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.

SOURCE:

Washington Monthly, September 1980, "Moscow's Real Secret Weapon," James M. Whitmire.