THIS is the year Brazil -- Which owes a tidy $72 billion mostly to American and European banks -- should send $10.5 billion in interest and $7.2 billion in repayment of principal to its creditors. You will not be astonished to read that Brazil is as incapable of paying its bills as Poland, Mexico, Argentina, Chile, Rumania, East Germany and a long, lengthening list of insolvent Third World and Soviet bloc borrowers. The rest of the world owes international agencies, Western Europe, and the United States approximately $500 billion.

By normal commercial criteria, most of the debtors are insolvent. Some like Zaire and Poland are basket cases. Prudent bankers -- titans like Citibank's Walter Wriston and Chase Manhattan's David Rockefeller -- should, one might think, declare a country which misses its payments in default, write off the loan as a bad debt, repent, and resolve in future to be more careful. Right? Wrong. If the big banks rashly subtracted from their assets all their sour loans, they would be as bankrupt as their debtors, financial panic would speedily ensue, and economies perched on mountains of credit would topple off them into a depression more severe than that of the 1930s.

Even the Russians who do an increasing amount of business with the capitalists would not care for this sequel. For this reason, the Federal Reserve allows major banks to carry on their books at inflated values loans which everybody knows will never be paid in full. These banks with the collusion of the International Monetary Fund lend additional billions to pay the interest on the billions foolishly supplied in previous years. In this game of chicken, debtors are much less likely to flinch than creditors because they have less to lose. In all but legal name, they are already bankrupt.

In other words, business as usual continues because all actors solemnly avert their eyes from grim reality. Flim- flam, indeed, is the theme which unifies L.J. Davis' exceedingly well-written and researched tales of high finance. The Penn Central debacle, his opening episode, was the largest business failure on American record, a doomed attempt to turn two incompatible railroads and three quarrelsome top executives into a profitable real-estate operation. So began the decade of the 1970s, 10 years dotted with gaudy events, among them the collapse of the Franklin National Bank, the biggest of American bank failures, the exit of W. T. Grant from retailing, the attempt of the Hunt brothers to corner the world silver market, boom and bust in Real Estate Investment Trusts, and twin OPEC coups in 1973 and 1979 which repriced oil from a modest $2.25 per barrel to a current and immodest $34.

In Davis' chronicle, it is OPEC, and within OPEC primarily Saudi Arabia, Kuwait, and the Persian Gulf emirates, which inflated global credit and precipitated the present crisis. If you were Sheik Yamani, what, after all, can you do with the extra $50 or $100 billion that Allah obligingly presents you with each year except put it into the bank while you ponder better uses for the money? So it occurred that American banks, their Western European subsidiaries, and European rivals suddenly acquired enormous new deposits. As Davis takes care to explain, deposits are debts owed to their owners by banks which accept them. While they are in the grip of the bankers, they furnish wonderful opportunities to make money by lending them out at the highest interest the market allows. In the go-go years of the late 1970s, aggressive lenders chased the finance ministers of shaky, developing nations at home and abroad, pressing loans upon them without the prying inquiries you or I might face in getting a mortgage or auto loan.

The process was enormously facilitated by the invention of the Eurodollar market. Davis, wittily and lucidly, explains this phenomenon: Eurodollars are ordinary dollars which stay away from home. OPEC requires payment from all purchasers in dollars. When Saudi Arabia et al. deposit these dollars in foreign branches of American banks and banks chartered in Europe, they become delightfully available for lending without meddling interference from the Federal Reserve. That agency at least requires domestic banks to keep reserves against its deposits. For all practical purposes, the Eurodollar market is unregulated. While the celebration lasted, countries which imported oil paid OPEC in American dollars, OPEC put most of the proceeds into European banks or American subsidiaries located in Europe. The bankers enlarged loans to poor countries. They bought more oil. And so on.

Two flies landed in this expensive ointment. OPEC surpluses which used to replenish the pool of Eurodollars as fast as the bankers drained it, have been shrinking as global recession and new sources of supply diminish demand for Middle Eastern petroleum. For the same reason, Third World countries collect lower prices for their raw materials and simple manufactures. At the moment that borrowers need more money, less is available. At this writing, no crash has occurred and conventional wisdom holds unchallengeable the truth that the Fed will always come to the rescue of a sagging bank, if it is big enough. Davis is skeptical. So am I.

Promoters and financiers get away with fiscal murder because their operations are too complex for ordinary mortals to comprehend. Although your close attention is required, Davis does explain such arcane phenomena as the futures markets, commodity markets, repurchase agreements, and certificates of deposit. If you want to mutate from a financial sheep to a financial wolf, you will do well to make the effort. Among popular financial and business writers, L.J. Davis belongs in the company of Adam Smith and Anthony Sampson -- the best in the trade.