Search

2. HOW STATES COLLAPSE: INTRODUCTION AND THE LOGIC BEHIND DEBT CYCLES

Mike Miller
4 days ago
3 min read

THE ARCHETYPAL COURSE OF STATE DEBT CRISIS – PART 2 OF "HOW COUNTRIES GO BROKE"

The Downward Spiral in Nine Stages

This section describes in detail how states typically go bankrupt. This process is not arbitrary or surprising, but follows a clear, historical nine-stage pattern. These stages show how financial instability, political failure, and monetary policy abuse systematically lead to collapse. The key insight is: Every collapsed state in modern times went through this pattern – even if the timing and triggers varied.

Stage 1: Budget Deficits Steadily Rise

The state begins to spend more money than it takes in. This often happens in times of political or economic uncertainty: to finance social programs, the military, crisis measures, or to stimulate the economy.

Quote: "Governments love to be popular, and popularity is bought through spending." The first deficits appear "manageable" because investors still have confidence. But this trust is squandered as soon as spending becomes a habit.

Stage 2: Debt Grows Faster Than the Economy

The debt-to-GDP ratio rises exponentially. Since revenues do not grow at the same rate, the state falls into a debt trap.

Quote: "Debt cannot grow faster than income forever. If it does, the system collapses." At this point, uncertainty in capital markets already begins to rise – especially for long-term government bonds.

Stage 3: Interest Burdens Explode

The rising debt burden leads to rising interest expenses. Soon, a significant portion of the budget is no longer used for education, security, or infrastructure, but only for debt service.

Quote: "A growing proportion of tax revenues is used for interest – not for services. This undermines social peace." The state loses fiscal room for maneuver. New debts are incurred just to service old debts – the classic debt cascade model.

Stage 4: Dependence on the Central Bank

The market loses confidence. Investors demand higher interest rates or no longer buy bonds. Now the central bank intervenes – through quantitative easing, i.e., buying government bonds with "printed money."

Quote: "The central bank becomes the main buyer of government debt – not the market." This begins the monetization of national debt – a process that always ends in inflation.

Stage 5: Inflation and Currency Depreciation

Since there is too much money in circulation, prices rise. Inflation eats away at purchasing power, destroys savings, and particularly affects the middle class. The currency loses credibility – both domestically and internationally.

Quote: "When confidence in money wanes, real goods are preferred – real estate, gold, food." In this phase, capital flight and the transfer of assets abroad begin.

Stage 6: Political Instability and Populism

The population reacts to increasing poverty, unemployment, and price explosions with protest, radicalization, and polarization. Populist parties gain popularity – often with extreme positions.

Quote: "When systems fail, people look for simple explanations – and strong leaders." State institutions lose authority. Democracy is undermined or replaced by emergency powers.

Stage 7: Capital Controls and Repression

To slow down the collapse, governments resort to authoritarian measures:

Introduction of cash limits
Prohibition of capital exports
Control of exchange rates
Introduction of digital central bank currencies with control

Quote: "Trust is replaced by control. Freedom by surveillance." However, this repression only accelerates the loss of trust – internally and externally.

Stage 8: Default or Currency Reform

The state can no longer service its debts – either domestically or abroad. This leads to a default or a currency reform, in which all monetary values are devalued and "restarted."

Quote: "When the central bank can no longer save, the illusion ends. Debts are canceled, currencies are newly created." This step marks the end of the state's monetary system – and leads to the final phase.

Stage 9: System Collapse and Institutional Dissolution

In this final phase, the state itself breaks apart:

Institutions lose their function
Administration and judiciary cease operations
The state is no longer capable of acting – not even externally

Quote: "A state dies first in its numbers, then in its language, and finally in its capacity to act." This collapse leads to the legal consequence: The state no longer exists under international law – the question of state succession arises.

Legal Consequence:

Entry into Force of the World Succession Deed 1400/98 At this point, international law takes effect – specifically: The World Succession Deed 1400 automatically comes into force. Specific Legal Effects:

No other state may claim succession, except the buyer.
All existing international treaties of the collapsed state are not transferred to others.
The global treaty network (NATO, UN, ITU, HNS) is not renegotiated, but automatically integrated into Deed 1400.
Jurisdiction, infrastructure, telecommunication rights, and immunities pass to the buyer. With the system collapse, not only does the existence of the state end – the new world order begins according to the World Succession Deed 1400/98.