It’s been high times for the past several years with the coincident humbling of its former superpower rival and the rise of oil prices. The New Russia has been flexing its international muscle — economic, diplomatic, and military — and feeling pride about reasserting itself in a bid to regain lost glory.

Now, the fall of oil, combined with Russia’s historical instincts to stir trouble abroad when there’s trouble at home indicates a need for caution.

The precipitous decline of oil and linked weakness of the Ruble creates slippery path for Putin and Medvedev. As the WSJ points out today in “Oil’s Crash Stirs Unrest In Russia As Slump Hits Home”:

The prospect of further unrest poses what could be the biggest challenge yet to the authoritarian system built by Mr. Putin. It also foists a stark choice on the Kremlin: to stifle dissent, or to placate protesters to provide some kind of pressure outlet. For now, the Kremlin has decided on a mixture of both. But the government’s options may narrow as its financial reserves shrink.

New Russian drinking buddy Venezuela is facing similar pressures. Will they collude to cause trouble for a shaken and weakened US and a new, “untested” commander-in-chief in the coming months?

Beware. History is filled with examples of totalitarians demonizing rivals and launching foreign adventures when there’s trouble at home. It’s nice to change the subject when the path is slippery at home.

Here’s a DailyFX chart that illustrates the dramatic “V” rebound.

Have we seen the end of dollar-buying to liquidate positions in the US prior to the end of the year and prior to the Obama administration’s debut?

Also note that a significant portion of the surge in oil prices is actually tied to the exchange rate. This should begin to re-introduce inflationary pressures on the economy and counter the deflation — both real and predicted — of the past several months.

This may not be a final blow to the dollar, but it should serve as a wake-up-call that we should not expect deflation to win out in the long term, especially for imported or energy-sensitive commodities.

The question is: when will inflationary pressures of dollar printing and borrowing begin to outweigh the downward pressures introduced in real estate and retail from bankruptcies and liquidations? And what impact will negative real interest rates in the U.S. have on the dollar and the economy? Is there a window of opportunity in the next weeks or months for individuals to improve their positions before the storm actually hits in full force?

The Senate rejected the bailout 52-35 on a procedural vote — well short of the 60 required — after the talks fell apart.

“I dread looking at Wall Street,” said Senate Majority Leader Harry Reid in anticipation of Friday’s stock market reaction. “It’s not going to be a pleasant sight.”

Gee, Harry, not a pleasant sight? I suspect it won’t look any worse than many of the days over the past few months. Besides, since when have you been concerned about Wall Street? I thought you were all about “the working people”?

Stock futures are down, foreign markets are down about 3%, the dollar’s regaining a little versus the Euro, and oil is retreating further. Hard to tell if it’s based on the news. Perhaps if the President announces a plan we’ll see the reaction in a lower dollar, higher oil and gold. It’s not going to be a pleasant sight…