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When asked about my opinion on Ronald Reagen, I must provide a much needed back story.

Long before Reagan, there was Nixon, and Nixon had a problem: There were far more US Dollars in circulation than Gold could back. (And we had well over 8,000 tons of gold on tap!) This was due to the amount of money flowing overseas to purchase oil for ourselves and the staggering cost of the Vietnam War.

As this problem became known, people (West Germany, in particular) left the International Gold Standard. (Bretton-Woods)  Others soon followed and Nixon decided it was time to drop the Gold Standard. (1971)  Within two years, international laws were made that forced oil to be traded in US Dollars. (1973)

The Petrodollar was born.

Once the US Dollar was pegged to oil consumption, the rule of the day became controlling inflation via international modernization: a very slow process that is perfect as a driver of inflation due to its stabilizing nature. (In the 70s, that generation called this process the cute name of Self-Destiny and believe themselves the champions over Imperialism!)  The theory was simple: The world would grow slowly to the thirst of oil and the price of oil slowly matched the demand.   The result was the dollar being in a far better leveraging position that it was under Gold as it engaged in the proto-Neoliberal global market.

Nixon had saved the day. For now.

However, not everyone wanted to modernize. It wasn’t long until regional volatility in oil-producing nations shook America to the crippling point: the OPEC oil embargo.  (Thank you, Israel!)   This event lead to most, if not all, of the the economic problems in the 1970s. As oil prices spiked, inflation would soar while crippling the national employment due to the cost of oil. (The infamous “stagflation” of the 70s finally explained) The stability we yearned for was not coming quite as we expected. We were left with few options and the path we did choose sealed our fate:  Soften oil price volatility and its hazardous effects on the nation through massive spending.

Spending fueled through borrowing, of course.

Enter Mr. Reagen.  Enter the idea that we can outpace unstable oil prices by masking it through massive domestic spending.  It was quite the craze and, worse off, it was considered the moral thing to do.  Revise the employment laws to employ everyone, regardless of color, race, gender, talent, need, and all that good stuff!   Refactor who qualifies for loans!   No credit, no problem!  Your job is your credit!  Distribute money to as many people as possible so when shocks hit the market, the sheer volume of currency should absorb most of it for the time being.  Consumer habits and the individual had become human shields for oil volatility.   Reagen’s maneuvering bought us another 8 years of being sheltered from the true nature of the Petrodollar.  The borrowing model continued ever since, but lenders gradually started to ask the same question: How exactly are you going to make these Treasury Assets bear interest?

The answer, the one the Hippy Generation spent 40 years desperately avoiding, became more clear overtime: Full-time Oil Wars.  Stabilize oil volatility and you stabilize the Petrodollar. Stabilize the petrodollar, and the US dollar yields interest that matters. The stability of oil prices became a more urgent issue due to the collapse of Russia and the proliferation of nuclear arms throughout Asia.

And when I say Oil War, I’m not talking about the kind of brawl where you take a few production facilities and setup a perimeter.  I’m not talking about the kind of warfare where unwashed college students can simply whine their way to influence.    I mean an Oil War where you cause so much damage to the national infrastructure and the population base, oil producers are forced to mirror America in their massive domestic spending to get back on par.  The theory is that if the producers can’t stabilize their own output or, worse,  are intentionally manipulating their own markets to gain influence, then the interest that should have gone to the American dollar will now be paid in blood.

In the midst of it all, a terrible pattern was forming that, to this day, no one has noticed except a handful of us: The more debt we sold, the more severe oil volatility becomes. (http://research.stlouisfed.org/publications/review/05/11/KliesenGuo.pdf, Page 3)  Of course, that’s nothing compared to the grand daddy pattern of all: The more chaotic oil prices become, the more the power players will destroy Democracy trying to get it stable. Dependency always has a cost that, when left unchecked, always leads to slavery.