Constitutional crises are critical events that can significantly impact sovereign credit ratings. They directly undermine political stability, weaken institutional strength, and create uncertainty around economic policy. These factors are essential for maintaining investor confidence, and any disruption can lead to a reassessment of a country’s creditworthiness.
Recent developments in the United States are concerning and warrant closer attention than many investors are currently giving them. While I am not a constitutional law expert, the ongoing stress on the U.S. constitutional system since President Trump took office—particularly through the use of executive orders and the resulting legal and political clashes—has raised alarms. For example, executive orders on immigration (e.g., the "travel ban") and environmental regulations have faced significant legal challenges, highlighting tensions between the executive branch, the judiciary, and Congress. While there is much talk of "constitutional stress," it is important to distinguish this from a full-blown "constitutional crisis." At this stage, we agree there is stress, but not yet a crisis. However, if this stress escalates into a crisis, the U.S. sovereign credit rating could be at risk.
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As Benjamin Franklin wisely said, "By failing to prepare, you are preparing to fail." In today’s uncertain political climate, preparedness is more important than ever.
References:
1. NPR - Are we in a constitutionalcrisis? February 11, 20255:45 PM ET
https://www.npr.org/2025/02/11/1230674436/are-we-in-a-constitutional-crisis
2. Brookings Institute - How is civilsociety responding to the US constitutional crisis?
https://www.brookings.edu/articles/how-is-civil-society-responding-to-the-u-s-constitutional-crisis/
3. US Library of Congress - https://www.loc.gov/item/2021667573/
