Inflation fears threaten US creditworthiness - by Korkut Erturk
The exceptional advantage the United States has in being able to issue its liabilities in its own currency has shielded it from the worst ravages of the financial crisis any other country would have experienced in its position. But fears that the United States might be forsaking this advantage are mounting. The issue isn't the imminent collapse of the dollar, but that the United States will be increasingly constrained in its fight against the economic downturn by concern over the sagging value of the dollar. In his visit to Beijing this past summer, US Treasury Secretary Timothy Geithner looked like a wastrel trying to appease his creditors, giving assurances to skeptical Chinese audiences. Increasingly, the Federal Reserve finds it has to assure investors of its "exit strategy" from extreme monetary easing. Yet, the only thing that can sustain aggregate demand, and thus income and employment, in the period to come is to keep up the fiscal stimulus.
Anything that poses a threat to the large budget deficits the Barack Obama administration is running, and will continue to in the coming years, is liable to worsen the economic slump. Whether warranted, inflation fears pose a threat.
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