That 70’s Show
He was a relative unknown when he campaigned for president of an America that was worn down from foreign intervention, a sick economy and Republican rule. His outsider status brought with him a new brand of hope that the media devoured allowing his star to rise quickly and shine brightly. Upon taking the presidency, however, the beleaguered economy stubbornly refused to show signs of life, energy prices rose to troubling levels and the Middle East began to spin wildly out of control. Things were so bad he even had to step in and bail out an American car company with government funds.
After only three years, it was all over but for the counting. His star faded quickly as the once-media darling became anathema to an increasingly conservative American public that spent the last year of his term looking for a new “Mr. Right” in every sense.
Such was the fate of Jimmy Carter, who never had a shot at re-election; and a good argument can be made that Barack Obama will suffer the same fate under nearly identical circumstances.
There is so much involved in the making and unmaking of a president that it’s unfair to boil a career down to only a few factors. But in Jimmy Carter’s case I believe it is fair to say that three primary issues were the undoing of his presidency: the hostage crisis in Iran, stagflation and fuel prices at the pump.
Iran wasn’t a military crisis as much as it was an embarrassment to the United States, though talk of a nuclear Iran was percolating even then. Prior meddling in the Middle East came back to haunt us in a situation we couldn’t control, with Carter ill-equipped to handle the predicament of Americans held hostage in Tehran. Rising oil prices—the result of the Iranian revolution in 1979 and the panic that ensued in the trading markets—brought about a second shortage within a decade and with it hysteria and inflation. This upward pressure from fuel prices in an already inflationary environment spurred the Federal Reserve to begin chasing inflation with high interest rates.
In his book Currency Wars, James Rickards addresses the impact of American monetary policy on the global economy and cites the “50 percent decline in the purchasing power of the dollar from 1977 to 1981.” He goes on to depict “a world gone mad,” noting that, “A new term, ’stagflation,’ was used to describe the unprecedented combination of high inflation and stagnation happening in the United States.” Most people recall the moment when interest rates reached as high as 20 percent during this period and point to it as the height of insanity during the Carter years. In actuality then-Fed Chairman Paul Volcker under Ronald Reagan did this as a one-time shock to the system. It was done in conjunction with vigorous tax cuts to spark consumer spending, a tightening of the monetary policy to strengthen the dollar and the latent effect of increased oil production, both domestic and abroad. With the exception of the tax cuts, these policies and factors would likely have occurred anyway as Volcker was a Carter appointee and it was Carter who loosened the valve on domestic oil production. Furthermore, Reagan would go on to reverse many of these initial tax cuts in a way that would make conservatives and Tea Party activists blush today. Either way, Jimmy Carter was a victim of pitiful economic circumstances that will forever be his legacy in the White House.
Rickards draws some comparisons between the ’70s and today, most notably deriding Federal Reserve Chairman Ben Bernanke’s actions of Quantitative Easing, a fancy name for printing money—the same currency devaluation scheme employed by Nixon—calling them “runaway fiscal and monetary policies, which were flooding the world with dollars and causing global inflation in food and energy prices.”
This is an interesting point to hang on for a bit. There is no shortage of theories as to why Americans are finding themselves staring helplessly at rising gas prices, but few of them are real. In fact, much of the prevailing wisdom offered by television pundits is false. It’s not Obama’s refusal to “drill baby drill” or increased demand from China. It’s not Libya or Iran, either. It’s the abundance of liquidity in the markets matched with the ability of investment banks, hedge funds and oil companies to trade energy futures on commodities exchanges without any limits or transparency. And this is the result of 30 years of deregulation beginning with Carter and continuing through Obama.
Before the commodities exchanges were deregulated there were few safe places to “park” excess capital during volatile periods. Today these exchanges are the perfect shelters for investors with excess liquidity because many of them are allowed to stand on all sides of the transaction. An investor such as an investment bank or an oil company can be the buyer, seller, broker and manufacturer, and can therefore more easily predict the future behavior of pricing by both forecasting the future price of a commodity it owns while moving the market with enormous capital infusions. It’s more than the ultimate hedge. It’s a scam.
With a crisis brewing in Iran, the markets and pundits are once again in a tizzy, and consumers are bracing for the worst. This brings us to what might be the nail in Barack Obama’s coffin: inflation. When fuel prices rise, even for a brief period, it shows up within months in our food and other consumables. It’s a necessary evil in the production of nearly everything we consume on the planet, which is why it’s so utterly dangerous to leave the process of trading energy futures unregulated. Oil doesn’t have to reach $200 per barrel to destroy any hope of economic recovery and, worse, force mass starvation around the globe.
If the price is sustained at $100-plus per barrel without relief while we continue to suppress interest rates and flood the market with the dollar, Bernanke and Co. will have difficulty stemming the natural tide of inflation as it works its way around the globe in the things we buy and the food we eat. Bernanke’s announcement that the Fed will continue to artificially suppress interest rates through 2014 and the government’s steadfast refusal to implement any reasonable regulation in the markets is a self-fulfilling prophecy as investors continue to seek safe harbor for their funds in the only market they have any ability to control. This will prevent any crash in oil prices that would naturally occur, as we witnessed in 2008 when oil hit $147 per barrel then plummeted shortly thereafter.
Further fracture in relations with Iran and high oil prices will also crush any hopes the European Union has of recovery. And with the determined stance that austerity is the EU’s chosen path to prosperity, the United States faces the additional problem of having its No. 1 consumer of U.S. exports absolutely cash-strapped and constricting even further. Barack Obama’s re-election hopes are really a matter of timing more than anything because the conclusions above are simply common sense and arithmetic.
Any chance he had to calm this gathering storm has already passed, leaving him at the mercy of the global markets, which are teetering on a gigantic bubble. His oratory and confidence are outgunned by a conservative media machine pouring on the pressure by falsely blaming his energy policy for high oil prices and stoking the fire with Iran, thus creating all the necessary traps for his demise. Even if he were able to truly force real change in the oversight of the financial markets, it would spook Wall Street and could incite panic. And any attempt to quiet the saber-rattling between Washington and Tehran would make him appear weak compared to a bloodthirsty slate of GOP opponents.
Obama’s only option is to pray the storm doesn’t touch down between now and Nov. 6. If it does, instead of occupying the White House in January, he’ll be building houses with Jimmy Carter, while Mitt Romney tries to figure out where to park all of Anne’s Cadillacs.