A Bit-Less-than-Full Faith and Credit

by Bruce Abramson

“The full faith and credit of the United States Government.” That’s what backs up our currency—and that’s all that backs up our currency. Throughout most of history, governments had to back their currency with something tangible, typically a fixed quantity of gold. In fact, most coins actually contained the requisite quantity of gold because many of the folks who used those coins in commerce didn’t particularly trust the King whose likeness they bore. It’s good to be king and all, but if you wanted to add a ducat’s worth of wheat to the royal granary, you had to put up an actual gold ducat.

Paper currency required people to place a bit more trust in their governments, though the rule remained—at least in theory—that anyone holding the note could take it to the official treasurer and exchange it for the specified amount of gold. Roughly forty years ago, when Nixon took the U.S. off the gold standard, we dropped every last pretense of convertible dollars. From that day forward, the only thing backing up our currency was two simple words: “trust us.”

Imagine that. Richard Nixon—of all people—stared at the world and said “trust us,” and the world complied. Through seven Presidents of both parties, the world—from multinational corporations to anti-American drug dealers and terrorists—has trusted us to stand behind our currency and our debt. In an uncertain world filled with violent disagreement, the one point on which all could agree was that the U.S. remained uniquely trustworthy.

So when Standard & Poor’s downgraded our credit rating on Friday, the message was both stark and clear: the United States is a little bit less trustworthy than anyone had thought. Why? What happened? Who is to blame? The White House, of course, is quick to point fingers everywhere but the Oval Office. Yet this perceived decline in America’s trustworthiness is eerily familiar to those who have paid attention to the Obama Administration.

In foreign policy, Obama failed to stand behind anti-regime protestors in Iran or pro-democracy moves by the Honduran Congress and Supreme Court; he canceled missile defense systems that we had promised to Poland and the Czech Republic; he abandoned a deeply flawed but longstanding ally in Egypt; and he has taken every opportunity to embarrass Israel. From Colombia to Saudi Arabia, Obama has put our allies on notice: prepare to act unilaterally, because the United States is a bit less trustworthy than you might have thought.

In economic policy, Obama has injected massive uncertainty and complexity into health care, banking, and real estate; threatened massive changes to industries that either consume significant amounts of energy or exhibit an environmental impact; partially nationalized the auto industry; elevated union desires over the needs of business; and vilified the very notion of corporate success. Throughout the private sector, Obama has put businesses on notice: don’t bother investing in new ventures or creating new jobs, because the United States is a bit less trustworthy than you might have thought.

Friday’s announcement merely took the unstated message and made it explicit. A candidate who campaigned on an amorphous agenda of “change” has become a President who cannot be trusted to fulfill our national promises and obligations. A reduced credit rating is hardly a bug in the age of Obama; it is a feature. With seventeen months in office, Obama’s legacy is now secure: He was the President who successfully devalued the trustworthiness of the United States. Anything else that he might accomplish—for good or for ill—will pale in comparison.


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Posted Aug 8th 2011 at 4:21 pm in Economics, Federal Spending, Obama, Regulation, Uncategorized | 69 Comments