20. MOSCOW'S REAL SECRET WEAPON
As the Cold War heats up again, hardliners bemoan the reported military
superiority of the Soviet Union over the United States. But their fears,
real or imagined, are misdirected. Moscow's real secret weapon, if it
wished to use it is economic ... not military.
The Soviet bloc has a $60 to $80 billion outstanding debt. If it were
to default it could spark a financial panic, capable of collapsing the
capitalist banking system.
In recent years, the industrial goods "sold" to the Soviet
bloc have not been paid for in hard currency but financed by loans from
the U.S. government or banks. Ironically, while these loans provide
the Soviet bloc with food and technology, they are increasing inflation
in the West.
In 1977, the Senate Foreign Relations Committee said the entire international
financial system could crumble under the weight of one or two major
defaults. The committee then proposed far less money than is now loaned
COMECON -- the Common Market agency that coordinates economic policy
for the Soviet Union and East European States.
The Soviet bloc is rescheduling its loans -- stretching out repayment
timetables and effectively lowering interest rates. Nearly every major
Western bank is involved in these loans which threaten the entire system.
A large debtor has substantial influence over his creditor ... and can
undermine or destroy a bank by refusing to pay.
While Western governments tend to feign ignorance of their predicament,
the Soviet bloc is fully aware of it. Bankers maintain that all COMECON
loans are backed by "implicit guarantee" from the Soviets.
But, if serious confrontation with the Soviets arises, the debt could
be cancelled. While the Soviets would lose access to further loans,
the West's banking system could collapse.
The failure of the media to explore and publicize the Soviet's economic
threat to world stability qualifies this story for nomination as one
of the "best censored" stories of 1980.
Washington Monthly, September 1980, "Moscow's Real Secret Weapon,"
James M. Whitmire.