Business: Shrinking Role for U.S. Money

(2 of 5)

The latest turmoil in the gold and currency markets shook the Belgrade meeting like an Adriatic earthquake. The moneymen hovered over telex machines to catch the latest gold fixings and dollar-mark exchange rates, and swapped anxious rumors. Inter-continental Arab finance ministers ducked quietly into Bill Miller's first-floor suite at the Inter-continental Hotel to get his assurances that the dollar would be defended. Reported TIME Correspondent Friedel Ungeheuer: "An undercurrent of fear and confusion about what has been happening on the money markets ran through the corridors of the modern Sava Center, where the I.M.F. sessions were held. Cecil de Strycker, governor of Belgium's central bank, confided: 'The only thing that is certain is that nothing is certain any more.' Many delegates joined in what Britain's Chancellor of the Exchequer, Sir Geoffrey Howe, aptly described as a kind of 'competitive gloominology.' "

The delegates had ample cause to be gloomy. A forecast by the IMF staff said that the combination of higher OPEC oil prices and the U.S. recession will force the rest of the industrial world into a stagflation swamp next year. Average inflation in industrial countries will rise to about 8.7%, and growth will fall to a meager 1.8%.

Whether even that prediction might prove optimistic depended to a great extent on the strength of the U.S. economy, and there the portents were mostly bad.

Despite record interest rates and a business slowdown, U.S. inflation continues to gather force.

Producers' wholesale prices rose 1.4% in September, an annual increase of 18.2% and the highest jump in almost five years. That probably foreshadows a further rise in consumer prices, which are already growing at a 13% rate. The week's only good news: instead of rising from its August level of 6%, unemployment dropped in September to 5.8%. But many economists believe joblessness will still increase sharply in the months ahead as the recession bites deeper.

The foreign moneymen worry about the Carter Administration's resolve to hold down inflation at the cost of higher unemployment as the 1980 political campaign picks up steam. They found fresh reason for skepticism last week: it was revealed that to get the unions to join in the Carter anti-inflation program, the Administration agreed not to try to penalize any violators of the "voluntary" wage and price guidelines. Miller attempted to soothe his colleagues in Belgrade by promising that the Administration would "stay the course" in battling inflation, but doubt remained. Said one West German Cabinet minister: "The problem is Carter's chaotic leadership."