It’s not every day that a president raises questions about the bonds issued by his country. Thanks to competition, a government tends to give the other guy’s debt a hard time in one way or another.

But, hey, this is the progressive age and anything’s possible. Yesteryear’s prudence is today’s obstacle gumming up the works in politics. Or so it appeared when President Bush seemed to be impugning, in ever so subtle terms, the integrity of government bonds when he visited the U.S. Bureau of Public Debt in Parkersburg, West Virginia on Wednesday.
The location was the latest stop on his tour of promoting the idea of adding private accounts to the Social Security system. In full marketing mode, the President announced to the small office of workers and attending press, “There is no trust fund,” referring to the portfolio of assets used to pay Social Security benefits. Looking at a file cabinet loaded with paperwork that represents the trust fund, such as it is, Bush declared that the portfolio was in fact “just IOUs.”
Technically correct, in that Treasury securities are nothing more, or less, than IOUs. By that title, they’re only worth something to the extent the investing public thinks they’re worth something. Trust, in short, is the operative word when it comes to lending and borrowing, even for the United States. That may sound a radical notion, but some also know the phenomenon as the bond market.
For a country as dependent as America on lending, the President’s choice of focus was questionable, to say the least. An editorial in the Seattle Post-Intelligencer, from which the above quotes are drawn, lamented this particular outing of the nation’s chief executive, reminding, “Just an IOU? The same could be said about stock certificates, the U.S. dollar or even private investment accounts.”
The comparison with the dollar is quite apt. Treasuries and the greenback, after all, are joined at the hip in the global economy from a foreigner’s perspective. Attacking one is effectively attacking the other. But that’s a no-no, to invoke a technical term, given America’s necessity for borrowing on the global stage. Or, at least, it should.
With any number of foreign central banks stuffed to the rafters with Treasuries, it seems a tad counterproductive to suggest, however indirectly, that the integrity of U.S. government debt is something less than it’s cracked up to be. Might we say that the strategy might not be the wisest use of rhetoric at this particular juncture? To be sure, we’re not saying there’s nothing to criticize when it comes to America’s various outputs of government-sanctioned paper. But maybe, just maybe, the President should be a little more circumspect than the rest of us on such matters of shaping public perception. After all, his words are broadcast around the world and interpreted (and misinterpreted) to a degree that only rock stars and indicted corporate executives will recognize.
Of course, Treasuries may not need any defense. They aren’t going away, no matter what Bush says, and in fact are likely to grow in population, as are the dollars that service them. Foreigner and U.S. citizen alike need never worry when it comes to receiving coupon payments and their original principal after buying Treasuries. The Fed is burning the midnight oil so that there will never be a dollar shortage when government bonds come due.
As to how much, or how little those dollars will buy tomorrow, next year, or a decade from now? Hmmm, maybe the President was trying to tell us something. Then again, he needn’t have cast aspersions on the government’s IOUs and, by extension, its fiat money. The maestro, after all, doesn’t need any help.