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T
HE
woRLn today stands at a
crossroads, facing a momen–
tous decision. That decision
could ultimately determine
your
fu–
ture prosperity and well-being.
The world is threatened with an
unprecedented economic and politi–
cal crisis, tbe like of wbicb the world
has never known.
Scenario for Disaster
The decisioo of Middle East oil–
producing oatioos to curtail tbe pro–
duction of cr ude petroleurn and dra–
matically increase its cost in the
wake of the October Mideast war
will very possibly go clown in history
as one of tbe most significant even ts
of the 20th century.
Its ramifications are only begin–
ning to be felt.
Temporary oil production cut–
backs and resultant shortages a re
being viewed as secondary in impor–
tance to a more serious threat - the
skyrocketing cost of crude oil.
Costs
today stand a t a leve! of tbree to
fou r times the price of only a l ittle
over a year ago.
The result so far? Business slow–
down s and steadi ly n s 1ng
unemployment throughout Wes tem
Europe and the United States. An
inflation rate that threatens to spiral
out of control. And
in
the devel–
oping world, growing uncertainty
over how to ration scarce export
earnings to cover tbe import needs
of o il, food, and fertilizer.
Many economjc analysts agree
that these are only samples of what
may lie ahead.
In addition, there is the sobering
question of what the oil-producing
states will do with their enormously
increased revenues.
The quadrupling of the price of
oi l by Arab producers is expected to
result in their reaping an extra $50
billion in gross income fo r 1974.
U nless orderly and constructive
ways a re found to absorb these
billions, the dramatic shift of world
monetary stocks toward the Arab
world could lead to d isas trous
eco–
nomic and monetary inslability
throughout the industrial world .
18
A GLOBAL
DEPRESSION
AHEAD?
For many, the energy cri sis has
m ean t temporary shortages of
gasoline, fue/ oil , or el ectrical
power. Few have grasped i ts
fu// economic implications.
by
Keith W . Stump
A mere shift of one bill ion dollars
worth of currency from one central
bank to anotber could , say sorne
experts, be enough to cause dra–
matic runs on major currencies.
Another question centers on the
poor nations of the world . These na–
tioos have received no aoswer as yet
to their request for price concessions
from Arab producers. For poor na–
tions,
in
which thousands of our
readers live, increased o il
im
port
costs will more than offset all the
foreign aid they receive. They wiU
have to either cut back their oil im–
ports and suffer the consequences,
or cut back imports offood, machin–
ery, and other essential goods. Their
economies could stagnate a t best, o r
spin downward into depression.
Advanced nations are better
equipped to hand le the increased oil
import bill, but not without severe
consequences to thei r respective
trade and payment balances. The
United States, for example, could be
faced with a 1974 oil import bill of
sorne $19 billion. That compares with
a bill of about $7 billion in 1973. In
Westem Europe, higher oil prices
will add sorne $ 17 to $ 18 billion to
the Continent's energy bill in 1974.
These increased oi l bilis will force
the Western industrialized nations
and Japan to begin cutting back aid
to developing nations, erecting trade
barriers to stem the outflow of funds
from their bordees, and possibly
eogaging in competitive currency
devaluations.
We may, in sho rt, be witnessing
the beginnings of a
renewed surge of
protectionism,
as panicky nations
begin adopting "every-man-for–
himsetr• tactics in an attempt to
safeguard their economies.
In essence, competing industrial
na tions could find themselves back–
ing into a full-scale trade war - and
g loba l depression!
Former Britisb Prime Minister
Edward Heath has put it succinctly:
'There
is
an acute danger that
if
we all
independent ly resort to deflatíonary
measures for the sake of our indi–
vidual balances of payments, we
shall set off
a disastrous slump in 1he
leve/ of world trade."
Echoing Heath's sentiments,
Busi–
ness Week
has predicted that world
trade will very possibly "stagnate or
even shrink in 1974."
Little wonder why most economic
analysts consider the current energy
situation the gravest threat facing
the world's economy in over two
decades !
Competition Heightened
Heightened competitive pressures
are already becoming evident on the
world scene.
In Western Europe. the "Commu–
nity spirit" has fallen by the wayside
in favor of separate bilateral oil
deals with producing nations.
France, Brita in, West Germany,
and Ita ly have all concluded sepa–
cate "sweetheart" deals wi th pro–
ducing nations in an attempt to
safeguard their respective oil sup–
plies. In addition, France's decision
to float the franc to save her dwin–
d l ing foreign-exchange reserves
gave a severe jolt to the whole Com–
mon Market ideal. The French had
been the biggest proponents of a
European monetary unio n, now
shelved for the indefinite future.
Japan - totally dependen! upon
the outside world for most of her
raw materials - has been busily en–
gaged in obtaining guarantees of oi l
supplies through unilateral deals
with producers.
Such independent policies of na-
PLAIN TRUTH April 1974