In a fiat currency system, perception is, by definition, everything. Paper money has no intrinsic value. So the people saving it and accepting it in exchange aren't expressing faith in the money itself but in the competence and honesty -- and power -- of the institutions managing it. Let that faith erode and those slips of colored paper and ephemeral computer bits revert to their intrinsic value.
And on the credibility front, the trends aren't encouraging. Consider the coverage of this weekend's Washington DC meetings of the International Monetary Fund and World Bank, two global financial institutions that the US dominates. From the New York Times:
This article is available only to subscribers, but a similar one from India's Business Standard makes many of the same points:
As world leaders converge here for their semiannual trek to the capital of what is still the world's most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most.
The spring meetings of the International Monetary Fund and World Bank have filled Washington with motorcades and traffic jams and loaded the schedules of President Obama and Treasury Secretary Jacob J Lew. But they have also highlighted what some in Washington and around the world see as a United States government so bitterly divided that it is on the verge of ceding the global economic stage it built at the end of World War II and has largely directed ever since.
"It's almost handing over legitimacy to the rising powers," Arvind Subramanian, the chief economic adviser to the government of India, said of the United States in an interview. "People can't be too public about these things, but I would argue this is the single most important issue of these spring meetings."
Other officials attending the meetings this week, speaking on the condition of anonymity, agreed that the role of the United States around the world was at the top of their concerns.
Washington's retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.
Experts say that is giving rise to a more chaotic global shift, especially toward China, which even Obama administration officials worry is extending its economic influence in Asia and elsewhere without following the higher standards for environmental protection, worker rights and business transparency that have become the norms among Western institutions.
And check out this exchange on CNBC's Fast Money traders roundtable: Bernanke's hedge fund gig 'wrong on so many levels': Adami
Suddenly it's okay, even on CNBC, to question not just Fed policy but the character of its governors.
What's important here isn't the sentiment but the source. Peter Schiff or Gerald Celente can point out America's moral and technical dysfunction all day long, but by now they're mostly just preaching to the choir. The New York Times and CNBC, however, are virtual branches of the US government, trading in access to the folks running the big institutions and profiting from the latter's machinations. If the government loses them, it loses everything.