Financial Exceptionalism

This article in the NYT helps explain the strength of the US economy, even when we're deep in debt:

What explains this oddity? Why is the world betting that the United States will overcome its political deadlock and solve its problems — believing, it seems, in the truth of Churchill’s biting quip that America will always do the right thing, after exhausting every other alternative? And how long can this aura of invincibility last?

Maybe a long, long time. One of the many things that makes the United States different is that it prints the world’s most important currency and can always print more — one reason investors in government debt remain confident they will be repaid, even if in dollars devalued by inflation or by changing exchange rates.

There is also value in being the one nation on which the world still depends for security. That helps explain why foreign investors, including China, can denounce American politicians, Wall Street bankers and sleepwalking regulators for creating the current mess — and still buy at the next Treasury auction.

This paradox of American financial exceptionalism was unusually clear last week. When the stock market shuddered on Thursday because of worries about national defaults, it wasn’t Washington’s mountain of debt that got everyone rattled. It was the plight of a handful of profligate spenders in Europe — notably Greece, Spain and Portugal — whose comparative foothills of debt suddenly made them dubious credit risks.