The lesson is almost as old as history: Any country that continues to make the difficult decisions needed to control inflation, and that opens its economy to global markets and lets the market price mechanism function, will continue to find willing partners among the world's major commercial banks, and the banks will find them worthy credit risks.

To say that there are reasonable grounds for expecting the debt burden of the developing countries to remain manageable is not to say that we have nothing to think about. Private lenders are unlikely to forget the Middle East War and the Iranian Revolution and the political turmoil in Central America. They may be expected to build that memory into their portfolio policies and the interest rates they charge. That is known as evaluating risk, and it is what bankers get paid for. Events of the past ten years would seem to suggest that we have been doing our job reasonably well. It was not the highly publicized LDCs that caused the loan write-offs at the banks; it was the made-in-America REITs [Real Estate Investment Trusts]. While the pundits were predicting horrendous defaults in loans to LDCs, the U.S. banking system instead was writing off billions of dollars of bad loans on good old American real estate. Somehow, that never made as good copy as the losses that did not occur. From the first round of OPEC price increases until today, U.S. banks have had a lower average loss experience on foreign credits than on their domestic loans.

Discussing these matters early last month, the Chairman of the Board of Governors of the Federal Reserve System concluded his remarks with an observation in which I would like to join. He said:

I cannot leave this subject without commenting on the enormous problems of economic management in the United States, and in every oil-consuming country....Even without the difficulties caused by recent pricing and production decisions, we would have needed to accommodate a vast change in the way we use and produce energy...

The recycling process has worked smoothly to date-the real process of adjustment less so. Let us not delude ourselves: financial flows cannot fill indefinitely a gap that must be covered by conservation, production, and new forms of energy. Our past success in recycling-- and the role it can play today-must not lead us to stretch that process to the breaking point.

What Paul Volcker was saying, if I understand him correctly, is that you cannot expect your banker to solve all your problems. Nor, I might add, can they be solved by getting angry at Arabs or Texas oil companies. They will only be solved when the industrialized world finally faces up to the fact that the golden age of cheap oil is gone forever.

In attacking our problems, we now have two models to guide us. We can learn from our experience with what has come to be called the Euromarkets but is actually one huge international free marketplace. Or we can expand our experience with the kind of regulated markets exemplified by the U.S. Department of Energy. The Euromarkets, I might point out, are not only free from regulation: they operate on a zero budget. The Department of Energy, on the other hand, now has a larger operating budget than New York City, even when the subways are running.