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Is the U.S. politically stable enough to maintain reserve currency status?

by Rachel MillsAugust 31, 2023

The U.S. has been sinking in a leading political stability index for several years

The political landscape in the United States is on fire right now, with the chief rival of the current administration, the presidential frontrunner in the opposing party being indicted, booked into a county jail complete with mugshot. Right in time for the primary season.

Regardless of how you perceive the charges, or the ones charged, this is new territory for the US, and typically stuff you would hear about third world country politics. These are the kinds of events that mark political instability. Not only was the former (and possibly future) president indicted - his legal team and key members of his staff were as well.

Many Americans like to stay as far away from politics as possible, but there comes a time when politics affects everything else and it can't be avoided. Fitch's downgrade of the US's credit rating bears that out.

A major reason for this financial downgrade was attributed to political instability. It may not impact your life in a huge way NOW, but this is an ominous trend if it continues.

It's important to note that our current political instability didn't just happen because of recent events in Georgia. This is part of a longer trajectory.  US ratings of political stability have taken a nose dive according to people who track such things. So has the perception of our fiscal responsibility and debt management. These are critical areas for reserve currency status and our leaders should not take these downgrades lightly. Neither should you.

There are reasons the rest of the world shuns the currencies of banana republics. They certainly don't keep stores of that currency in reserve.

The rest of the globe is smelling the blood in the geopolitical waters. A growing alliance is forming around the BRICS countries and they are beginning to organize and prepare for a future with a much weaker, less important US dollar. John Rubino's excellent recap of the latest BRICS conference is here and ends with this summary -

"Numerous mistakes by the West - led by the US - have led countries with half the global population and 40+% of GDP to want out of the current system. Our two biggest mistakes are:

  1. Accumulating insane amounts of debt that can only be resolved through a brutal financial crisis and global currency reset. What sane developing country would volunteer for such a thing?
  2. Weaponizing the world's reserve currency and related systems to the point that emerging nations see themselves as either current or future victims of US predation. Again, who wants to sit around waiting for the inevitable sanctions/asset theft/CIA coup?

The BRICS are, in short, a threat made in the USA. But today it went global."

Will your portfolio survive in the long term if it is 100% denominated in dollars? Why not diversify into tangible precious metals that can be priced in any currency? Call us today to get started.

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