In February 2015, a 109-car CSX train derailed near Mount Carbon in West Virginia. The fire the derailment sparked was so massive that firefighters could only stand by and watch it burn itself out. That took just about a week. The reason was the train’s cargo, about 3 million gallons of North Dakota crude oil.
It was just the latest in a series of oil train disasters, the most tragic of which occurred in July 2013. The picturesque Quebec village of Lac-Magentic was almost completely destroyed when a runaway train rolled down a hill and into the center of town. The consignment was again North Dakota crude.
The economic issue, at least, is a simple one. We all don’t have an oil well in our backyard with an efficient refinery running in the front. The supply of crude has to get from one place to another, to be first turned into something useful before arriving at each and every destination where demand occurs.
To match supply with demand requires infrastructure and a lot of it. There are pipelines and supertankers, gasoline trucks and even oil trains when any one of the other forms of conveyance isn’t readily available. There are firms dedicated to this matching function, who have the ability to move physical crude around to where it is most needed all dictated by market prices (spreads).
The global monetary system of the eurodollar really is no different, including its capacity for destruction. There are money dealers whose job is to move money from where it is to where it might be most needed. Assuming first that they have it, or, more often in the modern eurodollar case, the ability to create it.
“We” give almost no thought to this redistribution function. Most of the monetary theory is dedicated only to the supply of money, and even then in the orthodox form, the investigation is shallow and cursory at best (it never looks at the various types of modern money; the “missing money” of the 1970’s was never actually found by Economists). Central bankers dedicate stunningly complex and elegant mathematical constructions to money demand without once quantifying all the ways in which demand could be met.
One reason for the omission is the purposeful omission of traditional money from these pathways. Not even currency flows within them. The Federal Reserve in 1957 got around to studying the rebirth of the federal funds market in the early fifties, finally publishing their findings only in May 1959. In 1920, the report recalled, the federal funds market began from:
