A Bit-Less-than-Full Faith and Credit

“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.

(more…)