S&P Points to Plain Problem

By:  Charles Scaliger
08/24/2011
       
S&P Points to Plain Problem

In 1941, the United States was first assigned the so-called “triple A” or AAA rating, a reflection of the widespread belief, at least in the free world, that the United States government could be relied upon absolutely to pay its debts. At the time, the United States had recently grown into the world’s largest economy. The dollar, after the end of the Second World War, became the world’s reserve currency under the terms of the Bretton Woods agreement. Other hard currencies were to be convertible to U.S. dollars, which were in turn convertible (for international investors, at least) into gold (the so-called “gold exchange standard”).

The general perception of the dollar as the world’s backstop currency and of U.S. government debt as being as good as gold survived President Nixon’s closing of the “gold window” in 1971 and the decade of economic malaise — which included significant inflation — that followed. This is surprising in hindsight because Nixon’s action certainly fulfilled the criteria for a partial default, being motivated by the inability of the United States to service debts incurred in the Vietnam War.

In 1941, the United States was first assigned the so-called “triple A” or AAA rating, a reflection of the widespread belief, at least in the free world, that the United States government could be relied upon absolutely to pay its debts. At the time, the United States had recently grown into the world’s largest economy. The dollar, after the end of the Second World War, became the world’s reserve currency under the terms of the Bretton Woods agreement. Other hard currencies were to be convertible to U.S. dollars, which were in turn convertible (for international investors, at least) into gold (the so-called “gold exchange standard”).

The general perception of the dollar as the world’s backstop currency and of U.S. government debt as being as good as gold survived President Nixon’s closing of the “gold window” in 1971 and the decade of economic malaise — which included significant inflation — that followed. This is surprising in hindsight because Nixon’s action certainly fulfilled the criteria for a partial default, being motivated by the inability of the United States to service debts incurred in the Vietnam War.

Click here to read the entire article.

Photo: AP Images

The JBS Weekly Member Update offers activism tips, new educational tools, upcoming events, and JBS perspective. Every Monday this e-newsletter will keep you informed on current action projects and offer insight into news events you won't hear from the mainstream media.
JBS Facebook JBS Twitter JBS YouTube JBS RSS Feed