrupting a company and running a successful company depends not on the company or its product range but on its management.

The competency levels at the Ministry of Defence are woefully low. This is not to make a political point but to wave an accusative figure at policy makers, whether they be retired Armed Forces types or ‘Arts graduate’ civil servants who would never find a job in the ‘real world.’

Left: the iconic battle proven Sea Harrier

Only the MoD could manage to snatch defeat out of the jaws of victory.

The great Harrier disaster refers to a nation’s self-inflicted wounds brought about by a Ministry that has been out of control for 2 generations. In a badly-run Ministry, deficits haunt the decision process and stalking the corridors of power is the lust for ‘savings.’

In 2010 this led a new government into a panic decision to cut naval and air forces in an attempt to minimise ‘cost over runs’ and ‘budget back holes.’ One of the many notable casualties was the Navy’s aircraft carriers and another was not only the Sea Harriers it used but all the land-based Harriers used by the RAF.

Having very recently spent over £1 Billion in up-grading these aircraft no savings could be made in that direction but future savings could be made by moth-balling some or all of them (given that they had a long serviceable life ahead of them).

The Harrier is, or was, a singularly successful story. So unique were its capabilities – it could not only take-on and out-manoeuvre far faster fighter jets – but the US decided it could no invent anything better and bought the licence to make hundreds of them.

The US Marine Corp is the Harrier’s biggest user and buyer. They plan to keep their version, the AV-8B, operation until at least 2025. And that could yet prove an optimistic date as the F-35B Joint Strike Fighter, its intended replacement is hitting all kinds of snags and teething troubles.

Left: Early production F-35 US Navy version

At one point it looked as if the project was on the verge of being cancelled.

This would have put not only the Marine Corp in a dilemma but overseas air forces who have signed up to the development funding of the single engined F-35B Joint Strike Fighter (see below for comparison with the similar looking but twin engined F-22 ‘Raptor’ jet fighter.

Embarrassingly, Britain is one of those signatories. The MoD has chosen the F-35B to replace its Harrier GR.7s and Sea Harriers for the Royal Air Force and Royal Navy. Her 2005 defence plans called for 150 aircraft: the Royal Air Force 90; and the Royal Navy 60. However by October 2010 the Strategic Defence and Security Review stated:

  • “We will fit a catapult to the operational carrier to enable it to fly a version of the Joint Strike Fighter with a longer range and able to carry more weapons. Crucially, that will allow our carrier to operate in tandem with the US and French navies, and for American and French aircraft to operate from our carrier and vice versa.”

So having mothballed it operational Harriers in 2010 the Gov’t / MoD decided to compound the bungling by selling them to the US Marine Corps in 2011. [1] Not only that, but the new government was forced to switch to the non-VSTOL carrier version and then almost immediately reverse that decision because of arrester hook problems.

Former RAND author, John Stillion, has written of the F-35A’s air-to-air combat performance that it “can’t turn, can’t climb, can’t run.” Although this is only one voice, the Rand Corporation is much respected and if only slightly true it does not auger well for the F-35.

Chinook Saga

The truth is that the fleet of now ‘ageing’ American  Harrier AV-8Bs has to remain in service for several years longer than planned due to the VTOL and STOL replacement, the Joint Strike Fighter jump jet variant, is years behind schedule.

The MoD agreed to buy 8 of the Chinook Mk 3s in 1995 for £259 million but they have been kept in storage since they were delivered in 2001. [2] Why, because officials negotiating the deal to buy them did not ask for the access code for the software used to fly them and Boeing refused to hand the code over once the mistake was noticed (the current Boeing management are blissfully unaware that they wouldn’t have a global company if they had to pay British patent royalties for the  jet engines  they depend on).

The ineptitude of the MoD and the obstinacy of Boeing resulted in a situation where eight Chinook Mk 3 helicopters were re-engineered at a cost of multi-million pounds to the Mk 2 standard in order to use them operationally. Final deliveries took place at the end of 2010.

When American needed moral and troop support to legitimise its invasion of Afghanistan one would have supposed that someone in the Dept of Defence would have picked up the phone to Boeing and told them how life really works. What price now Pres. George W Bush call in Nov 2002 for a “Coalition of the willing” ?

No ‘Quid Pro Quo’

Britain’s Harrier have been operational in Iraq and Afghanistan for many months former prime minister came under political pressure for not supplying British troops with enough helicopters, especially the Chinook. But in fact Britain had enough Chinook but could not fly them because of software ‘difficulties’. If American was serious about an alliance of the willing it should have ordered software to be delivered rather than let the American company let wounded soldiers die. [3]

Alternatively the MoD should have realised that the US has huge quantities of mothballed military aircraft including helicoptors. The British government should have reminded Boeing, or America, of the aircraft carrier USS Robin. After losing the operational capacity of  both USS Hornet (sunk) and the USS Enterprise, the Pacific carrier fleet was reduced to just the USS Saratoga. American requested carrier reinforcement and Britain supplied one of its most modern, HMS Victorious (30,000 tons), for operations in the Pacific from 1942 through to 1943. [4] HMS Emperor is a 1943 example of the reverse of the above; a small (14,400 tons) US aircraft carrier used by the Royal Navy. [5]

Returning to the Harrier debacle, the ignominy was heightened by the Americans not having the good grace to use the aircraft as they were but to rip out their innards merely for spares. In all the literature detailing this deal, not once is a re-training of pilots mentioned. Apparently, the US high command has such little confidence in its aircrews that anything new, or novel, or slightly different has to be eradicated.

The reason also given by the Marine Corp is that the purchase will save them $1 billion. ‘Defense News’ in reporting the sale to theUS cites a Mr. Lon Nordeen as ‘an authority on the Harrier’:

  • “There are significant differences between Royal Air Force GR Mark 9s and Marine AV-8Bs, which would be a challenge to overcome, however, the engines and spare parts would be very valuable for long-term sustainment of the Marine Corps Harrier fleet.”
  • “I don’t think it will be costly to rip out the Brit systems and replace them with Marine gear.”

From a purely technical point of view ‘Nordeen noted that the British GR 9 and 9As are similar in configuration to the Marines’ AV-8B nightattack version, which makes up about a third of U.S. Harriers. The British planes are also ‘night planes’ dedicated to air-groundattack, he said, and while both types carry Forward Looking Infrared (FLIR) sensors, neither is fitted with a multimode radar such as the APG-65 carried by U.S. AV-8B+ models.

However, Nordeen concluded that the sale represented a ‘good bargain’ for the U.S and that in fact:

  • “The absence of the big radar, makes the GR 9A (UK) and AV-8Bs (US) a better-performing plane. Weighing less, it’s more of a hot rod.”

British GR 9s, are powered by the Rolls-Royce Mark 105 Pegasus engine. GR 9As have the more powerful Pegasus Mark 107, which is very similar to the Rolls-Royce engine supplied Marine AV-8Bs. The latter is a F402-RR-408 unit which is only slightly down on the thrust from the British Pegasus Mk 107 (24,750 lbs of thrust).

The immediate result is that (yet again) Britain’s MoD has spent £1 billion from which it will never benefit.

There has been a net gain to the US Marine Corp of $1 billion so we might as well have handed over the cash equivalent to them.

This is £2 billion that is benefiting others but not the taxpayer. To off-set this £2 billion gift to others the MoD rather lamely claims that £1 billion savings will be made in staff and stock costs over the coming years.

Payments

It doesn’t inspire confidence to read that Rear Admiral Mark Heinrich, the head of purchasing for the U.S. Navy is reported as saying at a meeting sponsored by ‘Bank of America Merrill Lynch’ that“payment dates and amounts have yet to be sorted out.”

  • “. . . Payment details were the only outstanding issue on the parts deal discussions . . .”

What kind of business sells its assets but leaves payment details sketchy ?

So far as can be ascertained only $50 million (£34 million) [6] is being paid for the Harrier spares, but this does not include prices to be agreed for engines, airframes, and completed aircraft (and the non-specific ‘expensive key components’ the US Marine Corp is anxious to obtain). Lon Noreen puts a value of the sale of at least some of these items at $180 million (£117 m?), plus overall savings making a total value of $1 bn.

On this side of the Atlantic the political decision to sell the Harriers has been greeted with hostility and the sale for “peanuts” has induced incandescence, particularly among the Navy. [7]

Had Harriers still been available in 2011 Admiral Sir Mark Stanhope, the First Sea Lord, believes they would have made the Libya mission more effective, faster, and cheaper.

F-35 saga

The cause of the USMC’s need to urgently keep its STOVL (short take off and vertical landing) AV 8B flying is the problem child thatis the F-35B or joint strike aircraft. AV 8B have to be made to last until at least 2025 and all the time the ageing AV 8Bs are not getting any younger.

The F-35 is supposed to be ‘the next generation’ of aircraft not just for the Marine Corp but the US Navy and US Air Force.

Right: The VSTOL version of the F-35 earmarked for Britain and the US Marine Corps.

The F-35 was scheduled to be ‘in service’ by 2012 but as Defense Secretary, Leon Panetta, warned in Jan of that year, the programme is “not out of the woods yet.”

He said he based his support for the plane on its developers’ ability to resolve a series of technical problems that some had feared might doom the project.

Ten years after first beginning work on the F-35 programme (2002), the total costs have jumped from $233 billion to an estimated $385 billion. And, recent estimates say, the entire program could exceed $1 trillion over 50 years. The F-35 project is the Pentagon’s most expensive – and most troubled (?) – weapons programme ever (plagued by delays and cost overruns).

The developer, Lockheed Martin is building three versions of the F-35 – one for the Navy, Air Force and Marine Corps. They are intended to replace Cold War-era aircraft such as the Air Force F-14, F-16 fighter, the Navy’s F/A-18 Hornet and the Marines’ EA-6B Prowler and AV-8B Harrier. International partners, including Britain, are also in line to buy F-35s.

Former Defense Secretary Robert Gates threatened, in Jan 2011, to put the Marines’ version of the aircraft on a two-year “probation” because it was experiencing “significant testing problems.” Their version is capable of taking off from shorter runways and landing vertically (just like a Harrier). In Gates’ view, if the problems could not be fixed within two years he would cancel the programme.

Right: the family of F35s

Another option at the time was to slow down F-35 production numbers and build only 2 and not 3 variants. This would to save billions of dollars in the short term and save further billion in later years as there would not be so many aircraft to purchase.

It is reported that the Pentagon still plans to buy 2,443 of the Lockheed Martin-built aircraft for the Air Force, Marine Corps and Navy. Production of U.S. jets is expected to continue until the late 2030s (but can a plane designed in the 2000’s still be a worthy adversary in 2030 ?). 

Slowing down procurement of the F-35 in the near term, as laid out in DoD’s 2013 budget request, will add nearly $6.2 billion in procurement and development costs. However, the DoD removed 179 units of the F-35s from planned purchases between 2013 and 2017. The DoD is planning to supply fifty F-35 jets to the Marine Corps per year beginning in 2017.

Perhaps, given the economic restraints world wide, the domestic economy, and the F-35’s troubles (which they see a real threat), the Marine Corps have, by clinching the UK deal, ‘boxed clever’ and hedged their bets against being stranded with no aircraft to fly (MoD, please note).

In one of Panetta’s recent statements he said that“sufficient progress” had been made over the past 12 months to merit lifting its probation but he cited no specifics. However, it is known that the plane’s key problems was the inadequate fitting (?) of a pair of doors on top of the plane fuselage that open to allow extra air to reach the engines (see photo below).

Solutions to these problems have been found but not fully validated in all cases.In Nov 2011, a Pentagon study team identified the following 13 areas of concern that remained to be addressed in the F-35:

  • The Helmet mounted display system does not work properly.
  • The fuel dump subsystem poses a fire hazard.
  • The Integrated Power Package is unreliable and difficult to service.
  • The F-35C’s arresting hook does not work (Navy version).
  • Classified “survivability issues”, which have been speculated to be about stealth.
  • The wing buffet is worse than previously reported.
  • The airframe is unlikely to last through the required lifespan.
  • The flight test program has yet to explore the most challenging areas.
  • The software development is behind schedule.
  • The aircraft is in danger of going overweight or, for the F-35B, not properly balanced for VTOL operations.
  • There are multiple thermal management problems. The air conditioner fails to keep the pilot and controls cool enough, the roll posts on the F-35B overheat, and using the afterburner damages the aircraft.
  • The automated logistics information system is partially developed.
  • The lightning protection on the F-35 is uncertified, with areas of concern

Former Pentagon manager Paul G. Kaminski has reportedly said thatthe lack of a complete test plan has added five years to the JSF program. As of February 2011, the main flaws with the aircraft were engine “screech”, transonic wing roll-off and display flaws in the helmet mounted display.

Provenance

The JSF, or Joint Strike Fighter programme, began as the result of the desire for a Common Affordable Lightweight Fighter (CALF) and for a Joint Advanced Strike Technology (JAST). Presently, the F35 is proving to be anything but affordable. Its first level flight was on 15th Dec 2006.

Theoretically, using one design, airframe, avionics and engine but with modifications promised an avenue of greatsavings. For the US Air Force there would be the conventional take off variant the F-35A; for the Navy the F-35C carrier variant; and for the Marines the F-35B, with VSTOL capabilities.

The US Marine Corps wanted a variant that could continue to land vertically or hover and or had short take off and landings credentials.

For some unexplained reason the seamless system used on the Harrier was discarded and a rather more clumsy Soviet designed mechanical layshaft system was chosen. Rolls-Royce provides this very ‘un R-R’ technology of a shaft driven fan which can be disengaged in level flight but which has to be mechanically re-engaged to enable the Marine’s F-35 variant to land vertically.

The prospects of Viffing (vectoring in flight) which made the Harrier so manoeuverable will be a thing of the past for the Marine Corp. Viffing effectively “slams on the brakes”forcing a chasing high speed fighter to overshoot its target thus turning the tables for the Harrier.

Vertical travel is provided by the Rolls-Royce made “LiftSystem” but in reality this is Lockheed Martin solution rather than a Rolls-Royce one. If the system sounds familiar it is. It was first used for the abandoned Soviet Yakovlev Yak-141 aircraft, designed for carriers, in the 1990s.

It may be a detail or it may have great significance but the US sources refer to the F-35 as STOVL, standing for short take off and vertical landing (compared with the UK term of VSTOL.

Right: The Soviet and now American solution to VSTOL

The latter implies an ability to take-off and land either in ‘vertical’ of ‘short’ take-off mode. The Soviet Yakovlev Yak-141 with its layshafts (see diagram right), had problems hovering for more then a few minutes which would imply limited VSTOL capabilities. However, Sea Harriers, with the aid of the Ski-Jump, are able to lift more into the air than conventional Harriers, so the US Marines may be pleased enough with this capability of the F-35.

Lockheed Martin entered into a funding partnership with Yakovlev for this technology. The disadvantage is that in level flight all the pivots, gears, shafts and fan are dead weight. If it has an advantage it is said that heavier payloads can be lifted using ‘LiftSystem.’

The first F-35s should arrive at the Marine training unit at Eglin Air Force Base, Florida in Jan 2012.

Only the F-35A appears to be able to fly unaided. Quite amazingly the carrier version for the Navy, the F-35C is, of all things, having arrester hook problems. Meanwhile the VSTOL F-35B is having problems with its air brake and fan flaps needed for VSTOL (see pictures above and below).

Congress incensed

The beleaguered F-35 programme has given US lawmakers an opportunity to blast the Defense Department and Air Force officials (March 24th 2012). The ever moving price tag is a red rag to a bull. Roscoe Bartlett (Rep-Md), described the procurement as an example of what not to do:

  • “I hope that when you are pursuing this program that you will keep your records so that when we do a post-mortem when it’s finished [we will know] how not to do this in the future.”

There is a dizzying array of estimates as to how much the F-35 project is costing and will cost.

1. The Government Accountability Office report states that the F-35 programme has a cost overrun of more than $1 billion, about $660 million of which is the government’s share, and production has been delayed by six years.

2. According to a new Pentagon report (circa March 2012) the DoD projects a nearly $17 billion increase in the total cost of the F-35 Joint Strike Fighter above previous estimates.

3. DoD now says the entire program will cost $396 billion, according to Pentagon’s selected acquisition report, which have been sent to Congress.

4. The overall sustainment cost for the program is estimatedat$1.1 trillion, according to the document. The Pentagon is conducting a two-year “should cost” assessment of operation and sustainment costs that will continue in 2012.

5. Another Pentagon press statement (March 29) put the total cost of the F-35 at about $1.45 trillion over the life of the program. The previous year’s estimate of about $1 trillion did not include some of the costs that are now being included in the latest estimate.

6. The Congressional Committee (May 15th 2012)  recommended a $528.5 million cut in procurement for the Lockheed Martin F-35 Joint Strike Fighter, citing unjustified increases, engine cost growth and contractor delays.

7.  DoD requested $8.9 billion for the F-35 in 2013, which includes procurement and research and development.

Fly away price

Comparisons are almost impossible when estimating defence and aircraft costs. The methodologies used vary greatly between countries. However, some attempts have been made in recent years to make such comparisons.

The US is projected to spend an estimated US$ 323 billion for development and procurement on the F-35 programme.Norway’s Rear Admiral Arne Røksund, whose country has ordered 52 of the F-35 fighter jets estimated, in Nov 2011, they would each cost $769 million (over their operational lifetime).

We thus have the outright ‘purchase’ price versus the “fly away price”, i.e. with all the avionics and weapons systems (see Chinook above), and finally we have the “operational lifetime cost” of each unit.

An aggregate method of comparing costs is the so-called “flyaway cost.” in accountancy terms this is a marginal costing approach – as opposed to the total absorption cost route. “Flyaway cost” values the aircraft atits marginal cost, including only the cost of production and production tools immediately accruing to the building of a single unit. Not surprisingly, advocates who want to minimise the costs of an aircraft the favour will often report the “flyaway cost” as the purchase price.

For example, the flyaway cost for the F-18 Super Hornet made by Boeing and based in 2009 on the 449 units built, was US$ 57.5 million per aircraft – but the weapons system cost was 39.8% higher,at US$ 80.4 million per unit.

Flyaway price for F-35

  • – the flyaway cost of the F-35A variant will reputedly cost US$ 197 million (inc. weapons system for the USAF as of 2012.
  • – the flyaway cost of the F-35B for the US Marines Corps will cost around US$ 237.7 million (inc. weapon systems cost) as of 2012).
  • – the flyaway cost of the F-35C carrier based variant will cost around US$ 236.8 million (inc. weapon systems cost) as of 2012.

Britain’s Ministry of Defence chose the F-35B (VSTOL) with a price tag of US$ 237.7 million p/u (inc. all weapons systems), some years ago to replace some of it ageing fleet of Harriers. In February 2011, the Pentagon put a price of $207.6 million for each of the 32 aircraft to be acquired in the financial year ending 2012, rising to $304.15 million ($9,732.8/32) if its share of RDT&E (Research, Development, Test & Engineering) spending is included. [8]

An excellent publication of comparative aircraft costs is produced by “Defense-aerospace.Com.” [9] In their “Sticker Shock: Estimating the Real Cost of Modern Fighter Aircraft” they produce a variety of tables measuring unit price by means of; procurement costs, research costs, by GDP and per capita cost etc (only Table 1 is shown below).

Typhoon

The collaborative “Eurofighter”, also known as the Typhoon is believed to have cost in the region of £125 million (including development + production costs).

* this European ‘agile’ fighter is now in service. The original RAF order was for 232 of the 559+ aircraft planned. [10] Its first flight was in 1994 and it was operational in 2003 (a gap of about 10 years). It was planned to phase it out as the F-35 JSF 1) came on stream and 2). as a means to win export orders against the F-35.

* the cost of the 3 phases of production is £64 million, £70 million and £100 million (all approx, given currency fluctuations).

* in 1998 it was was soon apparent that a more realistic estimate.

* by 1997 the estimated cost was £17 billion. Earlier it had been put at £13 billion, made up of £3.3 billion development costs plus £30 million per aircraft. However, by 2003 the cost was put at£20 billion, and the ‘in-service’ date (defined as the date of delivery of the first aircraft to the RAF) was 4 years late, i.e. in 2003.

* by 2007, Germany estimated the system cost (aircraft and training, plus spare parts) to Euro 120 million and said it was ‘in perpetual increase.’ On 17 June 2009, Germany ordered 31 aircraft of Tranche 3A for €2,800m, giving rise to a unit system cost of Euro 90 million per aircraft.

F22 – Raptor

The twin engined Raptor is a big plane – see diagram below. It is an interesting comparator with the single engined F-35. Its first flight was in Sept 1997 and it was introduction in Dec 2005 (under 10 years, unlike the F-35 and Typhoon). Production ceased in 2011 with 195 being built solely for the USAF as the government banned exports.

The F-22 is the modern-day equivalent of the piston engined Republic P-47 Thunderbolt of World War II (known as the “Jug”, it was, in its day, the largest, heaviest, and most expensive fighter in history). But for a large, heavy plane the P-47 Thunderbolt was said to be remarkably agile.

The F-35 will not be as agile as the F-22, or fly as high or as fast, but its radar and avionics will be more advanced – and allegedly it will be cheaper than the F-22. The F-22 programme is reported as having cost US$ 66.7 billion with the flyaway cost in 2009 put at US$ 150 million per unit. Compare those figures with those contained in ‘Defense-aerospace.Com’ Tables.

The main competitors of the F-22 are the F-18, F-16, Typhoon and F-35. There are others of course such as Rafale, Gripen and the Russian made Mig 29, Su-27 and the Su-30 range (with its multi-target tracking, 360 degree Snow Leopard radar). In coming years the Chinese made Su-33, known locally as the J-15, may figure in the equation not only on agility and speed but on low price.

 

The German government which might have been expected to buy the F-22 and or the F-35 are not permitted the one and their horrific experience of being stitched up (plus a huge political bribery scandal) with the single engined Lockheed F-104 Starfighter (nicknamed the Widowmaker and the Flying coffin) has deterred them from anything but twin engined machines. The F-104 was ideal for the clear skies of Colorado and Texas but hopeless in the cloud covered skies of Europe. F-104  appeared unable or follow terrain contours without hitting them (Canada, Germany), and the Lockheed patent C-2 ejection seat was no guarantee either of a safe escape (the Luftwaffe retro-fitted Martin Baker GQ-7A ejection seat after 1967).

Stealth – the New Generation

What has become increasingly clear is the shift of emphasis in aircraft design (since the 1980s, e.g. B-2 and the F-117) towards incorporating stealth or reduced radar profile capabilities. At the same time new radar or scanning technologies have been developed to counter this threat.

Energy absorbing materials, the screening of infa-red signatures and the angling of panels so as not to give a responding “ping” to ground stations are but a few of the techniques used. A selection of ‘stealth’ fighters, from a few years ago, are illustrated below.

Hawk

What a cost contrast is revealed when we examine British Aerospace’s advanced jet trainer, the Hawk. It shows that ‘multi-role’ capability can come on the cheap; it is used by many countries not only as a jet trainer but as a low-cost combat aircraft (when fitted with 30 mm ADEN cannon and Sidewinder air-to-air missiles).

Right: BA Hawk

The aircraft was designed by Hawker Siddeley in 1974 and funded by the company as a private venture in anticipation of possible RAF interest. The company was later bought up by BAE Systems. The Hawkfirst flew in 1974 and was in service by 1977. The unit cost is put at £ 18 million (at 2003 prices) and over 900 have been built. It’s pedigree can be traced back to the Folland Gnatof the 1960s.

An advanced jet trainer role was originally intended to be the role of the Jaguar, made by SEPECAT, but it was soon realised that it would be too complex an aircraft for fast jet training. However, it was found to make an ideal platform for delivering ordinance and other defence related roles.

Jaguar

Of all recent aviation conceptions that of the Jaguar must be almost unique. It was originally conceived in the 1960s as an advanced jet trainer with a light ground attack capability. Requirements, however, changed and the aircraft was needed to have supersonic performance, reconnaissance and tactical nuclear strike roles. The Jaguar was a Anglo-French joint project between Breguet of France and the British Aircraft Corporation. It was exported to India, Ecuador, Oman, and Nigeria.

Left: Jaguar

Its highly flexible undercarriage made it ideal for ‘cross country’ landings and take-offs for many air forces which could not always rely on maintained airstrips and had to fall back on hastily carved out dirt airstrips (in Europe the Cold War assumption was that regular airstrips would also be laid waste by enemy attacks).

The Jaguar first flew in Sept 1968 and entered Anglo-French service in 1973. It was used in numerous conflicts and military operations by various air forces in Mauritania, Chad, Iraq, Bosnia, and Pakistan, as well as providing a ready nuclear delivery platform for Britain, France, and India throughout the latter half of the Cold War and beyond. In the Gulf War, the Jaguar received praise for its reliability. The unit cost is put at US$ 8 million at 1978 prices and 543 were built. Jaguar’s were retired 2005 and replaced by the Panavia Tornado and the Eurofighter Typhoon. Noteworthy in these attempts at European collaboration and unit price reduction is reputedly the negative and self-serving stance adopted by Dassault in all of the above projects Jaguar, Tornado and Typhoon (http://en.wikipedia.org/wiki/SEPECAT_Jaguar ). European collaboration has a pronounced ‘drag’ on completiton times and costs as incoming governments change the specification their nation requires.

Harrier

The Harrier programme can be said to have been the progenesis that set in motion work resulting in both ‘agile’ and ‘stealth’ generation aircraft. Agile because of its ‘viffing’ and stealth because of its ability to drop down to earth and steal in below the tree line.

The Harrier programme began in the late 1960s as a child of Cold War mentality which envisaged Germany as the front line of NATO and all airstrips as bombed out of use. Aircraft would need to be re-armed, refitted and repaired alongside straight roads and/or open fields. The Harrier met that need by being capable of VSTOL (vertical or short take-off and landing). One other advantage was that aircraft carriers need no longer be so big or so expensive (with angled flight decks), and arrester gear would become obsolete.

The Harrier is and remains a subsonic aircraft designed to fulfil strike, reconnaissance and fighter roles, however, this subsonic disadvantage has been shown in operational service to be no disadvantage at all (see the Falklands War, Bosnia police action and both Gulf Wars). Over the years the payload of the plane has increased significantly.

No unit costs can be found for the Harrier but some data is available for the Sea Harrier version.

Sea Harrier

By the 1970s a variant suitable for use on aircraft carriers (HMS Invincible class) was developed and called the Sea Harrier. This is the Harrier variant that fought in the Falklands War of 1982. It entered service in 1978 and was ‘retired’ in 2006. In this role it successfully flew CAP (combat air patrols) as a defensive measure protecting the fleet from supersonic fighter jet attacks.

The unit cost in 1991 of an AV-8B version of the Sea Harrier, made by Boeing, is said to be US$ 18 million (http://en.wikipedia.org/wiki/British_Aerospace_Sea_Harrier ).

Traditionally, British authorities have always been a little more reticent over research costs, production costs and numbers than their American counterparts. However, from US sources we derive that 323 AV-8B were built by Boeing for the US Marines Corps between 1981 – 2003 at a cost of between US$ 24 – 30 million each; and that the programme cost US$ 6.5 billion at1987 prices. From another source it is stated that the unit price was US$ 18 million in 1991.[11] 

The terms Britain was bullied into accepting for working in partnership with Boeing are worthy of separate research. The US Navy threatened to cancel any orders for the Harrier in 1981 despite the DoD having already set a budget for their purchase, but then miraculously the programme was revived when British Aerospace (Bae), signed a Memorandum of Understanding (MoU) with McDonnell Douglas (McDonnell Douglas was later bought by Boeing). Was this corruption under the guise of ‘lobbying’ or just a coincidence ?  Under the agreement, BAe was relegated to the position of a sub-contractor, instead of the full partner status. The first production AV-8B was delivered to the US Marine training squadron at Cherry Point on 12th Dec 1983 ( http://en.wikipedia.org/wiki/McDonnell_Douglas_AV-8B_Harrier_II ).

To read, therefore, that 74 decommissioned Harrier jump jets are to be sold for $50 million and in the next breath that the gross purchase price tag is US$ 180 million (£110 m), might lead one to think that the unit price is a mere US$ 2m, or thereabouts. But we are told by experts not to fret as this is all that can be expected as military commodities are unlike any other and their value is zero’ed once used.

Hawker Siddeley P.1154

The precursor to the ill-fated F-35 was a supersonic version of the Harrier, the P.1154, proposed in 1965 and which would have been in service by now (i.e. 2012).  The P.1154 was to have all the Harrier attributes; capable of VSTOL but also of supersonic interdiction. No known photos exists but the two images below are artist’s impressions and show what it might have looked like. 

It would, of course, have had no stealth capability.

 

 

 

 

 

Other considerations

Without doubt the Harrier is a ‘lightweight’ (22,000 lbs) among aircraft and nimbler for that attribute. Modern competitors, such as the Sukhoi Su-33 and its Chinese equivalent, weigh in at 66,000 pounds fully loaded, three times as much as the world’s only successful jump jet, the Anglo-American AV-8B Harrier.

The new American F-35B jump jet weighs in at 49,540 lbs (empty weight: 29,300 lbs). To date it has encountered serious problems with weight, engine heat, parts failures. The one advantage that the F-35B offers over the AV-8B is that the extra weight for the Yakovlev designed fan lift system allows it to takeoff with a heavier payload. [13] The problems the Russian faced was that it’s various systems either were unreliability in operation or could not be advisedly run for more then 5 minutes in the vertical hover.

The F-22 Raptor is also a heavy weight compared with the Harrier; it has an empty weight of 43,400 lbs and a loaded weight of 64,460 lbs.

For comparisons purposes it may interest readers to know thatthe unit price, in 1989, of this plane was thought to be US$ 11 million – and by 2009 the average cost had risen to US$ 29 million per init.

 

Global competitors

Russia, Europe and China are the most obvious competitors to US domination of military aircraft production. What the US can’t control it tends to exclude, pushing up unit costs for Europe. All US administration appears to be able to snuff out real competition in the western world, beginning with Canada’s Mach 2 Avro Arrow in the mid 1950s (see http://en.wikipedia.org/wiki/Avro_Canada_CF-105_Arrow ). Russia and China have always been beyond Washington’s reach and only in recent years is Europe finding its feet with civil and sporadically with military aircraft.

Yak-41 – Also known as the Yak-141 this was an experimental Russian supersonic VSTOL prototype of 1991 produced by the Yakovlev firm. Pictures show it with the same large flap aft of the canopy that is such a feature on the proposed F-35. Lockheed Martin, the makers of the F-22 and F-35, entered into discussions and contractual agreements with Yakovlev immediately after Russia’s announcement it could no longer fund its development.

The Yak-141 was a derivative of the Yak-38 which was the only VSTOL fighter to enter with the Soviet navy.

Following the announcement by the CIS (Russia) regarding the Yak-41M, Yakovlev immediately sought with several foreign partners who could help fund the program (a tactic they were also pursuing for development of the Yak-130 trainer, which was eventually developed in partnership (see LiftSystem at Footnote No 12).

Yak-38 – This aircraft’s first flight was in 1971 and it first appeared in service in 1976. Approx 231 were built for the Soviet navy and it was retired in 1991. The unit cost is thought to be around US$ 18 million at 1996 prices.

Global knock-on effects 

Delays in the F-35 program will inevitably lead to a “fighter gap.”America and other countries will find themselves lacking sufficiently modern jet fighters to meet their requirements. Israel and Australia, for instance,  may buy second-hand F-15s to cover their gap. Britain is in the same predicament. With one version of the F-35 not available in the foreseeable future the two enoumous aircraft carriers being built will have to undergo expensive structural changes in order to operate catapulted aircraft (non-VSTOL). It also raies the question of why Britain should be selling Harriers and yet not buying or swopping them for F-15s or F-18s ?

The Senate ‘Armed Services Committee’ saw the well known member, Sen. John McCain, claim that such simultaneous testing and production for the F-35 had caused costly design changes and retrofits, and that the project was “doomed to failure.”

The current schedule puts the delivery of basic combat capability aircraft in late 2015, followed by full capability block three software in late 2016. Final delivery will probably be by 2018 – several years late and considerably over budget.

Notwithstanding this to-ing and fro-ing over delivery dates and costs, the geo-poltical background is sifting. To meet firstly the emerging power of China and secondly the very more recent alliance between China and Russia, America has felt compelled to move 60% of its Navy to the Pacific theatre (formerly the balance was spilt 50/50 between the Atlantic and the Pacific).

The overseas conflicts spawned by 9-11 draw to a close. But rarely is the world at peace with itself. Russia and China are drawing ever closer, economically, with technology transfers and the sale of key military equipment. Given these huge arms sales, the modernisation of China smacks more of challenging the West in military power (particularly that of projection at sea) than with the aim of increasing the standard of living. [13]  

This, together with its political rhetoric and promises of being a peaceful and thoughtful neighbour in the Yellow Sea are at odds with its actions towards, for example, the Philippines over Panatag Shoal (islands that lie very close to the Philippines). [14]  

In child-like spite, China has blocked on its docks of thousands of containers of Philippine bananas (New York Times, May 2012).

Sadly it’s all very reminiscent of the “Greater East Asia Co-Prosperity Sphere” of the 1930s promoted by Tokyo but only for Japan’s self interest.

Not surprisingly, in June 2012, Leon Panetta (US Sec. of Defense) described to a 28-nation security conference how theU.S.plans to “rebalance” its military posture, placing more emphasis on Asia. By 2020 the US fleet would see 40 % in Atlantic waters and 60% in the Pacific.

  • “That will include six [out of 11] aircraft carriers in this region, a majority of our cruisers, destroyers, littoral combatships, and submarines.”

A “littoral combatship” is a Corvette sized warship of around 3,000 tons designed for operating in shallow water (‘littoral’ meaning close support ships). Note its stealth profile.

The USN could move its ships overnight to this position but the infrastructure, ports, depots etc would take a little more time to create. However, it’s not just a matter of quantities but of sophistication; America needs to deply its latest warships if they are to counter China’s modern fleet.

For the Marine Corps the new Asia-Pacific posture first begun by Bush, brings them to the forefront of planning. Unlike in Europe and the Middle East, where joint forces have access to an extensive network of land bases. In an ocean that covers half the Earth’s surface distances in East and South East Asia are vast with permanent bases few and far between (Subic Bay and Clarks Airbase in the Philippines were abandoned by the US 20 years ago).

The Marine Corps has a fleet of over 30 ships which makes it more or less self-contained and a return to the Pacific theatre gives it an opportunity to renew its core competency – amphibious operations, meaning the projection of power from sea to land. [15]

As the Marine gear up for a return to the sea, a debate is bubbling within the Pentagon that may thwart this projection. In the U.S. Naval Institute magazine Proceedings, an article co-authored by defense analyst Frank Hoffman and Navy Under Secretary Robert Work questioned whether the traditional approach to going ashore in wartime had become too dangerous. 

Left: (above and below) Boeing MV-22 Osprey

This assessment undermines how the Marines see its posture should it be called upon for future amphibious warfare. The Proceeding article argues that future enemies would most probably be armed with short and long-range precision weapons (missiles) that would decimate incoming landing craft, landing craft tenders and dock landing ship, i.e. LC ‘mother-ships’. The alternative was to wait until the other services (Navy and aircraft) had degraded the capabilities of the opposition with bombs and missiles before any landing attempt was made.

This isn’t the type of fighting the US Marine leaders had in mind when they invested many billions of dollars over the last two decades in weapons like the short-take-off F-35B fighter, and the Boeing MV-22 Osprey tilt-rotor that combines the vertical agility of a helicopter with the horizontal speed and range of an aeroplane. 

Left: Convair XFY-1, in flight (1954).

NB. It is not surprising that the MV-22 Osprey has had problems – the blades are out of proportion to any other aircraft and the stresses induced will cause failure. One is put in mind of the still born Corvair XFY-1.

Right: Vertical take off and landing meant pilot entered the aircraft via a long ladder.

The bad luck that has dogged these two projects is compounded by the cancellation of the high speed Advanced Amphibious Assault Vehicle known as an EFV (expeditionary fighting vehicle) designed to quickly get troops ashore and stay with them. [16]

It might have been a game-changer except for a new family of guided anti-ship weapons which have an extended target ranges well past 75 miles. The existing family extends from the subsonic Exocet to Taiwan’s supersonic ramjet Hsiung Feng III carrier-killer missile.[17]

But on reflection this is a little surprising given that ‘anti-missile’ missiles have long been available and both the Russian and Israeli forces have developed ‘active protection systems’ (APS), for armoured vehicles to eliminate by shooting down RPGs launched from close by. [18]  One would have thought that these could be fitted to both EFVs and landing craft.

Re-enter the Harrier

Given above political game of brinkmanship, which is inevitable as China bluffs once too often, she will lose control of events as it happened in the Sino-Soviet War era. China’s initial deftness in foreign affairs wording is immaculate but at stage beyond that and the velvet glove falls from the rusty fist it hides.

As a consequence she should not be amazed that her neighbours will seek new alliances and feel they have to be better armed with not just more units but more modern units. In particular they will need military equipment that they know will overwhelm Soviet designed / supplied hardware.

Recent events in Syria, Libya and formerly in Israeli-Arab conflicts will drive these nations towards NATO manufactured goods and thus a closer embrace with the West (which will only exaggerate China’s isolation in the Far East).

Taiwan, to take one example, has long suffered from mainland China’s belligerence and it has always been problematical for the US to supply Taiwan with modern hardware. Its small submarine fleet is not far from being World War II vintage and the balance made up of Dutch made vessels is beginning to age. If Russia can lease lend a nuclear powered submarine to India (a nuclear power) then why not the USA to Taiwan, the Philippines,Vietnam or Malaya ? Polaris carrying submarines are due for retirement soon !

HMS Repulse (left) is on of several British nuclear powered Polaris armed submarines decommissioned but ready to be reactivated.[19]

What might be more politically acceptable is for hunter killer subs to be sourced from the West to neutralise China’s veiled threats. This would not preclude more modern multi-purpose ‘fleet’ submarines, e.g. HMS Warspite. The choice from America, Britain and France for these Asian nations would therefore be considerable.

The fate of many of these multi-million pound projects could be so much better than the all too often seen epitaph: “Decommissioned, in storage, awaiting disposal”. With the general sense of urgency felt even the MoD might realise that these leviathans of the deep could be sold for better than “10 cents on the dollar” to countries in SE Asia.

China would no longer have a simplified battle scenario with Russiaas an ally and America as its main opponents but an alliance of well-armed neighbouring states ready to intercept as and when they chose. The Russian-Chinese alliance (they have recently completed joint naval exercises) while it has successfully counterbalanced the influence of Europe’s and the U.S. to bring aid to Syria and thwarted international moves, will itself be under strain in the South China Sea arena. Any claim for the mineral rights (gas and oil) under the sea and close to other countries is sure to be now blocked at the UN most emphatically.

China is really hemmed in by its own geography. Not one but two chain of island form a necklace and act as choke chain on China’s aspiations (see East China Sea map and the Panatag Shoal map already listed above). Everywhere she looks her territorial waters have to be shared with other nations; Taiwan Japan Korea Vietnam etc. etc.

Formosa, now called Taiwan, lies 100 miles from the mainland coast of China. It shares a “continental shelf” with Communist China, Korea, Japan, Philippines, Brunei and Malaysia. All sovereignty claims could be resolved if all agreed to sign up to the UN maritime declaration, i.e. international waters, the Exclusive Economic Zone of 200 miles etc, but China refuses. Technically, any non-Chinese ship sailing in the South China Sea could be inviting an attack and sinking

China’s ‘short fuse’ and clumsy blackmail in foreign affairs could be educated by the sale of US Marine Harriers to Taiwan. After all China could not complain of the 1980’s technology versus their 21st century technological aircraft advantages without looking silly.  Russian gains, one speculates, could be warm water harbours along the Chinese coast of the type it enjoys in Syria. It is evident from the latest June 2012 round of summits that Russia and China want to integrate regional Central Asian states in an effort to curb Western influence.
To quote Christopher Whyte’s comments in the Nov 2011 issue of ‘ The Diplomat’ regarding Taiwan, China and the sale of Harriers:
  • The benefits to Taiwan of a Harrier sale are clear and, though arms sales to Taipei have always risked incurring the wrath of the mainland, the relatively light profile of these craft and the potential effect thatthey could have on quelling further requests for arms in the foreseeable future may well make such a sale politically feasible. For the United States, this kind of move could help construct a balanced status quo situation thatwouldn’t risk arms escalation and would allow for more focus on cross-Straits confidence-building measures in the near future. http://the-diplomat.com/flashpoints-blog/2011/11/19/harriers-in-the-taiwan-strait/
Treading on yet more eggshells
There is yet another wrinkle, that of the Kuril Islands captured by Stalinist Russian from Japan in the dying days of the war (Aug 18th1945. The Soviet forces expelled the entire Japanese civilian population (circa 17,000) in 1946. No peace treaty has ever been signed. By 2006 the islands which are surrounded by rich fishing grounds off-shore reserves of oil and gas had been found. Rare rhenium deposits (used in rocket and jet engine manufacture) have been found on the Kudriavy volcano. It is one of the most expensive non-gold metals at US$ 142.30 per troy ounce.

China sees America as the perennial threat and is by its actions is preparing to meet them. Naturally, China sees the rise in tensions as something caused by others:

  • “As regards the South China Sea tensions, it is some other claimants, whether emboldened by the United States’ new posture or not, that sparked the fire and have been stoking the flames.” [20]

And so we are almost back to the Mao-style rhetoric of ‘lackeys’ and ‘running dogs.

America’s strategic counter to this is to renew and reinforce its ties with those in the southern pacific such as New Zealand and Australia. New ties will be forged with countries that feel intimidated byChinaalready, such as Vietnam.

As China attempts to claims those parts of the sea it believe in her “imperial” days before Mao, the world will see it as faintly ludicrous notion and the laughter will force China to ‘lose face.’

The truth is that China never did command the sea and a brief scan of “China’s Sunken Warships” will reveal her naval incompetency for hundreds of years and against all manner of fleets (https://rwhiston.wordpress.com/2010/03/18/2/ ). Historically, of the 800 warships built over 80% were either sunk, surrendered, scuttled or rotted. None has had a glorious pedigree.

Espionage threat

Only in April 2009, did media reports surface indicating that during 2007 and 2008, computer spies had managed to copy and/or siphon off several Terabytes of data related to the F-35’s design. Apparently, Pentagon sources said it involved the plane’s electronic systems. This would have the potential of developing defence systems against the aircraft and thus compromises its planned potency.

Over the last 10 years China has made remarkable technological progress with its aircraft and ships which has been made, one is tempted to say, by reverse engineering and espionage operated against both Russia and America.

The Walker spy ring trial 1985 brought home how easy it had been for an entire family to compromise US Navy secrets and pass on what had cost billions of dollars to develop for a few thousands. The Soviet Victor III class submarine was the first to benefit from this compromised knowledge and was duly dubbed the ‘Walker’ variant (see https://rwhiston.wordpress.com/2011/10/17/10/ ).

 A four person Chinese spy ring arrested in Los Angeles later proved to have been operating in the US since the 1990s. This group intended to transfer by CD disk encrypted information about U.S. Navy submarine technology to china.

Another group of spies had possibly compromised a whole range of U.S.weapon systems that included; the Navy Aegis air defense system; U.S.carrier defenses; U.S. submarine silent propulsion systems (including the new Virginia-class attack submarines); details of electro-magnetic pulse weapons and unmanned aerial vehicle technology.

Prosecutors described Chi Mak, 67, as a brilliant sleeper agent who had been passing defence technology secrets to Beijing for more than 20 years. He was arrested in 2005 and sentenced in 2007. [1]

In 2006 Chinese spy, Ko-Suen “Bill” Moo, pleaded guilty to charges thathe tried to buy military parts and weapons, including an F16 fighter jet engine and cruise missiles. Like Chi, he also worked as an electrical engineer for Power Paragon.

Speaking of the F-35 programme, Russian Today, seen by some as an organ for the Kremlin, quoted the US Government Accountability Office as saying: [2]

  • “ . . . The program which will cost the American people approximately $1 trillion to develop, purchase and maintain until the year 2050.”

Today bothRussia and China have planes that do not look unlike the F-2 Raptor and the F-35. While we may learn of spying against the West we are unlikely to ever be alerted to the spying againstRussiaandChina, except in the broadest to terms, e.g. the capability of tracking submerged subs by satellite.

In conclusion one has to conclude that historically (19th and 20th century) China has been able to purchase the very best naval technology but has not had a cadre worthy of the machinery. Will the 21st century see a continuation of this dismal trend or the birth of a new prowess ? There is one sure way to find out – but is China prepared to test herself ?

It is doubtful. She stands to lose far more from an armed encounter than she can ever gain.

The military build up may be all bluster; it may be a classic Fleet in Being stratagem. This stratagem avoids any decisive but crippling battles and instead draws out the length of a campaign. Essentially it is playing for time; a policy where a fleet avoids being decimated (for more information on Fleet in Being stratagem see https://rwhiston.wordpress.com/2010/03/24/3/ ).

Adopting a “Fleet in Being” policy can be a valid stratagem; however, the circumstances must be conducive and fully warrant it. It is a policy where a less powerful navy (or more politically astute country) stays in port and thereby ties down a more powerful one.


 E N D

  

[3] ‘UK has enough helicopters – Brown’, 22 July 2009 http://news.bbc.co.uk/1/hi/8162969.stm  NB Hansard citation, HC Debate, 23 Feb 2009, c37W Operational and available helicoptor numbers: Army 230; Navy 160; RAF 80 + 40 Chinook (all approx). See also http://blogs.channel4.com/factcheck/is-gordon-brown-right-on-choppers-in-afghanistan/1100

[5] Under ‘Lend Lease’Britain temporarily acquired many Escort Carriers for its Atlantic escort needs which were returned a few years later in 1945.

[6] The Telegraph, 15 Jun 2011

[7] “Harrier jump-jets sold ‘for peanuts’”, by Con Coughlin, and Thomas Harding, The Telegraph, 15 Jun 2011. http://www.telegraph.co.uk/news/uknews/defence/8576541/Harrier-jump-jets-sold-for-peanuts.html

[12] The Lift System comprises a lift fan, drive shaft, two roll posts and a “Three Bearing Swivel Module” (3BSM).The 3BSM is a thrust vectoring nozzle which allows the main engine exhaust to be deflected downward at the tail of the aircraft; this is balanced by the fan at the nose. http://en.wikipedia.org/wiki/Lockheed_Martin_F-35_Lightning_II

[13] See Ref.  Naisbitt China Institute https://rwhiston.wordpress.com/2011/10/04/7/

[14] A small group of rocks or very small islands with reefs forming a triangularatoll. Called the Panatag Shoal by thePhilippines and Huangyan byChina they were originally the Scarborough Reef named after the East India Company tea-ship wrecked there in 1784.

[18] See Israeli ‘Trophyhttp://en.wikipedia.org/wiki/Trophy_(countermeasure)#mw-head#mw-head and Russian Drozd APS of the 1990s. http://en.wikipedia.org/wiki/Drozd

[19]  The Vanguard class armed with Trident MRIV replaced in 1994 the Resolution class submarine (Resolution, Repulse Renown and Revenge). The Vanguard class are still in operation with the RN.

[20] See http://news.yahoo.com/us-send-more-naval-ships-pacific-130723573.html

Hitler’s Gold – Part 1

January 11, 2012

deutche_gold“Nazi Gold” is a true legend. Where it came from and what happened to it has, over the years, taken on the mantle of a near-mystical fable. However, there is nothing supernatural about it. Nazi Gold is nothing less than other countries’ gold which Hitler’s forces and apparatchiks plundered as they careered across Europe.

 

From 1938 to 1945 Hitler’s forces amassed a fortune in the name of the Third Reich. This wealth was not measured in hundreds of bars of stolen gold but thousands. The amount of gold stolen in this period remains the world’s biggest ever theft and is measured not just in millions of ounces or pounds – not even in Kilograms -but in tons of gold.

Hitler not only enjoyed the unswerving loyalty of his subordinates but profited from the criminal inclinations and scheming minds of those highly placed in his inner circle. They came not from political backgrounds but, as Churchill and Roosevelt both described them, were an inveterate bunch of opportunists and ‘gangsters’ – and their future actions were to prove those assessments correct. Even Hjalmer Schacht, head the Reichsbank in the 1930s and therefore with access to the heart of government, called Hitler’s retinue “gangsters.” [1] No avenue, it seems, would escape Nazi consideration if it would lead to the recovery of precious metals and hard currency for the enrichment of the Third Reich.

Germany is estimated to have had gold reserves at the beginning of the war of  US$ 120 million but acquired another US$ 661 million gold bullion during the war – most of it was looted and much of it highly suspect.

Nazi Germany also had a shadowy but very respectable ‘ally’ in the form of a Swiss organisation called the Bank for International Settlements, or BIS for short. Without the BIS the systematic thefts over 8 years would have been impossible (see Hitler’s Gold Part 2). The BIS was coy to the point of being secretiev and only first came to mild prominence in the 1980s.

1. Present day obsession

Nazism and the Third Reich appears to hold a fascination out of all proportion to other regimes and world events. Since the 1960s the evils fashioned by the Third Reich, Nazism and Hitler have been the subject of an unremitting stream of TV programmes, books and newspapers articles.

Sixty years after World War I, i.e. 1980s, public interest had all but subsided in that wolrd war, however, sixty years after the Third Reich’s disintegration World War II still holds certain people in it’s thrall.

Is it because meticulous details were kept and researchers of scholarly studies find themselves drawn as if a moth to a candle ?  Or is it because the mid 20th century allowed such a detailed chronicling (using cinematic and photographic records), that were of a depth and breadth which the technology of the First World War era was quite unable to match ?

While either of these options may be true to a greater or lesser extent to explain our cultural fascination another rarely spoken one exists – bankruptcy. Hitler’s various lunges across Europe represent such a radical departure from how ‘normal’ wars had been planned, conducted and financed that they are deserving of further examination.

Scant regard is paid, by the average citizen, to the pre-planning and the actual mechanics of launching an unlimited war on a continental scale which might involve fighting on two fronts simultaneously – something of a knack the Israeli defence forces have had to acquire and which Hitler always planned to avoid.

Fighting an ‘unlimited war’ is on a scale that dwarfs the most recent “limited” conflicts we are familiar with today, that of Libya, Afghanistan and Iraq.

Our current ‘liberal society’ is paranoid about being seen as intolerant, or worse, bigoted towards any issue where judgemental conclusions and moral are involved. Nazi Germany, fascism and Hitler etc are more or less the only hate figures our politically correct society now allows and we are given licenced to say what we like about them.

Popular culture also gives the impression thatthe wickedness atthe core of the Nazi regime automatically predisposed them to the building up Germany’s military strength and the subsequent invading adjacent countries is a natural consequence. In fact, it was under the very ‘liberal’ , if not decadent, WeimarRepublic that plans were out in motion, in 1922, to significantly increase Germany’s warship fleet (http://en.wikipedia.org/wiki/Deutschland_class_cruiser ).

The politics behind such moves are rarely dealt with in the media which perennially focus on the more juicy target of Hitler’s megalomania, the Nazi icons that fascism produced and what is now termed “the holocaust.”

Unemployment, the “Great Depression” hunger in the streets and the desperation that induces, can be said to be the both the driver and the excuse for electing Hitler and Germany’s rearmament programme. Politics in every European country had polarised into communist and fascist factions with pitched street battles on a scale we can hardly imagine today (far worse than Greek unrest in 2011). It wasn’t possible 40 years ago in the boom times to mentally put ourselves in to the shoes of those living through desperate times of the 1930s but since 2008 it has become easier to do so.

The Nazi Party promised of a better future for Germans with jobs for all and higher living standards were the enticement and the means was to be state control, heavy borrowing from overseas and the adoption of a ‘command economy.’ And isn’t that what is happening all over again today (2011) ?

2. 1938: The Beginning

Popular culture tells us that for those of us in Europe, World War II began in 1939 with the invasion of Poland- but for those in the United States of America, World War II started some two years later, in Dec 1941.

For the Soviet Union their Great Patriotic War (WWII), started in the same year, 1941. To the Chinese both those dates (1939, 1941) are irrelevant; their war with Japan began in the mid 1930s.

The mechanics of how Germany transformed itself from a near-bankrupt nation to one with a respectable currency and the ability to flex its political muscle rests entirely on gold and the subtle use of hidden secondary currencies which is partly detailed separately in Part 2.

Annual Accounts of Central Banks produced by the BIS (Bank for International Settlement – a transcending central bank based in Basel), reveals (p 49) that the stated gold holdings of the Reichsbank fell from 82.5 million Reichsmarks at the end of 1935 to 66.5 million at the end of 1936. The decrease is said to be accounted for by the internal requirements of gold for the arts and industry (and one suspects more industrial trade than arts).

In terms of military hardware units – tanks, bombers, and submarines etc – the build-up in the army, navy and airforce was formidable but it was mainly financed by money borrowed throughout the 1930s – and lent by countries and banks that dreaded communism and state nationalisation, more than it feared the alternative of fascism.

In other words money was loaned to the perceived lesser of two evils by countries that in less than a decade would form the Allied side of the equation, namely, France, America, Sweden, Belgium, Switzerland and Britain etc.

The European map of 1938 saw Germany cut off from East Prussia under the terms of the Treaty of Versailles, 1919. Poland was allowed an access port into the Baltic Sea at the city of Danzig (now called Gdańsk). This became know as the Danzig or Polish Corridor (see purple on map left).

Under the same Treaty, Germany was not allowed to have any military forces, military buildings or armaments in the Rhineland area (to ensure compliance the area was occupied by Belgian and French troops but only initially). However, in 1936 with the absence of such troops, Hitler ordered the re-occupation of the Rhineland by the German Army. The western nations did nothing but protest through diplomatic channels. Hitler was prepared to instantly remove the Werhmacht if the French or British had made serious military counter moves. So spurred on by this gamble Hitler widened his ethnic net to other native German-speakers, e.g. Austria and the Sudetenland area of Czechoslovakia. The map above shows Germany in 1938 after the annexation of the Rhineland, Austria and (in scarlet) the Sudetenland.

a. Germany’s Secret Gold Reserves

Before the First World War the Reichsbank built up secret gold reserves which were stored in Spandau district of Berlin. Given the name ‘Juliusturm’ of “Julius Tower” the same procedure seems to have occurred in the run up to World War II when Dr. Hjalmar Schacht was in charge of the Reichsbank. [2]

Curiously, although the common consensus is that Germany defaulted on its loans in 1939, the BIS reports in 1938 that Germany had cleared RM 150 million from its debt in 1937 of RM 313 million.

The curious aspect is that at the same time the Reichsbank’s holdings of gold and foreign exchange showed an increase from RM 178 million to RM 261 million.

In 1938, one US dollar was worth 2.49 Reichsmark (2.49 RM = $1), and approx 12 marks (RM) bought £1 sterling in 1939. [3]  This would mean that 150 million RM would be the equivalent to £ 12.5 m (£ 12,500,000) and in US dollar terms, $ 60.3 million ($ 60,240,964).

During the same period the Reichsbank’s holdings of gold and foreign exchange showed an increase from RM 178 million to RM 261 million (US$ 71,485,943 and US $ 100,803,212 repetitively). Can this be explained away by the absorption of Austria, in 1938, and Czech gold reserves in 1939 ? The dates appear to clash more than they coincide.

Germany’s business leaders and Nazi officials are known to have had connections with South America, especially Argentina. One would expect a country’s  gold reserves to be static or climb gently but Argentina’s fluctuate as follows (US$ m):

But Argentina’s fluctuate as the  Table shows.

Left: Argentina’s Gold Reserves

Given the post war revelations it is possible – but admittedly highly speculative – that Argentina assisted Germany in some way. Pres. Peron was able to repay to the Bank of England a £1 billion loan in 1946 and also nationalise the banks and railways (mostly owned by British and French companies).

What popular culture does not tell us is that the annexation of Austria in 1938 and the invasion of Poland and the Baltic states in 1939 netted the Germany Treasury many millions of dollars in gold bullion and hard currency.

Gold bullion and hard currency represent the lifeblood of any economy and especially so in time of war. Gold was pivotal Nazi Germany’s war effort. Germany is thought to have started the world war in 1939 with gold reserves valued at£ 120 million (the 1997 US Eizenstat Report). [4]

However, Germany’s territorial expansion did not begin in 1939 but a year earlier in 1938 with the annexing first of Austria and then the seizure of Czechoslovakia.

The US Eizenstat Report relies on Otto Fletcher’s analysis contained in an internal report which appears not to include the amount of gold acquired by Germany after the Austrian and Czechoslovakian absorption.[5]

Austria which was annexed into the Greater Germany is said by some to have had $ 13.5m in gold reserves. Authors are not always clear is their explanations, for instance, Arthur Lee Smith in his book “Hitler’s gold: the story of the Nazi war loot” states that the Reichsbank was able to purchase $13.5 m of Czech gold . . . and together Austria’s gold and Czech gold  amounted to $146 m which was put at Germany’s disposal.

This would imply, given other evidence, that $13.5m was only part of the Czech gold reserves.  The Table above shows a US$ 133.4m sub-total for Austria andCzechoslovakia’s reserves which is close to US$ 146 m cited by Arthur Lee Smith. Another source puts Czechoslovakia’s central bank reserve at $25m but given the above this is doubtful.

Wikipedia puts the gain to the German gold reserves of asset stripping Austria and Czechoslovakia, between 1937 and 1939, at US $71m.[6] However, that includes US$ 4 from Danzig which was overrun only in Sept 1939. Deducting that figure produces a total of US$ 67 million (71 less 4). This is significantly less than the Arthur Lee Smith figure of US$ 146 m and the Bergier of US$ 133.4 m. (See also “Central bank cooperation at the Bank for International Settlements, 1930-1973”, by Gianni Toniolo, Piet Clement, which cites 88 & 30 tonnes respectively]

The Swiss based “Bergier Report”, which was published in 2002, puts the value of Germany’s gold at US $123.4 million in Sept 1939 with Austria’s gold at US $99 million and that of Czech at US $34.4 million as additions to that total, i.e. making a grand total of US $256 million (see Table above).

Fortunately, Poland’s gold reserves were successfully moved to safety before  German troops arrived, however, the story of Poland’s gold does not end there (as will be seen later).

In the case of Czechoslovakian gold the Nazis utilised for the first time the special powers and rights gifted, ironically, to the BIS by the League of Nations some 8 year previously (both the BIS and the League of Nations were based in Switzerland). It is thought that approx. $6m of Czechoslovakian gold was held by the Bank of England and under the terms of the BIS agreement this was transferred to Hitler’s Germany. [7] The contrary view is that the amount was very much larger but that the gold never left London – it was simply ‘earmarked’ for Berlin and thus made available for Germany’s use.

a. Austria

The Great Depression devastatedAustria on the same scale that it affectedGermany. Between 1929 and 1932 production fell 39% with foreign trade falling by 47% and unemployment reaching over 33%.

In his book, “Hitler’s Austria; popular sentiment in the Nazi era 1938 – 1945” (pub’d 2000), Evan Burr Bukey describes how Austria was “bankrupt” and how in May 1931:

  • “ the “collapse its banking system [culminated] in the spectacular failure of the Viennese Credit-Anstalt”.

Burr maintains that this chain of events drained the Austrian Treasury of gold reserves. However, this is at odds with the estimate of  US$ 99 million cited in the 1999 Bergier Report (Table 1, page 39). [8]

A contemporary  view found in the 1938 BIS Annual Accounts lists Austria’s gold reserves (for 1937, Table 3) as US$ 46 in million at$ 35 per fine ounce. [9] In the 1937  BIS annual accounts Austria gold reserves are put at 13 million Swiss Gold Francs (page 45).

The Bergier Report maintains that gold transactions at the Reichsbank between Sept 1939 and June 1940 included 99 tonnes of Austrian gold but this figure is not found anywhere else.  (“Switzerland and Gold Transactions in the Second World War – Interim Report”, Chairman Jean-François Bergier)

In an attempt to clarify the position the work and reports of the Tripartite Gold Commission of 1946 might be helpful. Its role was to make restitutions of gold to these countries that the Nazis had plundered. Without specifying size of gold bar its Report states that 953 gold bars ‘may’ have been released to Austria. The exact wording is shown below:

  •  “  . . . . .With the restitution to the Benelux countries completed, attention turned to the disposition of the remaining gold. Sometime in the latter half of 1948, 164 gold bars (Prussian Mint) may have been released to Italy, and 953 gold bars may have been released to Austria. These two transactions also may have included gold coins, with a total delivery of 689,295.906 fine ounces for Austria and 286,102.445 fine ounces for Italy.
  • At the same time the Commission set aside, as it was empowered to do under the Paris Reparations Agreement for nations not represented at the conference, 26,187 kilograms ($29.3 million) for Austria and 3,805 kilograms ($4.2 million) for Italy pending the completion of negotiations.”

In William Slany’s report to the US State Dept., he states that Austria received 26,187 kilograms (841,931.6 oz) of gold valued in 1947 at $29.3 million. No one country recovered 100% of their looted gold, so one can safely assume as that the original 1938 amount was in excess of US$ 29.3 million but a question mark hangs over the higher estimate of US$ 99m. [10]

b. Czechoslovakia

In a huge European game of chess, 1938 saw the sacrificing of Czechoslovakia as a pawn to Hitler’s ambitions for a new Germany and a new world order.

The picture of pre-war Czech gold holdings is as confused as it is for Austria. The Bergier Report states that gold transactions at the Reichsbank between Sept 1939 and June 1940 included 34.4 tonnes of Czech gold.

The Bank for International Settlement accounts for 1937 (page 45), states that Czech government reported it had gold bullion to the value of 344 million Swiss Gold Francs.

One source states that although $25 million Czechoslovakian gold was spent by the Nazi to pay for war materiel approximately US $29 million gold reserves were left unused at the end of the war and in addition the bullion looted US $7 million of foreign gold coins which were taken to Germany. This would suggest for Czechoslovakia a total of 54 tonnes of gold (25 + 29), or possibly of 61 tonnes (25 + 29 +7).

Yet another source states that US $15 million of Czechoslovakian gold was used up by the Third Reich but that“US$ 29 million worth was left untouched through out the war” (see “Hitler’s gold: the story of Nazi war loot”). This would make an initial total not of US$ 54 m but $44 million (15 +29 = 44). The one redeeming feature from this confusion is that the figure of US$ 29 million is common to both. [11]

One website says that Czechoslovakia had over 90 tonnes of gold reserves in Sept 1938, [12] while the Central Europe Review of March 2000 gives 94 tons as the total of gold for Sept 1939 and adds a different dimension:

  • “The looting of Czechoslovakia’s gold reserves began as part of the Munich Agreement of Sept 1938, . . . Czechoslovakiawas required to provide 14.5 tonnes of . . . . gold . . .”

Several sources all agree that after the infamous ‘Munich Agreement’ (Sept 1938), Czechoslovakia was obliged to give Germany14.5 tonnes of monetary gold to fund currency in the newly acquired Sudetenland areas. This enforced financial arrangement was followed by a second in March 1939 when the Wehrmacht marched into Prague and the rest of Czechoslovakia.

The march into Prague was accompanied by Reichsbank special commissioner Dr Friedrich Muller, who forced the directors of the Czech central bank at gunpoint to sign letters transferring 23 tonnes of gold from the Czech BIS account held at the Bank of England to another account – also held at the BIS – but presumably under Germany control. [13]

Thus, in one recording of events 37.5 metric tonnes of gold was gained by the Third Reich in a matter of weeks and with barely a bullet fired (23 + 14.5 tonnes), compared with 90 to 94 tonnes stated by several others (the difference could perhaps be in assets held overseas or frozen by other countries).

Despite all these various weights and values the Tripartite Commission of 1946 recognised  the Nazis had stolen ‘more than’ 45 tons of gold from Czechoslovakia and recognised most of Czechoslovakia’s claim (43.99 kg). [14]

There is little doubt that to mainstream British politicians of the 1930s, Czechoslovakiawas some far away obscure country to the east of Europe. The Munich Crisis – the world’s first Summit of world leaders meeting face to face – overshadows more important factors. Not least of these was that Czechoslovakia, in 1935, was the largest arms manufacturer and exporter in the world. The production of tanks, light arms and other weaponry at the massive Škoda works in Plzeň and the Brno arms factory dwarfed contemporary British production. To paraphrase from the Central Europe Review:

  • To underline the industrial-military complex in Czechoslovakia, when German forces later invaded France and Russia, they did so riding on Czech made tanks, carrying Czech made weapons and firing Czech made ammunition.
  • It is highly probable that Chamberlain or the Foreign Office were not fully aware of this but it is almost certain that it was this, not territory, that Adolf Hitler was really after in March 1939.
  • Czechoslovakia’s industrial and military capacity had enabled it to systematically build up it gold resaves at home and for safety abroad (or so it thought), at the BIS and the Bank of England.
  • This was the really destructive legacy of Munich and Appeasement, not the mythical belief that one cannot negotiate with dictators.

The widely held belief that Germanywas in fact a bankrupt country before the war and the invasion of Poland is confirmed by Reichsbank President Hjalmar Schacht. What is not widely understood is that even with the looting of Austria’s and Czechoslovakia’s gold, Germany was again/still bankrupt while its Fuhrer planned his New World Order. [15]

Hjalmar Schacht, writes a letter to the Fuhrer about his concerns – and for his pains is sacked. To paraphrase Schacht, his letter describes the financial situation in 1938 as this:

  1. The Reichsbank possesses no more gold or foreign exchange reserves.
  2. The reserves formed by the annexation ofAustria and the calling-in of external securities and domestic gold coins have been used up.
  3. Some six billion Mefo bills [see Part 2] are held outside the Reichsbank [ and cannot be honoured – Ed]
  4. In short, Schacht says the Reichsbank was at the end of its rope.
  5. Hyperinflation and an economy backed by paper money threatened [ the Reich, i.e. we are bankrupt -Ed].

3. Confounding researchers

Bedevilling this topic, as the reader is rapidly appreciating, are the extraordinary contradictions. One is mercilessly frustrated by the persistent inter-changing of measurements and values used.

One authoritative source will use Swiss Gold Francs, where others might use Pounds Sterling and yet others US dollars. This is then further complicated by the date of the book or report – are they using the historical gold price of $35 per oz, or the price current to the decade of the book or paper in question ?

In an attempt to ease matters it might be useful to recall that there are 32,150 Troy ounces in one metric tonne of gold. At $35 per oz this equates to US$ 1,125,250 (or $1.1m) – at1939 prices but which is, fortunately, taken as the standard inter-bank price by most publications (note, not the retail price which is much higher).

Admittedly there are still complications, the Metric tonne, the Imperial tons, ‘short’ tons and ‘long’ tons but for a rough rule of thumb – there being only a few hundred avoirdupois pounds difference in the various definitions –

1 x Metric tonne of gold                  = 32,150  troy ounces of gold

1 x metric tonne (1,000 kilos)     = 2,205 lbs (2,204.623 lbs.US)

1 x Kilogram (1,000 kilos)           = 2,205 lbs, i.e. a metric tonne

1 x UK Imperial ton                       = 2,240 pounds (1,016 kg) ‘long’ ton

1 x US ton                                        = 2,000 pounds (but only 907 kg) ‘short’ ton

 Arguably discrepancies of 200 lbs of gold between the various definitions of tons represent a substantial amount of money, i.e. in the region of US$ 102.60atUS$ 35 per oz. At the normal market price of $ 1,600 per oz the discrepancies become ever more severs, e.g. 200 lbs amounts to a US$ 4.6 m figure ($4,665,600).

However, when the gold in question is being measured not in ounces or in pounds but in tons a broader brush to figures is in the circumstances, acceptable.

Hereafter, all prices will be at $35 per oz, unless stated, and all weights will be in metric tonnes (unless otherwise stated).

To allow for rapid mental conversion of, for example, 50 tons simply convert the tonnage in millions of dollar and add 12%. Thus, 50 tonnes becomes US$ 50 million + 12% making $ 56 million (50 + 6). More precisely,at$35 per oz, 50 tons would be valued at US$ 56,262,500.

In the case of the gold returned to Austria (cited above at 26,187 kilograms), this is equivalent to  26.187 metric tonnes and using the 112% formula (= 26m + 3.12m) for a ball park figure of US$ 30 million.

4. 1939: Pushing East

Hitler pressed his luck still further by invading the other part of Czechoslovia in March 1939, but still no war against Germany was declared.

World War II only properly began with the invasion and rapid conquest of Poland on Sept 1st  which was followed by the dividing up of Poland between Russia and Germany as agreed under the terms of the shocking Ribbentrop Pact signed earlier in 1939. Secret clauses to this Pact envisaged the two ‘socialist’ states of Russia and Germany dividing up and looting Poland. The incentive for both Russia and Germany of conquering Poland was the benefit of allowing them to re-establish their pre-1919 borders.

Russia only joined in the invasion of Poland as a German Ally on Sept 17th when the fighting had all but ceased (an opportunist approach repeated by her declaration of war against Japan the day before Japan surrendered).

The other incentive was Poland’s not inconsiderable gold reserves. According to the 1939 accounts published by the BIS, Poland had US$ 83 million in gold reserves in 1937 (a rise of US$ 8 m from the year before), and Danzig had US$ 5m in gold reserves. More recent Swiss bank and US State Dept sources put the reserves  closer to US$ 64m. In fact, most sources put it at that figure.

The adjacent map for 1939 shows the invasion and partition of Poland. German controlled territory is shown in dark and light blue, Russian red and the division of Poland in sandy/beige.

Germany, however, did not get Poland’s gold and nor, in fact, did Russia for the Polish authorities had quickly moved their reserves overseas.

Danzig (the Polish Corridor) was not so fortunate; its gold reserves of  US$ 5m – some say US$ 4m – were immediate victims of invasion and were confiscated by the Germans.

Fighting the Wehrmacht lasted for only 2 months with the final Polish surrender in the south the country. However, this was time enough for the Polish authorities to travel southwards by truck and train through Rumania, Turkey and into Lebanon, and then finally onto Paris.

Yet another book, “The Nazi Hydra in America: Suppressed History of a Century” by Glen Yeadon & John Hawkins, states that when later Romania was overrun (June 1941), some of the Polish gold was discovered and seized.

A further layer to this story has it that Poland’s gold reserves of 75 tons were quote “whisked out from under Nazi noses by a heroic English sea captain.” Apparently, Captain Robert E. Brett’s ship was in the Black Sea at the time, picked up the gold at Constansa in Romania and safely transported it to Istanbul, Turkey.  [16]

If we are to reconcile the Capt. Brett tale and the escape to Lebanon and Paris with “The Nazi Hydra in America:” book we first have to consider the values and the various weights.

If we assume the “75 tons” is correct but it is metric tonnes then the value (using the 112% formula) would be in the region of US$ 84m. This is remarkably close to that stated in the 1940 BIS accounts forPoland at US$ 85 million in fine gold.

The value of US$ 64 m put in the reserves by the Swiss National Bank (SNB) and the US authorities would put the tonnage closer to 57.2 tonnes (always assuming that ‘tonne’ is the correct base measure). Could the difference 18 tonnes be the amount left by Capt. Brett and later found by the Germans in Romania ?

Unfortunately, a table produced by the World Gold Council shows Poland’s 1935 total to be 75 tonnes of gold so this puts a question mark over the assertion of Polish gold in Romania. [17]

a. Russia and the Baltic States

Under the Ribbentrop Pact Russia had agreed to occupy easternPoland and the Baltic States. If Russia had hoped its invasion would bring it the gold reserves of the Baltic States she was to be disappointed. Lithuania reportedly had US$ 13m; Estonia US$ 15m, and Latvia US$ 15m, at the end of 1937 according to BIS records for 1939 but none of it fell into Soviet hands.

Much of their gold was held by the Bank of England and the Banque of France, both refused to credit the Soviet Union with any of the gold. Sweden on the other hand – and supposedly neutral towards Germany and her allies – immediately made over the gold to Russia that she had held on behalf of the Baltic States (Sweden did not pay back this gold until 1992).

Pivotal to the role of the BIS played for Germany was that gold the BIS held on behalf of the Baltic States was not handed over to Russia and therfore could not assist Russia’s war effort.

Polish gold should have been destined for the USA or Canada but it ended up with Belgian Gold inDakar, in French controlled West Africa.

5. 1940: Thrusting north

It is usually assumed that once Poland was quelled Hitler then turned his attention westwards to France and the Low Countries (June 1940). However, he actually first launched an invasion of both Denmark and Norway in April 1940.

From a naval point of view it is obvious that while Poland gave Germany a stronger command of the Baltic it was still vulnberable to being “bottled up”. Whereas by going north and west Germany’s U-boats and surface raiders had the posts that gave access to the Atlantic and thus to Britain’s supply routes. At the time Britain was only self-sufficient in food stuff to the level of 25% of what was consumed. This compares with the continental average of 90% – 105% (see BIS annual accounts).

Far from being bottled up in the Baltic by minefields laid around the Skagerrak, German naval units could operate in the North Sea and Atlantic and it would be Allied warships that would have to run the gaultlet of minefields and Axis Baltic forces.

In a House of Commons debate (Hansard 16 Apr 1940), regarding the invasion of Denmark and Norway the following answer was given as to the estimated gold reserves of both countries:

  • “According to the latest returns, the gold holdings of the National Banks of Denmark andNorwayamount to round about £13,000,000 and £18,000,000 or £19,000,000, respectively.”

The exchange rate at the time was about $4 to £1, so if Denmark had £13,000,000 (£13m), it would equate to about US$ 52m. Similarly, the £19m reserves of Norway would amount to approx. US$ 76m. “Morgenthau Diary” (Vol. 1) is cited by Arthur Lee Smith as an authoritive source and on page 10, Morgenthau is quoted as giving the 1940 amounts as Norway $88 m and Denmark $51m.[18]

Norway’s finance minister Oscar Torp was able to evacuate all the gold reserves first to Lillehammer where they were picked up the Royal Navy and then to England along with the King and government minister. [19] The invasion of Denmark, a military stepping stone into Norway, was successfully completed in less than six hours and was the shortest military campaign conducted by the Germans during the war. There was not enough time to move the gold reserves or evacuate the Royal family.

Wartime BIS accounts show for 1940 only the 1938 totals for Denmark and Norway. These show Denmark reportedly having US$ 59 million in gold reserves and Norway$ 94 million (in 1938).

6. Blitzkrieg westward

The Wehrmacht’s blitzkrieg though the Low Countries and into France is now the stuff of legend. The conquest of Holland took 4 days (May 10th to May 14th). The conquest of Belgium which began on the same day was concluded by May 28th.

Meanwhile a larger German force – for the Low Countries was merely a “feint” to draw French and British troops north (which it did successfully) – punched straight through the Maginot Line and the Ardennes further south (see Sedan on map) and into the heart of France. [20]

Luxembourg, a tiny Grand Duchy of only 998 sq miles, was used as the launch pad for this unexpected German attack at the “impregnable” Maginot Line at Sedan in the Ardennes. Its success put the Wehrmacht on Route E46 that leads directly into Rheims and then on to Paris (see map).

The area south of Saint Quentin was the soft underbelly of the Anglo-French military posture with the majority of French and British forces situated well to the north posed ready to defend the expected onslaught through Belgium.

Both Belgium and Holland suffered the same fate as the  previous generation’s World War, i.e. they were the funnel for the German advance and their neutrality was once again ignored by German forces. By refusing to re-arm or form a Treaty or Entente with France and Britain their victim status was guaranteed.

At the time of the German invasion (10 May 1940), only a small amount of gold is said to have remained in the Netherland Bank’s vaults, and the story of this amount is told in Part 2 as the Royal Navy (reportedly Cmdr James Hill) tried to rescue it from Rotterdam.

A modern Swiss report into events (Switzerlandand Gold Transactions in the Second World War – Interim Report, http://www.swissbankclaims.com/Documents/Doc_6_golde.pdf) states that;

  • “The Netherlands managed to transfer part of its gold reserves to London and New York prior to the outbreak of war. The gold remaining in Amsterdamwas shipped to Berlin for the Reichsbank and reimbursed with paper currency. Gold coins and bar from the Netherlands were valued at $137.2 million.” (Sub-heading II/1. National Bank of theNetherlands. Footnote 81).

According to the National Bank of Belgium its gold reserves amounted to some 600 tonnes before the outbreak. One third of these were transferred to the UK, another third found its way to the US and Canada. The balance (approx 200 tonnes) was kept in Belgium to fulfill the statutory cover requirements in respect of the banknotes. As the situation deteriorated in early 1940 Belgium moved the remainder, 198 tonnes of fine gold, to the Banque of France. [21]

Originally Belgium had loaded the 198 tonnes of fine gold (packed into 4,944 chests) at Ostend and they were then taken to the South of France.

In view of the rapid advance of the German troops throughFrance, the Banque de France informed the French admiralty at the beginning of June 1940 that the Belgian gold stored at Bordeaux and Libourne needed to be urgently shipped overseas.

The gold was taken to Lorient, the nearest naval port, where the chests were loaded on to the auxiliary cruiser Victor-Schoelcher. Initially, the gold was to have been brought ashore in the US but the ship never crossed the Atlantic Ocean. On 18 June 1940 the ship weighed anchor, and ten days later, after a hazardous voyage, it entered the port of Dakar in French West Africa.

Addendum:  At the outbreak of World War II the newly completed ship,  the SS Pasteur was also loaded with gold ( 200 tons), from the reserves of the Bank of France and then transpaorted to Halifax, Nova Scotia, Canada,

From Dakar the gold was transported to the military base of Thiès, 40 miles inland. It did not stay there because the French colonial authorities considered Thiès too close to the sea and they feared a possible invasion by the enemy (British and Free French forces).

Therefore, they decided to move the Belgian gold further inland, to Kayès, on the edge of the Sahara, some 500 km from Dakar (today the contry is called Mali). However, it was not long before Berlin began to pressurise Vichy France for gold. What happened next may have been because of a clause in the surrender/armistice agreement or it may have been for another ‘technical’ reason but France decided in 1940 to send Belgium’s gold and not French gold to Berlin.

The logistics were this: the gold traveled by train downstream of the Niger river to Koulikoro in Mali and then by boat toTimbuktu and to around the region of Gao. Koulikoro is some 900 miles from Timbuktu and the distance to Gao another 400 miles.

The distance northwards across the Sahara to Colomb-Bechar (the southern most point of the West Algerian railroad) is approx 1,200 miles and the distance from Colomb-Bechar to the Vichy port of Oran on the Mediterranean coast is 240 miles. What the Germans, dressed in mufti, scheduled to take 2 months actually took 2 years.

What is omitted from the National Bank of Belgium narrative is that Poland’s gold reserves were also moved to the Bank of France in 1939 for safety and that is too was also shipped to Dakar along with Belgium’s (see above).

Occupied by the Wehrmacht and wanting its PoWs returned, Francewas not in a strong position to negotiate. Prime Minister Pierre Laval agreed the transfer in late 1940 to the Reichsbank of the Belgian gold as an “atonement.” [22]

It took until May 1942 for all the gold be transferred to the Reichsbank where Reich Marshall Hermann Göring had all the gold bars melted down and ‘hallmarked’ with the Prussian Mint dated 1936.

A map of the very circuitous routes – one using aircraft flying from Kayes to Casablanca ready for onward transportation to Marseilles and then Berlin, the other a 1,000 miles by river boat on the River Niger to Bourem, via Koulikoro and Timbuktu in Mali can be found at: http://www.nbbmuseum.be/2010/03/belgische-goud.htm  From here a convoy of trucks – probably following the old salt-gold camel route – drove north across the Sahara into Algeria.

Once the convoy has reached the railway town of Colomb-Bechar the gold could be more easily shipped using the narrow gauge Mediterranean-Niger-Railway, built in the 1930s, to the large French port of Oran. From there it was flown to Marseilles and then by train to Berlin (one account states that in total 198 tons in Belgian gold was recovered for the Nazi cause while another states the amount to be 240 tons – worth about $ 269m).

When France signed the June 1940 Armistice the country was divided into two zones – a German occupied and controlled north and a compliant south known asVichy France. Gold and hard currency reserves of the central banks of Luxembourg, Holland, Belgium and France should have been available for utilisation by the Nazi Reichsbank. However, only Luxembourg with its reserves of US$ 4.8 m was actually taken over by the German war machine. French gold reserves at Dakar seem to have escaped Nazi acquisition because of some technicality involving a Hague Convention (and is perhaps linked to the signing of an Armistice).

Some of the competing variations in gold values alleged to have been looted by the Nazis are listed in the table below. The variations are so large as to make a general comment regarding the depth of the plunder impossible.

Holland, which had US$ 137.2 million in 1939 (other sources put the figure at$163m), [23] managed to evacuate most of its gold to England and the US, though some appears to have been recovered by the Germans in 1940 fromRotterdam harbour (see Part 2).

The book by Glen Yeadon, John Hawkins says that the Nazis recovered 11 tonnes from the Rotterdam harbour.

Wikipedia states that $ 193m in gold was expropriated from the Netherlands but the BIS annual report states that Dutch gold reserves were US$ 995m in 1938 and this had reduced (perhaps due to shipping to the UK and US) to US$ 690m in 1939.

Leaving aside this last point (BIS, and the discord over the amount preceding it), it may prove more useful to consider the Nazis gained control of a minimum of $ 137 million of Netherland’s gold if only because the tonnage restored after the war, i.e. 1946 onwards, runs into thousands of Kilograms, which in British and American weights translates into millions of Troy ounces and hundreds of tons of gold to each country. For instance, Sweden alone repaid 13 tons of gold to the Allied Gold Commission.

After Britain, France was the wealthiest of the all continental central banks with a peacetime gold reserve of some US$ 2,435m.  Before its surrender, the French government was able to successfully spirit away 100% of French gold in  3,000 cases  to Canada in March 1940.

Complimenting the gold reserves in mainland France were “off-shore” gold accounts in French Martinique which stored $ 245 million and a further $ 260m held in the Federal Reserve in New York. Facilities in Dakar and Casablanca, in Africa, were also used as depositories’ by the Bank of France but no figures are given for their pre-war holdings. [24]

According to “Hitler’s gold . . . Nazi loot” by Arthur Smith, the French cruiser Émile Bertin arrived in Martinique in June 1940, with 286 tons of gold on board from the Bank of France. [25] The information comes from microfilmed German Records (Ref ‘T 501’) which by 1940 probably had control of the Bank of French ledgers, but it is not clear if this 286 tons (tonnes presumably) was an addition or represented the entire Martinique holding. Applying the 112% formula this would make the gold worth US$ 320.32 million (all these gold values are based on the inter-bank price of $35 per oz).

Troops in Operation Torch (Nov 1942) would have overrun Casablanca in the first few days and any gold would have been quickly recovered. The entire Martinique holding would also be re-allocated to the Allies once the invasion ofNorth Africa had begun and the end of the Vichy Government was inevitable.

What is indisputable about the amount of gold in Dakar is that it held the $ 64m from Poland and $ 198m from Belgium. Hence the table above showing the Nazi control of Belgium’s $198m gold is solely due to the Vichy Government in France which, under pressure from Berlin, agreed to bring back the gold back to the Banque de France and transfer to the Reichsbank. This act of collaboration saved France’s gold but sacrificed Belgium’s.

For the Vichy government returning the gold from Central Africa to Algiers and from there to Marseille was no easy transportation task. Even with the Luftwaffe making many crews and aircraft available to fly some 99 creates of gold from Dakar to Algeria via Casablanca (see River Niger secondary route above) the operation was not fully completed until May 1942 – barely 4 months before the Allied advance at El Alamein  (Oct 1942) and Operation Torch (Nov 1942). [26]

Inexplicably, Poland’s gold remained wholly, or to a goodly extent intact and  after Operation Torch of 1942 (Allied landing in North Africa) it was rediscovered by a Polish Bank official and it was then shipped to the USA.

Germany’s amassed gold reserves – its own and other countries – totalled in the region of $ 581 million by the end of 1940 and its takeover of the Balkans and countries on its south eastern flank would yield yet more gold.

7. Lebensraum

All of the above nuances and complications happened after the Fall of France and after the Battle of Britain (Sept 1940).

There is nothing in the records to show that Hitler was in the least bit interested in gold or the financing methods for his war (his crusade), except for the broad brush strokes of a military build necessary to enable invasion and realise his ambition of lebensraum. He left those details to minions with more expertise than he possessed.

He appears to have had vague ideal of a self-stuffiest Germanybased on conquered lands and depopulated nations. Lebensraum meaning “living space”, in terms of land and raw materials, was essential for the Greater Germany Hitler had outlined in his book Mein Kampf, but the term Lebensraum is believed to have been coined by Friedrich Ratzel in 1901.

France and Britain, it was reasoned, had their need for ‘expansion’ satisfied by numerous colonies which had brought both countries greatwealth – this was an option not open to the late developing German state.Germany’s route to greatness would have to be eastwards and this would mean the confiscation of Slavic lands whose peoples were not on a par with the Aryans race.

Nazis policy was to kill, deport, or enslave the Polish, Russian and other Slavic populations. It also entailed the evacuation for “Germanification” of all blond haired Polish children. Programmes included the rounding up of such children who were then sent to Germanyto be adopted by German parents (enforced adoption). ‘Lebensborn’ was another racially pure programme aimed at encouraging ‘suitable’ women to be made pregnant by suitably Aryan German soldiers. This was a problem specifically in countries such as Norway.

The first phase of this enslavement had been the Ribbentrop Pact, which was the buying-off of Russia. The second part was the invasion and confiscation ofPoland. By late 1939 this had also been achieved. The third and final part would be the invasion of Russia itself and it conquest. The entire urban populations of both countries were to be exterminated by starvation or murdered en mass.

The vacuum would be filled with German nationals incentivised to take over the expropriated land set up factories and provide an agricultural surplus to feed Germany.

8. The Balkans

However, before the third and final part (the conquest of Russia) could be put into action German concerns about their vulnerability to a Russian counter-attack from the North East and/or through countries to the South East had to be addressed.

Throughout 1940 Germany mounted a campaign of courtship towards Romania, Hungary, Bulgariaand Slovakia (the rump of Czechoslovakia). Nazi Germany offered economic aid to Slovakia and military protection and Soviet territory to Romania. [27]

Germany also resorted to cajoling and pressurising reluctant states – and in difficult cases the organising of insurrections in the streets leading to the appointment of a more favourable new government, e.g.Romania. The aim was to secure raw materials (especially Romania’s oilfields), but also the critical transit rights for German troops.  By early 1941 Bulgaria had also joined the Axis and measures were in place for these sympathetic Balkan states to pay a contributions towards both occupation troop costs and the costs for the invasion of Russia.

German concerns about securing the south eastern flank in the Balkans were realised when her ally, Italy, failed in her efforts to conquer Greece in the autumn and winter of 1940 – 1941. Albania, which had already been invaded and annexed by Italy in 1939, should have made an invasion of Greece very much easier. In the same month as the Battle of Britain (Sept 1940), Italy invaded Egypt from its colony in Libya but as with her invasion of Greece her German ally had to come to her rescue.

The map above shows the secured northern and southern flanks of Greater Germany (darker blue) of 1940, i.e. Denmark, Norway and Finland in the north and to the south Albania, Greece, Romania, Bulgaria, etc. (The light blue areas on the map represents the penetration by the Wehrmacht into Russia in 1941).

Nazi Germany had gained political and industrial leverage over Bulgaria, Slovakia, Hungary, Romania and by 1941 the Reichsbank had taken over these country’s gold reserve accounts and was operating them from Berlin. One year after the defeat of France, Germany was poised militarily to capture the Kingdom of Yugoslavia and capture its gold reserves.

Most historians give the impression that Mussolini’s ego got the better of him and he felt he needed to parade victories as often as Hitler had done. Wishing to avoid the ‘junior partner’ label precipitated Italy’s invasion of Greece in Oct 1940 but the Italians were thrown back to the Albanian border. Germany feared that the Allies would use bases in Greece to attack Romania’s oilfields which the Wehrmacht and Luftwaffe heavily depended upon.

At the same time, as a prelude to invasion, German instigated street insurrections failed to work inYugoslavia in the same way as they had in other adjacent countries. Parallels might exist or be drawn between the street uprising of the Arab Spring in 2011 – 2012 and popular uprising in former Soviet satellite countries some years before, e.g. Ukraine, 2004, Georgia, 2003 (all have been acused at one time or another of being instigated from outside forces).

April 1941 saw the invasion of Yugoslavia on three fronts by German,  Italian, and Hungarian armies. Ten days later after stubborn resistance Yugoslavia surrendered. In the same month Greece was invaded by Germany using Bulgaria as the spring board. Rebuffed earlier by Franco rejection of an Axis attack on Gibraltar, German forces could at last threaten Britain’s Middle Eastern outposts in the eastern Mediterranean.

The amount of purchasing power it brought to the Third Reich is shown in the Table (right). At this point the picture becomes clouded, indeed, very confused.

Firstly, the previous reference texts relied upon omit useable details for Bulgaria, Slovakia, Hungary, Romania, Yugoslavia, Greece and Croatia. Only three sources, the BIS, the World Gold Council, and one of unknown veracity / reliability have published figures for this regiob and era (displayed in adjacent Table). Secondly, where data is available, the gold and monetary reserves of these countries appear to be used by the Reichsbank to pay for supplies and meet debts incurred by the Third Reich. For instance, the Reichsbank used Belgian gold to pay $53m to Romania for oil supplied to Germany. Thirdly, it was not simply the purchase of raw materials from neutral countries but increasingly finished goods.

Depleted production capacity within Germanywas offset by factories set up in conquered countries – much like in the film Schindler’s List where he is forced to move his factory and staff around Europe.

a. Buying production capacity

Which brings us to the larger question, namely, what was Germany getting in exchange for the gold it was looting from across Europe.

On the larger scale, Germany was funding the setting up of production facilities just over the border in Switzerland to escape aerial attacks. Switzerland herself was, by the closing years of the war, rashly supplying large quantities of finished goods to the Nazi regime, e.g. ball bearings, gauges and optical equipment. A paragraph from the EizenstatReport is quoted here but divided into its 3 main constituent parts: [28]

  1. Foreign Economic Administration (FEA) experts noted that the most important products exported to Germany required the exceptionally high degree of skill and precision for which Swiss watch and machine tool industries were famous, and, in fact, some of the products could not be produced at all in Germanyor not in sufficient quantities to meet wartime needs.
  2. In addition, Switzerland annually exported to Germany one-half billion kilowatts of electricity, or about 40% of the total power supply of southern Germany, and Swiss hydro-electric power annually produced 16,000 tons of aluminum and aluminum products for Germany during the war.
  3. Moreover, the unprecedented use by Germany of the Swiss railway to transport goods to and from Italy (apart from the transit of actual materials which Switzerland banned) allowed large quantities of raw materials, foodstuffs, chemicals, and other materials to transported to Italy and permitted Germany to mitigate some of the effects of the Allied control of the Mediterranean Sea.”

This one paragraph tells us how damaging Swiss conduct was to world peace and how the lust for monetary gain negated their sense of morality. With Russia closing in on Germany from the east and the Americans and British from the west, to be caught supplying a defeated nation with 40% of the electricity to prolong the war was diplomatically unforgiveable and commercially inexcusably stupid. But such was the lure of gold that many of the normal moral taboos appear to have been abandoned by the Swiss. It is a matter of public record that in April 1945, only days away from Hitler’s suicide, the Reichsbank was still moving gold to the Swiss National Bank and the BIS.

World War II cost 200,000 airmen their lives trying to bomb Germany’s aircraft and ball bearing factories, its railway system and oil capacity to a standstill. Without Switzerland’s long collaboration with Nazi Germany could that bombing campaign toll have been reduced to 100,000 lives ?

After the war an unrepentant Swiss banking system insisted that it owned Germany production facilities both inside Switzerland and inside Germany(and in Italy too). Loans it had made to Germany to set up factories in other countries it also claimed as Swiss assets even though they were paid for by stolen gold and blood gold from concentration camps. The Swiss resisted attempts beginning in 1946 to use the value of those factory assets to recompense the many ravaged countries and feed millions of refugees (displaced persons).

Professor Jean Ziegler of Geneva and the Sorbonne universities in his book “Switzerland, the Gold and the Dead” (1997) that supposedly neutral, Switzerland was more than happy to take German gold in return for hard currency to buy weapons.

  • “I consider it proven that the Swiss contributed significantly to the prolonging of the Second World War.”

Professor Ziegler asserts that his country enabled the Nazis to extend the Second World War by two years. In his view the war should have ended soon after the German defeats at Stalingrad and in North Africa. [29]  Without Swiss foreign currency dealings (converting gold into hard currency), Walther Funk, head of the Reichsbank also believed the Third Reich would “last no longer than two months.”

Hundreds of thousands of civilian causalities could have been avoided if the Swiss had not continued to finance Hitler’s war of aggression – and most certainly after 1943 the V1 and V2 deaths in England could have been averted and the retalitory firestorms Hamburg (1943) and Dresden (1945) need not have happened. When ‘collateral damage’ is such a hot political issue today, Swiss induced collateral damage’ is on a scale that is quite unimaginable and unforgiveable.

9. Occupation costs

Tax, that most innocuous, legitimate and legal method of funding  government schemes was put to good use to finance Germany’s war with Russia. Making countries pay for German forces billeted in their towns and country not only relieved the burden on the Reichsbank but added to Germen financal reserves.

When, for example, the French or Dutch paid for goods and paid a sales tax, or a purchase tax, or an income tax on wages it all found its way to Berlin. Those that had no work were allowed to starve, saving the Reich more money, and those that could only find work inside Germanyboosted production and Nazi GDP.

Germany set the exchange rate in its favour for all the countries it occupied so it paid, in essence, only a fraction of their true cost. Germany also altered the gold price – as had many countries previously in the 1930s to assist in measures to overcome the economic depression then being felt.

Germany appointed Reichskomissars to every country within the Third Reich and taxes were levied (a process that is being repeated in the present 2012 crisis to ensure that Greece complies). In the case of Holland 50 million Reichsmarks (RM) per month were demanded of which 10 m Reichsmarks had to be paid in gold. The website “As they saw it” states;

  •  Nazi exploitation of the Netherlands and of the Netherlanders for the purpose of winning the war was continued and intensified in 1941. Since the German occupation of the Netherlands the State debt had increased by nearly $100,000,000 per month. Expenditures for 1941 are estimated at $1,875,000,000; of this amount $875,000,000 was absorbed by maintaining the German army of occupation and paying other expenses of occupation. It was believed that there were 1,500,000 German troops quartered in the Netherlands at the beginning of the year. http://astheysawit.com/1359-1941-netherlands.html

Even by today’s standards $ 100 million per month is a significant sum of money, in 1940 it must has seemed astronomical.

By 1941 the larger of the countries invaded were paying Berlin 10 billion Reichsmarks per annum – a figure that would only escalate in the coming years.

The table below shows the yearly amounts paid by all “occupied  countries” recorded in BIS accounts. Included in the figures given for “other countries” are the occupation costs paid byNorway, Greece, Croatia and Serbia.

It also includes the “war contributions” of Bohemia and Moravia and of the Governor-Generalship of Poland (and probably also the payments made to the Wehrmacht by the Ukraine Central Bank from March 1942 and by the Ostland Central Bank from April 1943).

The local upkeep cost for the German troops stationed in 1). Finland, 2). Hungary, 3). Slovakia, 4). Romania and 5). Bulgaria appears to have been debited directly to the respective clearing accounts by the Reichsbank.

The aggregate occupation costs paid by Norway up to the end of 1944 seems to have been about N.Kr. 10 – 11 billion, the equivalent of some 6,000 million Reichsmarks, i.e. 6 billion RM.

Greece would appear to have paid Germany about RM 3,300 million from April 1941 to December 1942 to cover occupation costs. But getting payment from Greece which did not have the financial or commercial infrastructure to fund German and Italian troops, proved difficult. The Third Reich appears to have used the Bank of Greece almost as a corner shop and to make mandatory wholesale purchases under order from the Wehrmacht (payments obtained through “Degriges”, the Deutsch-Griechische Warenausgleichsgesellschaft).

The debt total in 1943 was 1,499 billion Drachma – 318 billion Drachma in “interim payments” towards occupation costs and 1,068 billion Drachma in interest free loans. By the time German occupation ended Greece had paid Germany 3.4 trillion Drachma for the privilege of being occupied.

The amount paid by Croatia for its occupation troop costs during 1943 approached RM 600 million, though the 1944 BIS source also states that some of this amount might have gone to Italy(but no explanation is given) and in the first six months of 1944 a further RM 570 million was paid by Croatia.

The BIS accounts for 1944 has no figures for Serbia but a report issued in Belgrade in December 1944 placed the total costs of occupation paid by Yugoslavia as a whole since March 1941 at Dinars 82 billion,

10. Russia

Twelve month after defeating France, Hitler’s blitzkrieg was unleashed on its former ally, the Soviet Union (June 1940 and June 1941 respectively). As can be seen by the detail in the above text the Nazi regime was active, successful and very busy securing all the countries on its south eastern flank. Now was the moment to launch a surprise attack on Russia, Operation Barbarossa.

Finland, Romania, Hungary, Bulgaria and Italycombined with Germany in the attack involving 3 million men. Later those forces would be reinforced by “legions” (a term for a company of about 1,000 strong) from occupied countries such as the Baltic States, France, Spain and Holland. The Spanish Blue Division and the Legion of French Volunteers Against Bolshevism, the Croatia Volunteers Regiment etc, all became part of the Waffen SS divisions (see Annex A for list of other legions).

While Hitler’s personal attention and ambition was the crushing of all things Soviet his subordinates in the Reichsbank and Nazi financial advisers were very much aware of the treasures Russia held for the German war machine.

The Soviet Union had almost limitless quantities of raw materials; from diamonds and gold down to the most mundane of ores and food stuffs, e.g. wheat. Published central bank gold reserves for 1935 showed Russia to have 7,456 metric tonnes of fine gold. [30] BIS accounts for 1937 reveal that the gold Russia mined that year exceeded its GNP by $ 28m. Russian gold exports through London in the 1930s were valued at about $200 million per the year.

a. ‘Moscow Gold’

Only a year earlier, Nov 1936, Russia had been the beneficiary of panic caused by the Spanish civil war. The central bank inMadrid held the world’s 4th largest gold reserves estimated at US$ 750 million in 1936. With Franco’s army approaching the majority of this, circa 70%, was shipped to Moscow for safe keeping (27.4% amounting to 174 tonnes of fine gold, i.e. 193 tonnes of crude gold, was shipped to the Bank of France). The discrepancy between fine gold and crude gold is probably due to the fact that most of Spain’s gold reserves were held in the form of foreign coins (70% were British gold sovereigns and thus had a market price many times their face value). Spanish gold reserves included only 64 ingots.

Stalinist Russia, which was one of the Republic’s arms suppliers and was paid in what has since become known as Moscow gold. France too supplied military materials and provisions and in exchange for gold Spain received 3,922 million francs (approximately US$ 196 million), with which to buy them (this implies that the gold shipped to Russia had a face value of $ 640 million). However, BIS accounts refer obliquely to Spanish ‘gold movements’ in 1938 as being only in the region of $200 million.

Whatever the true reason for moving 510 tonnes of gold to Russia, it was an attraction that must have been known to the Reichsbank as indeed it was to the BIS which noted that in 1935 Spain had gold reserves of $ 2,255 million ($2.2 billion) – gold reserves that by 1940 and 1941 BIS accounts reveal as shrinking to nothing (Spain is no longer listed with other nations after 1940). [31]

Whether the Republican government of Spain actually got full value for it millions in gold is still open to speculation. [32] According to Wikipedia, Spain never did gets it gold reserves returned by the Soviet Union, which claimed, in 1956, that Spain still owed $50,000,000 for the armaments sent (which is unlikely given the low level of support and the contrasting bills presented to Franco by Italy and $215,000,000 at 1939 prices by Germany). [33]

Bank of Spain functionaries also retrieved at the time the Bank’s silver valued in 1936 at 656m Spanish pesetas (P 656,708,702), which was later sold to the United States and France between June 1938 and July 1939 for a sum slightly exceeding US$ 20 million (a portion of the silver was confiscated by French authorities and Nazi Germany might have gained some of this amount with the defeat of France in June 1940).

It is not clear how much Russia actually suffered in terms of looted gold and silver or its reserves (probably none for the latter. But religious icons that had survived Stalinist repression would have been a clear target for the art snatch squads of the Wehrmacht.

Notwithstanding this uncertainty what is clear is thatby the summer of 1943 the German Wehrmacht found itself stalled and then in retreat– a retreat that was protracted through Poland and Germany’s south eastern flank during 1944 and ending in Berlin in the Spring of 1945.

11. Cultural cost

Hitler’s forces brought down a ‘scorched earth’ policy upon Russia on both sides of Barbarossa, that is to say during the advance to Moscow and then again during the retreat to Berlin. Notable confiscations of wealth are confined to the Ukraine’s central bank, as mentioned above, and smaller regional banks and depositories in Belarus. But Nazi thefts were not restricted to gold or silver; inPoland it is estimated that Germany stole 43% of its cultural heritage, its irreplaceable manuscripts and tapestries.

  • “The total cost of Nazi theft and destruction of Polish art is estimatedat$ 20 billion, or an estimated 43% of Polish cultural heritage; over 516,000 individual art pieces were looted, including 2,800 paintings by European painters; 11,000 paintings by Polish painters; 1,400 sculptures; 75,000 manuscripts; 25,000 maps; 90,000 books, including over 20,000 printed before 1800; and hundreds of thousands of other items of artistic and historical value. Germany still has a great deal Polish material looted during World War II. For decades there have been mostly futile negotiations between Poland and Germany concerning the return of the looted property.”

Hundreds of museums all over occupied Europe- itself a treasure house of the arts and the aesthetic – were ransacked and artwork stolen. Unique collections and archives were scooped up and shipped back to Germany– many never to be seen again, some to mysteriously appear in Western art collections. A Russian commission put the figure at1,148,908 items of lost artworks in Russia alone with perhaps the Amber Room from the Catherine Palace in St. Petersburg, being one of the most infamous thefts.

The cultural cost must also include the damage done to the Jewish and Slavic psyche and to the consciousness of both nations that did nothing during World War II or honourably fought against Nazism. Perhaps that is why, although repugnant, Nazism is still an obsessive subject to this day.

12. The Final Reckoning

By the summer of 1944 even the pro-German directors at the BIS could see that for Germanythe war was all but lost. It was obvious to the Allies thatby 1944 that Germanyhad already run out of its own money – its war chest of $70,000,000 long since been exhausted – but the German Swiss Trade Agreement was still in force and operating. Somehow the Reichsbank had managed to send (probably using gold requisitioned from the Dutch) $ 120,000,000 in gold to Switzerland in the previous year, ie 1943 (“Hitler’s gold: the story of the Nazi war loot” by Arthur Lee Smith, “Swiss Connection”, p 62, Ref Omgus AG, 1945- 46, Heath to Robinson Feb 1946).

Nazi Germany and the BIS appear to have used “sight accounts” and “earmarked accounts” of Germany and other countries to fund the war. There is a suspiscion that the Reichsbank might convert one type of account into another giving it greater access to other countries gold and to then be able to spend it how it chose. To explain these terms here might prove a distraction so they have been relegated to Annex B.

The BIS interpreted its methods and protocols purposefully. They could grant more credit to Germany’s Reichsbank by accepting the ‘sight account’ of others had been credited to the Reichsbank. The BIS then felt free to provide gold and hard currency as demanded of them. One possibility is thatconfiscated gold would be transferred to the Reichsbank ledgers where a manipulative or sight account would be opened up in the name of the country enabling it to be transformed and it would lose it original identity.

Gold was accepted by the BIS that had been transferred from the central banks of Argentina, Denmark, Estonia, Finland, Hungaryand Norway. The intermingling of ownership caused by sight accounts allowed Germany a greater freedom of operation in capital and currency markets. It could claim, for instance, that the hard currency requested was intended for the Bank of Norway wishing to import much needed materials.

What can be said of the BIS during the war is that:

  • The BIS sold gold to the Reichsbank on a numerous occasions.
  • The BIS know or suspected the gold traded did not legitimately belong to Germany.
  • The BIS operated in concert with the SNB (Swiss National Bank) to store and distribute Nazi gold.
  • Germany relied on the BIS (and the SNB) throughout the war – unlike the Allies.
  • The BIS traded in blood gold, gold it knew was suspect – Raubgold, stolen gold and Totengold, gold taken from dead slave labourers / extermination camps victims.
  • Overall the BIS sold a total of 5,479 Kilograms of fine gold to the Reichsbank.
  • New deposits of fine gold totalling 13,542 Kilograms were received by the BIS from the Reichsbank.
  • Of the 13,542 Kilograms, 9,649 Kilos was transferred to the BIS in various amounts to the national banks of Romania, Yugoslavia, Bulgaria Portugal and the SNB.
  • The remaining 3,894 kilos remained in the possession of the BIS at the end of the war.
  • Reichsbank was still making gold payments in April 1945 and the Swiss were still taking the money.

The question of Argentina’s gold reserves being linked to the Third Reich is interesting as it was among only a very few number of nations which saw their gold reserves climb during the war before falling, or in some instances remaining high, e.g. Switzerland.

Argentina’s Gold Reserves (BIS Annual Accounts 1935 – 1949) US$m
Year 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947
US$

444

501 469 431 466 353

– –

– –

939 1,111 1,351 1,185 319

Bolivia, another country that fell under scrutiny and asset freezing action by the US during World War II is not listed in any of the BIS accounts for 1938 – 1947 making comparisons difficult.

Hitler’s outrageous dreams of conquest cost Europe$ 1,140.9 million in gold alone, and when the ‘occupations costs’ levied on the population of around $ 8 billion are included this rises to $  9.1 billion ($9,149.9 million).

This total of over US$ 9 billion applies only to occupied nations, the gold expended by the UK, Russia and USA in the prosecution of the war dwarfs even this huge amount.

a.  Lunar lanscape

For Europe generally, the money was irredeemable and irreplaceable. Once spent it could not be recaptured – goods and services had been provided for the money. Only a fraction would ever be recovered and only a further fraction would be forced out of the hands of those governments, e.g. Spain, Portugal, Sweden, Switzerland, which the Nazis had been paid in stolen gold. These few recipient countries must have guessed, if not known, by the large quantities entailed, that it could not be Germany’s own money.

Hitler and Nazism had bankrupted all of Europe. Even his supplier nations -Sweden, Switzerland, Portugal,S pain, and Turkey etc. suffered economic hardship and currency stresses in the post-war period. Every country, including Germany, was the losers. A breakdown of gold stolen by country is given in a Table found in Annex C.

The practical implications of war invariably means added hardships; livestock neglected or slaughtered; fields not ploughed; no harvests to gathered in. Workforces depleted by death, torture or maiming lead to  and factories, farms, fishing fleets and coal mines etc working at reduced capacity. Europe could not feed herslf nor warm herself and in many places half of all homes were damaged and uninhabitable.

Denmark which suffered only slightly under Germans occupation had, for instance, 300,000 German refugees or DPs at the end of 1945. To feed them meant they could no longer export their food surplus. The essential imported agricultural feedstuffs for farmers could no longer be afforded. Britain was paying to feed over 1 million former Wehrmacht soldiers and Kreigmarine sailors, plus refugees  and DPs in their Military Zone of responsibility after 1945 (northern Germany) – this was at a time when Britain hadn’t enough money left to buy food for its own people.

  • “At the end of 1938 Europe (without the U.S.S.R.) had gold reserves amounting to about $10,400 million. Ten years later, by the end of 1948, the corresponding reserves were about half as high — not exceeding $5,300 million.”
  • The United Kingdom has a little more than half its holdings (from $3,450 million at the end of September 1938 to $1,610 million at the end of 1948) while Switzerland has practically doubled its holdings (from $700 million at the end of 1938 to $1,390 million at the end of 1948).
  • These two countries, together with Belgium, now hold $3,620 million or 70%, of Europe’s gold.” – BIS annual accounts (p153). http://www.bis.org/publ/arpdf/archive/ar1949_en.pdf

Yet the same BIS source lists – but on another page – that Britain has gold reserves  of just US$ 1 million – in fact, this was at a time when France and the Benelux countries were recorded as having had over $200 million repaid to each. Britain had troops stationed in Germany and 100,000 in Palestine. Switzerland faced none of these military peace time costs

Germany and the Allies held millions of prisoners-of-war who were part of the over 7 million individuals (displaced persons and alien refugees/nationals), on the move within the borders of defeated Germanyin 1945. All had to be housed and fed.

European Recovery Programme of 1948, more popularly known as Marshall Aid, handed out billions of US dollars to devastated European nations that tendered for the grants. The $2.7 billion that Britain received was comparable to the money expended during the war. Germany which received a lesser amount ($1.7 billion) was nonetheless put in a better position than she had been prior to war being declared in Sept 1939. Germany had spent other countries’ money more than her own. She, together with the US and other countries were able to export in teh folllowing years manufactured goods to countries of the Empire which before the war had been closed markets to them (a condition of the 1945 Washington Loan Agreement).

When  National Socialism (Nazi Party) came into power in Germany the amount of currency notes in circulation was RM 3.9 billion (at the beginning of 1933). By the end of 1938 this figure had increased to RM 8.6 billion and in the spring of 1948 it had risen still further to RM 65 billion. With wage rates effectively frozen throughout the war years in Germany, the BIS observes:

  • As a result of the redundancy of circulating media after 1945, the currency became less and less useful as a medium of exchange; but it was still needed for the payment of money wages, taxes and rents as well as for the purchase of the meagre official rations — not to speak of the transactions in the black market — since it is almost impossible to do without money in a modern country. It must be said, however, that the currency in existence could no longer serve as a unit of account and, of course, even less as a store of value. The German economy was increasingly run by way of “barter”; private individuals and firms had to learn how to carry out so-called “compensation affairs”, which were complicated, mostly illegal, and, therefore, costly.

The dollars of the Marshall Aid was ‘good money’, it restored confidence and drove out bad currency.

It took until Sept 1945 for the Bank for International Settlements (BIS) to offer to, “cooperate unreservedly with such central banks as had notified it that they were looking for monetary gold of which Germany had deprived them during the occupation of their respective countries.”

But the actualitie was not real ‘cooperation’ with the conquering forces and nor was it ‘unreserved.’ By the time the day of reckoning had arrived the BIS was found to have diversified. Far from being a mere conduit for the smooth transfer of gold payments, as laid down in the Young and Dawes Plan, the BIS was an active international merchant banker and investment house. It believed it had permission to engage in these types of financial operations:

  • “At the time, these operations gave rise to a series of investments and during the war the Reichsbank continued to effect transfers in the form of remittances of gold or Swiss francs (against Reichsmarks) corresponding to the interest earned on these investments together with a very limited repayment of capital.”

13. Profit – a Swiss vice

Juding actual deeds rather than words or relying on promises is the surest way to objectively assess a person or a country’s intentions. The words that best describe Switzerland’s intentions and probity can be summed up ain a few harsh words Unrepentant, Unashamed, Unapologetic, Self-serving and not in a small way contrite.

The  BIS and SNB were jointly party to the handling – if not laundering – of over US$ 500 million in gold alone. The promises of full co-operation and restitution never materialised and only a small fraction was paid over to the Allies by the Swiss. The deceitfulness, deception and downright dishonesty of the Swiss authorities persisted after the surrender of Germany and well beyond the bounds of acceptable human behaviour.

In the face of mass starvation and decimated economies, the BIS records making dividend payments 33.4 million Swiss gold francs which can only have come directly out of profits made. The following extract is taken from BIS annual accounts for just one year:

  • After deduction of the looted gold received from the Reichsbank, the amounts transferred from Germany have still been sufficient to cover almost the whole of the interest earned on the Reichsmark investments up to 31st March 1945, the last date to which such interest has been brought to account.
  • During the period from 1st September 1939 to 31st March 1948 the Bank has been able, even after deducting the gold to be restituted, to increase the total of its net assets in gold and currencies other than Reichsmarks by over 21 million Swiss gold francs. In addition, the Bank distributed as dividend in respect of the years 1939-40 to 1943-44, amounts totalling 33.4 million Swiss gold francs.

The latter paragraph (“even after deducting”) reflects either a the high level of profiteering in a supposed not-for-profit agency working on behalf of national governments, or the unwillingness to recognise that much of the gold handled was blood money.

The 18th Annual Report of the BIS goes on to explain their long investment of millions of US dollars in Nazi German in these terms:

  • “Funds invested in Germany in execution of the Hague Agreements of 1930 rose from 291.2 million Swiss gold francs on 31st March 1948 to 297.2 million on 31st March 1949. This  increase of 6 million, already announced in the preceding Report, reflects the incorporation in the Bank’ s claim against the Reichsbank of the part of the gold restituted by the Bank [BIS] for its own account under the Agreement of 13th May  1948 which had not already been included in the balance sheet asat 31st March 1948.” – page 159 – 216.

Throughout the wartime period and afterwards, the BIS made astronomically large profits by comparisons of the day and the Directors received handsome fees.

Net Profit after all deductions for wages and costs in 1938 were 9 million Swiss gold francs or approx US$ 9m.

The 1948 Profit & Loss Account for the BIS reveals that on a turnover of 11.7 million Swiss gold francs, it set aside it profits of 9.5m in a ‘suspense account’ of which, “500,000 Swiss gold francs [were diverted] to an account for exceptional costs of administration.”

The level of BIS investment in pre-war Germany can be noted in this rueful comment concerning the suspension of interest payments in the post-1945 era:

  • “ . . . It must be emphasised that although the surplus for the year is almost comparable in amount with those shown in the years prior to the war, it is derived to a much smaller extent from income of a regular nature and to a much greater measure from income arising from occasional operations. This position is the result of the suspension of the interest on the funds invested by the Bank in Germany in 1930-31 in application of the provisions of the Hague Agreements. It is to be expected, therefore, that there will be wider fluctuations in the financial results achieved than was previously the case.”

14. Nazi rejection of gold

At the heart of Hitler’s new world order lies a contradiction. Paradoxically it was the stated intention of the Third Reich, once victory was achieved to then abandon or sideline all reliance on gold for future monetary issues.

Gold would no longer play a dominant role in world trade expansion, or in the settling of debts, or the setting of exchange rates or in the setting of commodity prices.

One assumes that at the time when the US was no where near the significant world currency it was to become after 1945, e.g. setting oil prices in dollars, the only tradable currency widely accepted in the West for commodities and national debt payments was gold and Sterling. Was the ambition, after absorbing Great Britain by invasion in 1940 to transform what was termed the “Sterling area” and empire trade into the “Reichsmark area” ?

In 1941 the BIS also posed the question of how could “Germany  . . .. finance rearmament and war with very slight gold reserves” and how could its foreign trade have been carried on using only the clearing basis ? The BIS believed it begged the question of whether a new monetary system had been developed which had dispensed altogether with the need for gold. In authoritative statements made on this subject in Germany and Italy a distinction is drawn between different functions of gold. [34]

They pointed to a speech made by the President of the Reichsbank, on 26th July 1940, in which he said:

  •   ” . . .  in any case gold will in the future play no rôle as a basis of European currencies, for a currency is not dependent upon its cover but on the value which is given to it by the state, i.e. by the economic order as regulated by the state.”
  • “It is another matter whether gold should be regarded as a suitable medium for the settlement of debit balances between countries; but we shall never pursue a monetary policy which makes us in any way dependent upon gold, for it is impossible to tie oneself to a medium the value of which one cannot determine oneself.”

A year later the Governor of the Banca d’Italia, in a speech on 29th March 1941, also pointed out that, although the possibility of a development of this kind could not be excluded in connection with European trade with overseas countries. He believed it was difficult to envisage that this would occur immediately after the cessation of hostilities, when payment in gold to correct disequilibria would in all probability be necessary. The need of maintaining a metallic reserve would, however, be concentrated more and more on the clearing centres:

  • “For years now the importance of gold as backing for the currency and as basis of the credit structure has been non-existent, the automatic working of the system having failed to stand the test just when exceptional circumstances called for its efficient functioning: under state control credit has been commensurate with production and labour, and the stability of the currency has been maintained independently of the amount of the gold reserves.”

How prescient to our present situation this proved to be. The economic crisis of 2008 is one of debt and paper wealth, i.e. fiat currency and worthless mortgages, futures and derivatives. The unreality of it continued into 2011 with EU ministers meeting dozens of time but never having a plan for Greece while their national banks sit on hundreds of tons of gold (Italy 2,451 tonnes, Germany 3,401 tonnes, France 2,435 tonnes, as at 2010).

How post-war events actually unfolded were not too dissimilar. The US became the defacto reserve currency ushering in the demise of Sterling but it could so easily have been the Reichsmark.

It could have been Euro-marks or Euro-Reichsmarks instead of “Eurodollars” that created the expanding world economy after 1945. Eurodollars are US dollars that have been spent or earned overseas and were then left in overseas banks (usually European). Companies and agencies were happy to leave them “offshore” because of the higher returns that could be obtained.

US dollars were also left in Europe to avoid tight domestic regulations and avoid ‘double taxation’ penalties and investment premiums/ obstacles.

An adjunct to this development was the emergence of Eurobonds in the 1960s. The driving force behind the creation of the Eurobond market was an unfavourable tax regime introduced in the USAin the early 1960s, effectively forcing international borrowing in US dollars offshore. The first Eurobond is generally considered to have been an issue by Autostrade in 1963. London become eh home for the Eurodollar and Eurobond market and enhanced its position as the international capital market leader. The matter of Eurobonds has been clouded by the creation of bonds issued by the EU denominated in Euros.

It is both worrying and ironic that in today’s Euro zone crisis it is Germany which is insisting on sending a Kommissioner to oversee tax gathering in Greece as it did in 1941.
Will Germany be more successful than then ? Greece,  like Franco’s Spain of the 1960s, is notorious for setting tax rates but no one paying them.
Has Germany finally realised that empire and colonialisation can be achieved economically and not out of the barrel of a gun ?
 
E N D

Annex A

 National of the following countries volunteered to fight on the side of the Nazis and were absorbed as elements of the Waffen SS. Many fought heroically and on a par with the best SS units. Their battle survival rate was very low. But for all of them the post-war experience was difficult, marked by ostracisation, recriminations, and even retribution. Often they volunteered for personal reason but those fromEastern Europejoined believing they might shake off the Soviet yoke.

Non-German Legions in Waffen SS Units – in alphabetical order
Country Strength
Albanian:

3,000

Belgian: Flemish

23,000

Belgium: Walloon

15,000

British Commonwealth: (English)

50

Bulgaria:

1,000

Croatia:

30,000

Denmark

10,000

Estonia:

20,000

Finland:

1,000

Hungarians:

15,000

Latvia:

39,000

Netherlands:

50,000

Norway:

6,000

France:

8,000

Italy:

20,000

Russian:

60,000

Rumania:

3,000

Serbia:

15,000

Spain:

1,000

Sweden, Switzerland & Luxemburg:

3,000

Ukraine:

25,000

Annex B.

Gold: “Sight accounts” and “Earmarked accounts”

The BIS offered, and still does to this day, two different types of account to central banks: “sight” and “earmarked” accounts.

It is perhaps better to start by explaining ‘earmarked’ accounts. These are recorded gold accounts held separately and specifically for a central bank, for example, 170 tonnes for the Bank of Spain and valued at say US$ 200 million. ‘Earmarked’ gold is specific and as it name implies ownership and value, allocated to a specific country.

‘Sight’ accounts on the other hand are non-specific accounts, meaning that the gold is unallocated

In short ‘earmarked’ account gold is custodial / proprietary and sight accounts are co-mingled and non-custodial. [35]  A useful analogy would be a person paying in bank notesat one bank and drawing out the same amount in notesat another bankat a later date.

The BIS is not very forthcoming on the uses and distinction of these two accounts but the following regarding ‘sight accounts’ was published by them in 1997 (for the period 1930  – 1945):

Gold on sight accounts is unallocated gold. The Bank’s obligation with respect to gold held in such accounts is to place on demand at the disposal of its depositors, atthe central bank where the deposit was constituted, gold bars of the same type as it has received, up to the total fine weight standing to the credit of the account. [36]

Where the central bank concerned was the Reichsbank, the BIS was obliged to pay out in gold or currency the amount stipulated by the Reichsbank. When the Reichsbank made a deposit of gold in a ‘sight’ account it could very easily have been stolen gold from, say, Belgium or Italy.

Gold in earmarked accounts is allocated and from the BIS transcript this would appear to make the BIS liable to hand over the identical gold bars “which had originally been deposited” with the BIS, i.e. not someone elses’ or a bar of equal weight but the very exact some bar deposited.

It is therefore of little surprise that the Reichsbank would choose to use ‘sight’ accounts rather than ‘earmarked’ accounts.

Japan, which was once forbidden to hold reserves in the form of gold following the terms of the 1945 surrender, opened a gold account with the BIS in 2000.

This seems to be how such accounts are operated:

  1. The Bank of Japan opened its sight account at the BIS by paying US dollar in cash into that account.
  2. The Bank of Japan then asked the BIS to purchase gold using the cash (sight account holders can withdraw the equivalent amount of gold at any time).
  3. On the Bank of Japan’s balance sheet, the Gold Sight Account is been classified as “foreign currency assets (foreign currency deposits)”. NB. This is not strictly true as the “foreign currency” has in fact been converted into gold.
  4. All gold bars produced for banking / investment have serial numbers.
  5. When an earmarked account is later opened by the Bank of Japan, the gold sitting in the site account can be transferred and becomes the sole property of the Bank of Japan, with all serial numbers listed.
  6. For accounting purposes the gold can no longer be referred to as ‘foreign currency’ but has to be listed in the balance sheet as gold.
  7. It is for this reason that the Bank of Japan’s gold balance has increased by 11,651,494 thousand yen as shown in the “Bank of Japan’s Accounts” as of July 20, 2000.  http://www.boj.or.jp/en/statistics/outline/notice_2000/ntac03.htm/

Annex C

Hitler and Nazism bankrupted all of Europe. Even his supplier nations, namely Sweden, Switzerland, Portugal, Spain, and Turkey etc. suffered economic hardship and currency stresses. Every country, including Germany, was the losers. A breakdown of gold stolen by country is given below:

Germany’s gold  confiscation / usage  (1938 – 1945)

Reichsbank

US$ m

Published  reserves         

28.6

Hidden reserves

82.7

Other German bank reserves

12.1

Sub-total

123.4

Austria

99

Czechoslovakia

34.4

Poland

Nil

Sub-total

$ 256.8 m

1940  
Norway

88 / nil

Denmark

51

Holland

137.2

Belgium

296

Luxembourg

4.8

France

nil

Sub-total to 6/1940

$ 745.8 m

1941 Balkans  
Bulgaria

24

Slovakia

– –

Hungary

 24

Romania

152

Yugoslavia

 69

Greece

28

Croatia

– –

Ukraine

– –

Other state banks eg Danzig ?

10.1

Italy (1943)

88

Gold reserves utilised

$ 1,140.9 m

Occupation Costs Est’d

$ 8,000 m

 

$ 9,149.9 m

Not yet spent

$ 238 m

Switzerlandand Gold Transactions in the Second World War – Interim Report  (Bergier).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Footnotes: 

[2] “Switzerland and Gold Transactions in the Second World War” – Interim Report (Bergier report). http://www.swissbankclaims.com/Documents/Doc_6_golde.pdf

[4] See, U.S. and Allied Efforts To Recover and Restore Gold and Other Assets Stolen or Hidden by Germany During World War II – Preliminary Study [1997] (http://www.swissbankclaims.com/Documents/Doc_5_Eizenstat_Report.pdf) and prepared by William Z. Slany, of  US State Dept

[5] “German Gold Movements (Estimate),” prepared by Otto Fletcher, US State Dept Feb 5, 1946, and “Allied Claims Against Swiss for Return of Looted Gold,” prepared by J.H. Mann.

[14]CzechRepublic: Czechoslovak gold reserves and their surrender to Nazi Germany” by Eduard. Kubu, London Conference, 2 – 4 Dec 1997, HMSO, 1997. See also NARA Libraryat HV6665.G3L66 1997

[15] Prof. Jean Ziegler, “Switzerland, the Gold and the Dead” (1997)

[16] Captain Robert E. Brett (DSO, DSC, RNR),  http://www.georgetownhistoricalsociety.org/Polish%20Gold%20Program.html    

[18] Henry Morgenthau, Jr Secretary of the Treasury 1934 and adviser to Pres. Roosevelt

[19]  “Norway 1940” by François Kersaudy

[20] For the rapid conquest of Belgium see also references to Fort Eben-Emael

[21] The gold was packed into 4,944 chests and brought via Ostend to the South of France. It was then stored in the cellars of the Bordeaux and Libourne branches of the Banque de France. http://www.nbbmuseum.be/2010/03/belgische-goud.htm

[22] Atonement for what is not revealed http://www.nbbmuseum.be/2010/03/belgische-goud.htm

[23] Bergier Report states Nazis gained US$ 137.2 million from Netherlands gold reserves http://www.swissbankclaims.com/Documents/Doc_6_golde.pdf but Arthur Lee Smith in “Hitler’s gold: the story of the Nazi war loot” puts the figureat $ 163m

[24] Britain also held gold in the Sterling Equalisation Account, inEgypt and in India.

[25]Hitler’s gold: the story of the Nazi war loot” see also  http://en.wikipedia.org/wiki/History_of_Martinique

[29]How Swiss oiled Hitler’s killing machine’, 23 March 1997  http://www.independent.co.uk/news/how-swiss-oiled-hitlers-killing-machine-1274447.html

[30]Central Bank Gold Reserves. An Historical Perspective” by T. Green

[31] Franco inherited only 40.2 tonnes of gold in 1939 which had been deposited in Mont de Marsan, France.

[32] Spanish Gold: 510 tonnes of gold, corresponding to 72.6% of Spain’s gold reserves were transferred to the Soviet Union. See http://en.wikipedia.org/wiki/Moscow_gold

Hitler’s Gold – Part 2

December 29, 2011
Gold_bullion

Picking up the pieces. 

War makes for ‘collateral damage’. Money, gold, and millions of people and families were scattered to the four winds. Only when the carnage ceased and the debris surveyed could the rebuilding begin. Gold Bullion is always squandered in the funding of a war. Money and credit after 1945 were scarce and on the point of collapse. Today, after the invasion of Iraq etc, the same implications face the US and the West. The role of ‘credit’ is central and economic collapse could be endemic and unavoidable.

Running a war which lasts for more than 10 years brings home the fact that it not only costs a lot of money but that unless the currency used is backed by precious metals “trouble” can be expected in the form of the twin evils of inflation and depression (or deflationary spiral). How Hitler and the Third Reich managed to finance their war is instuctive as it is quite extraordinary.

Prosecuting a war has generally been the preserve of rich nations who either stood to gain more riches or had deep enough pockets to withstand the economic drain. The Third Reich was not rich; it was a debtor nation; and thus had no deep pockets.

This section (Part 2) deals with some of the mechanics of finance, currencies and some of the key players in the stealing of gold by the Third Reich.

Although this article reprises some of the issues covered in Part 1 it does allow the reader an understanding without having to read part one. Those readers who are not interested in the background mechanics may want to jump to the heart of the matter which begins at  “14. Sweden’s Nazi business dealing” below. 

Nations that recklessly waged war without those deep reserves quickly found they paid a heavy price. A modern example is Argentina’s war over the Falklands in 1982. Ten years later economic ruin was visited upon Argentina when it tried to peg the Argentine Peso to the U.S. dollar in an attempt to eliminate hyperinflation – then averaging 325% a year – and stimulate economic growth (1991 to 2002). [1]

Although this article reprises some of topics that were covered in Part One it does allow the reader an understanding without the need to read Part One.

Poorer countries can and have waged war but usually it has been as surrogates to wealthier ones – this was particularly true in Africa during the Cold War era. The Third Reich, however, was no one’s puppet but Hitler’s.

How, in the middle of the last century, did one country, Germany, manage to pull off this manoeuvre without very much gold or hard currency reserves. This has fascinated many. If one had to stereotype Germany it would be that they at least had a ‘plan.’ Arguably, even armed with a plan it all ended in 1945 with political,  military, economic and currency collapse.

Germany’s cause was assisted by the fact that the Nazi leaders were little more than a group of gangsters with criminal and devious inclinations. For example, some of the gold bullion bars found in Frankfurt by the Allies after 1945 were found not to be the required ‘fineness’ of 0.999. The sub-standard bullion was passed off as early, i.e. pre-war ‘Prussian Mint’ bars but were, in fact, re-smelted Belgian gold hi-jacked from Dakar (see Part 1).

Does war bring economic depression ?

What, if any, are the parallels today for America’s involvement in Iraq and the Middle East generally ? Is there a link with the current economic crisis ? Cessation of hostilities, as World War  1 showed, often brings periods of economic / political instability to nations – Russia is a prime example. In Western Europe and the USA, the post 1919 years ushered in some turbulent years. Overshadowing political discourse at the time was the working class embrace of Leninist principles and lunge for power being adopted by labour movements all across Europe (and even the US).

When World War II ended the combatant nations were bankrupt on a scale not seen in World War 1 where Germany was the only clear loser. World War II saw total war and production focused entirely on military output. Economies could not change without injections of cash. To the rescue came the USA which had built up huge gold reserves during the 6 years of conflict. Only it – and not Russia – had the economic and political will to put those devastated countries back on thier feet.

In the event of a Germany victory the Third Reich had a post-war plan (once having spent everyone else’s gold) to abandon gold altogether for central banking purposes. Has America made contingency plans for post war economic instability or did it believe it was “too big to fail” in its war on terror ?

Did America’s plans include gold price fluctuations with possibly dollar devaluation and price inflation ? Did the American government even start with a ‘plan’ or did it just drift into a 10 year long war ?  

The economic crisis the world now faces is potentially greater than that of 1919, and as endenic as the world slump of the 1930s, and worse than the post-1945 world situation because there in no one nation with the necessary political and economic vision to lift other economies. 

In the present circumstances vis-à-vis the dollar and Euro, will a currency collapse be inevitable or avoidable ? Will China continue to sit on the fence ? Are we in the first embrace of hyperinflation as ‘fiat’ currencies debase each other as a conseqenmce of a world built on toxic debt and worthless derivatives ? When ‘push come to shove’ how robust with be the credit default swap (CDS) contracts ? (In the event of a loan default the seller of the CDS agrees to compensate the buyer. But with the value and volume of CDS now greater than national GDPs the likelihood of being unable to pay is high).

The German Weimar Republic and Third Reich faced all these difficulties (and more), and all European countries had the same scenario forced upon them in 1945 and in the years immediately afterwards with devaluations quite common.

The world has therefore been in this position before and the remedities are proven to be not the restricting of trade and protection of markets. Post 2008 ‘austerity measures’, universally adoptd by governments of all persuasions are repeating 1930s mistakes and are not the only answer.

Much has been written on the moral justifications of toppling a dictator, of the political gain, the military tactics and the democratic pay-back and the peace dividend. But what of the economic reverberations of the invasion of Iraq ? Has it all been a terrible waste ? What can we learn from the cost of defeating Nazism ?

Other than the war’s headline cost of trillions of dollars and the casualty figures it would appear that precious little has been written about the collateral damage and broader costs in terms of future standards of living.

There is no shortage of competing totals from competing ‘reports’ published over the years, as to just how much gold was stolen (and wasted) by the Nazis, each one of considerable merit and all having official backing. This article restricts itself to quoting only official or government sources providing total gold values and total gold tonnage – even so, large discrepancies soon become apparent.

1. Neo-Cons based US foreign policy

What passes for American foreign policy would never pass muster anywhere else in the world – save for some dictatorships. It has never been highly rated, never seen as ‘enlightened’ and it has invariably been little more than a blunt instrument of US corporate self-interest e.g. United Fruit Co. and Cuba (when other governments operate  their foreign policy as a national interest rather then a corporate one). Even here there are parallels with the Third Reich.

It was the ‘Neo-Cons’ (new conservative) grouping around Bush that made the case for invading Iraq. But should it come as a surprise that the arch ‘Neo-Con’ Richard Perle should now be said to have “business interests” and aspirations in the Middle East and Israel.

Ivor Catt and I determined at the time of Yugoslavia’s break up (and NATO’s intervention) that ‘Neo-Con’ thinking amounted to little more than neo-colonialism legitimising gunboat diplomacy.

The ‘Neo-Con’ group appear to have believed that they could get the Bush administration to agree to an invasion of Iraq with the promise of future oil revenues. Visiting European capitals in 2002 and 2002, the same message would have been conveyed. On reflection these two Jewish advisers appear to have learnt all the wrong lessons and validated Nazi Germany’s rape of Europe.

Oil has been often been called the world’s black gold and in March 2003 Paul Wolfowitz  (another ‘Neo-Con’ member in the Bush administration) told the House Appropriations Committee that ‘black gold’ would pay for Iraq’s invasion and reconstruction:

  • “ . . .  oil revenue earned by Iraq alone would pay for Iraq’s reconstruction after the Iraq war . . .  [adding that his “rough recollection” was]  . . .. “The oil revenues of that country could bring between $50 and $100 billion over the course of the next two or three years. Now, there are a lot of claims on that money, but … We are dealing with a country that can really finance its own reconstruction and relatively soon”

In Part 1 we saw how Hitler’s successive invasions funded the next territorial acquisition. Both Perle and  Wolfowitz, the sons of New York Polish Jewish families, appear to have adopted this piracy approach to funding America’s military aggression. They appear to have operated with and had support from the unlikely quarter of John Kampfner, editor of the British left-wing periodical The New Statesman.

Were Perle and Wolfowitz beyond reproach and utterly reliable ?  In March 2005, Wolfowitz was nominated by George W. Bushas to be Pres. of the World Bank (not the IMF). This has more than an overtone of the pre-war BIS and the appointment of key staff members.

Within the first year he had broken basic good governance rules of this key world institution and appointed cronies to tax-free salaried jobs. In 2007 he again brought the World Bank into disrepute. Having the moral disposition to break rules and act illegally is one more parrallel with the gangsters that headed up the Third Reich

When capital-hopping in 2002 and 2003 did any European leaders seriously believe what Richard Perle and Paul Wolfowitz were lobbying for, namely, that Iraqi oil revenues from an invaded Iraq would finance the war ?  That is as legitimate and makes as much sense as invading Kuwait for its oil or Switzerland for its gold and bank accounts.

Had it been done before and, did anyone believe them ?

History is a little vague on this point; no one has invaded Switzerland but Germany came close in the 1940s; Saddam Hussein did invade Kuwait for its black gold and was ejected because the US found it unacceptable at the time.  But Germany invaded elsewhere for territorial gain and used the gold stolen in the process to fund the cost of invasion. At the time the world found this wholly unacceptable and some years later the gold had to be repaid (see Part One).

When Poland and Czechoslovakiawere invaded did the US find that asset-stripping unacceptable at the time ?  Richard Perle, as chair of the Pentagon’s Defence Policy Board seems to have had no doubts about about asset-stripping and appropriating Iraq’s oil wealth. In July 2002 he stated:

  • “Iraq is a very wealthy country. Enormous oil reserves. They can finance, largely finance the reconstruction of their own country. And I have no doubt that they will.”

In other words this ‘adventure’ will represent minimal costs to the US.

Perle and Wolfowitz appear to have been working in tandem. The result was the “Bush Doctrine”; a policy of pre-emptive strikes and of ‘preventive wars’ i.e., to depose threats from foreign leaders/countries and thus forestall a possible war. This was explicitly stated in the defence policy document of 2002 which was drafted by Paul Wolfowitz. The same Wolfowitz who had presented the controversial Defense Planning Guidance draft in 1992 (which bore a strong resemblance to subsequent the 2002 paper). A striking resemblance to the 2002 US policy plans is the actual policy executed by Israel Forces in the Gaza Strip and West Bank during this period.

Andrew Marshall, the “influential Director of the Net Assessment Office at the Pentagon”, also recommended that oil revenues be used to defray the cost of the military occupation in Iraq. [2] Was he really ‘influential’ in reaching that conclusion or simply a political realist, given the above ?

To be fair, there is almost a precedent for this in Desert Shield and Desert Storm of 1990-1991 (also known as the First Gulf War). The US military acted as mercenaries, i.e. their military services were paid for, by the Saudi Arabian and Kuwaiti governments. Local regional frictions and religious factions meant that no love was lost between the Saudis and the Iraqis and the last things the Saudis wanted was a longer border with a hostile Iraq.[3]

There might perhaps be embarrassing disclosures buried in the reams of Wikileaks documents revealing pre-payments or ‘back-handers’ for American intervention is international affaires. Maybe we shall never know.

With Wolfowitz’s 2003 prediction of  US$ 100 billion perhaps foremost in their minds, a Congressional delegation led by an apparently unworldly (or mule-ish) Dana Rohrabacher (Rep) was quickly shown the door by the Iraqis in June 2011 when his delegation asked the Iraqis to repay the US$ 3 trillion expended by the US since 2003. [4]

America’s (or Rohrabacher’s) obsession with money did not stop there – apparently the Libyan Rebels were asked for a contribution for US help in rid Libya of Gadaffi but in no uncertain terms Libya gave Rohrabacher his marching orders. [5] 

2. Victors write history

It has long been accepted that history as we know it, is written by the victors  and in the past victorious armies have exacted ‘tribute’ (money) from a subjugated peoples. From the time of the Greek Empire, Persia’s Darius, and then the Romans and finally the British imperial sway a certain format has been followed, usually one of mixing tribute with new local investment.

Certainly, after World War I  the winning sides wrote the peace treaty and imposed “reparations” for Germany to pay and confiscated colonies of the Second Reich, but there was no countervailing  ‘investment’ to weld the defeated nation to the ‘new club’ of world nations and share their values. Inevitably, it didn’t take long for it to become clear that Germany was economically in no position to pay. However, it is only the Third Reich which seems to have categorically taxed its subjugated peoples to fund, a). their own occupation, and b). a future war, i.e. the push into Russia (see Part 1).

After World War II none of the Allies, save Stalinist Russia, demanded “reparations” and in fact they did the very opposite, they gave money to the defeated nation to help rebuild it.

Between the end of World War 1 and World War II there was, of course, the German Third Reich. In this period Germany acquired more gold bullion to back its currency every time it invaded a country; this raised what today would be called it its Triple A ‘credit rating’ allowing it to invade yet another country. Every European country had huge reserves of gold to guarantee its currency (something that is rarely done today).

Invading a country and claiming that Germany’s central bank was therefore the new legitimate owner of the gold found there funded Germany’s aggressive expansion westwards, northwards and eastwards, and gave it the ability to tackle Russia. Both World Wars were fought when Western currencies were linked to the gold standard in some form. 

Gradually, as world trade expanded in the 1950s and control of colonies was lost during the 1960s, fewer and fewer countries could afford to be on the gold standard. The end of the Vietnam War, saw the sole remaining nation, America, de-couple the last vestige of the dollar being linked to gold reserves held at the Federal Reserve.

Since then the world has essentially run on “tick”; with no one daring to say; ‘The Emperor has no clothes.’ Financial instruments, Credit Default Swaps, derivatives, cross-insured reserves etc, backed only by fresh air and a promise to pay in fiat or  paper money, have financed a world trade that has expanded every year since 1945.

3. Eastern Example

Only one obvious example of reparations exacted which funded the original aggression (on an Iraqi scale), springs to mind namely that demanded by Japan from the Qing government of China. Not only did the reparation sum demanded pay for aggression just concluded but was large enough to fund further aggression (see ‘China Sunken Warships – Part 4’). On a smaller scale one could cite the ‘carpetbaggers’ of the American Civil War. 

As a direct result of the Sino-Japan Amity Treaty (1871), Treaty of Shimonoseki (1895), the Triple Intervention (1895) and the Boxer Protocol (1901), China paid Japan 340,000,000 taels of silver. A tael is approx 1.22 Troy ounces (the Western measurement for gold and silver). China paid Japan the equivalent (then) of 510 million Japanese Yen, which represented about 6.4 times the annual revenue of the government of Japan. Not unnaturally this bankrupted China. The payments from the Qing government were used by Japan to pay for the expansion of its Navy (38.2% of the Chinese payment), direct expansion of the Army (15.6%), and development of naval battleships (8.2%).[6]

Compare this ruthless carpet bagging – this bleeding dry of China – with the derisory amounts paid by Japan to PoWs after 1945 as compensation for their sub-human treatment at the hands of the Japanese. British PoW soldiers were paid £76.00 each.

If we take the example of Greece today, her sovereign debt is so great that she is in no position to venture towards war. Had she been financially stronger and had she undertaken such a military campaign then the graph above might represent her economy’s inflation after hostilities had ceased.

Everyone’s life experience is that ‘banks’ will always lend money to those who have it and never to those who need it. With the money from China safely in its vaults, Japan then arranged with France, via the Franco-Japanese Entente of 1907, for the French government’s backing for a $1,000 million to convert out of its high interest loans. Whether measured in today’s money or by 1907 values,  $1,000 million (1 billion) is still a huge amount for a single bilateral agreement.

When peace treaties were signed between China and Japan in 1952 (and then again in 1972) Sinologists calculated Japan would have had to pay 52 trillion Yen in war compensation – an astronomical figure in those days but quite normal in today’s Credit Default Swaps (CDS) world.

Sovereign bankruptcy, as it is now called, is nothing new therefore .

The world has moved on from mocking the Soviet Union and Communism as an obviously flawed model that had no hope of surviving unless constantly given morphine injections, to one where the once-detractors now find themselves is the same sort of pickle. Now itis Capitalism’s turn to be on ‘life support’ and needs an oxygen mask to survive.

Safe as the Bank of England” used to be a maxim of the 19th century when confidence trade good, the country was well run and Britain’s colonies covered the world. But is that true of America today where corporate vested interests are more blatently adulterating legislation which should primarily be for the common good ?

Venezuela’s Pres. Chavos demand for his country’ 160 ton of gold bullion (thought to be about 85% of gold reserves) to be returned has not helped the market confidence. Most, it is believed, is held in Europe and London and can be expected to be returned once security protocols have been agreed (who will insured an $11bn (£7bn) cargo ?).

The transfer would have been a pin-prick had not Gordon Brown and other central bankers not sold off 200 hundred of tons of gold all at the same time – and when its price was at a near record low.[7] Brown raised a mere US$ 3.5 billion in 1999 – 2002. Ten years later the price of gold had risen and that quantity of gold would have been worth over $ 19 billion (approx £12 billion).

Had Venezuela’s gold been held in US, it is argued, the situation for Chavos would have been a lot more difficult. Firstly, the request would face political resistance since the US and Venezuela (‘socialist’ and pro-Cuba) does not enjoy good relationships; and in the eyes of the US, South American governments are inherently wobbly. But overriding that is a second obstacle believed by some influential pundits in the money markets, namely that “the Fed” has not publicised how much gold it actually holds for many years. In fact, it may have none or very little (Ref. Keiser Report, ‘Russia Today’ TV).

This is where history does come to our rescue in the form of the life and times of Hjalmer Schacht, Hitler’s money man (see ‘Weimar Republic’ below). 

4. ‘Command Economy’ theory

Warfare is an extremely expensive enterprise. Fighting has to be financed and sustained warfare is only possible with adequate funding.

In any war raw materials have to be purchased well in advance; sources of supply secured; ships, tanks and aircraft designed and factories built with enough capacity to increase production once war is declared; plus reserves of ‘strategic materials’ have to be built up and the workforce paid.

 How could Germany wage a second World War, so soon after being:

  • decimated by World War One
  • stripped of it overseas territories, e.g.Namibia,Tanganyika, Togoland and in the Pacific; New Guinea, Samoa, the Carolines, Palau, the Marianas, the Marshall Islands and Nauru. etc
  • crippled by reparation payments, and
  • in the teeth of a global recession ?

Blood diamonds” have shown the general public how small nation wars and border spats are funded. But who has paid for the scores of wars and insurrections and terrorist groups that erupted during the 1960s and 1970s ? Without indigenous finance – as in the case of blood diamonds – the answer has to be proxy wars paid for by the then two superpowers.

On the global scale the prevailing view in the 1960s of a command economy  waging war didn’t really make total sense and this serves to underline how incomplete and unconvincing was the 1960s grasp of the essentials  – the seed corn – necessary for the financing of total warfare.

Post-war (1945)  history books portrayed the Germany of the 1920s and 1930s as ravaged by hyperinflation, its economy broken and unable to function – so the turnaround by 1936 or even 1939 was all the more unconvincing (the more so when the social excesses of alcohol and drug abuse are factored in from Social Science sources).

Command economies such as the Third Reich and the Soviet Union can only work when the centralised state issues ‘credits’ to be used as money to jump start economic activity in factories. Germany, under Hjalmer Schacht, secretly issued “Mefo Bills”, or credits, to enable Germany’s re-arming (see Weimar Republic below). This was so successful that it threatened to crowd out normal commerce and factory production and on that basis Schacht resigned.

 America and ‘the West’ are, however, stuck. They have a debt crisis and a reducing tax base (unemployment) but no excuse to introduce a command economy that could trade with the rest of the world. The issuing of yet more redeemable debt in the form of ‘bonds’ to pay current debts which seems to be the EU’s only option, is no solution, especially when interest rates (long and short term) are unattractively low. Of all countries Germany knows better than most where this will eventually lead.

Will this lead to a revaluation of gold and/or a De Gaulle type revaluation of world currencies ? French francs were replaced by New Francs (NF) at the rate of 1 NF  to 100 old Franc in Jan 1960. This did not however, arrest the side of the Franc and by 2002 one NF was worth just 0.2 Euros).

5.  Weimar Republic

 Hjalmer Schacht was a German economist, banker, liberal politician, and co-founder of the German Democratic Party.

During the Weimar Republic he served as the Currency Commissioner and President of the Reichsbank He was opposed to Germany’s World War I reparation obligations.

Left: Hjalmer Schacht (1877 –1970)

When Hitler came to power in 1933 Schacht remained as President of the Reichsbank but also became Minister of Economics (courtesy of his friendship with Goering). Thus, Schacht helped implement Hitler’s key policies of re-development, re-industrialisation, and re-armament. And it was Schacht organised the letter signed by Germany’s leading industrialists that urged Hindenburg to appoint Adolf Hitler as Chancellor.

The Jewish question was a hot topic in Germany even as early as 1934. There could perhaps be no stranger bedfellows than the sight of the anti-semitic Schacht and the Jew hating Nazis Party working with the World Zionist Organisation in paying to hirie of ships to illegally send Jews from Europe to Palestine. [8]

Schacht was forced later out of the government by disagreements with Hitler and other prominent Nazis in December 1937.[9]  He therefore had no direct role during World War II (though, arguably, he made it possible).

Schacht contribution to world finance was the “Rentenmark” (literal translation; “Debt Security Mark”). He created the Rentenmark, or RM, which was a currency issued on 15 November 1923 to stop German hyperinflation of 1922 and 1923, and the Rentenmark replaced the Deutsche Mark.

As a result of the economic crises in Germany after World War I and the lack of gold to back the currency the Rentenbank, which issued the Rentenmark, mortgaged land and industrial goods worth 3.2 billion Rentenmark to back the new currency (collateral).

The Rentenmark was introducedat a rate 1 Rentenmark = 1,012 Deutsche Mark, establishing an exchange rate of 1United States dollar = 4.2 RM.

And perhaps because it was subdivided into 100 Rentenpfennig, the Rentenmark which was only designed as a temporary currency and was not legal tender became accepted by the population and effectively snuffed out inflation.

Following that turn around, the Reichmark with which many of us are familiar became the new legal tender on 30 August 1924, and was equal in value to the Rentenmark.

  • NB: The Rentenbank and Rentenmark continued to exist after 1924 and the notes and coins continued to circulate. The last Rentenmark notes were valid until 1948.

The Rentenmark is of more than passing historical interest since in some ways it parallels the American experience of sub-prime loans and the housing bubble of the 2000s. As national debt increased and real money (gold) became scarce these housing loans were spliced and diced with good asset loans resulting in what was by 2008 known as “toxic loans” which then  infected all debt in every country and currency. Whereas the notional paper value of Rentenmark of the 1930s thrived since it was surrounded by a sea of gold standard its modern equivalent had no such sea of gold to insulate it and mark it out as savable.

Bereft of gold after 1919, it was again Schacht who came up with another ingenious method of funding Germany’s rearmament in the 1930s. To lessen the pressure of rearmament on the Reichsmark and the economy generally he created whatwere called “Mefo Bills”. Mefo stood for “Metallurgische Forschungsgesellschaft” which was a fictitious limited liability company that issued bills of exchange which paid 4% interest and could be redeemed in Reichsmarks. Mefo Bills were a ‘shadow’ or parallel currency. They were issued as a form of payment solely to armaments companies and by using this method rearming could be undertaken without contributing to the overall indebtedness of the Reich.

The majority of Germany’s rearmament was thus undertaken between 1935 and 1939 and was paid for with Mefo bills. This regime  of Mefo bills was so well hidden from public gaze that the total amount issued is still unknown today. The existence of the Mefo bills was not discovered by the Allies until after the war which indicates a successful hiding or perhaps a classified state secret status.

Traditionally in economics the money supplywas measured as currency in circulation and money in bank deposit accounts (but excluding gold and cash in reserves held in vaults). Known variously as “M0, M1, M3” etc  this adherence began to be abandoned in the 1970s as largely irrelevant to what was thought to be the real levers which controlled a modern economy.

It is possible that the Rentenmark & Reichsmark experiment will be reenacted by some country sometime in the future.

6. Hyperinflation

During Hjalmer Schacht’s remarkable tenure at the Reichsbank in the 1920s and 1930s he was able to bring inflation under control and avert an economic disaster in 1923 ( which was the worst year for hyperinflation).

It can be said that the monetary policy spearheaded by Hjalmar Schacht – the central bank governor – together with the fiscal policy of German Chancellor Gustav Stresemann and Finance Minister Hans Luther brought the inflation in Germany to an end. Although a Nazi supporter and a key facilitator among German industrialists who originally funded Hitler, Hjalmar Schacht fell out of favour with those surrounding Hitler and eventually he was removed as President of the Reichsbank in January 1939.

It is said that documents discovered after 1945 reveal that Hjalmer Schacht’s tenure at the Reichsbank began firstly with bringing the economy back from the brink of total collapse followed by a programme he initiated of hiding, or at least veiling, gold reserves. By 1939 these secret reserves amounted to 7 times the expected amount of 500 million marks and no doubt provided a very useful ‘war chest.’

There are hints by various sources and deductions to be made from the sub-test of contemporary articles that after World War I the gold reserves of Germany were far from exhausted, which was the picture conveyed to the Allies in 1919 and in subsequent economic textbooks. Due to the federal nature of Germany with self admistered states (Länder ) existing within the German state, e.g. Lower Saxony, Bavaria, Westphalia etc, gold reserves could have been kept off balance sheet at regional state banks with next to nothing officially recorded at the Berlin central bank (but this is supposition).

For instance, if we look at figures for 1923, the German bank interest rate it rose to 19% in January, then 30% in April, and 90% in September. In this period 6 million gold marks were lost from the reserves of the Reichsbank. The effect of convulsive price and wages increases meant tradesmen did not know how to establish prices, and often simply shut up shop:

  • For these reasons, in a single day in June, 6 million gold marks were lost to the reserves in ‘another of the Reichsbank’s convulsive and desperate attempts’, as Mr Joseph Addison put it, ‘to bolster the Mark by throwing foreign currency on the market — in this case with the object of bringing the dollar below 100,000.’ – German Weimar Republic in the early 1920s and the U.S. – Troubling similarities

The parallel with today is that ‘quantitative easing’ or to put it bluntly, the printing of money as a temporary solution, only adds to long term inflation. It drives down wages and increases commodity/food prices. Fixing wage increases to the retail price index (RPI) becomes redundant since the smart option used by company CEOs is to increase their wages by the same proportion as the money supply. If today’s quantitative easing’ amounts to 15% then wages pegged to the RPI will see a living standard fall off 10% whereas CEO’s yearly pay increases of 20% will see them 5% better off than the year before.

It is crucial to realise that this is probably what is happening in the world economy today (2011), and yet the pain of price increases felt by present day tax payers is only fractional to the 1930s.

Germany’s “war chest” in terms of gold bars  is today (2011) the largest in Europe; it surpasses that of France and dwarfs that of  Britian’s. Any post-war economic picture involve a degree of both recession and inflation. This was true in 1919 and again in 1945 when a European Recovery Programme (aka the Marshall Plan), had to be set up to support collapsing European national economies – the result of Nazi Germany’s squandering of gold on war materials. Is the present post-war economic picture a result of idiotic financials dealings by institutions coming home to roost, or the by-product of wars in theMiddle East?

After the Vietnam War, America and the rest of the world felt the paradigm changes and had to adjust. War appears to create an economic void whenever it ceases. However, there was enough money and confidence in the financial world system to smooth out the temporary blip. This is not true for 2011 – when forces are withdrawn from Iraq, and with a depressed world economy. The adjustment will be sharper and there will be little government money or latitude in the ‘money markets’ to soften the effects. America may be facing a financial situation akin to France’s after her withdrawal from Indo-China 1954, followed by her withdrawal from Algeria in 1962 (see New Franc above).

7. Gold Reserves

Most of Western Europe had overseas colonies during the 19th century and Europe grew rich from trade with its colonies and trade between its colonies and the rest of the world.  Some of these colonies also had gold mines so the build-up of gold reserves was reasonably inexpensive. Belgium, for instance, had huge gold reserves relative to its size even though it had only the central Congo as a colony.

Britain and France were much better placed with gold mines in southern and western Africa and, for Britain, additional gold mines in Australia and Canada. Holland, by contrast, had relied more on the spice trade and overseas merchant trade generally to invest and yield profits. Per capita, Dutch gold reserves were in the same league as Belgium’s.

Germany on the other hand, while it had pretentions of empire, had no substantial gold mines (or access to any), though it did have diamond deposits in Namibia – part of the German Second Reich. But Germany never properly invested in its colonies which were poorly managed and so the returns were scant. For example, in 1914, 60% of German foreign investment was in Europe, as opposed to just 5% of British investment. Germany came to the colonial game late in the day and was never fully au fait with how to play her imperial role, e.g. Boer War 1902, Bosnia and Herzegovina 1908. As a result she succeeded in upsetting countries both both inside Europe and overseas, e.g. Russia, Japan, US, Britain and France and by 1914 was more or less standing alone.

(NB. Germany’s post-Bismarck foreign policy continues to make monumental blunders – even after re-unification in 1990 – such as its precipative recognition of Slovenia and Croatia in July 1991 which led to a 10 year long Balkans War. The US and UK who cautioned against such a move, were together with NATO, left to pick up the pieces. Conveniently the post-1945 German Constitution forbids it from sending combat troops overseas. Germany’s connection with Slovenia and Croatia go back to the First World War and the mid 1930s and in the 2000’s they were able to build a coalition among leading EU countries to oppose the US and UK. Srebrenica, as just one war atrocity, was the result).

Germany’s industrialisation, though rapid, began only after 1850 and its foundation was the coal, iron (and later steel) based in the Ruhr. This wealth was later doubled by the creation of a leading chemicals industry. In just 10 years its negligible Navy had grown by 1900 to be second only to Britain’s in size.

Germany haemorrhaged gold and its reserves were hit hard in the First World War and by July 10th 1923, Germany’s free gold reserve had fallen to the equivalent of £35 million pounds (approx. US$ 140 million @ $4:£1). Another loss of 50 million gold marks was suffered during the week which ended on July 14th in trying to support paper money and having to cover indispensable imports using the gold reserves.

  • “If  intervention continued at the then level of 10 million gold marks daily, bankruptcy would come within 60 days: the reserves had already taken as much as they could stand.” http://nowandfutures.com/us_weimar.html

At ‘close of business’ in Dec 1922 Germany’s central bank might have had in the region of 656 million marks in gold reserves (600 + 50 + 6 but sources do vary). In addition to this there was the 200 million gold marks had been set aside to guarantee the Reich dollar Treasury bills (i.e. 856 million marks in gold or near-gold). [10]

However, this might be misleading the term Gold mark and the Mark were interchangeable terms in the German Empire from 1873 to 1914. The Papiermark refers to the German currency from the 4th August 1914 when the link between the Mark and gold was abandoned. Terminology, however, can die slowly and caution has to be exercised in that originating sources are themselves not confusing the pre and post 1914 terms.

Given that scale of uncertainty one authoritative sources states that at the beginning of World War 1 the German Reichsbank reserves in the region of 3.7 billion Gold Marks plus 1 million Marks of silver. Listed separately were 400 million Marks of gold bullion or foreign coin currencies. The conclusion is that the pre-inflation amount of currency held as Goldmarks in Germany was approx. 4 billion (but this could include paper money).

After the inflationary period Germany’s metallic reserves [gold & silver bullion ?]  were approx. 500 million Marks. The Goldmark was on a gold standard with 2,790 Marks equal to 1 kilogram of pure gold (1 Mark = 358 mg).

Throughout this narrative many figures will be quoted – some will be in dollars, some in Sterling, some in Reichsmarks. The result is general confusion for even where texts specify all values in, say, dollars the dollar value of 1945 is different to that of today and is different again for the year the source was published. And over a 10 and 20 year period the price of gold has fluctuated. The only ‘more certain’ measure is that of weight and the Table (above right) shows the gold reserves of leading European Treasuries (and a few others) in metric tonnes before and after World War II.

By 1973 most European countries had more than made up for their wartime losses – except for Britain which among other things was still paying off its wartime loans to the US. On 31st Dec 2006 Britain made the last payment of $83m (£45.5m) for loans from World War II (http://news.bbc.co.uk/1/hi/magazine/4757181.stm ).

For its World War I debts Britain still owed the US about £866m at 1934 exchange rates (or about US $4.4bn at 2006 values and if adjusted for inflation about £225bn). The Wall St Crash saw an end to Britain’s repayments and this was consolidated by a debt moratorium ordered by Pres. Herbert Hoover for all the US’s debtor nations which was never reactivated.

From 1900 to 1933, the United States adhered to a gold standard as well, with the value of the dollar being fixed at a price of one-twentieth ounce (troy weight) of gold. The Goldmark, therefore, had a value of approximately U.S. $0.25 (25 cents).

World War I reparations owed by Germany were stated in Gold marks in 1921, 1929 and 1931. Germany’s present day gold reserves are thought  to be the laregest of any nation in Europe. Current (2009-10) national gold reserves will be covered in a separate paper. However, there is speculative talk of them being hypothicated by the US Federal Reserve which is where the majority of the gold has been kept for many years.

8. The Dollar / Pound exchange rate

In 1940, an agreement between Britain and the U.S.A. pegged the pound Sterling to the U.S. dollar at a rate of £1 = $4.03.

Half the world’s trade was paid for in Sterling before 1939. Sterling, as a currency had to have substantial reserves of gold etc, to project the confidence needed for the money markets and commodity exchanges around the globe.

In 1945 the incoming Labour government found the reserves so depleted by World War II that Sept 1949 it had to devalue the pound Sterling by 30.5% to £1 = $2.80 (these were the ‘Austerity’ years when rationing was actually worse than during the war).

During the early 1960s Sterling again came under pressure and was eventually devalued by 14.3% to £1 = $2.40 on 18 Nov 1967

Sterling has suffered as series of mini-devaluations since then, including one in 1979. The current topsy-turveyworld economy of 2011 means that Sterling as well as other currencies has effectively been mildly devalued as China ratcheted up its production capacity which has depressed demand for indigenously made (more expensive) goods and has lead to a flattening of employment prospects in the West.

Confusingly, some historical documents refer to gold at ‘£35 per oz’ and others at ‘$35 per oz.’-  clearly a significant difference. The figures that appear here are faithfully reproduced and dictated by the source material. Some accounts quantify money / gold in “milliards” (BIS), which is not a misprint for million but means a figure 1,000 times greater, ie a billion.

9. Pre-war years

Foreign Exchange controls were adopted in Germany in Sept 1923 and its Commissioner given the widest powers to seize foreign currency wherever it could be found. Holders of ‘bills of exchange’ or of ‘gold securities’ were ordered to deliver them in exchange for government ‘gold loan scrip’. Within ten days the new Devisenkommissar had assumed the right to also seize gold, silver, platinum and alloys, whether in coin or raw metal (this programme of metal and assets ‘recovery’ manifest itself in the concentration camp regime of later years).

This move was in part occasioned by the realisation that 200 million Gold marks had to be set aside to guarantee the Reich dollar Treasury bills. The driving force for these draconian measures was the inability of Germany to meet is commitments to its citizens and to understand that we have to go back to the preceding decade following the Versailles Treaty.

‘Asset recovery’ then was part and parcel of Germany’s efforts to become and then remain self-sufficient, this is ‘autarkic’ type behaviour and one suspects it could become a psychological compulsion.

Left: Nothing was too trivial. Thousands of spectacle frames collected from camp inmates

State quasi-kleptomania appears to have griped Germany at this point.  Arguably, this imposed austerity and frugality was carried to extremes in the concentration camps. Inmates, thinking that they were being ‘re-settled’ in the East would naturally take with them money and precious metal and gems to maintain an acceptable living standard and or help establish them in future business enterprise. The Nazis capitalised on this and systematically looted anything valuable from the dead. “Action Reinhart” put this process on a formal footing (Appendix 1, instruction letter from Waffen SS letter of 26 Sept 1942).

The following advice / instructions found in Appendix 1 regarding Jewish property  is illuminating. There is an ackowledgement that goods originating from this conduct constitutes theft and will be called stolen . Germany knew, in the case of gold, for example, that it was tainted – so did its Swiss recipients not ask or knew better and preferred not to enquire ?

  • ” . . . .  the following procedure has to be followed with regard to the property carried by them — property, which will in all orders in the future be called goods originating from thefts, receiving of stolen goods, and hoarded goods”

The Third Reich off-set some of it expenditure on warfare by turning concentration camps into ‘profit centres.’ In the various camps SS guards collected millions of Reichsmarks worth of gold, diamonds, US dollar and Sterling, and currencies of all descriptions all of which found their way to Berlin- this included bearer bonds, clothing, hair, spectacles – in fact, no asset was too trivial to be overlooked for stock piling. A modern example of this self-sufficiency rigour or ‘autarkic’ conservation is North Korea.

The thoroughness of Operation Reinhart can be gauged by the ‘under-valuation’ recorded in the letter marked “SS Ref. No. Secret/115” of Spring 1943, and signed by Globocnik, SS Gruppenfuehrer (see Appendix 2). The extraordinary breadth of recovery under Operation Reinhart can be measured in the variety of items recovered and itemised (Appendices 3 – 3D).

The Third Reich also had the advantage over Britain in the 1940s of being able to tax personal  incomes and company profits from hundreds of millions of individuals and tens of thousands of firms rather then a few million individuals and, say, a thousand firms in Britain.

The problem facing both Europe and the US, today in 2011, is that high unemployment has denied governments “the ability to tax “and thus pay off national debt. But it is also a difficulty with which the Weimar Republic wrestled.

What must have been verging on a psychological complex led to a systematic campaign of plundering the property of Nazi victims. The total amount of ‘non-monetary gold’ (defined as gold teeth inmates levered out of corpses) by the SS is estimated to be worth US$ 14.5 million but after the war only $3 million of this looted gold was ever used to help it designated recipients, i.e. UN refugees and DPs (see mandate of Tripartite Gold Commission below). The extent to which concentration camp inmates were relieved of their gold coins and hard currency is staggering – bars of gold and precious “metal bars” to the value of 5.35 million Reichsmarks were recovered by the S.S. together with 843,802 Reichsmarks worth of gold coins – and there is far more, e.g. diamonds, pearls etc,  (see Appendix A).

Overall, an estimated 50% of all looted gold (its value est’d at $ 260 million) was sold abroad, notably to banks in Switzerland, Portugal and Sweden. The rest appears to have remained in Germany. The transfers were facilitated by among others the Dresdner Bank controlled in the 1930s by the fabulously wealthy Swedish financier Ivar Kreuger (see “The Kreuger loan”) and evidence exists which indicates that some non-monetary gold was included in the monetary gold pool used to compensate nation states. After 1945 those countries whose gold reserves had been passed on to the Nazis via the BIS to third party bank accounts (Sweden, Spain etc) received only about 64% of their original looted gold. [11]

10. Dawes Plan of 1921

World War I concluded with reparations set by the Treaty of Versailles. Germany was forced to pay as compensation for war damage, i.e, reparations, the astonishing amount of 269 billion German Gold Marks. However, these ambitious retribution plans were bound to fail and by 1921 this was self-evident.

To help the cash strapped nation reparations were, in 1921, slightly reduced to 226 billion Marks.  However, even this lesser amount could not be met by Germany (in the form of further amounts of coal and steel) and so in 1923 it defaulted on its commitment.

France then ordered its troops to occupy the Ruhr valley which was the centre of the German coal and steel industries thus preventing Germany making any form of coal and steel reparations. This significantly contributed to the hyperinflation that followed.

11. Young Plan of 1929

After the Dawes Plan (above) was put into operation in 1924, it very soon became apparent that Germanycould not meet the huge annual payments, especially over an indefinite period of time.

A committee headed by American Owen Young proposed that Germany’s debt be reduced to payments of 112 billion Gold Marks over a period of 59 years which would be fully paid off by 1988.

The value in US dollars of 1929 was $8 billion and in today’s money (2011) it would be equivalent to US$ 103 billion. This then was the Young Plan of 1929–30.

The Young Plan divided the annual payment, setattwo billion Gold Marks (i.e. US $473 million), into two components, one an unconditional part equal to one third of the sum, and a second part of two-thirds the amount which was “postponable.”

Even supposing that Germany had the where with all to pay the reparations the Wall St Crash of 1929 and the world trade Slump that quickly followed would have made such an option impossible.

However, money, unlike water disappearing into the sands of the Sahara desert did not totally dry up. Emulating today’s dichotmy of huge institional funds yet closed factory gates, vast amounts of money were traded and it is here we come across characters like the Swede Ivar Kreuger who can be said to have invented “off-balance sheet” investments. His form of ‘new’ accounting (a euphemism for dishonesty ?), is commonly used today to disguise (hide) assets and liabilities by the likes of Goldman Sachs, Lehman Brothers and J P Morgan and many others. In the process they defraud their clients.

The world’s money situation which Kreuger inhabited was not unlike that of today (2011) where the amounts of money were concentrated into ever fewer hands and the debt of institutions was off-loaded onto the general population, i.e. the poor or unemployed.

John Steinbeck’s Grapes of Wrathepitomises the process in the 1930s – the poor are ground even further into the dirt by debt; their families and communities broken up by banks foreclosuring on properties of ever-dwindling value but – and this parallels today’s debt situation – the feudal-like system insists the loan be repaid regardless of social repercussions.

12. Germany’s Kreuger Loan

Germany took out a US$ 125 million dollar loan (almost $1.9 billion in today’s currency) in 1930 not with a central bank but with an individual – the fabulously wealthy Swedish businessman Ivar Kreuger. [12] Kreuger had built his fortune on the humblest of traded goods – wooden matches. These profits allowed him to buy banks, e.g. the Deutsche Bank, and set up legitimate as well as fraudulent companies – ‘Ponzi’ schemes were not unknown to him. [13]

Kreuger (b 1880 – d 1932) had made sovereign loans to several European countries before his suicide in 1932 (see Appendix 4). His loan to Germany was predicated on Germany accepting the Young Plan (of 1929) and awarding him the monopoly for matches – he already controlled 70 % of German match production before the loan agreement.

When the first payment to Germanywas due in 1930, Kreuger financial position had by then deteriorated and he no free money available. Luckily, a loan to France for around US$ 75 million was repaid ahead of time and this kept Kreuger afloat, temporarily. 

Part of the Kreuger loan was paid off by Germanyin the autumn of 1940. They paid it to the Riksbank partly in dollars and partly in gold. The Swedish Riksbank retained the payment in gold and then reimbursed the Swedish creditors “by other means” (probably paper currency – RW).

13. Per Jacobssen and the IMF 

Even before a Swedish Commission’s report of 1998 examining her trade with Nazi Germany records showed that Sweden undoubtedly had a close relationship with Nazi Germany both before and during WWII (see below). It has yet to be fully appreciated that it was the Swiss and Swedish trade that made German munitions flow.

The received wisdom was that the Swiss ‘laundered’ Nazi gold once the war had begun and hard currency was needed. The same wisdom of the 1960s never thought but Sweden did it too.  Sweden appears to have been happy to accept German ‘credit’ notes when Germany had no money in the early 1930s and for the rest of the world to believe that misleading analysis.

It was the Swiss, everyone thought, who had ‘laundered’ Nazi gold once the war had begun and hard currency was needed. That was the received wisdom thought the 1960s but Sweden did it too.  But in 1997 a Swedish government Commission looked thoroughly into Sweden’s Nazi business connections and found not only breaches of neutrality but trading with companies once owned by Jews and accepting looted gold as payment for goods. Sweden had happily traded with companies it knew had been confiscated by the Nazis from their Jewish owners and had accepted looted gold as payment for goods.

The name Per Jacobssen (b. 1894 – d. 1963), surfaces only fleetingly in scattered sources regarding the trade between Sweden and Nazi Germany.

Left: Per Jacobssen

From relative obscurity he is appointed head of the International Monetary Fund(IMF) in the 1950s and we only read tracts about him after that date.

However, from 1920 to 1928 – the time of the Dawes and Young plans – he worked at the League of Nations secretariat where he was a member of its Economic and Financial Section. His biography (http://www.perjacobsson.org/bio.htm) states that he took “an active part” in Europe’s “financial reconstruction” (i.e. pre-1930), which was his prelude to a “career of international public service.” Bankers such as Per Jacobssen have since set up foundations, sometimes in their own name, so that they may be remembered as benefactors intent on spreading goodness and enlightenment – but are they vehicles to off-set their inner sense of guilt ?

In 1931 Per Jacobsson moved to the newly-established BIS (Bank for International Settlements) as its head of Monetary and Economic Department. As such “. . . he was responsible for the Bank’s Annual Report, which acquired, under his guidance, a world-wide reputation.” Many would challenge that assessment on the basis that the BIS was, until recently, infamous for its secrecy. BIS Reports of that era are, in the opinion of this author,  not well written or lucid. They instead sometimes obscure and  circuitous at times. Had they been of world class reputation the Allies would have had a far better understanding of its businees affairs, would have been able to block the transfers, and have a better idea of what Germany was up to with the bullion it had confiscated.

When most world currencies were leaving the gold standard, circa 1931, Jacobsson was a member of the Irish Banking Commission, which led to the creation of the Central Bank of Ireland. The Bank of England had previously been responsible for responsible for the newly independent nations’s currency (see “Concurrent Irish Perspectives on the Great Depression”, by Frank Barry and Mary  Daly, Nov 2010).

During World War II he travelled freely and regularly across Germany to his homeland of Sweden. As such he cannot help but have noticed the changes wrought by Nazism to neighbourhoods, town and countries, the confiscation of factories formerly owned by Jews, Slavs and the ‘Untermensch.’

He was also involved in a number of special inquiries into the economic and financial problems of Austria, France, Germany, Italy, and the Netherlands but no dates are given so this could be either pre or post 1945.

Per Jacobsson is said to have “brought great intellectual force and technical experience” to his post and after the 1945 defeat of Germany we can ascribe the excuses and protection deployed by the BIS to be actions he co-ordinated.

After the war the argument put forward by the Swiss and Portuguese  to the Tripartite Commission (see below) to excuse the inexcusable was that they regarded the hand over of the Belgian gold to Nazi Germany as a legal transaction, stressing that the transfer by the French government had been ‘voluntary.’ voluntary.’ The Belgian gold was, in fact, hi-jacked by a puppet regime and under duress handed to Berlin.  By definition that does not create a “good title”. The French government had failed to protect one of its depositor’s assets and everyone knew that.

Antonio Louça and Ansgar Schäfer’s analysis in “Portugal and the Nazi Gold: The “Lisbon Connection” in the Sales of Looted Gold by the Third Reich” make some telling points and one wonders how extensive was the corruption and profit-taking they refer to which gold appears to have triggered:

  • “The chance to acquire the Belgian gold reserves sparked an amazing spurt of criminal enterprise in both the Swiss and Portuguese camps; they pondered all possible angles to minimize any conflict with the Allies while keeping open the door to prospective lucre from trafficking with the Belgian gold.”

Given that Jacobsson had “a wide circle of acquaintances” that over many years included bankers, government officials and political leaders “all round the world” we are free to interpret that liberally. For instance, he was the Japanese government’s natural choice as emissary to open peace negotiations, in Geneva, with the Americans in 1944. Nothing came of them and the war went on into 1945

His name appears on the BIS Annual Accounts for 1944 but by 1947 he is no longer listed. There seems to be a pause in his carer until he moved to the IMF (International Monetary Fund) as its Chairman and Managing Director in December 1956, so we cannot assume he worked at the BIS in the intervening years, ie from 1945 to possibly the 1950s.

Another ‘actor’ on the world stage and one who also sprang  from relative obscurity was Austria’s Kurt Waldheim. How did this Austrian-born and non-descript former Wehrmacht officer escape de-Nazification and was able to become the fourth Secretary-General of the UN from 1972 to 1981 ?

Despite hiding his background Waldheim was later elected as the ninth President of Austria, from 1986 to 1992. Yet the same country jailed David Irving, a renowned military historian in Nov 2005 for questioning the extent of ‘the Holocaust.’ Clearly, Europe in general has a long way to go before it comprehends that free speechmust allow for unfettered discussion of both Nazi and Communist atrocities (in the United States ‘freedom of speech’ is protected by the First Amendment to the Constitution – and in theory it is in the EU).

Waldheim against all reason, denied ever knowing that war crimes were taking place in Bosnia at the height of the battles between the Nazis and Tito’s partisans in 1943, yet he served as an intelligence officer in the Wehrmacht. (having workded in my youth with former Yougoslav partisans that  denial would seem ludirous – Ed).  The pro-Nazi State of Croatia even awarded him a medal for his services (see ref. to Croatia above). Jewish writers claim he worked within earshot of camps where torture and executions took place.

A fellow Swede – and coincidentally also a product as had Jacobssen of Upsalla University, was Ivar Rooth (b. 1888 – d. 1972).

Left: Ivar Rooth (BIS)

Rooth was Governor of the Riksbank, Sweden’s Central Bank from 1929 to 1948 – the years which saw the rise of fascism in Germany. Rooth was also a director of the Bank of International Settlements (BIS) from 1931 to 1933 and from 1937 to 1949 (the crucial years in any estimation). 

Rooth, as Governor of Sweden’s Central Bank  and a BIS director together with fellow Swede and BIS director  Jacobssen, must have had intimate knowledge of where the gold was coming from (death camps) and yet said nothing to  their governments during the war (or immediately after – see  Swedish Commission above).

For many uninterrupted years both the Riksbank and BIS dealt with Nazi Germany’s Reichsbank. At the time Sweden was not embarrassed by its Nazis connections as can be seen by Rooth continued tenure at the Riksbank. Indeed, his ‘distinguished record’ enabled him to be a successful candidate as IMF’s second Managing Director, from 1951–1956. Is it a coincidence that the third IMF’s Managing Director was a fellow Swede and former BIS employee, Per Jacobssen ?

14. Sweden’s Nazi business dealing

In a recent report produced by a Swedish government commission examining Sweden’s business dealing with Nazi Germany the former illusion of a stand-off relationship, of non-collaboration and of benign general disinterest has been dispelled (see “The Commission on Swedish Assets in Sweden at the Time of the WW2”). [14]

At critical moments Germany was unable to pay for the goods Sweden had delivered:

  • “ . . . At this point the idea arose of the Reichsbank selling gold to the [Swedish] Riksbank as a means of obtaining currencies with which to effect payment.”

The Riksbank never asked whose gold it was but after signing an agreement with Germany to accept gold, Sweden’s state bank, the Riksbank received a total of 20.3 tonnes of gold bars and 1.5 tonnes of gold coins (between the summer of 1942 and the summer of 1944). Most of this gold never came to Sweden but was stored abroad until the end of the war (meaning that some was delivered !).

The Swedish Commission was forced to concede that the Riksbank’s gold acquisitions had most probably included gold from the death camps. Fifty years after the event it was able to identify 16.4 tonnes that contained “a minor proportion of gold which had been confiscated or plundered from Jews in other connections.”

  • “The Swedish commercial banks and other Swedish business interests during the war were not prevented by law from dealing in gold. True, export permits were needed from 1940 and import permits from the autumn of 1944,”

Yet ten years earlier when Belgium was still trying to trace part of it stolen gold, the Swedes concluded that all records had been lost and that the items ‘possibly’ in question had be re-crated and re-numbered.

The “Swedish Commission re trading during World War II” also found that Gerrman brokers ‘Otto Wolff’, in concert with the Dutch-based ‘Rebholz Bank’ sold looted securities and overseas assets (Jewish) to Swedish banks such as the Enskilda Bank (see “Nazi Looting: the plunder of Dutch Jewry during WWII”).

Perhaps the most important aspect of Sweden’s concessions to Germany during the World War II was the extensive export of iron ore for use in the German weapons industry, reaching ten million tons per year. In no way could Germanyafford such imports at the time and in no way could such amounts be used for non-beligerant uses, so it suggests that a political alignment or an accommodation was reached.

Explaining rationally Sweden’s wartime actions is difficult Tenuously, Herman Goering (head of the Luftwaffe) is known to have had family ties with Sweden through his first wife, the Baroness Carin von Kantzow (she died in Oct 1931 – his second wife, Emmy, died in June 1973).

But it is more likely that the political parties of both nations shared a common ideal. Racial purity and mass sterilisation were shared polices of the Third Reich and Sweden in the 1930s (400,000 and 40,000 respectively). Germany’s programme ended in 1945 but the latters continued until 1970. Other comparable programme included with mass- employment by the state to create basic infrastructures, e.g. roads. 

Pre-war, British intelligence estimated that German industry relied heavily on Swedish iron ore and a decrease or halt in Swedish ore exports would have had a disastrous effect on Germany’s military efforts. As another war became increasingly unavoidable plans were put in hand by Britain to invade both Norway and Sweden as a means to cut off Hitler’s supplies.

The Norwegian harbour of Narvik provided probably the only sizeable ice-free port on the North Atlantic coast for iron ore that had been transported by the short rail link from Kiruna in Sweden (the Baltic Sea on Sweden’s easterm coast being frozen over for many months of  each year). Both sides in the war had an interest in securing this iron supply for themselves, hence all the fighting was around Narvik. Television documentaries invariably insist on treating this theatre of operations as if it was one of Churchill’s mad bluffs or a sabre-rattling exercise.

It is often supposed that the attempted occupation of Norway, in April – June 1940, by British, Polish and Norwegian forces was a ruse to dilute Nazi aggression or convince Hitler, perhaps irrationally, that the Second Front would come from the North rather than Normandy.

But given the economic dimension and the Scandinavian geography (see map above) had it succeeded it would have opened the way not only to Swedish iron reserves but allowed reinforcement to reach Finland which was then at war with Russia (which was an ally of Germany). As events unfolded it could have also proven a bridgehead for supplies into Russia and saved many ships and their crews from an icy death in the Artic Convoys. Thus, the Norway ‘debacle’ was but Part One of a three part strategy of intervention.

15. The BIS

The need for a separate board or bank to oversee Germany’s compensation payments was first suggested in 1929 by the Young Committee. The international nature of these payments, or settlements, led to the Bank for International Settlement (BIS), being formed in 1930. Given the usual snail- like speed of  bureaucracies and civil servants this was remarkably rapid.

Its two main actors (apart from the American chairman), being Montagu Norman, the Governor of the Bank of England, and his German counterpart at the German central bank, Hjalmar Schacht (see photo above).

Until very recently the BIS has preferred anonymity and never sort publicity. Consequently, the world’s general public, from 1935 to 1995, had no idea of its existence or just how pivotal was its role during World War II.  The first notable break in that secrecy was a British TV programme aired by “Channel 4” and by a BBC Timewatch TV programme, circa 1998  (http://www.cosmolearning.com/documentaries/banking-with-hitler-1998/1/).

While the Third Reich publicly rampaged its way across Europe for 6 years the BIS ravished captured national gold reserves (‘fenced’ stolen goods), and where they were not captured, assisted in handing them over to the Third Reich.

The BIS’s website describes itself as ”the central banker’s central bank” which, if true, leads one to ask why is it not active in the money markets today when central banks do not have enough fiat money, reserves or gold to shore up sovereign debts, e.g. Greece, Spain and Italy ?

The League of Nations was effectively hoisted on its own petard when it encouraged the setting up of the BIS which was only supposed to facilitate reparation and gold transfers; it little realised that the gold and money passing though the BIS  would be used to not only finance the world’s biggest war but offer incentives to initiate it. From a public agency designed for the public good to oversee the orderly transfer of gold and securities it

From a public agency designed for the public good to oversee the orderly transfer of gold and securities it immediately operated as a joint stock bank and began making yearly profits. The declared profits totalled millions of dollars yearly. Thus the BIS deprived the giver, Germany, the full value of reparations to the recipients, i.e. France, Britain and America etc.

The BIS charged a commission fee on every transaction and even during the war was recording profits of millions of US dollars. Of the 5 million Swiss gold francs  the BIS earned as Net Profits it distributed over 4 million as dividends to its shareholders, i.e. governments of Japan, Germany, Italy, France and Britain.

Tax-payers who were funding the war saw their sacrifice turned into profits in Switzerland. The BIS should not have allowed itself became a party to the  financing of an ideological war of domination against nations and races, e.g. the Slavs and the Jews.

According to one source the BIS should have officially ceased to operate when WWII began but it was kept ‘open for business’ by (among others) the Swiss shielding the chastity of the BIS behind Swiss ‘Neutrality Laws.’ The impetus for the Swiss is not hard to see, land-locked, a World War would have closed its borders and had a dire effect on its trade, currency and balance of payments.

The Bank for International Settlements (BIS) was an international financial institution enjoying special immunities (Ref. the Hague Agreements, 20th Jan 1930). The founder shareholding members were the central banks of Belgium, France, Germany, Italy, Japan, and Great Britain. Within two years of its founding, nineteen other European central banks had subscribed to the Bank’s capital (the Federal Reserve of the United States did not take up its rights as founder member until 1994). Perhaps the Swiss thought to take advntage of those internationally agreed exceptions (in the same way that the Swiss Olympic Committee is guaranteed a profit from all Olynmpic games and pays no corporate or personal taxes) ?

During the key years of Nazi growth – the period 1933 to 1945 – the board of directors of the BIS  [15] included Walter Funk and Emil Puhl, both prominent Nazi officials. Both were convicted at the Nuremberg trials after World War II. In the 1940s after several years of abstaining from BIS business meetings Japan appointed a director, Yoneji Yamamoto. The BIS Annual Report curiously describes him as representing “Berlin.”

Addendum: Not listed above is Prof. G Bachmann who served as a Director of the BIS from May 1931 until May 1939. Prior to that he was President of the Direktorium of the Swiss National Bank.

Why were the remaining directors who were ‘complicit by association’, not also tried at Nuremberg ?  Only Puhl and Funk received jail terms of 5 years and ‘for life’ respectively. But what did they alone do that was so exceptional ? It would seem their connection with the Nazi Party condemned them not the killing they financed together with the rest of the BIS directors.

Ordinary solders and NCOs posted to concentration camps faced severe jails terms and officers the death penalty after 1945. Ordinary solders are the cannon fodder of war and while it was fashionable to scorn Adolf Eichmann for his ‘just following orders’ defence anyone who has saved in the armed forces knows that how life works.

Ramla prison was where Eichmann was hanged on May 31, 1962 – the same Palestinian town where two Britsih Army sargeants were murdered by Irgun terrorists in 1947 are buried in the British Military Cemetary.

This reminds us how the sinned agasint can themselves quickly become the sinners. It reminds how history and fate can combine into a lethal mixture, leaving a non-descript guard accused of personally killing, or knowing of, or being there when, 28,000 Jews were killed at the Sobibor death camp (91-year-old John Demjanjuk, May 2011). It is contrary to Natural Justice to hold a minor figure responsible for a national shame when higher ranking officers have escaped justice altogether.

So it is not clear why when the BIS was effectively a jointly and severally liable company none of the other directors (equivalent to Camp Commandents) appeared before the Nurenberg Trials for treason and crimes against humanity. Only Walther Funk and Emil Puhl Funk faced the charges of :- 1/. conspiracy to commit crimes against peace ; 2/. planning, initiating and waging wars of aggression; 3/. war crimes and ; 4/. crimes against humanity. Common sense tells us that all BIS directors were equally guilty of those charges.

Among other directors of BIS was Herman Schmitz the director of IG Farben which was heavily involved in Nazi concentration camps and slave labour. Baron von Schroeder was also a BIS director. He was the owner of the J.H.Stein Bank – the bank favoured by the Gestapo to hold their money and ill-gotten ‘deposits.’ One wonders what happened to the directors representing those countries that Germany later invaded. Did their seats and voting powers go to Third Reich appointees ? Was this Per Jacobssen’s role as the banking intellectual and technician in determining that, say, Dutch reserves were by 1940 in the hands of Germany and Holland’s director’s seat was therefore now Germany’s ? Or were the neutral states simply complicit ?

That theory of a reallocation of seats and voting powers in favour of the Axis powers appears not to hold true given the Table above, with the only caveat being that Japan had previously shown no interest in the BIS yet by 1944 it had a director, Yamamoto, on the board. Of the twelve directors, supporters of the Third Reich appear not to have had a majority, though they might have had in 1943, so what explains the BIS’s wartime conduct ? However, the compostion of the ‘voting rights’ found in the BIS 1938 Accounts show the contrary. It would be quite feasible for the majority voting rights to be have been taken over by or at least heavily influenced by the Third Reich’s occupation of the countries entitled to vote (see Appendix 5).

The following Table compares the numbers and probable allegiances in 1943 and 1944 of the BIS directors (blue = probable Nazis). It shows those ‘re-elected’ for 1944 with the blanks to be filled in from the name in the previous table.

The allegiances of neutral directors is not declared but one would pre-suppose this to be critical for the conduct of business.

The integrity of some of the BIS directors has to be questioned. Many in France had to rewrite their past when Petain and Vichy France collapsed. Emmanuel Monick, for instance, listed above, apparently not only ‘helped prepare’ for the Allied ‘Operation Torch’ landings in North Africa but his official position inside Vichy France“. . . .  meant that he was able to smuggle people out of the country, and save the lives of several Jews by helping them to reach the United States” (Vichy France was handing Jews over to the Nazis). 

At a time when the Vichy government realised that Monick did not support them and had recalled him to France, this “politician and banker”  – more accustomed to the Ritz than slum dwelling – then went underground and “participated in many resistance activities.” With such a well known face how did he evade German troops and Vichy gendarmerie to get to the Basle meetings ? Indeed, how did he get from Morocco to Switzerland to make the meetings or make it from a Parisiene ‘resistance fighter’ to Basel Businessman at a time of no petrol, no cars, road checks, ID cards and unreliable trains ?

Did he think that saving several Jews would excuse his part in the BIS financing of the mass murder of Jews, Slavs, Allied soldiers and other ‘undesirables’ ? After the war he too landed on his feet – he became France’s Secretary General of Finance

Maurice Frère, is another case in point. He was originally a Belgian civil servant who only later became Governor of the National Bank of Belgium (NBB) in 1944. However, he was, by 1944, also a BIS director. Two years later (1946) he was chairman and President of the Board of Directors of the BIS in Basel (Switzerland), a post he retained until until 1958. After 1958 he remained working for the BIS.

Apart from the Board of Directors, the BIS had a permanent secretariat which included American born Thomas H. McKittrick as Executive Officer and President of the BIS.  Of the remaining 5 officers one was Per Jacobssen, another was the Secretary General, Italian banker Raffaele Pilotti, and Assistant General Manager Paul Hechler, allegedly Nazi Party memberahip No. 7,686,661.

When the Mussolini regime fell Pilotti and the German Hechler were fearful that 15,795 kgs of gold held in Rome would fall into the hands of the advancing Allies. Pilotti who was in Italy at the time was asked by McKittrick to negotiate with the Bank of Italy. In the same month (Sept 1943), the armistice was signed with the Allies, the Italians and Germans were escorting 119 tonnes of gold from Rome to Milan. The BIS, in Nov 1943, then “instructed” the Bank of Italy to convert all its holdings into gold and move them to safety at their H.Q. in Basel.

How was this overt manipulation and bias possible ? The answer comes in “Central Bank Cooperation at the Bank for International Settlements, 1930-1973” which states that the BIS, ‘proved an extremely useful listening post for the Reichsbank’ and that inside the Basel HQ of the BIS the ‘the Reichsbank could count on a group of excellently trained Reichsbank staff.’

President of the BIS for many years was the American born Thomas McKittrick (b. 1924 – d. 1955), who spent most of his working life in Europe and served on the German Credits Arbitration Committee from 1931 to 1939. He is thought by some (perhaps wildly) to have had Nazi sympathies and links with the OSS, now the CIA. [16] 

By training McKittrick was a corporate lawyer who had been a director of Lee, Higginson & Co. a company that had made substantial loans to the Third Reich. His continued presidency of BIS even after America’s entry into the war (Dec 1941), and was approved by both Germany and Italywith this significant addendum to their Note of Authorisation that: ‘McKittricks’ opinions are safely known to us.’

What is definitely known is that he retired from the BIS and took a job with the Chase Manhatton Bank, itself a bank which reputedly ‘traded with the enemy.’

Montagu Norman is widely regarded as having Nazi sympathies. Reputedly, Peregrin Worsthorne, once Editor of the Daily Telegraph and Norman’s step-son,  said:

  •  “Norman was to the right of Hitler, in terms of his politics”.

Shocking though that may appear to us today it has to be recalled that after 1919 the political world spit into 2 competing ideologies – that of fascism and that of Soviet style communism (a dichotomy repeated during the Cold War). Both used propaganda to mislead on a scale never before seen; both were expansionist but chose differing paths; both subverted the individual to prioritise the state (see Hegel’s writing re: the macro-community of the state versus the micro-community of the family adopted in the 20th century).

  • NB. Georg Wilhelm Hegel (b.1770 – d.1831), the historical inevitability of modern institutions personifying the modern nation state. The Hegelian ideal that sovereignty and idealism ranked above the people who constituted the nation.

In government circles, Marxism, communism and news of the execution of the Tsar and all his family, went beyond the pale of civilised conduct and was widely seen as a contagion without a visible cure. The reaction probably echoed those induced by the appalling excesses of the French Revolution.

Industrial unrest and rebellion was being fermented atMoscow’s direction (agents provocateur) in the 1920s and 1930s not simply in Europe but in the USA too. A class war, as Marx had predicted, looked almost inevitable.  “The complete abolition of the State” was mooted by Lenin at the Third International (1919–1943), also known as the Comintern. From 1939 to 1942 Trade Unionists with strong socialist views sabotaged the Allied war effort in British factories and on the US / Canadian coastal ports. The Comintern was a force to be reckoned with and its activities did not subside until Russia was itself invaded by its ‘friend’ Germany. Therefore, the red scare, the pre-war fear of bolshevism was validated.

For those not enthralled by Moscow, or in their pay, it was perfectly possible in Britain, an d no contradiction was noted, to be either a fascist or a communist and still to put King and country before politics.

During the war the BIS – and by implication Switzerland- nearly fell victim to Nazi overtures. No country had to that date defeated Germany in land encounters and there was a growing feeling in Berlin thatt he BIS was not indispensible. Allied bombing had affected the amounts held in Reich savings accounts and it has to be remembered that Germany was operating what was in effect something equivalent to the Sterling Area, embracing many local currencies and guaranteeing them.

The Reichsbank had sole financial responsibility for Germany’s external funding but it lacked  external, i.e. ‘overseas’ branches which the BIS, Swiss National Bank (SNB) and Bank of England enjoyed. Germany had failed to subjugate Britain in 1940 so what better option, might the German Foreign Ministry have calculated, than to take over a neighbour’s network of overseas branches, i.e. those of the BIS and SNB. Whether this was to be done by territorial invasion, the crossing of the Alps, or by political annexation “Anschluss” (there being many Nazi sympathisers in Switzerland), or merely packing the board of directors is not certain. In any event it must have put pressure on the Swiss National Bank and by implication the Swiss government to be more amenable to German demands.

Per Jacobssen wrote in his diary for Dec 1942, after visiting the Reichsbank in  Berlin that he fully realised that the independent future of the BIS depended on; “Puhl holding the fort.” The battle for the future of the BIS was fought between the German Foreign Ministry versus the Reichsbank backed by the Italian government.

Ribbentrop at the Reich’s Ministry of Foreign Affairs, and reknown for his intellectual shallowness, did not see the BIS as highly useful in a post-war world dominated by a victorious Third Reich. He viewed the BIS as a possible countervailing force to the needs and ambitions to what would be Germany’s monetary and financial world influence. Those directly concerned with the-day-to-day running of the Reichsbank – and to a lesser extent Funk, President of the Reichsbank, believed the BIS to be “indispensible” for war critical imports.

Italy, perhaps in fear of becoming a very junior partner in a Third Reich world used the Bank of Italy to insist in 1939 – 40 that the existence and work of the BIS should continue. In this the Bank of Italy was joined by the Reichsbank. To maintain good relations with Italy the Reich’s Ministry of Foreign Affairs relented and the BIS was saved.

When Per Jacobssen visited the Reichsbank again, in 1943, the official reason given was to discuss the reorganisation of the German banking system. Unofficially, it was to discuss with a select band of Reichsbank officials the defeat of Germany which, from 1942 onwards, looked a near certainty to ‘informed’ people. Jacobssen, Reichsbank officials and a few commercial bankers met to examine the “Anglo-Saxon plans” of Keynes & White for a new post-war currency regime, i.e. Bretton Woods. Funk was not included in this select band since he had prohibited all discussion about “considerations of post-war questions” in 1941 (source: ‘Central Bank Cooperation at the BIS, 1930 – 1973’, p.230).

It is incredible to think that at a time of ‘total war’ between England and Germany, of daylight bombing by the USAF and night time by the RAF,  Montagu Norman could safely take flights across German-occupied Europe to meet his German opposite number in Basel. These regular BIS meetings may even have included a stop-over in Germany for refueling. It might be of historical importance for the Minutes of these meetings were made public.

The secretive nature of the BIS has naturally lead to claims that it actively helped the Germans loot assets from occupied countries during World War II and hide them in Swiss accounts. Even the BIS accounts are secretive or at least opaque in nature. The BIS measure amounts in millions and ‘milliards’ which is not a typing error but means a billion.

Transactions and profits are recorded in “Swiss gold francs” and since the Swiss do not use gold for their currency except for specially issued “20 franc gold pieces”, how are we to value the BIS’s trade ? Should we choose as if in ordinary Swiss francs, or as if in gold and therfore multiply the given total in Francs by twenty ? BIS records show this was a deliberate choice of currency to adopt.

BIS accounts for the year ended March 31st 1948 reveal Net Income (but not total income ) as being 11 million Swiss francs (11,788,994 SF). Fees paid to the Board of Directors were 117,000 Swiss francs (117,608 SF) or approx 17,000 Swiss francs each which, for 1948, was extraordinarily generous. “Executives and staff salaries, allowances” were no less generous given the small number of employees at 1.6 million Swiss francs (1,620,297 SF).

“Net profit” for 1948 was declared to be 9.5 million Swiss francs (9,541,433 SF). See http://www.bis.org/publ/arpdf/archive/ar1948_en.pdf . Current market prices for an average twenty Swiss franc coin (weight 0.1867 troy ozs), in 2011 is £150.

Relatively speaking, “City bonuses” of a million pounds are therefore not something new; not something born of decadence and the 1986 stock market big bang associated with Maggie Thatcher. It was going on quietly in 1944 and 1948.

By 1942 and perhaps conscious of America as a new ally Montagu Norman of the Bank of England made it clear to the BIS that its gold transfers were so large and regular that they must cease. Thomas McKittrick was told that “Great Britain would no longer countenance such gold shipments.”  

At over 200 pages the 1944 BIS report is twice the size of the 1947 edition. Reading it one would be excused for not realising that a world war was raging across Europe and the Pacific. All those employed at the BIS must have seen ‘the writing on the wall’ as we have sen from diary comments above.

The report for 1944 refers to the Allies as the “Anglo-Saxon countries” and notes how:

  • “Sweden and Switzerland have, however, a considerable business with these countries, and this led in 1943, for instance, to an increase in the gold and exchange holdings of the Swiss National Bank by Sw.fcs 630 million and in those of Sweden’s Riksbank by S.Kr. 330 million.”

Curiously little commentary is contained in the BIS Accounts about Sweden and Switzerland’s trade with the Third Reich and payments in gold.  That depth of detail is reserved for the US gold and sliver positions and the UK’s sale of overseas assets to fund its war with Germany.

The total wartime “overseas disinvestment” of the United Kingdom was estmated by the BIS as “probably exceeding £3,700 million in round figures by the end of 1944.”

Space is even found to comment on Red Cross payments that the US and the UK had to make to Germany and Japan for Allied prisoners of war:

  • To meet diplomatic and other payments (including payments to Japan via the Red Cross for prisoners of war) the United Kingdom and the United States have needed substantial amounts in Swiss francs and also, though to a smaller extent — in Swedish crowns. . . .  and they have obtained these amounts up to specified limits through an exchange of dollars, sterling or gold against Swiss or Swedish currency at official rates.

Red Cross payments paid by Germany or Japan to the US and UK  for Axis PoWs finds no space in the accounts – if they existed.

16. Emil Puhl and the BIS

Very little information is available on the internet about Puhl. He is not even listed as one of the “Principal Officials of the Third Reich” at the  Jewish Virtual Library (http://www.jewishvirtuallibrary.org/jsource/Holocaust/reichoff.html).. Per Jacobssen relied on Puhl to defend the BIS when Puhl was a director and vice-president of Germany’s Reichsbank. At the Nuremberg Trials, he was convicted of war crimes and sentenced to five years’ imprisonment – so one would have thought this merited an entry into “Principal Officials of the Third Reich” but apparently not.

Puhl and Jacobssen agreed in 1940 that it was critical forEurope to have the Swiss franc as, a) an internationally strong currency, b). a “free currency” and, c). that the Swiss should not adopt exchange controls / restrictions. These, one suspects, were the core reasons why Switzerland did not become embroiled in Germany’s colonialisation of  Europe.

However, in terms of Nazi gold policy the importance of Emil Puhl and his role in directing gold operations before and during the war cannot be overstated. His promotion and the positions held indicate he was well connected. At a time when any other similarly placed economy would have quickly ground to a halt, Emil Puhl inverted the intention of the BIS to enable a relatively weak Nazi Germany to prosper and so prolong its European adventures (see US and Non-Neutrality below). Puhl’s name is listed as an Alternate director in the 1943 accounts .

The importance/role of Emil Puhl also hinges on a contradition; if Germany’s gold and foreign exchange reserves had been drained after 1918 and this inhibited economic growth and prevented the acquisition of military equipment or hardware, ie materiel, how without defaulting totally did the Weimar Republic experience an economic bubble of decadence ? 

Curiously, it was the Weimar Republic which ordered the building of the Deutschland class pocket battleships (e.g. Admiral Graf Spee) in the 1920s and by Feb 1929 designs were complete and the first keel laid.

The Nazi economy which followed in the next decade, 1930s, focused almost exclusively on militarisation and re-arming. Perhaps where Schacht had reservations about an over- dependence on militarisation, Puhl had less ?

The Nazi economy of the 1930s, focused almost exclusively on militarisation and re-arming and resorted to whatcan be defined as an autarkic approach to achieve its goals.

During the 1930s Germany’s foreign reserves had been unsustainably low but Germany only completely defaulted on her loans by 1939. The suspicion therefore remains that gold bullion was sent to upwards of 20 different Reichsbank branches either during this period or immediately after World War I. The creation of the Rentenmark and Mefo bills helped ease the economic pain.

Puhl’s business relationships with Joseph Kennedy Snr and many American companies, GM, Chase Manhatton, Coca-Cola etc, bears further separate examination.

In peace time Germany acquired substantial loans from American and British sources. Whether any of these were repaid is not clear.

What cannot be denied and is unambiguous is that Germany acquired more gold bullion to back it currency and pay for raw materials everytime it invaded a new country (see Part 1). Aggression was rewarded with gold bullion from the Treasury of the unfortunate victim state. Aggression funded Germanys’ expansion westwards, eastwards and gave it the ability to tackle Russia.

If the BIS could ever be described as the official, sombre and respectable face of a banking institution bounded by Treaties then its corruption by the war and its ‘gold liquidation’ techniques was its dishonourable face.

The gold liquidation was fed and supplemented by specialised German Army units which would raid High Street shops and loot local banks of all money currency, jewllery and valuables. Anything tradeable such as gemstones, oil paintings, art treasures, tradable securities, e.g. bearer bonds, etc. were all fair game for confiscation and shipped off to Berlin.

Stalin, in common with Hitler, also had designs on the gold reserves of other European countries. Due to it former South American empire the central bank in Madrid held the world’s 4th largest gold reserves in 1936 (estimated at US$ 750 million). For all its rhetoric and diatribes against the capitalist system, Stalin made sure that most of Spain’s US$ 750 million worth of gold bullion was shipped to Moscow during the Spanish Civil War to avoid it falling into fascist hands. During World War II Germany was attempting the same thing.

As part of the German-Russian Non-Aggression Pact of August 1939which the two nominally ‘socialist’ states had signed, the bonus for Stalin was the prospect of Lithuanian and Latvian gold falling into his hands. But delays in trade talks and then Hitler’s invasion into Russia put an end to that ambition.

17. Stockpiling Gold

In 1938 the BIS which had been created in 1930, played a pivotal role in Germany’s acquisition of US$13.5m of the Czechoslovakian state’s gold. When Austria was annexed – also in 1938 – her gold was transferred to the Riechsbank.

The Germans were cleverly mis-using the BIS (Bank for International Settlements) to transfer either physically to Berlin or by crediting the Riechsbank account with other nation’s gold. Britain and the Bank of England found itself forced by treaty to ‘trade with the enemy’; to be complicit in these monetary operations before and during the war. Why it did not void the issue by a cryof ‘ force majeur’ is not known. One would have suposed that no Treaty contract can be valid if it promotes illegal acts, e.g. war and conflict.

Had the BIS refsued to transfer gold and refused to invest its godl and reserves in Germany during the 1930s and 1940s the Second World War would have ended as suddenly as it had begun and millions of lives would have been spared.

The succession of nations which Germany conquered or annexed, beginning with Austria brought a succession of gold fillips to the Reichsbank. In addition to losing their country’s gold bullion reserves each country had to ‘pay rent’ or tribute for the German troops that occupied their country. One source on the internet gives a very detailed breakdown by types of money and the scale of the ‘tribute’ (taxation) demanded from Holland by Germany. Another source, a Chicago newspaper, carried the headline soon after France signed the peace terms with Hitler, that France would have to pay  Germany 400,000,000 French francs a day. With all of its gold shipped overseas this would make the Franc a paper currency in the truest sense of the word. Belgium and Holland (and others) faced the same inflationary dilemma.

The Table below shows the main 5 countries which includes Holland from 1940 to 1943. The total for the first 9 months of 1944, surprisingly, exceeds that for all of 1943.

  •  “In 1943, France paid on an average RM 925 million a month in occupation costs, Holland RM 180 million, Belgium RM 130 million and Denmark RM 45 million, with the greatest relative increase in Denmark, where the amount paid more than doubled from 1942 to 1943.”
  • “The aggregate occupation costs paid in Norway up to the end of 1944 seem to have been about N.Kr. 10-11 milliard, the equivalent of some RM 6,000 million. In Greece about RM 3,300 million appears to have been paid from April 1941 to December 1942 on account of occupation costs . . . .” – Source: BIS, 1944 Accounts.

Not only did US$ 163 m (some put it at US$ 193 m), of the Netherlands gold reserves fall into German hands but the Netherlands had to pay $50m Reichsmarks per month for Germany’s offensive against Bolshevism – of which US$10 million Reichsmarks per month had to be in gold (see also Appendices 2 and 3). 

“War contributions”, the 1944 BIS report tells us, were demanded of Bohemia, Moravia, Poland, the Ukraine Central Bank (March 1942). From April 1943, Finland, Hungary, Slovakia, also had to pay for the local cost of upkeep for the German troops stationed there.

The apparent rise in German revenue from 4 billion marks in the second half  of 1940 to 28,000 billion in the first nine months of 1944 may look like a real income increase but this has to be off-set by internal inflation. The 1949 BIS Accounts estimate that at the beginning of 1933, when National Socialism came to power [i.e. the Nazis] the total paper money in circulation amounted to RM 3.9 billion (3.9 bn Reichsmarks) and that by 1938 this had risen to RM 8.6 billion. However, by the time of the Allied occupation and with no reliable data the BIS estimated that 65 billion Reichsmarks were in circulation by the Spring of 1948.

Europe at the end of 1938 (and excluding the U.S.S.R.) had gold reserves amounting to about $10,400 million. From the BIS Annual report of 1948 we learn that ten years later, ie by the end of 1948, the corresponding reserves were about half as high, ie not exceeding $5,300 million. Britain had seen its holdings halved from $3,450 million (Sept 1938) to $1,610 million (Dec 1948). Switzerland had almost doubled its holdings from $700 million (1938) to $1,390 million (1948). These two countries (Britain and Switzerland), plus Belgium, then held $3,620 million or 70% of Europe’s gold.

This, however, is a false picture since Switzerland has never sought to be anyone’s ally but has put its own interest first.

European Gold Reserves 1938 – 1943 (assuming conversion rate in 1945 of approx. $4 to £1 and gold at £35 aTroy ounce).
Date Country Invaded Gold acquired Est’d gold reserves Weight / comment

Monthly ‘tribute’ 

1938 Austria * $ 13.5m $ 13.5m    
1938 Sudetenland        
1939 Czeckaslovakia * $25 m (£6 m)    
1939 Poland Nil $ 64 m Via Vichy Gov’t  
1939 Danzig * $ 4 m $ 4 m    
1940 Belgium $ 223 m ? 240 tonnes Belgium moved to France  Vichy France
1940 Holland $ 163 m ($ 193 m) $ 163 m   Pay $50m Reichsmarks p/month. $10 m in gold.
1940 France   $ 245 m + $ 260 m in Fed Res. 3,000 cases of gold to Canada  
1940 Luxembourg $ 4.8 m $ 4.8 m    
1940 Norway $ 88 million $ 88 million    
1940 Denmark $ 51 m $ 51 m    
1941 Yugoslavia        
1941 Croatia     Pro fascist  
1944 Finland     Anti Soviet nickel ore  
1941 Greece        
1941 Romania     Pro fascist oil fields  
1941 Latvia        
1941 Russia        
1941 Belorussia        
1941 Ukraine        
1941 Lithuania        
1941 Estonia        
1944 Hungary     Pro fascist  
1941 Bulgaria     Pro fascist  
1939 Albania     By Italy  
1943 Italy £ 88 m £ 88 m Moved to Berlin  
  * These 3 states  netted Nazis US $71m      
Note: Gold is measured in Troy ounces. There are 32,150 Troy ounces in 1 tonne of gold. A metric ton (tonne), is 1,000 kilograms (= 2,205 lbs).  Larger amounts are measured in the US in metric tons;  Europe uses Kilograms.

The BIS report (p.153) puts the gold reserves of the Bank of France in 1948 at $548 million. The work of the Allied Gold Commiossion played a major role in restoring gold to their rightful countries. Other European countries who had elements of their gold holding restored nonetheless had liabilities in ‘clearing accounts’ that had to be offset. European countries had to climb out of a post war recession and depression and would not have been able to do so without the European Reconstruction Programme (ERP) known popularly as the Marshall Plan.

An American report of 1997 (“U.S. and Allied Efforts To Recover and Restore Gold and Other Assets Stolen or Hidden by Germany During World War II – Preliminary Studyhttp://www.swissbankclaims.com/Documents/Doc_5_Eizenstat_Report.pdf)  is useful in quantifying what gold shipments occurred and the involvement of the BIS and Switzerland (pages v – vii):

  • Between January 1939 and June 30, 1945, Germany transferred gold worth around $400 million ($3.9 billion in today’s 1997 values) to the Swiss National Bank in Bern.
  • Of this amount, the Swiss National Bank bought about three quarters, worth $276 million (worth $2.7 billion at 1997 prices), and the remainder went directly to the accounts of other countries in payment for goods and raw materials.
  • An additional $120 million of German-looted gold was also estimated to be in accounts held in other countriesatthattime.
  • The US State and US Treasury Departments estimated Switzerland handled between US$ 185 million to US$ 289 million in looted gold that was on deposit at the Swiss National Bank at the end of the War.
  • The Swiss argued with the Allies for its repayment to be reduced to only US$ 58 million in gold to which the Allies reluctantly agreed.
  • The deal to repay US$ 58 million in monetary gold (less than half the US$ 185 million to US$ 289 million calculated was owed by the Allies) was promptly paid by the Swiss to the Tripartite Gold Commission (TGC) for redistribution to the claimant countries.
  • However, another part of the Swiss Accord with the Allies, that of the liquidation of hundreds of millions of dollars in German assets, was never fully implemented.
  • Switzerland’s pro-Nazi face was revealed when the Bern government claimed that German companies seized during the War were actually Swiss-owned and demanded that the US unfreeze these ‘German’ assets.
  • At the same time the Bern government would not unfreeze assets of concentration camp victims nor  unfreeze assets (factories etc) of Jews forced to flee abroad.

Within the covers of the above Report Switzerland’s public reputation is comprehensively shattered; in every chapter its probity and true neutrality is called into question. Its public image is put to the sword. with examples of gross ineptness, criminal behaviour, of disregarding accepted international laws, a lack of sensitively, greed, bad taste, poor judgement, profiteering from the final solution and being in denial about the true nature of Germany under the Nazis. As the report puts it, Switzerland was ‘open for business as usual’ regardless of the singularly immoral nature of this particular war.

Astonishing, according to the Eizenstat Report, it even transpires that the idea of putting a “J” in the passport of all Jewish Germans was a Swiss idea they suggested to the Third Reich:

  • “Switzerland persuaded the Nazis to establish the “J” stamp which prevented tens of thousands of Jews from entering Switzerland or other potential sanctuaries.”

The Swiss Government acknowledged as early as 1952 (and has reiterated in recent months [1997] that there were ‘shortcomings in Switzerland’s refugee policies.’

Switzerland actually closed its borders during the War to Jews fleeing deportation fromFrance and Belgium (what price Red Cross impartiality now ?). Recently it has been revealed that Sweden also operated an ‘on/off’ policy with regards letting in  Jewish refugees during the war – relaxing the regulations only when the fate of the war was clear (ref. Raoul Wallenberg’s actions 1944).

About 50,000 Jewish refugees were admitted by the Swiss from 1933 until the end of the War (presumably most before 1938), but Switzerland the price was that the existing Jewish community had to pay for the sustaining the Jews who were admitted after the outbreak of War – The Swiss housed most of these Jewish escapees in ‘labour camps.’

18. Raw Materials

Sufficient money and credit is required to embark on a sustained war. It was – and still is – a common practice for central banks to split their holding of gold and hard currency and make deposits overseas. In recent times Venezuela has asked for the return of its gold from London and New York and modern Germany which has the largest horde of gold among EU countries still has most of it ‘on deposit’ atthe Federal Reserve (unless it has been hypothesised by the US – as some suspect).

The reason for cross-holdings is thatcountries seek to create a ‘stabilisation fund’ modelled on the one pioneered byBritainin 1932 in the form of the Exchange Equalisation Account.

Rearmament programmes which were under way in some European countries were short lived as events overtook government policies.

In pre-war Europe, France’s central bank was a popular option for the central banks of several other European nations.  The Bank of England was also popular, the island was free from any invasion threat, but shipment there meant the additional risk, albeit small, of a sinkage in the Channel. France was seen as safe and secure; France had the impregnable Maginot Line and a huge standing army. What country be safer ?

As it turned out it was a poor choice for many nation’s Treasuries for while the French government ensured  that their 3,000 cases of French gold was safely whisked away to Canada on aboard the battleship Bretagne, escorted by the cruiser Algériein March 1940,  France’s depositing clients were not so lucky. With the Maginot Line overrun by German forces in a twinkling, millions of dollars of other peoples’ money and gold were successfully confiscated.

The Dutch, alarmed by the advance of the Wehrmacht and the earlier Nazi pillaging of Austria and Czechoslovakia, made strenuous effort to get their gold reserives to safety in the UK and the US. A small Pilot’s launch leaving Rotterdam in 1940 with what is said to be only a small part of Dutch gold reserves sank in the ‘New Waterway’ after hitting a German sea mine. A report in 2011 by a Dutch regional public broadcaster, RTV Rijnmond, states that the Pilot launch was loaded with 19,937 gold bars. Most bars were recovered by the Germans at the time. Owing to the size of the boat and the intrinsic weight of gold, if this figure of 19, 937 is correct then the bars must have been quite small, e.g. 500 gram or 1 kilo in size.

By 1940 and into 1941 the only economies with a thriving rearmament programme were Germany and Britain. Russia and America didn’t see the urgent need as they didn’t see themselves as players in any war.

Without Swedish ore, Finnish nickel, Rumanian oil, Spanish manganese, Turkish chromium, and Tungsten from Portugal, the war machine of the Third Reich would have ground to a halt well before 1945. [17] Britain, meanwhile, continued to rely on its empire and commonwealth connections for the same materials. The fundamental difference was that for 6 years Britain was spending its own money and racking up debts in its sole name whereas Germany was using other country’s money and lines of credits.

During the war, neutral Portugalwas one of the centres of tungsten production and essential for metal used in weaponry. Portugalsold the commodity to both Allied and Axis powers and unsurprisingly the price of tungsten on the Portuguese open market increased by some 1,700%. The German name used then for tungsten was Wolfram.   

Portugal became suspicious of German paper currency and Germany had to supply harder currencies, e.g. dollars. But the Portuguese were not convinced and suspected counterfeiting. In a third phase much of the tungsten was purchased with gold bullion the Nazis had looted from the countries they had invaded – the 198 tons of Belgian gold which the Vichy government handed over to Berlin may have been used wholly or part to fund this trade. Eventually, in order to guarantee uninterrupted supplies of tungsten, the fourth and final phase of this sage, saw Germany purchase the mines in Portugal. However, the Portuguese still insisted they pay in gold.

The end of the war in Europe brought an end to these trade and a day of reckoning began. Feeling no doubt under some pressure from the post-war Tripartite Gold Commission’, Switzerland declared as early as May 1946 (12 months after the German surrender), that  it was prepared to pay the sum of 250 million Swiss francs, equivalent to approximately 60 tons of gold to the Belgian National Bank.

Two months later, Sweden paid the Belgian National Bank $8 million in compensation –  roughly equal in value to 7 tons of gold. And in May 1948, Spain finally handed the Allies all the eight gold ingots it had obtained directly from the Reichsbank, amounting to 101 kilograms. Portugal proved the most obdurate in handing back even the smallest amount of its blood stained bounty.

Eventually, in order to guarantee uninterrupted supplies of tungsten Germany purchased the mines in Portugal, however, the Portuguese stipulated they pay in gold.

World wide, Tungsten is found in Russia, Canada, Bolivia, Austria, Portugaland Thailand (then an Axis power). Only Austria and Portugal were within the Reichsmark domain. Germany was discreetly blockaded by sea power, and if it wanted Tungsten from Brazil, Peru or Bolivia etc it would have to use an  intermediary, i.e. Portugal, Sweden and / or the BIS (see Economic Warfare below).

Portugal was only one of two centres extensively used by the Nazis to convert launder money into  war production raw materials. It is estimated that nearly 100 tons of Nazi gold were laundered through Swiss banks, with only 4 tons being returned at the end of the war. Portugal proved more resistant to handing back Nazi gold than even the Swiss.

Page 65 of “U.S. and Allied Efforts To Recover and Restore Gold and Other Assets Stolen or Hidden by Germany During World War II – Preliminary Study [1997]” (http://www.swissbankclaims.com/Documents/Doc_5_Eizenstat_Report.pdf) reveals:

  •  “The amount of $276 million in gold was sold [by the Nazis] to the Swiss National Bank during the war, and “the larger part was looted gold.”
  • An additional $138 million was “washed through” the Swiss National Bank and eventually sold to Portugal and Spain.
  • This made a total of $414 million in looted gold sold or transferred to the Swiss National Bank by the Nazis.
  • A separate analysis prepared by James Mann of the Treasury Dept estimated the total monetary gold looted by Germany at $579 million out of a total of $785 million available to Germany after June 30, 1940.
  • Mann determined, from available ledgers of the Reichsbank, that Germany exported “at least” $398 million worth of gold during the war, and of this amount “an absolute minimum” of $185 million must have been looted.
  • Mann concluded that“on the fairest assumptions, the amount of loot [gold] taken by the Swiss from Germany can be estimated at US$ 289 million dollars.”

In papers declassified in Sept 1996 by the British Foreign Office it was known to the intelligence services that the Banco de Portugal maintained three parallel accounts with the Swiss National Bank (SNB).

  •  ‘Account A’ was used to deposit the gold transferred in payment for the purchase of Escudos by the SNB from the Banco de Portugal.
  • ‘Account B’ was reserved for the gold thatthe Banco de Portugal financed with the Swiss francs supplied to it by the Portuguese commercial banks.
  • But “Account C” was the account used byBerlinto transfer gold to be paid directly by the SNB into the Banco de Portugal account in Zurich.

During the course of 1943, at least 20.4 tons of the former Belgian gold reserves found their way to coffers in Portugal courtesy of Berlin.

  • “On January 1, 1939, total Portuguese gold reserves amounted to a mere 63.4 tons; over the course of the war, these swelled by nearly 600 percent, reaching an imposing 356.5 tons as of October 31, 1945.
  • During this period Portugal received at least 123.8 tons net in gold directly or indirectly from the Reichsbank, valued at the time at $139.9 million.” – “Portugal and the Nazi Gold: The “Lisbon Connection” in the Sales of Looted Gold by the Third Reich” by Antonio Louça and Ansgar Schäfer.

In the same American report (at page 129), we discover that “officials at the Bank of Portugal claimed that “no gold whatsoever was ever shipped from Germany to Portugal between April 1938 and May 1945”  ( http://www.swissbankclaims.com/Documents/Doc_5_Eizenstat_Report.pdf )

A July 1946 State Department report, based upon Allied reviews of wartime intelligence and investigations of German and Swiss Government and banking institutions, determined that:

  • Portugal had acquired a total of 123,827 kilograms of gold (or roughly 121.87 tons, valued at the time at $143.8 million) from the Swiss National Bank.

Less well known, however, is the huge scope this trade assumed as the war progressed. In 1940, only 1.79 percent of Portuguese exports went to Germanybut by 1942, that share had soared to 24.4%.

One major factor in holding down exports initially appears to have been Portuguese misgivings about supplying goods on credit (unlike Sweden). Indeed, exports only began to climb after the Germans began utilising the Bank for International Settlements – (BIZ, Bank für Internationalen Zahlungsausgleich), and started to draw more frequently on gold and currency reserves seized in the occupied territories in order to pay for raw materials imported from the neutrals such as Portugal.

For easy arithmetic, if one hundred tons of gold (equivalent to 3,215  Troy ounces x 100 tonnes) were accepted by the Swiss and Portuguese, then at 1940 prices this would produce a yield of US$ 112.5 million (321,500 ozs x $ 35  = $112,525,000).

The only other significant neutral country which had ‘significant’ trade dealings with Germany was, of course, Sweden. Sweden’s socialist government of the 1920s had assisted Germany throughout its long struggle to achieve economic viability and for decades one has had to ask “Why ?”, with no prospect of an answer.

We now know the reason why Sweden appeared to be happier than other countries to accept trade on terms of ‘risky’ state credit notes (Mefos) rather than hard currency – it was quietly being paid in looted gold.

The Swedish Commison found that between the summer of 1942 and the summer of 1944, Swedens’s Riksbank received a total of 20.3 tonnes of gold bars plus 1.5 tonnes of gold coins (21.8 tonnes). Of this about 16.4 tonnes was thought  to have contained “a minor proportion of gold which had been confiscated or plundered from Jews in other connections.”

Sweden’s “16.4 tonnes of gold” could be valued at US$ 1.84 million at 1940 prices (some sources put it at US$ 44.16 million at 1940 prices – compared with Switzerland’s US$ 449 million).

(NB.  Overall weight, 21.8 metric tonnes (20.3 + 1.5 tonnes).

1 mt = 3,215 Troy ozs x 21.8mt = 70,087 oz x $35 per oz = $ 2,453,045 

            ‘Tainted’ gold  x 16.4 tonne = 52,726oz  x  $35 per oz = $ 1,845,410

The Governor of the Riksbank initially suspected that there could be coins involved which had be taken from dead Jews (why would he think that?), but that suspicion was dropped after the question had been raised verbally and verbal reassures given that this was not the case.

The market price for gold in late 2011 was US$ 1,600 per Troy ounce. Gold as a “store of value” rarely declines and any gold still held in the reserves of any of these collaborating countries would be worth something ike a 1,000 times more today. Gold more than anything else represents the real purchasing power and price of goods. So, for instance, Sweden’s 527,260 ozs would today be worth in purchasing power terms US$ 843.6 m (US$ 843,616,000) and that must be how the sum of US$ 44.16 million in 1940 should be interpreted.

  • (NB. all the above calculations are ‘rough’ and should not be relied upon as definitive. There is a wide margin of error due to a variety of sources citing differing in amounts involved and differing conversion values, e.g. stated values in dollars vs values in Sterling and the time of publication). Therefore, a conservative or average approach has been adopted.

19. Spain and Franco

Why Spain stayed out of the Second World War (Sept 1939) has always been hotly debated especially after the direct military assistance both Germany and Italy gave to Franco’s rebel forces. Given Russia’s previous involvement with the legitimate socialist Spanish government (ousted by Franco), he may have wanted to reinforce his own internal position by eradicating future political threats to his new regime. Had he joined with Hitler he may have provoked a counter-insurrection to his government by disgruntled left-wing or socialist inclined revolutionaries (or the triggering of the very old Alliance between Portugal and England ?).

Franco and Hitler met face-to-face only once, in Oct 1940, at the secluded railway station of Hendaye in SW France. Though the Civil War was over by 1939, repression and persecution of Spanish trade unionists and opposition politicians lasted for decades in Spain (see ‘Valley of the Fallen’ death toll largely built by political prisoners ). Under General Franco, 132 concentration camps were opened and 541 forced labour battalions created after the Spanish Civil War. Some Spanish PoWs ended up in Guernsey and Alderney as slave workers building Hitler’s Atlantic Wall.

Some historians argue that Franco had ‘unfinished business’ in quelling radicals and in order to stay out of the war he therefore made demands he knew Hitler could not agree to these included demands for food, military equipment, sovereignty of Gibraltar and/or the annexation of French North Africa (as an adjunct to Spanish Morocco).

Franco must have realised that Spain was in no way equipped to handle a 20thcentury war or resist an Allied blockade – and probably Hitler did not want to fight on two European fronts at the same time (however, he had done this before and he must have weighed up the prospects of attacking Gibraltar from the south via friendly Vichy controlled Morocco).

Spain’s historical reliance on gold from the New World had left it unindustrialised – it had only a meagre range of basic industries and a poor infrastructure. Franco had inherited a bankrupt country where the country’s gold had been shipped to Moscow, a currency which was almost worthless and an economy dislocated by war.  Had Franco sided with Germany, “Operation Torch“, the Allied landings in North Africa, would have given Franco many sleepless nights as he pondered where the Allies would strike next.

Did Spain, therefore, deliberately choose not to become entangled in a World War or was she prevented by the thought of a blockade, the kind of which she had seen operated against the peninsular from 1936 – 39 ? Spain’s adoption of a pro-Axis but non-belligerent posture allowed her to trade with companies scattered all across the Third Reich.

Despite adopting a pro-Axis attitude Spain, unlike Portugal, was more compliant in returning Third Reich gold to the Allies after 1945. Nevertheless its non-belligerent posture was not beyond censure. The Spanish link with Nazi Germany existed before the war and this was reaffirmed during the war Spanish naval facilities were made available to German ships – in much the same way that Stalin agreed to a secret U-boat base in northern Russia to harry the Allied Atlantic convoys (“Base North” was a secret German U-boatbase in ‘Zapadnaya Litsa’ bay, west of Murmansk provided by the Soviet Union in 1939).

Spain was to prove useful to the Third Reich in that it could legitimately purchase on the world market materials and commodities that were prohibited to Germany. Thus, Sweden, Spain, Switzerland, and Portugal were Hitler’s purchasing clerks and together Berlin and Basel were its wages clerks.

These 4 counties facilitated Nazi purchasing and payments to 3rd parties, i.e. money laundering, avoiding the belligerent embargoes then in force by the Allies. Payment and commodities could be traded between the outside world and then with each other and then, with a cleaner title, to the Third Reich. But in the case of Spain, was this sufficient ‘payback’ for Germany’s support of Franco during the Spanish Civil War ?

Some historians argue that Franco simply had nothing to offer the Germans; yet others point to the on-going dispute over German mining rights in Spain.  However, this overlooks the menace German troops could have posed to Gibraltar by simply threatening to overrun it from the landward side. This would have broken the strangle-hold the Allies enjoyed in the Mediterranean. Then again, Franco might have seen himself as being usurped once he had served his purpose.

The Swiss ‘Bergier Report’  points out that not only did an estimated $4 billion of the gold go to Switzerland but that about $2.7 to $2.8 billion, was stolen and in addition:

The role of Portugal has featured strongly so far in this narrative. Its conduct and demeanor was different from, say, Spain or Sweden, and for that reason Portugal will be dealt with separately later in this article.

Meanwhile, the Bergier Report’  has highlighted the emergence of a new player, that of Turkey. The role of neutral Turkey was to be part of a scheme to provide the Reichsbank with foreign currency. Axis diplomats and agents were able to finance operations in the  Turkish markets. Nearly $8 million in victim gold from the Melmer account went to the Dresdner Bank and the Deutsche Bank (both privately owned German banks). This gold was then sold on the Turkish free market to provide foreign currency and was made possible by Axis diplomats and agents operating in Turkey. Which then opens up yet another chapter, that of the role of Turkey.

20. The Aftermath

With the imminent fall of Berlin in 1945, Walter Funk, president of the Reichsbank and Reich Minister of Economics, sent ‘most’ of Germany’s remaining gold reserves, worth some $238 million, and a large quantity of the monetary reserves, to a potassium mine at Merkers in the south of the country. This mine was already being used by the SS for hording their miscellaneous looted valuables (for more details see “Nazi Goldhttp://www.ess.uwe.ac.uk/documents/nazigld.pdf). These amounts have been entered into tabular form and are shown below (‘Inventory of Captured German Gold’).

One can imagine Hitler’s revulsion of the Soviet Union manifesting itself in denying communist forces at the death of the Third Reich any gold bullion to show as a profit in their hour of victory against him. Simply hiding some or all of Germany’s bullion in a mine would not be the immediate first choice by such a ‘driven’ group of people or its obsessed leader one suspects.

Speculation and conspiracy theories have consequentially always surrounded the triumvirate of South America, Martin Bormann and Nazi gold. Bormann was closely connectd to the Krupp inspired “German Industry’s Adolf Hitler Fund’which over a 1e2 year period collected and administered a fund of 305 million Reichsmarks.

If, as the logic runs, France could spirit away its gold to Martinique, North Africa and the US in 1940 what was there to stop Germany doing the same and depositing it in some friendly country ?

The world’s biggest single transportation of gold was the shipment of £58 million (US$ 232 million) worth of British gold reserves, bonds and stocks to Canada on the British cruiser, HMS Emerald. [18] This was followed by other gold shipments between Oct 1939 and August 1940 by her sister ship valued at £10 million. 

Inventory of Captured German Gold / wealth (inc. confiscated from occupied countries).
   Quantity
Bars of gold bullion  8,198
Boxes of crated gold bullion  55
‘Gold items’  “Hundreds”
Bags of gold Reichsmarks  1,300 +

British gold pounds

 See Above

French gold francs

 See Above
Bags of American $20 gold pieces  711
Bags of valuable coins  9
Boxes of silver plate  63
Bags of silver plate  55
Bags of gold and silver coins + foreign currency  “Hundreds”
Reichsmarks in notes  2.76 billion
Loose silver bars  20
Bags containing silver bar  49
Bag of platinum bars  6 bars
Bags of looted ‘valuables’ from other countries.  110
Estimated value (gold, silver, and currency ) as at Sept 1943  $ 520 million
   
Opening and Closing balances  
Germany started war with  $120 m
Seized  by   Germany  $ 600 m

Whether the amount of gold bullion recovered by the Allies is the complete amount or whether there are still large amounts ‘salted away’ has been the topic of many books over the years.

Purely from an accountancy point of view the US$ 238 million mentioned above has to be contrasted with the US$ 520 million recovered by US forces in 1945. As if to confirm the view of meticulous record keeping, paperwork found in Berlin showed the closing gold balances of the Precious Metals Department of the Reichsbank to be US$ 255.96 million.

From the Western power, but not the Soviet, we have a record of what it is said they found. The Americans were very much in charge of this operation as the mine came within their jurisdiction and army command.

 The US inventory states that the entire hoard as tallied by the Allies included; 8,198 bars of gold bullion; 55 boxes of crated gold bullion; hundreds of bags of gold items; over 1,300 bags of gold Reichsmarks, British gold pounds, and French gold francs; 711 bags of American $20 gold pieces; hundreds of bags of gold and silver coins and of foreign currency; nine bags of valuable coins; 2.76 billion Reichsmarks in notes; 20 loose silver bars; 40 bags containing silver bars; 63 boxes and 55 bags of silver plate; 1 bag containing six platinum bars; and 110 bags of valuables from various countries. Large quantities of counterfeit currency was printed by the Nazis during the war but none of this is recorded in this listing.

See Table ‘Inventory of Captured German Gold’.

It is beyond the ordinary imagination of most people to visualise 8,000 large bags filled with bullion grade gold. The photo below of one shaftatMerkers –  and there were others running off the main one containing art treasures, currency and silver etc – gives some idea of the enormity of the theft and the painstaking task of making an inventory.

During May and June 1945, US soldiers found further deposits of Reichsbank gold valued at about $11 million. Altogether the Americans reckoned that they recovered 98.6% of the $255.96 million worth of gold shown on the closing balances of the Precious Metals Department of the Berlin Reichsbank. Two percent, or thereabouts ,of gold was still missing and at 1945 prices that gold was worth more than $3 million. This is probably the 2% that was distributed at the 1997 London Conference.

Property confiscated by the S.S. from concentration camp victims consisted of all kinds of gold and silver items, ranging from dental work to cigarette cases, diamonds, gold and silver coins, foreign currencies, and gold and silver bars. To this was added the Reichsbank’s gold.

Did the unravelling of the Third Reich result in no one being in charge of spiriting the bullion to a safe haven ? Given the meticulous nature of German paperwork and the propensity for planning, a detailed plan must, in all likelihoods, have existed.  Or did the military collapse of Germany arrive sooner than expected and they simply ran out of time ? 

Eisenhower’s chief of staff later estimated that the value of the gold, silver, and currency was over $520 million at Sept 1943 prices.

Nazi Germany had long planned to ruin the British economy by printing and flooding the market with the counterfeit pre-war “white” £5, £10 and £20 notes. They had 100 agents ready to put the money into circulation in theUK. Called “Operation Bernhard” it was begun before the war and Jews in the Sachsenhausen concentration camp were forced to forge whatby the war’s end total £134 million worth of notes.

Right: Some of the 8,198 bags of gold found at Merkers

The Bank of England countered by withdrawing all notes with a value of more than five pounds (ironically during and after the war possession of this money became a major factor in identifying Nazi agents and led to successful arrests). The majority of the notes, it is thought, were dumped in Lake Toplitz in Austria at the end of hostilities. From that fate we have to assume that fake Sterling currency was not part of in the US inventory.

After the war an Allied commission known as the Tripartite Gold Commission was set up  in Brussels in Sept 1946 (see below). It estimated that Germany had begun the war with $120 million and seized or commandeered $600 million from conquered nations. We have to recall at this point that Schacht had begun some years beforehand a hidden gold programme which by 1939 had misrepresented Germany’s gold reserves (it was 7 times the expected amount of 500 million marks (documents revealed this in 1945).

Lost forever and therefore missing from these American accounts of 1945 are the BIS’s prewar gold “investments” in Germanywhich exceeded of 7.8 tonnes (is this linked to the Swiss claim that some German factories/assets were actually Swiss owed and could not be “liquidated” for restitution).

 Lost too are the amounts used by the Third Reich for the mundane. For example, between 1939 and 1945, 6 tonnes of gold was used to pay “Payments for postal and railway services.” Also from BIS Annual accounts we learn that another 5 tonnes was withdrawn by the Reichsbank between Nov 1939 and May 1940 (the invasion of Poland and the Low Countries. Half a tonne of gold was swapped with the BIS gold held in Stockholm therefore making its future use elsewhere look “kosher”, to coin a phrase.

Between Nov 1941 and Jan 1942 the Reichsbank sold 1.5 tonnes of gold to the BIS in exchange for Swiss francs. Total withdrawals from the BIS during the war by the Reichsbank amounted to 21.4 tonnes or 2, 1472 kilos (source: Clements 1998). However, this is far from the full story.

  • NB High value commodities like mercury, industrial diamonds, chrome, uranium oxide, radar equipment, radar detection, radar specialists, infra-red equipment/  specialists or tungsten are not on this list yet in the dying days of the Third Reich commodities like these were sent to Japan by submarine, the U-234. Also included in U-234’s manifest were medical supplies, instruments, lead, mercury, caffeine, steels, optical glass and brass (see also U-219 and U-195, jet engines).

Questions yet to be fully answered relate to the complication caused by the ‘hidden gold programme’ of 1939 mentioned earlier, and if it was 7 times expected amount of 500 million marks has that been taken into account ?

Questions posed by those on the conspiracy fringe – and which have yet to receive a satisfactory answer – relate to the alleged microfilming of the Reichsbank’s Precious Metals Department by the U.S. Army in 1948. It is alleged that:

  • These records have subsequently disappeared in Germany, and there has been a search for them [for] the past two years in the belief they would shed light on how much non-monetary gold (e.g., dental gold) was melted down and mixed with the monetary gold (i.e., central bank gold) and thus indicate how much restitution still should be made to victims of Nazi persecution and their heirs.

In the chaos of defeat and the break down of law and order a wild west atmosphere can quickly develop. There was a scramble not just for gold but for patents relating to chemicals and, for example, technology relating to jet and roclet engines. It has been suggested by some sources that officers with enough ‘pull’ may have profited, e.g. taken the occasional small 100 gram bar or necklace. But these are only ‘speculations’ and it is from the same type of sources that the question arise over the assassination of General George Patton in a Dec 1945 ‘road accident’. Military historian Robert Wilcox in his  2008 book “Target Patton“claims he was silenced for his criticism of Allied war leaders  collusion with the Russians that cost American lives (see also http://www.archives.gov/publications/prologue/1999/spring/nazi-gold-merkers-mine-treasure.html).  Or perhaps it was knowing that some gold was being siphoned off ?).

21. Tripartite Gold Commission

Long before VE Day (Victory in Europe) it was obvious that a great deal of money had been spent by Germany to prosecute its war and its global expansion – money it did not have. Germany had sold $300 million in gold to Swiss banks and ‘laundered’ in the region of  US$ 140 million in currency through neutral countries like Portugal and Spain.

With Germany defeated the BIS had no option but to open its books and account for gold transfers. Approx $550 million was owed to claimant countries. Of this amount only £78 million (US$ 312m ?) was paid over to the Tripartite Gold Commission.

The Allies set up the Tripartite Gold Commission (TGC) in Sept 1946, based in Brussels, to trace all the gold confiscated by the Nazis and, where possible, return it to its rightful country or private owners.

Internally the German economy had seen no wage increase since 1936 when a “wage stop” had been imposed (see diagram “Wage rates 1929 – 1949”). This meant that a worker was still being paid only RM 0.95 per hourata time when a single cigarette in the black market (in 1946—47) cost RM 7 (7 Reichsmarks) or more, and one kilogramme (2 lbs) of butter would fetch as much as RM 900.

By June 1945 and certainly by 1946 The Big Four – the 4 occupying powers – had complemented, i.e. integrated, occupation currency with the German Reichsmark which was still in circulation. Germany’s gold reserves were zeroed, and a new currency, the Deutschmark, replaced the Reichsmark (in the West) in 1948. The economy moved from one based on payment by cigarettes to one using a fiat currency.

Externally, Germany held accounts in Spain, Sweden etc that could be ‘liquidated’ to pay compensation. However, of this pool of overseas assets only $128m were liquidated and as at 1996 $78 million was still held by Federal Reserve Bank and some by the Bank of England.

“Restitution” (the giving back of the stolen gold and property and the compensation of countries raped by German invasion), revealed more gold and increased friction between states. After intense pressure over the past 20 years it has subsequently been confirmed that Nazi gold and money had been deposited in Swiss banks since 1945.

The flamboyant lifestyle of Argentina’s Pres. Juan Perón  and his wife Eva in the late 1940s – some have speculated – is said to have been based on what are today called “kick backs” using Germany gold and currency to provide post-war safe havens for former Nazi officials. It is sheer speculation and open to hyperbole that Perón’s wealth included $800 million dollars, 4,600 carats of diamonds and other precious stones, 90 kilograms of platinum and 2,500 kilograms of gold (this level of wealth, if true, could simply be the result of looting of one’s own National Bank, as was the case of the Philippines Pres. Marcos). Or it could be bribery for wartime ‘investments’ and trade, known to have concerned the US, and/or payments from Germany for legitimate or nefarious activities. The war was good for Argentina, and from the $1.7 bn surplus she was able to repay the Bank of England the £1 billion loan from the 1930s.

South America seems to have been the preferred destination of fleeing Nazis such as Eichmann and Josef Mengele (see Rattenlinien, or ratlines http://en.wikipedia.org/wiki/Ratlines_(World_War_II) . Indeed, Uki Goñi’s 2002 book “The Real Odessa: Smuggling the Nazis to Perón’s Argentina” shows that Peron admits issuing orders to encourage émigrés from Nazi Germany to make their home in the Argentine. One source states that over 10,000 former German military personnel of various ranks made it toSouth America along escape routes (Paul Manning, CBS journalist).

Peron viewed “the Nuremberg process a disgrace, unworthy of the victors” and to a degree he has a point; it was a process of ‘retrospective’ law, tailored to the immediate needs of the situation and self-righteousness – vengeance is never a good recipe for long term justice.

Disputes, naturally, arose between victim governments and the counter-claims by The Big Three powers who had actually spent their own gold reserves prosecuting the war in order to ‘liberate’ Europe and thus had enabled much of the gold to be restored to its rightful owners. Britain alone had sold off over £3,700 million of its “overseas” assets by Dec 1943 to fight the Axis powers (some £1,200 million involved assets in India).

The total amount of gold in bars and coins eventually available to the Commission, and deposited in the Bank of England and the Federal Reserve Bank of New York, was about 337 tonnes.

The claimant countries were Albania, Austria, Belgium, Czechoslovakia, Italy, Greece,  Luxembourg, The Netherlands, Poland, Yugoslavia and Albania. (NB. The USSR, on behalf of Romania, Hungary and the Ukraine, appears to have had no interest in the restitution of national gold reserves).

The work of the Triparite Commission, like so many other quangos, was slow and went on for many years. By way of example, the discussions with Albania were so protracted that they continued through the 1970 and into the 1980s. The Triparite Gold Commission was not able to be stood down (disbanded) until 1998. http://en.wikipedia.org/wiki/Tripartite_Commission_for_the_Restitution_of_Monetary_Gold

After validating all claims and meeting 64% of the values demanded, just 2% of the original pool remained for final distribution – five-and-a-half tonnes of gold worth just under $70 million.

Britain’s F.C.O. (Foreign and Commonwealth Office) released a short note – a report really – in Sept 1996 on the Tripartite Gold Commission for the Restitution of Monetary Gold. The report can be accessed at: http://www.fco.gov.uk/en/about-us/our-history/historical-publications/research-projects/nazi-gold 

In 1996, the late Robin Cooke MP, then Britain’s Foreign  Secretary, sponsored an international conference to discuss what to be done with central bank gold confiscated by Nazi Germany (the biggest governmental thefts in history), then worth around $580 million but in 1997 worth $5.6 billion.

In the immediate post-war years the initial Swiss position was that all questions regarding their gold transactions with the Third Reich were settled by a Washington Agreement of 1946, in which Switzerland handed over gold worth (then) 250 million Swiss francs to the Tripartite Gold Commission (see http://news.bbc.co.uk/1/hi/special_report/1997/nazi_gold/35981.stm).

When the war ended the Allies determined that the Nazis had begun the war with a gold reserve of about $120 million and had seized well more than $600 million in gold from occupied countries, especially Belgium and the Netherlands.

The following Table shows an elementary Profit and Loss Account with no pretentions to accountacy rules but only to assist in understanding the State Dept’s commentary:

The Department of State estimated that the Germans had sold roughly $300 million to Swiss Banks and had laundered about $140 million through Swiss banks for payment of goods fromPortugal and Spain.

Using gold in payment, the Nazis also directly purchased goods from other countries, primarily Sweden and Romania, in the amount of $61 million. [NB this would means that Sweden was known as a much bigger player in the 1940s than the Swedish report concluded in the 1990s]. And it was determined that the U.S. Army had located a total of some $293 million worth of gold.

It is at this juncture that the advent of the Cold War makes itself felt on the restitution process. The degree of pressure the Tripartite Gold Commission in the 1950s was prepared to exert altered given the change in the USSR’s political and military posture. Political bullying, intimidation, strong-arm tactics etc had to give way to the need to find air and naval bases in Western Europe to challenge the Iron Curtain in the East.

Gold restitution is quickly elbowed-off the ‘peacetime’ agenda as the Soviet menace grows almost monthly, e.g. the usurping of democracies in the East, 1946, the Berlin Airlift, 1948, Korea, 1950. For instance, simultaneous negotiations began between the US and Portugal over the possible US military use of Lagens (Lajes) airport in the Azores, essential for refueling and rapidly resupplying a Europe under threat. As a result for the next 60 years Spain, Portugal and Switzerl and are let off the hook. There are no great pressures placed on them to fully comply; token amounts are accepted from them instead as the need for a new set of Alliances became obvious.

The State Dept report of 1946 is convinced that the action of the neutral countries not only prolonged the war and cost tens of thousands of Allied soldier’s lives but made the final two years and the Final Solution, when millions were exterminated, entirely possible.

22. Portugal 

German business duplicity had soured relations with Russia (the sale of technology, warships etc), which led to a rupture and an invasion. A similar pattern of duplicity seems to have befallen Portugal in its dealings with the Third Reich. Initially, trade between Nazi Germany and Portugal was paid for in hard currency, but in 1941 the central Bank of Portugal was able to establish that much of this hard currency was on fact ‘counterfeited’ by the Germans. [19]

The Portuguese leader António de Oliveira Salazar thereafter demanded all further payments in gold. In this way Portugal became the second largest recipient of Nazi gold, after Switzerland. By the middle of the war the German armaments industry was nearly entirely dependent on the supplies from Spain and Portugal.

Antonio Louça and Ansgar Schäfer, in their paper “Portugal and the Nazi Gold: The “Lisbon Connection” in the Sales of Looted Gold by the Third Reich” spell out the situation in 1941. [20]

  • By the spring of 1941, there had been two key changes. One was the Wehrmacht’s occupation of the Balkans. As a result, the Yugoslav state bank, up until then a major recipient of the looted gold, was unable to continue these services.
  • The second was the mammoth upsurge in the Wehrmacht’s need for finished goods and raw materials vital to the war effort – including textiles, boots, foods, and, of course, the munitions component tungsten—in preparation for the massive Russian campaign. Since the price of tungsten on the Portuguese open market had skyrocketed by some 1,700 percent within the span of fifteen months, the German Reich was able to cover its requirements only by a huge increase in outlay.

Tungsten for the German armaments industrywas paid for in the gold which the Nazis had seized from the central banks of Austria, Czechoslovakia, Belgium, the Netherlands and Norway.

Reputedly, the gold transfers were so large and regular that, “It was impossible to conceal the flow of gold to Lisbon from the eyes of Allied intelligence.”

  • “On January 8, 1942, Montagu C. Norman, director of the Bank of England, notified Thomas McKittrick that Great Britain would no longer countenance such gold shipments from the BIS to Portugal.”

‘Neutral’ Portugal now found itself facing a serious dilemma. How could it continue to export goods to Germany and keep the Nazi regime war machine rolling ? If payments through the BIS were to be halted the answer might lie in utilising assets confiscated in the occupied territories. The Economy Ministry, in Berlin, transferred the Belgian gold reserves deposited with the French central bank (thinking they would be overrun, as in 1914).

The 198 tons of Belgian gold was initially transferred for safekeeping to vaults in Dakar (in French controlled West Africa) together with Poland’s gold but by May 1942 the Vichy government of Gen. Petain had repatriated it to Germany (see Table above).

Most of the countries that had collaborated with Nazi Germany in their ‘neutral capacity’ admitted their involvement but to varying degrees, e.g. Spain Switzerland and Sweden. The Tripartite Commission insisted on these countries repaying and transferring their ill-gotten gold. Portugal was alone in its obstinate refusal to admit its part in the wartime trade and refused to refund the looted gold from other countries it had received.

At the outset the Allies demanded that the Portuguese restore 44 tons of Belgian gold, the lion’s share stemming from the looted reserves, to the Belgian central bank. The Portuguese countered by declaring that they were prepared to return only 3 tons. Portugal’s refusal was a very dangerous game to play at the time but they relied on legal technicalities of ownership, provenance and transfer to thwart the Allies demands.

Eventually only the Bretton Woods Agreement (1944) broke the deadlock. To have its currency recognised and be part of the trading world,Portugal would first have to become a signatory to the Bretton Woods Agreement and that meant handing back Nazi gold. But even here a recalcitrantPortugal used an obscure sub-clause to safeguard it right to hold onto Nazi gold. To be part of the Bretton Woods Agreement and the UN Portugal agreed to repay about 7 tons and this as accepted.

To put this derisory amount into context, Germany had sold $300 million in gold to Swiss banks and ‘laundered’ some US$ 140 million through Swiss banks for payment for goods supplied by Portugal and Spain (mostly the former, see http://www.archives.gov/research/holocaust/records-and-research/searching-records-relating-to-nazi-gold1.html). Additionally, Portugal was also the one neutral country which refused Allied demands that it liquidate its German assets and hand over the proceeds. As of 1996Portugal had been able to retain much of its Nazi funded investments.

A postscript to the Bretton Woods Agreement  was a 1945 proposal by the US and Norway that the BIS be disbanded because of its complicity with Nazism and replaced by the newly-created IMF. This idea was then abandoned by 1948 but to date no reason has been found for this about face.

23. Ministry of Economic Warfare

Britain opened a Ministry of Economic Warfare as part of SOE in Sept 1939. The structure and techniques were created and administered by the British but were hugely bolstered when America  joined the war. The Allies may not have been able to control all that was happening inside Europe but they could influence it.

Despite all the commodities ‘exported’ to the new German empire (Third Reich) from its new European dominions, the ore from neutral countries such as Sweden and Portugal’s tungsten remained critical.

Britain and the United States knew that Germany could be brought to her knees only by a combination of conventional military operations and economic warfare (commercial starvation). The latter included strategic bombing of German economic assets and depriving Germany of essential raw materials. All six of the European neutrals – Spain, Portugal, Sweden, Switzerland, Turkey, and the Irish Free State had close connections with Germany (the less so in the case of Ireland) but they also had to co-exist with the Allies, upon whom they depended for navigation rights to import and export to keep their economies going.

In addition to the “freezing” of supplies, foreign-owned balances held in the United States were also frozen to hinder the Axis powers – Britain had already operated its own asset freezing programme. Neutral or third party countries did not suffer asset freezing with the exceptions of Argentina’s gold holdings in August 1944 and the gold and dollar holdings of Bolivia. This measure was taken to prevent an enemy or enemy subject from obtaining sustenance or income directly or indirectly from the United States via a third country. German relations with both Argentina and Bolivia were assessed at the time as very close.

Post-war events showing the wealth of the Peron regime, the taking German gold and the hiding of Nazi wanted for trial confirmed earlier suspicions. 

American policy also favoured ‘preclusive buying up of commodities’, both to supply future Allied needs and to prevent them from reaching the Germans, and cooperation with the British developed rapidly. The US Board of Economic Warfare and the British Ministry of Economic Warfare exchanged representatives, and the two preclusive buying and procurement companies operated in tandem. . This was then extended to ‘pre-emptive purchases’ under British guidance.

Geographically, Allied sea power made it virtually impossible for any commodity to reachEuropein large quantities without permission, no formal blockade of German or neutral ports had been proclaimed. In a reversal of traditional blockades every shipment to a neutral country had to be approvedatits source. Using the Empire connections it was easy for Britain to organise a near world wide network of shipping agents to check cargoes and destinations with the US better placed to use its connections in Latin America to cover that side of the globe.

The Allied, i.e. British, relationship with Portugal was particularly fraught. Portugal’s President Salazar was known to be pro-fascist but Britain and Portugal had a military alliance that stretched back 500 years. Its terms included provisions for either state to call on the other to join forces as Allies in any war. Why this option was not exercised is not expounded and deserves greater examination. Perhaps it was the threat of invoking it that held back Portugal’s dictator, Antonio de Oliveira Salazar, from ever commiting to the Nazi cause.

24. The Individual Dimension

History is not composed – as many might suppose – by purely heaven-sent unalterable events but to a large extent history is steered by individuals who influence inevitable events.

Throughout this article various names have appeared and many of them deserve greater examination than space and time here permits, e.g. Ivar Kreuger, Rooth, Puhl etc. Many who were active during the Nazi regime and facilitated its actions avoided Nurenberg and found anonymous but high profile jobs after the war.

Montagu Norman, the Governor of the Bank of England, is one of an international group of players that have come in for much scrutiny over the years. For instance, his right hand man Otto Niemeyer (of German origin) had persistently backed the re-arming of Germany and alleged made loans possible to Germany. Allegedly, too, this duo encouraged financiers in the City of Londonto do the same. [21]  But as pointed out earlier this has to be placed in the context of politics and options of the 1920s and 1930s (comminist unrest even spread to the US), where arguably this course was the lesser of two evils.

If this idea seems strained or fanciful, than we have to recall the political atmosphere of the period, 1935 to 1939, was one where Churchill was in a minority of one and Chamberlain had the full backing of parliament and Whitehall. The government didn’t want to hear Churchill’s warnings that German aircraft production was doubling. Prime Minister Chamberlain, in an attempt to mollify German aspirations after the indignities of the Versailles Treaty signed the Anglo-German Naval Agreement (1935) which permitted Germany to build warships of over 10,000 tons.

Thus it was that Norman felt able to support and help finance Germany’s cause right up until the Declaration of War in Sept 1939.

Before the war it is said that Montagu Norman attended the christening of the son of his German opposite number, Hjalmar Schacht, at the Reichsbank. Was this ‘networking’ and building good relations, hoping to deter German expansionism, or the very opposite ?

It is claimed that during the War Norman met with Schacht on a visit in Germany in July 1942. This alleged visit has always been quickly dismissed by stating thatin 1942 Schacht was in a concentration camp for disagreeing with Hitler (making it impossible for Normanto meet him there). However, documents from the Nuremberg Trials show clearly that Schacht was sent to the concentration camp in 1944 – not 1942.

Montagu Norman had married a Priscilla Koch de Gooreynd, who was a disciple of Dame Evelyn Fox – the latter being a long-standing member of the Eugenics movement and both had been working in the Mental Hygiene movement since the 1920’s. The connection with Nazi purity and aesthetics with Eugenics has long been established. [22]

24. US and Non-Neutrality

It is assumed that the US government’s desire to “avoid all foreign entanglements” at all costs would have led to a strict adherence to neutrality – but this is not the case. US firms openly (and secretly) traded with belligerent countries.

Trading with a country which is at war with another is not illegal and not uncommon but there are generally restrictions placed on goods shipped. For instance, a few years earlier in the Spanish Civil War neutrality meant that the government could not buy fighter planes to replace those lost to the Italian airforce and the Luftwaffe.

Instances include, Pratt & Witney engines appearing in Junker made aircraft (e.g. Ju 89) and the British Merlin aero engines built under licence in 1940 by Packard.

The US multinational IBM has a connection with Nazi Germany on an altogether more menacing level. Is machines facilitated the counting of concentration camps inmates and is now accepted history. Edwin Black, an investigative journalist wrote “IBM and the Holocaust” which details the business dealings of the American-based company. It was IBM’s technology, he claims, through the generation and tabulation of “punch cards” based upon national census data that helped the Nazis to efficiently achieve genocide against the Jewish people.

However, the story does not end there – there is far more:

  • In 1942 managers at ‘Standard Oil of New Jersey’ shipped fuel to an oil-starved Germany through neutral Switzerland.
  • Chase Bank in Nazi-occupied Paris and after the Pearl Harbour attack was allegedly doing business worth millions of dollars’ with the enemy and with the full knowledge of Head Office, in Manhattan. [*]
  • Ford trucks, it is claimed, were being built for the German occupation troops in France with authorisation from Dearborn, Michigan.
  • ITT, the international American telephone conglomerate flew out Colonel Sosthenes Behn from New York to Germany via Madrid and Berne to a). help improve Hitler’s communications systems, and b). improve the guidance systems on the V1 and V2 robot bombs that were to fall on London.
  • Another clam involving ITT is that its factories built the Focke-Wulfs that dropped bombs on Allied troops.  While this might be true, if ITT’s factories were overrun by the Germans then what they were  subsequently used for was determined by the Third Reich not ITT.
  • Herman Goering had a cousin in Philadelphia and, it is claimed, that ball bearings crucial to ships, planes and tanks etc were shipped to Nazi Germany using customers in Latin America. This 3rd party agent technique is not uncommon and Britain is known to have resorted to this type of trade. However, the ball bearing shipments are said to have been made with the collusion of the vice-chairman of the U.S. War Production Board. The additional charge is that at the time all ball bearing were desperately needed and American forces were said to be desperately short of them. This matter requires further clarifcation.
  • This last particular arrangement, and others, are said to have been known to Washington at the time and either sanctioned or deliberately ignored.
  • The Schroder Bank, via  Joseph J. Larkin,  made available no less than US $25 million for the use by Germany’s expanding war economy 6 moths before World War II began in Sept 1939. This was probably true of other investers in other countries.
  • Larkin also received a detailed list supplied direct to the Chase Bank in Berlin (forwarded to the Nazi government) of the assets and background of ten thousand Nazi sympathizers living in the United States. These negotiations were engineered with the help of Dr. Walther Funk (see above) and Emil Puhl (see above).[22]

[*] In fact, during the crisis of that era (1940s), bankers never saw themselves as acting criminally or immorally. Rather they believed themslees to be immune, as somehow above and beyond the criminal law and not bound by International Treaties. The present day crisis (2011) has identical characteristics with no charges brought for what is basically fraud and conversion and ‘theft’ by any other name.

25. Present day IMF to here

As IMF Managing Director, Dominique Strauss-Kahn (DSK) welcomed the board decision in April 2008, to sell part of the IMF’s gold reserves which was intended to fund a projected $400 million budget deficit over the next few years. The budget proposal includes sharp spending cuts of $100 million until 2011 that will include up to 380 staff dismissals

As of June 2009, the International Monetary Fund (IMF) held 3,217 tons (103.4 million oz.) of gold, a figure that had been constant for several years.

In the autumn of 2009, the IMF announced it would sell one eighth of its holdings (a maximum of 12,965,649 Troy ounces (403.3 tons) based on a new income model agreed upon in April 2008, and subsequently announced the sale of 200 tonnes to India, 10 tonnes to Sri Lanka, a further 10 metric tonnes of gold was also sold to Bangladesh Bank in September 2010 and 2 tonnes to the Bank of Mauritius (why these countries ahead of any other ? –Ed ). Why, in the teeth of a global catastphe of an economic recession, gold bullion which was so desperately needed for hard-pressed currencies, should be frittered away as if  a productive use of time and valuable resources is baffling.

These gold sales were conducted in stages at prevailing market prices. The IMF maintains an internal book value of its gold thatis far below market value. In 2000, this book value was “XDR 35”, or about US$ 47 per Troy ounce (XDR eqiv. to SDRs and gold priced in Pounds Sterling, i.e. £35 perTroyounce).

As the graph below shows, the traded price for gold was in the region of US$ 900 in 2009 and around US$ 1,700 in 2011. The IMF, it would appear, has been as careless with other people’s money as Gordon Brown was with British taxpayer’s gold ten years earlier (see above).

Gold price performance  – 3 yr (Jan 2009 to Dec 2011)

An attempt to revalue the gold reserve to today’s value has met resistance for different reasons. For example, Canada is against the idea of revaluing the reserve, as it may be a prelude to selling the gold on the open market and therefore depressing gold prices (perhaps it has the Gordon Brown debacle in mind). ‘Quantative easing’ (QE) has entered the lexicon but it is no more than printing more money which everyone knows will lead to inflation in coming years (Weimar Republic). To affect a ‘bolstering’ of reserves – should one be needed – gold bullion can easily be converted into gold coins with thereby command a price much higher than the current market price for gold bars.

The above graphs shows the steady price increase of gold since 2009. With debt, bonds and promissory notes as the only large form of reserves left to many nations, one wonders whether positive action is being taken in the markets to downgrade gold’s attraction – in the graph above a reversal can be seen in the autumn months of 2011. Nowithstanding that, the gold reserves held by the IMF is inventoried at $35 per oz when the real world prove is £1,606 per oz and the banks of Mauritius, Bangladesh, Sri Lanka and India have all got a bargain.

It has been speculated by some that Col. Gadaffi had plans for a competing pan-African currency backed / based, as RT’s Max Keiser suspects, on minerals – the gold, copper, aluminium, diamonds and chrome from Zambia and Zimbabwe (formerly Southern Rhodesia) and other African states. Were plans afoot to re-introduce a gold-backed currency which did not include the US , or migh thave challeged dollar supremacy ?  Might this have contributed to Gadaffis’ downfall ?

Have the markets been manipulated to bring the gold-price down from its 2011 high of US$ 1,900 ?  This would make sense when ‘equities’ have only paper value so long as confidence exists (e.g. Lehman Bros). This would also make sense if most gold listed in Balance Sheets were in ‘futures’, which in reality are accounting phantoms and not natural, proprietary tangible assets and ‘debt’ become re-designated as ‘assets’. This lack of true ownership over limited/rare commodities leads to claims by others to be the true future owners and able to sell on to a third or fourth party. Thus double counting and distortion is introduced into the market.

For all of Libya’s undoubted natural resources and the many years it has accumulated money from oil and gas exports it had, as of 2010, only 144 tons of gold in its reserves. This is modest by both pre-war and post-war European standards.

In our crazy world of new accounting (see Ivar Kreuger), we all may be victims of smoke and mirrors. Only when time has unfolded a little more will we begin to see whether any or all of these are factors have influenced events.

END

Appendices

 

Appendix 1

http://www.holocaustresearchproject.org/economics/profitingfromAR.html

Chief A/Pr./B.
Journ. No. 050/42 secr.
VS 96/42

26 September 1942

  • To the Chief of the SS Garrison Administration Lublin
    To the Chief of Administration Concentration Camp Auschwitz
    Subject: Utilization of property on the occasion of settlement and evacuation of Jews.

Without taking into account the over all regulations which are expected to be issued during October, pertaining to the utilization of mobile and immobile property of the evacuated Jews, the following procedure has to be followed with regard to the property carried by them — property, which will in all orders in the future be called goods originating from thefts, receiving of stolen goods, and hoarded goods:

  • All money in bills of the Reichsbank will be deposited in Account No. 158/1488 of the WVHA in the Reichsbank.
  • Foreign currency, diamonds, precious stones, pearls, gold teeth and pieces of gold will be transferred to the WVHA for deposit in the Reichsbank.
  • Watches, fountain pens, lead pencils, shaving utensils, pen-knives, scissors, pocket flashlights, and purses will be transferred to the workshops of the WVHA for cleaning and repair and from there will be transferred to the troops (SS) for sale.
  • Men’s clothing and underwear, including shoes will be sorted and checked. Whatever cannot be used by the prisoners in the concentration camps and items of special value will be kept for the troops: the rest will be transferred to VoMi.
  • Women’s underwear and clothing will be sold to the VoMi, except for pure silk underwear (men or women’s), which will be sent directly to the Economic Ministry.
  • Feather –bedding, blankets, umbrellas, baby carriages, handbags, leather belts, baskets, pipes, sunglasses, mirrors, briefcases, and material will be transferred to VoMi. Payment will be arranged later.
  • Bedding, like sheets and pillowcases, as well as towels and tablecloths will be sold to VoMi.
  • All types of eyeglasses will be forwarded for the use of the Medical Authority. Glasses with gold frames will be transferred without the lenses, along with the precious metals.
  • All types of expensive furs, styled or not, will be transferred to the SS-WVHA. Furs of lesser quality will be transferred to the Waffen-SS clothing workshops in Ravensbruck bei Furstenberg in accordance with Order BII of the SS- WVHA.
  • All articles mentioned in paragraphs 4, 5,6 or little or no value will be transferred by the SS-WVHA for the use of the Economic Ministry. With regard to articles not specified in the aforementioned paragraphs, the Chief of the SS-WVHA should be consulted as to the use to be made of them.
  • The prices for the various articles are set by the WVHA. Therefore the price of a pair of used pants will be 3 marks, a woollen blanket – 6 marks. Check that all Jewish stars have been removed from all clothing before transfer. Carefully check whether all hidden and sewn-in valuables have been removed from all the articles to be transferred.

 [signed]    – August Frank

     SS Brigadefuehrer and Brigadier General of the Waffen SS

 

Appendix 2

“Action Reinhard” (Operation Reinhard)

Recovering State expenditure of running concentration camps

Assessment: GLOBOCNIK, SS Gruppenfuehrer

http://www.holocaustresearchproject.org/economics/arbalancesheet.html

From: GLOBOCNIK, SS Gruppenfuehrer

The total value of the articles received is, according to the attached list, approximately 18 million Reichsmarks. However, minimum values have been assured, so that the total value is most likely twice as much, quite apart from the value of the articles obtained which are in short supply, such as textiles, of which alone more than 1,900 wagons have been made available to German industry.

[signed] GLOBOCNIK SS Gruppenfuehrer and Lt. General of Police [=]

Assets delivered from Action Reinhard

The following assets from the Action “Reinhard” were delivered to the SS Economic and Administrative Head Office, Berlin, for further transmission to the Reichsbank or to the Reich Ministry of Economics:

a.      Reichsmark sums totaling RM 53,013,133.51

Currency in Bank notes from all the principal countries in the world (half a million dollars being particularly to be noted) to a total value of RM 1,452,904.65

Foreign currency in gold coins to a total value of RM 843,802.75

Precious metals (about 1,800 kg. of gold and about 10,000 kg. of silver in bars) to a total value of RM 5,353,943.00

Other valuables such as jewellery, watches, spectacles, etc. (the number of watches being particularly worthy of note – about 16,000 in working order and about 51,000 requiring repair: they have been placed at the disposal of the troops) RM 26,089,800.00

About 1,000 wagons of textiles to a total value of RM 13,294,400.00

Total RM 100,047,983.91

1,000 wagons of textiles and about another 50% of the above mentioned assets – which still have to be counted and valued – are warehoused here. It should be noted here that the estimated values were based on the officially established rates of exchange or prices, which however would be much higher on the open market, for instance in the sale of precious stones or precious metals abroad, as the flight to investments in articles whose value is not subject to much fluctuation is much greater there than with us. Besides these sales abroad bring us foreign currency. If these prices were taken as a basis of evaluation here, this was done in order to be able to give a picture of the assets delivered; in general this evaluation is not authoritative. The value of the acquisition lies principally in the fact that such large quantities of urgently needed raw materials can thereby be gained and that, on the basis of the assets obtained, foreign currency can be brought in, with which raw materials can in turn be bought by Reich authorities.

[Sgd.] Globocnik SS Gruppenfuehrer and Lieut. General of Police.

____________ 1 detailed list enclosed herewith.

List of Jewish property received for delivery up to 3.2.1943, showing values

[Editor’s Note: The following tables are reproduced as they appear in original German document although accuracy of calculations is questionable.]

[rubber stamp]

Personal Staff Reichsfuehrer SS Ref. No. Secret/115

1.      Cash in hand:

o        RM 16,931,722.01;

o        Delivery SS-Economist, Cracow: RM 31.5 million;

o        SS-Econ.-Admin. Head Office Berlin-(RB): RM 5.58 million;

 [Total]: RM 53 million

 

Appendix 3

Itemised analysis of foreign currency in notes obtained by the SS from concentration camp inmates as listed above.

 

Appendix 3A

 Itemised list of gold currency (coins) obtained by the SS from concentration camp inmates as listed above.

 

Appendix 3B

 Precious Metalsobtained from concentration camp inmates as listed above, and itemised list of gold etc (in bars).

 

Appendix 3C

Other Valuables

Every item of personal belongings that had a market price or could be re-used was carfully collected and recorded. The official SS list  of these personal belongings is so long that it has had to be broken up into three section so that it could be reproduced in this article.

 

 

Appendix 3D

Rags, clothing, undergarments and bed feathers by wagon load recovered from concentration camps.

Lublin, 2/27/1943.

Signed

/S/ [?] SS Sturmbannfuehrer

Appendix 4

Kreuger’s Loan to Germany (and to other countries)

Born on March 2, 1880 Ivar Kreuger committed suicide on March 12, 1932. During his lifetime he amassed a fortune from making and selling matches (in much the same way, one supposes, that Rockefeller made his fortune out of the working class by selling them cooking, heating and lighting oil, i.e. Kerosene, aka paraffin).

Kreuger was not averse to Ponzi schemes, i.e. relying on one debtor to pay in time and yield a profit some of which could be passed on to a second investor.

When he made a deal withGermanyfor a $125 million-dollar loan (almost $1.9 billion in today’s currency), he was already linked to the Dresdner Bank and the Deutsche Bank.

His biggest loan yet, to Germany was funded by the French loan being repaid ahead of time. It was made at a time when his financial house of cards was beginning to topple and he probably took the honorable way out.

 

Appendix 5

BIS voting rights, 1938

Institutions, shown here in blue, represent ‘the Allies’ and it is immediately apparent they are out-voted by those sympathetic to the Third Reich from 1939 – 40 onwards.

Footnotes: 


[1] To a large extent, the main reason behind this long period of hyperinflation was unsustainable growth of the money supply to finance the large fiscal deficits maintained by successive governments
[3] Whether any other coalition country was ‘hired’ by the Saudis for this enterprise is not known for certain.
[4] Rohrabacher asked to leaveIraq.. “We called theUS embassy yesterday and we told them to ask the congressmen to leaveIraq,” an Iraqi spokesman told AFP, adding, “We don’t want them here. What they said was inappropriate.” – Reuters
[6] One can suppose/speculate that a modestly serious warship might cost in the region of 10 million Yen http://en.wikipedia.org/wiki/People’s_Republic_of_China_%E2%80%93_Japan_relations#Japan.27s_compensation
[7] Between 1999 and 2002 Brown sold 60% of theUK’s gold reserves
[8] Schacht disliked Jews. In 1934 he arranged with the World Zionist Organization, a deal where German Jews could pay 15,000 Reichmarks to emigrate toPalestine. It is estimated that over the next four years over 170,000 reachedPalestine under this agreement (but we are not told ifBritain had agreed to this exodus. This is another example of insensitive German foreign policy having calamitous effects, e.g. Balkans war as a recently example).
[9] He was imprisoned by the Nazis after the 20 July plot. After the war, he was tried at Nuremberg and acquitted. See http://www.spartacus.schoolnet.co.uk/GERschacht.htm
[10] http://nowandfutures.com/us_weimar.html Germany’s gold reserves were, in 1923, effectively down to the equivalent of less than £14 million, too little now with which to establish a new currency in which people could believe.
[11] See ‘Holocaust Educational Trust’ http://www.ess.uwe.ac.uk/documents/nazigld.pdf    
[13] Named after Charles Ponzi, who in theUS became notorious for using the technique in 1920s.
[14] The Swedish Commission re trading during WW2 http://www.ess.uwe.ac.uk/genocide/Sweden1.htm
[17] “Portugal and the Nazi Gold: The “Lisbon Connection” in the Sales of Looted Gold by the Third Reich” http://yad-vashem.org.il/download/about_holocaust/studies/louca_full.pdf 
[18] At 2009 prices this is thought to represent  approx, US$ 7 billion. See http://members.iinet.net.au/~gduncan/more_facts.html  
[19]  See http://en.wikipedia.org/wiki/Nazi_gold
[20] ‘Portugal and the Nazi Gold: The “Lisbon Connection” in the Sales of Looted Gold by the Third Reich’by Antonio Louça and Ansgar Schäfer, http://yad-vashem.org.il/download/about_holocaust/studies/louca_full.pdf    
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