No.
THE Secretary of State for Foreign Affairs presents his cofnpli-
ments to His Majesty's Representative at /^l/A^nA^^oOrxy
and transmits herewith copy of the under-mentioned paper.
1
m
Foreign Officet
Reference to previous correspondence :
Description of Enclosure.
Name and Date.
Subject.
i
m I
^ It
A similar despatch has been addressed to H.M. q^^^^q^qj. a^
i
18430 (2)

n
New York,
July 17, 1939.
Before going on my summer vacation, which I shall
spend in travelling across the American continent, I wish
once more to state the present position and the immediate
outlook of this country.
I
America remains largely dominated by European events.
The sensitivity of the American reactions on European news is
undiminished.     Unfortunately, the only place where this does
not hold entirely true is the Congress in Washington. The
struggle about the Neutrality Bill has very little to do
with Europe or the attitude of congressional factions towards
world events.     It is a purely domestic fight.     All the
accumulated resentments of more than six years of Roosevelt
Administration have now come to the fore.     The Senators whom
the president before last year's elections tried and failed
to "purge" relish seizing this opportunity for revenge.
For once the president is involved in a fight where he cannot
crack the whip.
It is still a minority of not more than at the
utmost one third of the Senate that blocks the repeal or
modification of the present Neutrality Act.     But unfortunately
the division of votes is more unfavourable to the
Administration in the Foreign Affairs Committee of the Senate
which decided the other day to shelve the consideration of
the bill for the current session.     And even in the whole
Senate one third of the membership forms a sufficiently
strong body to block an early passage of a modified bill in
a parliament which like the American Senate does not permit
any gag rule.
There/
Messrs.Helbert, Wagg & Co. Ltd*,
41, Threadneedle Street,
London, E.C.2.
There is another fact adverse to the policy of the
Administration, and that is the advanced season. The
intolerable heat of a Washingtonian July taxes the nerves of
the Senators and Congressmen who are growingly eager to go
home, and yet are forced to stay in Washington for this one
purpose.     (The rest of the programme, particularly the new
spending-lending programme, would probably offer no obstacle
to an early adjournment,)
But the president is stubborn.     He knows better
than any   member of Congress that the matter does not permit
any delay.     The next few weeks are crucial.      In these next
few weeks probably the peace of the world will be decided on.
It is possibly a fatal now or never.     The next few days will
tell whether the recent message of the President supplemented
by Cordell Hull's impressive memorandum will have any effect
on the recalcitrant members of Congress.     While the
President still appeals to the public at large where his
popularity is hardly diminished, Cordell Hull's influence
on Congress is at present probably greater than that of the
President.     For many years Hull has been a member of both
Houses and from that time he has retained many personal
friends in all camps.
For these complicated reasons the outcome of the
struggle is still unpredictable.     if Congress adjourns
without taking positive action on the Neutrality Bill, the
President probably will take the issue before the country
which he will traverse immediately after adjournment, and if
the country responds favourably, as it probably will,
Congress will be recalled for a special session in autumn.
One can only devoutly hope that it may not be too late.
About the sentiment of the country there can hardly be any
doubt, its sympathies are almost undivided on the side of
the Western Democracies.     And much as it dislikes,the idea
of/
of being dragged into another European war, almost everybody
is convinced that if war comes sooner or later the United
States will be in.     This is by far the strongest argument for
the President.     Undoubtedly his foreign policy cuts party
lines and is being admired by many influential Republicans.
The pity is that the imminence of the presidential election in
1940 is for them a serious handicap against expressing their
opinion in public.
II
More successful has the President been in his fight
for retaining his money power.     The alliance in the senate of
the inflationist silverites and ultra-conservative gold
stabilizers has brought about a majority which enforced at the
same time a lapse of the President's power to devaluate the
dollar to 50 gold cents, an increase of the domestic silver
price from 64.4 cents to 77.6 cents, its fixation by law
(hitherto by discretion of the Secretary of the Treasury) and
the stoppage of foreign silver purchases.     Against this vote
of the Senate the President mustered his whole influence.
With a narrow margin of four votes the Senate after the short
holiday adjournment reversed itself.     The president had his
power extended to devaluate, the foreign silver purchases
will be continued and the price for domestic silver has been
fixed by compromise halving the price increase to 6.5^.
The last measure is the least important. The
American silver production is relatively small and the price
increase will probably not cost more than 0b mill, a year.
The two other issues at stake, however, seriously affect
America's foreign policy.     The president emphasized again
that he does not think of making any use of his devaluation
power for domestic purposes.     The dollar is and remains
stabilized, if and as long as no change is forced on the
United States by foreign developments.     But In a period of
fast/
fast shifting events when the value of the leading world
currencies (besides the dollar) is unpredictable even for a
short time, the President does not want to be hampered by
clumsy legislative machinery in taking protective steps. Win
other words, if the pound sterling should break the
Administration wants to remain free to adjust the dollar
to the change of international competitive conditions.
It seems to me that the issue has been hugely over-emphasized
by the President who is no expert on questions of that sort.
During the whole world War when the pound sterling dropped
to unprecedented lows the United States did not consider for
a moment the devaluation of the dollar, and unless acting
under force majeure Great Britain under present political
conditions most certainly will avoid anything embarrassing to
the policy of the united States,
The question of foreign silver purchases is more
involved.     It is largely a question of the American policy
towards Mexico, Peru, and the Far Bast.     About the Mexican
policy of Washington opinions are widely divided. Some
people think that Washington is too lenient towards Mexico and
that a policy of a strong hand would be more appropriate in
view of the confiscation of American land and oil properties,
that the Mexican government certainly should not deserve
financial support by an outright subsidy to which these silver
purchases actually amount.      It is of course ridiculous to
couch these subsidies in the disguise of purchasing an entirely
useless metal at a fancy price.     But while the Administration
may get a majority in Congress for silver purchases, it
probably never could get a majority for a current subsidy to
the Mexican or 6ther governments.     But there are others who
think that in due time the government of Mr,Cardenas will be
brought to reason and that particularly the negotiations about
the oil situation are making satisfactory progress which must
not/
not be jeopardized.     And after all, to <jugge by past
experience, conditions in Mexico could be dangerously worse.
Another question is whether the silver policy is of greater
help to China or to Japan.     There again it would be
undoubtedly more reasonable and effective to give China direct
help by dollar loans.     Since the Japanese have seized
Chinese silver in the occupied territories it is hard to
prove whether the silver bought in the Par East is not
actually benefiting the aggressor.     But Treasury and State
Department apparently do not think so and Congress has
finally acceded.
Senate and House have at last worked out a compromi se
on the Tennessee Valley Authority Bill.     The compromise
provides for the authorization of the lower amount of £61*5
mill, voted by the House against #100 mill, advocated by the
Senate.     061*6 mill, cover the consummation of the Tennessee
deal of the Commonwealth & Southern and the negotiated
purchases of the part of the Alabama Power and Mississippi
Power Companies, both subsidiaries of the Commonwealth &
Southern.      (The difference to the substanially higher
purchase price has to be raised by the municipalities
concerned.)    But it does not permit another expansion of
the T.V.A»     The amounts adopted by Congress are earmarked
for these special purposes. f\The geographical delimitation
of the T«V.A« which the House wanted to fix by law has been
dropped.     But the substance of the matter has been retained
because from now on the T.V.A. will have to apply for
additional funds to Congress, and in its present mood, as
the experience with the T.V.A. Bill has shown, it is
extremely unlikely that any money will be granted for
activities of the T.V.A. outside of its proper territory.
The utility industry, therefore, is and has every reason to
be/
IV
Major troubles have arisen from the changes In the
W.P.A*     The relief bill which went into force on July 1st (in
time for the new fiscal year) provides for an appropriation of
#1,775 mill, of which #1,477. are for W.P.A., #100 mill, for
National Youth Administration, and #143 mill, for farm security
payments.     Against the decision of the House committee, the
final bill deviates only in a few points.     The single W.P.A.
administrator was restored Instead of a three men board, and
the limit of building projects was raised from #40*000 to
#52,000 (the major projects are a matter of P.W.A., Public
Works Administration, not the W.P.A., Works Projects
Administration).
But the principal bone of contention remained intact:
the repeal of the so-called prevailing wage clause. This
clause had been inserted two years ago under the utmost
pressure of the American Federation of Labour as the
representative of the building unions.     With the conservative
trend predominant now in Congress this wage limitation has
been dropped.     Workers on W.P.A. projects have to work 130
hours a month (which corresponds to about 30 hours a week)
irrespective of whether or not the weekly relief wages would
still result In the "prevailing wages",  1 Against this the
building unions together with the radical union of the relief
workers (there is such a thing!) organized a violent
propaganda which led in many places to the amazing experience
of a strike of the relief workers against the Government or
better against the democratically elected Congress.
This is of course an utterly absurd situation and
President Roosevelt himself has not hesitated to qualify it
as "impossible".     "You cannot strike against the Government%
the president declared at his White House press conference.
So/
12
So far the Administration is firm.     All W.P.A. workers who do
not return within five days are^being dismissed.      It remains
to be seen whether Congress can yet be prevailed upon to
consent to a change of the law.     However absurd the strike is,
the hostile attitude of the unions is understandable from
their own point of view/ff as the Government is engaged in
many construction works which are also being or could be
executed by private employment the unions are afraid that
the lower wages paid by the Government will curtail their
own wage standards for which they fought many years. The
situation is of course serious only for the poor unemployed
victims of these struggles of vested interests because the
pressure exerted on them by the unions is very strong in
some places.     But unless Congress changes the law the
Administration cannot give in and there are at present some
indications that the American Federation of Labour may
realize the limits of its power.
V
Business, in the meantime, develops according to
forecasts..     The statistics for the first week of July are
distorted because the Fourth of July this year fell on a
Tuesday and caused therefore in many cases a longer
interruption of business than in other years.      As paid
holidays are becoming more customary in the United States
this calenderian chance has been used by many industries
to curtail production and send a part of their employees
on vacation.     There is little doubt that all indices next
week will rebound to the previous level.     The next few
weeks will probably witness another more important distortion
which will come from the advance of the automobile season by
about one month.     The automobile production of current models
will be virtually stopped by the end of this month,
substantially earlier than in previous years.     But, on the
other/
other hand, the production of next year's models started a
month earlier than usually.     The assembly lines will get
into active operations for the new models as early as middle
of August which means a strong supporting influence for
summer business.     Automobile sales in the meantime keep
up very satisfactorily.     It seems remarkable that steel
operations maintained a level of substantially above 60$
despite the virtual stoppage of business orders from the
automobile industry and railroads.     That seems to forebode
a rise of operations to 60$ and possibly more in the next
few weeks.     Railroad carloadings and power sales in the
meantime reflect the high and rising level of general
business activity.
Textile, chemical, paper industry, all industries
sensitive towards cyclical changes, report uniformly a rapid
increase in incoming orders.     Recent copper buying has been
on some days among the highest ever recorded. Although
undoubtedly purchases of foreign governments contributed
heavily to the volume of copper business the bulk of it
seems to have been for domestic accounts.
In the present world situation it would be futile to
venture a longer term forecast.     But unless the European or
Par Eastern situation deteriorates dramatically in the next
few weeks, the outlook for the current quarter seems to
promise a business volume which would correspond to a
Federal Reserve Board Production index of 100 on a three
months average.