Inflation Pierces a Classic Defense of US Creditworthiness
After S&P stripped the nation of its AAA rating in 2011, America's defenders said it could always print its way out of its debt problems. The past few years have made that argument seem quaint.
Printing money isn’t what it used to be.
Photographer: Andrew Harrer/Bloomberg
When it comes to the US’s creditworthiness, much has been made about politicians’ recent brinkmanship around the debt ceiling and the consequent erosion of “confidence in fiscal management,” as Fitch Ratings put it in its downgrade of the US from AAA to AA+ on Tuesday. But some attention should also be paid to the role of inflation, a phenomenon that returned after a long hibernation, piercing naive notions of the nation’s inherent absence of risk.
The Fitch downgrade was the first since Standard & Poor’s took a similar step in 2011. Back then, thought leaders in investing and economics — including Warren Buffett and Alan Greenspan — rushed to America’s defense, pointing out the absurdity of contemplating credit risk from the US government. “In Omaha, the US is still AAA,” Buffett told Fox Business at the time, citing its ability to print money at will. “In fact, if there were a AAAA rating, I’d give the US that.” Greenspan put it as follows in an August 2011 appearance on NBC’s Meet the Press with David Gregory (emphasis mine):