The bigger question in the chanceries, treasuries, and banking centers of the world this weekend is not whether President Reagan will soon be having his frigates shooting at Iranian fighter planes in the Persian Gulf, but whether inflation will break loose again in the United States because Paul Volcker will no longer be calling the signals at the Federal Reserve Board in Washington. Friendly foreign offices shudder a little at prospects of more shooting in the Gulf, but Congress was pulling Mr. Reagan back this past week and has probably delayed any new shooting for sometime. The far bigger question is what will happen to the US dollar and to the US economy without Paul Volcker.
Alan Greenspan, Paul Volcker's successor, is widely regarded as being as conservative and as devoted to ``sound banking'' and ``careful economics'' as was Volcker. But Paul Volcker is the huge, imposing, unflappable man who is usually credited the world around for having broken the inflation spiral in America and returned the American economy to soundness.
Where there was certainty about the policies of the Federal Reserve Board there is now just a touch of uncertainty, enough to cause other countries to begin to wonder whether it might be time to recall some of their investments in America. There was just a hint of a flight from the dollar last week at the news that the President was not reappointing Mr. Volcker to a third term as governor at ``The Fed.''
Also, there was enough of a shudder through the financial system to underline the fact that all the frigates and other kinds of warships that Mr. Reagan can, in theory, send anywhere to shoot at anyone impress the world less than does the prospective state of the US economy.
At the economic summit in Venice this week, the question Mr. Reagan's colleagues would like to ask, but are too polite to do so, is: ``Why did you let Paul Volcker go?''
All of us are groping for the answer to that question. Mr. Volcker himself insisted for the public record that he had not ``felt pushed.'' But it is one thing to be urged to stay and another not to be pushed out. He may not have been subjected to any pushing, but the overtones seem to suggest that no one from the White House said, ``Your country needs you to stay on.''
One thoughtful line of speculation by a knowledgeable banker is that Mr. Volcker would have been happy to stay on had he been assured that the White House would make a new, serious, and vigorous push toward a balanced budget. In the absence of the prospect of such a push by the President, Mr. Volcker may well have decided that his own further role would be useless.
Anyway, the eight-year Volcker era at ``the Fed'' is over. We can only wait and watch for the first moves in the new era which will tell us whether some of the magic of the Volcker touch has been handed along to Alan Greenspan.
Meanwhile, the US Congress has, by just asking questions, slowed down whatever Mr. Reagan thinks he wants to do in the Gulf. He has been talking about ``keeping the sea lanes open,'' but his proposals, as in the case of the US Marines in Lebanon, would do something different.
In Lebanon, the declared purpose of a military presence was ``peacekeeping.'' But the net effect was to put the Marines into a civil war on the side of the Gemayal Christian faction and against the Shiite Muslim and Druze factions.
In the Gulf, Mr. Reagan was proposing to put the US flag on Kuwaiti tankers and then escort those tankers with US warships. But there was no proposal to do the same for Iran. Hence, the net effect of the proposal would be to allow Iraq to continue to shoot at Iranian tankers while Iraq's ally, Kuwait, would be protected by the US from Iranian counterpressure.
In other words, Mr. Reagan was in effect proposing to guarantee the flow of Arab oil out of the Gulf while Iraq would continue trying to prevent the flow of oil from Iran - oil that Iran needs to pay for its war effort. It would have added up to intervention in the war between Iraq and Iran - on the side of Iraq.
At the time of writing, we were waiting to see whether the Senate would join the House of Representatives in demanding clarification before shooting.
Congress is not putting any ban on further US naval operations in the Gulf, but it is not granting a hunting license either. The memory of the Gulf of Tonkin is still alive in the collective thinking of the Congress. In that case, Congress voted President Johnson a license to do anything he wanted to do against the Vietnamese. Few dreamed of how far he would go. At the peak, in 1969, US forces in Vietnam (not counting naval forces off shore) reached 543,400. Over 8 million Americans served in that war before it was over.
The Gulf of Tonkin resolution was a blank check that Lyndon Johnson cashed. Congress this week was saying, ``Tell us precisely what you want, and for what purpose, and then we will decide whether to let you have it.'' Mr. Reagan does not have a hunting license, yet.