Was the end of abundant cheap domestic oil and the end of the gold-backed dollar not coincidental, but causally related?
Oil and finance are inextricably linked, for as long as the US (Fed) prints dollars, and exporters accept them in trade for physical oil, then the US is able to effectively act as if it still has lots of cheap oil, for in a real sense, it does as long as it can trade paper for oil.
Correspondent David P. recently connected the end of the gold backing of the dollar with the decline of domestic production and the rise of the debt/speculative “financialized” economy:
Interesting, the concept of trading paper for oil. This is something we engineered when Nixon closed the gold window in 1971. Before we’d have had to trade gold for oil, and now? Just paper. A nice trick. But that was simply a coping mechanism that came about because we needed to maintain our supplies of cheap oil and didn’t want to give away our gold in return.
And, when one does that, it doesn’t come for free – there are winners and losers. When the US prints dollars, it effectively taxes savings to make this happen. What that does is encourage debt, and discourage savings. The 1970s trashed savers, and encouraged all sorts of debt and speculation to stay ahead of inflation. So perhaps we can say, a direct result of losing our oil superpower status was stripmined savings. This educated a generation of Americans formerly used to saving that saving is wrong and accumulating debt is the right strategy since debts are inflated away.
Perhaps one can say today’s casino ridden debt-laden society came directly from the end of domestic cheap oil and our decision to print money instead of downsize our energy usage?
Thank you, David, for a most insightful commentary. Printing money for oil may well be the initial Devil’s Pact that started the U.S. down the road to its present addiction to debt, money-printing and “cheap” oil imported from elsewhere and paid for with paper money.
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