One reason for the federal bureaucracy’s timid approach to the problem is that Washington’s money changers are afraid that if they push the America-for-Americans theme too hard, foreigners will stop buying government securities. That would be pretty rough on the bureaucrats. They might have a hard time raising money if they depended on U. S. investors. In some recent years OPEC nations have financed most of the U.S. Treasury’s domestic borrowings. In the midst of the 197 4 recession, Edwin Yeo, under secretary for monetary affairs at the State Department, admitted that this country was looking to foreign capital to pay for our recovery. “We can finance the American economy without these funds,” he said, “but it is more difficult.”
But even the best rackets cannot last forever. As things are presently developing, it seems that the greed of the oil bankers may consume them (even while, unfortunately, it consumes us all). The profits of OPEC have become so great that they threaten to swamp the world’s monetary systems and touch off a world depression so complete that not even the oil-banking complex will escape.
The speed at which the crisis develops will depend on (1) what further harm OPEC does to the dollar and (2) how the banks decide to cope — if they can cope at all — with the rising oil-consumption debt.
It used to be that the world’s currency values were fairly stable. A person could be reasonably certain from month to month what the dollar would be worth in comparison to, say, the yen or the mark. But for the past decade — and particularly since the oil profiteering began in earnest in 1973-74 — the world’s monetary systems have suffered from chronic instability. There has been no way for the finance ministers — the central bankers — of the major industrial countries to impose stability because there was too much money in circulation outside their jurisdiction.
While this is a problem that afflicts all major currencies, it is especially critical in the way it afflicts the dollar, because the dollar is traditionally the standard by which all other currencies are measured.
The heart of the dollar problem lies in the “Eurocurrency” market. Eurocurrency is an ocean of “stateless money” — dollars from the United States (“Eurodollars”) and currencies from other countries, all floating beyond the reach of national regulators. The Eurocurrency market is a rather new phenomenon. It is the offspring of the multinational era.
Multinational corporations, including multinational banks, of course, do not like to be regulated by national governments. In this country the Federal Reserve Board tells banks what percentage of their deposits they can lend out and how much they must keep in reserve. Being able to control the money supply to some extent in this way, the Fed is also able to help control inflation. The central banks of most developed nations operate in the same way.
But with the spread of the multinational corporations around the world, the giant U. S. money changers went after the greater profits that could be made by throwing off the restraints of nationalism. They began setting up branches and affiliate banks overseas — where the Federal Reserve Board could not interfere with their operation. The big banks of other industrial nations also began to set up foreign branches to escape the regulations of their home governments. Most of these “escapees” are concentrated in England and in Europe, and into them have poured the stateless Eurocurrency, with Eurodollars making up about 80 percent of the fund.
Twenty years ago there was no such thing as a Eurodollar. Ten years ago there were probably less than $100 billion Eurodollars. Today there are an estimated $900 billion Eurodollars, a stunning amount that is playing hell with all efforts to control the world’s money supply (and inflation) and all efforts to stabilize currency rates. This was most dramatically illustrated in the United States by what happened after the Fed pushed interest rates to 15 percent (plus) in October 1979, hoping to cut inflation by making the price of money prohibitively high and thereby reducing the amount in circulation.
But the money supply didn’t dry up. Eurodollars kept seeping into our economy. The big banks, faced with the Fed’s restrictions, simply tapped the virtually bottomless resources in their European branches and lent them out. Inflation kept right on going up. The Fed was completely frustrated.
And how does OPEC fit into the Euro-dollar adventure? Very heavily and very dangerously. “Experts” (actually there are no experts at this guessing game) believe that the oil producers have more than $60 billion — and some guesses go up to twice that amount-bouncing around the Eurodollar market. And, of course, their share of the market will probably continue to grow as their profits grow. What makes the OPEC presence so scary is that the Arabs are totally unpredictable and unstable. At any moment they may decide, for whatever cockeyed reason, to shift a sizable hunk of their wealth from dollars to some other currency, throwing the world’s money kite into at least a temporary tailspin. Shifts of no more than $10 billion in the Eurodollar market have had harmful effects in the past. Or the Arabs, deciding that they want to get out of the dollar altogether, could continue the gold-buying binge they began in late 1979, a binge that drove gold prices into the sky and at the same time seriously weakened the dollar. If the Arabs were to continue to play with their billions in that rambunctious fashion, we may discover that all the Fed’s horses and all the Fed’s men can’t put the dollar’s pieces together again.
To understand this particular mess, one must go back again to 1973 and review the oil bankers’ scheme. At that time, when world oil prices made their first great surge, the bankers said not to worry; OPEC’s profits would be “recycled.” By that they meant OPEC nations, being unable to spend much of their loot, would deposit the bulk of it in the West em-based international banks; the banks would then lend the money to oil consumers, which would pay OPEC for more oil; OPEC would again deposit this money in the big oil banks, et cetera, with the money going in a circle.