Oil and the Eurocurrency Market: Out of the Frying Pan and Into the Fire

Abstract

In four years the "oil crisis" has seemingly been rendered harm less. U.S. economists offer praises to the flexibility of capitalism in meeting any and all crises and point to the economic recovery of global capitalism as proof. By carefully analyzing the role international money markets (primarily the Euromarket) played in "solving" the oil crisis, however, this paper comes to quite the opposite conclusion. It appears, in fact, that global capitalism has created even greater and more dangerous contradictions which soon must be faced. The operation of the Euromarket in financing the necessary oil-based dollar flows has created financial instability in all major capital markets. If these markets continue to finance new growth, the result can only be greater instability and eventual economic collapse. The only other choice is an immediate reduction in financial intermediation, but this will bring about the end of the present economic upturn. In either case, without major structural changes the global capitalist system faces a profound crisis — one for which capitalists will have no easy answer.