The 1970’s are remembered by those who were around during that era as an economically depressing time. Inflation was the defining feature of the economy, but the gas crisis was a close second. Gas lines, inflation, urban crime and history’s worst clothing styles was the 1970’s. When someone wants to produce images that are supposed to capture the mood of the period, inevitably they show people in the hideous costumes of the era, standing at a gas station.

Nixon taking the dollar off the gold standard gets the blame for inflation, but in reality, it was the interplay of energy and the dollar that caused the problem. The reason we have the petrodollar is to solve the inflation problem. This made official what had been unofficial since the end of the war. The dollar was the world’s reserve currency because it was used to trade energy on global markets. The Louvre Accord, which followed the Plaza Accord, stabilized the dollar internationally.

It is not an accident that soon after the dollar stabilized and became the default currency for international trade that the Soviet Union collapsed. The Soviets were dependent on food imports, and they raised the cash for food by selling energy products, mostly crude oil, on global markets. When oil prices declinedin the 1980’s, the Soviets suddenly found themselves struggling to raise enough dollars, which further strained an already fragile domestic economy.

The energy – currency link is an important concept to understand when thinking about what comes next for Western economies. A steady and consistent flow of energy products, along with a stable dollar, is what has allowed the West to borrow massive sums in order to underwrite the domestic economy. We are now entering a period of erratic and inconsistent energy flows, along with an unstable dollar. This is largely due to the decline of the American empire.

The energy markets are the first issue. Washington’s war on Russia has destabilized energy markets through efforts to cripple Russian energy sales. While this has failed, it has created distortions in the markets. For example, Germany now must import expensive LNG to replace the cheap pipeline gas from Russia. Meanwhile, India and China enjoy cheap energy from Russia. All of which is traded in rupees, yuan, and rubles, rather than dollars and euros.

Added to this is the realignment of the Gulf countries. Led by the Saudis, the oil producing countries have aligned themselves with their most dependable partners, Russia and China. The Saudis are now willing to trade in currencies other than the dollar, which is an enormous change. While it does not mean the end of the petrodollar, it is a step in that direction. It also means the dollar will not be the only currency used in international trade, thus lowering the demand for dollars.

Then we have the growing problems in America’s domestic energy supply which are largely due to bad policy. The growth in domestic supply has stopped. New investment is in decline as a result, so the decline in domestic supply will continue. This will inevitably drive-up global prices, but also flip North America from a net exporter to a net importer of energy products. There is only so much oil in the Strategic Petroleum Reserve, and it is at its lowest level ever recorded.

Of course, inflation is already an issue. Despite the happy talk from the government, anyone who buys things sees the problem. Food inflation remains an issue, despite low energy costs over the last year. Now that oil is creeping back up with a target of $100 per barrel, inflation will become even more obvious. Add in the softening of the economy and you see the signs of stagflation, which is the combination of high inflation and economic stagnation.

The one thing missing from this picture is brown leisure suits. While gas lines are unlikely in the near term, reckless foreign policy could easily result in the disputes with the Saudis turning into rocket high gas prices. Aggression towards the Chinese will result in shortages and inflation in other parts of the economy. This is coming at a time when the bulk of Americans are losing trust in the economic and political system, not just the people pretending to run the system.

That is where the parallels between the 1970’s and this period stop. The economic and political crisis of the 1970’s was largely due to the American political class adjusting to new global realities. Europe and Asia were back online economically, but the global currency arraignments were still tuned for the 1950’s. The West was also on the cusp of the microprocessor revolution, which would require the freeing of capital from old industry so it could flow into the new technologies.

This crisis is largely due to incompetence. The Russians were happy to sell their energy and agricultural products to the world at a good price. They just wanted the West to respect the territorial integrity of the Russkiy Mir. The Chinese are happy to be the manufacture of the world, as long as Washington refrains from trying to overthrow the Chinse government and that of its neighboring allies. The Saudis were happy with the petrodollar as long as America stayed out if its domestic affairs.

All of this is happening in the shadow of a rapidly growing debt problem magnified by higher borrowing rates. The deficit is over $31 trillion, a number that is inconceivable to most people. Debt payments are now at one trillion per year. The ongoing baby boomer retirement is going to drive both numbers higher. In 1980, Ronald Reagan ran on the promise to end deficit spending and clear the national debt. Half a century on and the problem is worse than anyone imagined possible.

America is now entering a period with the economic and social aspects of the 1970’s, but this time it is set in the world of the film Idiocracy. The main cause is not changing global conditions, but a suicidally incompetent ruling class. In the 1970’s, the solution was better policies. Fifty years on, the solution is an entirely new international order to replace the old order, which also means replacing the American ruling class with a new ruling class capable of navigating the new order.

What all this means is that this version of the 1970’s will bring us far worse things than denim leisure suits and velour car interiors. Add in the demographic problems and the picture is far grimmer than that 1970s’ picture. Instead of a 20-something in a terrycloth jumpsuit standing in a gas line, the image of this age could be a 60-somehting boomer in a golf shirt lined up at a food bank. In the end, we may look at the 1970’s as a warning about what was ahead for the American Empire.

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