TLDR

• 🔁 The Big Debt Cycle is a 75–100 year pattern that ends in chaos—few see it coming.

• 💥 Nations don’t default—they dilute; when trust in currency dies, economic collapse begins.

• 🧯 We’re in Stage 4: deleveraging by inflation—assets, savings, and cash will be tested hard.

• 📉 Ratings agencies mislead—watch currency debasement, not defaults, if you want to protect wealth.

Understanding Why Countries Go Broke

This newsletter walks you through a concept that policymakers don’t want to talk about: how countries go broke. And how this process follows a cycle so mechanically repeatable, it borders on mathematical inevitability.

The Reality of Sovereign Debt

Governments around the world are increasing their debts—fast. The narrative is that if a nation issues the global reserve currency, it can never truly go broke because it can "print" its way out. That’s the modern orthodoxy.

But here's the uncomfortable truth: nations don’t go broke by defaulting… they go broke when their money stops being trusted.

You see, these aren’t just dry policy debates. They affect your portfolio, your savings, your cash flow. For everyone—individuals, investors, policymakers—understanding the Big Debt Cycle is absolutely essential.

Why the Big Debt Cycle Matters

What most people call the “economy” is really an interaction between credit, spending, and productivity. This interaction follows the rhythm of two key cycles:

• 🔁 The Short-Term Debt Cycle (every 5–8 years)

• 🔁 The Big Debt Cycle (roughly 75–100 years)

While short-term cycles are well-known—think recessions and recoveries—long-term debt cycles operate below the surface. They build slowly, and then collapse quickly. And these collapses have been responsible for systemic changes in currency regimes, empires, and geopolitical power.

Big Debt Cycles explain the fall of the Roman Empire, the collapse of Chinese dynasties, and the unraveling of Bretton Woods. They aren’t rare. They are inevitable. Yet they’re rarely taught, discussed, or even acknowledged. Why? Because one Big Debt Cycle lasts roughly a human lifespan.

In other words, when it ends, it catches almost everyone off guard.

The Six Stages of the Big Debt Cycle

Let me show you the sequence. Think of it like a metabolic process. Each phase causes the next in an unavoidable causal chain.

1. Sound Money Stage

• 🪙 Money is backed by hard stuff—like gold.

• ✅ Credit grows slowly, lending is sustainable.

• 📊 Debt levels are low compared to income and reserves.

• 💹 Asset prices are reasonable, everyone’s cautious due to recent pain.

• 🕊️ Economic growth is balanced and stable.

2. Debt Bubble Stage

• 💸 Money becomes cheap, credit flows freely.

• 🚀 Asset bubbles form, driven by speculation and debt.

• 🔮 Investors throw cash at speculative tech and disruptive ideas.

• 🎭 Illusions of wealth surface—wealth created on paper, not in reality.

3. Bubble Tops

• ⚖️ Debt outpaces income—it becomes mathematically unsustainable.

• 🤯 Interest rates rise to fight inflation.

• 🕳️ Suddenly, debt can’t be serviced.

• 💥 Everything cracks—credit, equities, currencies.

4. Deleveraging

• 🧯 Debt defaults and restructurings kick in.

• 🧾 Bondholders panic and sell—spiking rates, crashing markets.

• 🏦 Central banks step in to "fight fires" by flooding the system with money.

• 🔁 Currency gets devalued, either through inflation or brute-force printing.

5. Crisis Subsides

• ⚒️ Debt burdens decrease as income rises or debt gets wiped.

• 📈 Order returns, but lender trust is fragile.

• 🧐 Central banks attempt to restore credibility—offering higher interest, sometimes re-linking to hard assets.

6. Return to Hard Money

• 🧱 Confidence is rebuilt, often by moving back to a hard-money system.

• 🏛️ Resets the stage for a new cycle to begin.

Print or Default: The Fork in the Road

When faced with too much debt and not enough income, central banks make a critical decision:

• 🛑 Let defaults happen, triggering economic collapse.

• 🖨️ Print money to relieve the debt burden but kill the currency.

Spoiler: they always choose printing. Every single time.

That’s how you end up with situations that feel stable... until one day they don't.

Why Credit Ratings Miss the Mark

Here’s something that boils my blood.

Institutions like Moody’s or S&P rate sovereign bonds without factoring in the inevitable devaluation of the currency.

• 📉 Credit ratings reflect risk of default—not loss of purchasing power.

• 🫣 That’s misleading… because most governments won’t default, they’ll just pay you back with diluted money.

That’s why bonds yield so little in times of crisis. They’re not a safe store of value—they’re a trap.

The 18.6 Year Real Estate Cycle and the Debt Cycle

If you've followed me long enough, you know how I view real estate cycles—specifically, the 18.6-year real estate cycle propounded by Fred Harrison and others.

This cycle phases neatly within the short-term credit cycles. Property booms usually start during Stage 1 and peak right before Stage 3–4 of the Debt Cycle.

• 🏗️ Real estate booms with easy money – Stage 2

• 🧱 Construction glut amplifies risks

• 🛑 Real estate crashes during deleveraging – Stage 4

In institutional real estate portfolios and cycles, understanding where you are in the debt cycle is critical before pulling trigger on acquisitions. If you're investing in real estate in the wrong phase of the Big Debt Cycle (especially as Stages 3–4 begin), you're gambling, not investing.

The Interconnection with Other Forces

The Big Debt Cycle is just one gear in a much larger engine. To grasp what’s ahead, you have to track all five of the Big Forces:

• 🎭 Internal social and political cycles

• 🌍 External geopolitical tensions

• 🌪️ Acts of nature and pandemics

• ⚙️ Technological revolutions

• 💰 Big Debt Cycle

They feed into one another. Economic pain stirs political conflict. Wars spark monetary stress. Technological change can delay collapse—and just as easily accelerate it.

Today, we’re in the intense phase of all five simultaneously. That’s rare. It’s historically dangerous.

Monetary Policy Shifts: Where We Are in the Cycle Today

Looking at how central banks behave tells us exactly where we are in the cycle.

There are six key phases:

1. MP1: Hard money like gold; limited debt.

2. MP2: Fiat money with rate targeting (1971–2008).

3. MP3: Debt monetization and QE (2008–2020).

4. MP4: Fiscal and monetary coordination (2020–present).

5. MP5: Big deleveraging—coming soon.

6. MP6: Return to hard money—post chaos stabilization.

Currently, we are in MP4, tiptoeing into MP5. The data doesn’t lie. Debt is through the roof, and the monetization has already started in earnest.

And what comes next? Default? Probably not. Instead, an inflationary deleveraging where the currency takes the hit.

What This Means for You

This entire blueprint isn’t doom porn—it’s a lens that helps us anticipate what kind of investment and policy environments are coming next.

Here’s what I watch for:

• 😬 A rise in inflation without parallel wage growth

• 📉 Falling bond yields while central banks are still printing

• 🧾 Sudden selling of government bonds (watch for cracks in auctions)

• 🛢️ Stubbornly high commodity prices

• 🏗️ Real estate softening as interest resets kick in

Final Thoughts

This study is the deepest dive into the mechanism that breaks nations, resets economies, and rewrites the rules of wealth and power.

I share it not because it’s popular… but because it works. It’s made me hundreds of thousands. I built models around it. I obsessed over the data.

Now I’m passing it along to you.

• ⚖️ A nation doesn’t go broke in one day—it breaks slowly, and then all at once.

• 💥 Understanding debt cycles arms you with predictive power.

• 🛡️ You can navigate any storm if you know how the machine works.

Stay rational. Stay prepared. And remember—the game rewards those who can see what’s coming before the rest even start looking.

Reference: https://www.linkedin.com/pulse/how-countries-go-broke-introduction-chapter-one-ray-dalio-3wjae/?trackingId=YxBV1SfpSTiHG5tDhHLCaQ%3D%3D