So When Wonks Anonymous was young in the late 1970's the United States was printing a great many dollars which we used to pay for oil. These dollars accumulated in the bank accounts of various Middle Eastern states and, rather than use the funds to develop the economies of Egypt, or Jordan or Pakistan or some such, these states trusted money center banks to recirculate the dollars.

A great part of this pool of loanable funds went to Eastern Europe where an entirely new industry developed, making rubles out of dollars. Here is how it worked:

A national or local government sponsored a loan which was used to build an automated modern factory making consumer goods, plastic stuff, detergents, washing machines or whatever. The goods were made on the latest Western lines so they sold well within the Eastern Bloc.

A local government in Croatia, for example, would borrow money to build a factory that made Western style laundry detergent. Because the local product was a hard cake of soap that gave your hands sores, the detergent sold well throughout Yugoslavia and into Bulgaria and the Soviet Union.

The only problem with this model was that the factory required a steady supplied of imported materials. Which materials had to be paid for with dollars. Unfortunately most of the products made by these factories were not quite competitive in dollar markets. A steady flow of dollars went into the factory. A stream of rubles, dinars, zloty and other non convertible currency went out.

As long as the loans lasted, growth and productivity were high. Unfortunately about 1979 Paul Volker and Jimmy Carter decided to start pulling all those dollars out of circulation. As funds dried up a whole flotilla of industries throughout Eastern Europe were stranded on the mudflats of history. Worse still the governments of Eastern Europe were caught owing dollars that they could not earn.

Now mature market economies would never make such foolish mistakes. Except that our latest boom took place entirely in the retail and finance sectors and was largely fueled by finance firms helping us to borrow money and retail/wholesale firms moving the goods that we bought with borrowed money to market.

In Eastern Europe at least the factories served a fig leaf for the whole process.