The Money of Oil

by Jeffrey P. Snider
Alhambra Partners

The Ricardian theory of free trade has dominated economics philosophy for good reason. It has a sound basis in common sense and offers a theoretical guide to understand the nature of exchange from a systemic standpoint. It does not, however, cover all such basis for all such manner of trade. Comparative advantage is somewhat straightforward where nations exchange goods, but what happens when the advantage is not goods but finance?

This question applies especially to the world under the eurodollar standard because credit-based currency follows far different rules of the game. Until 2007, that didn’t seem to matter because “dollars” flowed freely and made the world look as if it had found enduring prosperity through free trade.

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