'Full faith and credit' means loaning money to U.S. is a safe bet

SACHA PFEIFFER, HOST:

If you've been following the news about negotiations over the debt ceiling, you've probably heard this phrase more than once.

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UNIDENTIFIED PERSON #1: Full faith and credit of U.S. government debt.

UNIDENTIFIED PERSON #2: The full faith and credit...

UNIDENTIFIED PERSON #3: Full faith and credit of America.

AILSA CHANG, HOST:

OK, but what exactly does full faith and credit mean?

WENDY EDELBERG: Full faith and credit basically is meant to give comfort to anyone lending to the U.S. government that the U.S. government will make good on those promises no matter what.

PFEIFFER: In other words, says Wendy Edelberg, a senior economics fellow at the Brookings Institution, it means loaning money to the United States is a safe bet.

CHANG: That's right. The phrase itself was first used by the Founding Fathers. In this context, it essentially means the country pays its debts.

EDELBERG: It has its genesis in the Constitution, which allows Congress to borrow money on the credit of the United States. So Congress is allowed to enact laws that create obligations that the U.S. taxpayer has to meet, and the U.S. taxpayer then has to stand behind those obligations.

PFEIFFER: And if the United States can't raise the debt ceiling, it can't meet the financial obligations that Edelberg is talking about.

CHANG: And not paying your bills makes lenders worry that it's too risky to loan money to the U.S. or jeopardizes the full faith and credit of the United States.

EDELBERG: Calling into question whether or not the U.S. government will really make good on its obligations and pay its bills, it makes perfect sense to bring this phrase in, that it calls into question the full faith and credit of the United States.

PFEIFFER: It's not that different, Edelberg says, than making a loan to someone you're not sure can pay it back.

EDELBERG: The same way that you might worry about lending to your brother-in-law or doing babysitting for, you know, your little sister's kids and she promises that she'll pay you later. Like, maybe - like, those sorts of other counterparties, you want to think, but are they really good for it?

CHANG: To use another phrase you might have heard over and over again, time will tell whether the United States turns out to be good for it so that its full faith and credit remains intact.

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