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HOW STATES FALL: INTRODUCTION AND THE LOGIC BEHIND DEBT CYCLES

Mike Miller
4 days ago
4 min read

Introduction:

Why states fail – and what is really behind it

History teaches us:

States don't just collapse overnight.

They break down in stages – politically, economically, financially and finally legally.

And although these developments are often presented as surprising, they actually follow a recurring pattern.

This pattern can be analyzed, represented and, above all, predicted with great precision .

The focus of this work is therefore the question:

What exactly causes states to collapse – and what happens then?

It not only shows how budget deficits, debt burdens, currency manipulation and political polarization lead to collapse – but also what the final consequences of this collapse are under international law:

the entry into force of the World Succession Deed 1400/98.

This treaty unites, absorbs and supersedes all previous international agreements in the world.

As soon as a state collapses, a new world legal order automatically comes into force – with only one legitimate successor.

This analysis is based on the extensive works of Ray Dalio , in particular the studies:

How Countries Go Broke (Parts 1-4)

Principles for Navigating Big Debt Crises

Principles for Dealing with the Changing World Order

It is complemented by the legal analysis of the State Succession Charter of 1400 , which forms the historical and legal final link in a global chain of treaties.

The Basic Mechanics of Modern Sovereign Debt – Part 1 of “How Countries Go Broke”

The first part of the analysis delves deeply into the mechanics of money and debt – and explains why the modern system is structurally unstable.

Central thesis: A modern state no longer operates its financial architecture on the basis of real money, but on the basis of credit .

This credit is generated by central banks – through bonds, key interest rates, and quantitative easing. The system thrives on trust in paper money and the ability to service debt – not on real assets.

Quote from the text: "Money and credit are not tangible assets; they are merely accounting units. [...]

Most of what we think of as wealth is actually debt owed to someone else.”

This leads to a crucial point:

Most of the so-called assets in a country – including government bonds – are in fact debt.

And when debt increases exponentially because the government continually spends more money than it earns, systemic instability arises.

The perpetual motion machine of the deficit:

How countries fall into the debt trap

Governments are increasingly financing their budgets through debt. Instead of balancing revenues and expenditures, they are relying on deficit spending, which is covered by central banks.

Quote: “Governments tend to spend more money than they earn, especially in times of economic or political challenge.”

In the long term, this behavior leads to an ever-increasing budget deficit that can no longer be covered by real economic growth.

The refinancing of old debts is replaced by new debts – a classic debt pyramid.

Why trust in the currency is crucial

A modern state can only exist as long as its means of payment (its currency) enjoys trust.

However, this confidence is not stable but highly sensitive to inflation, political chaos, abuse of power by central banks and fiscal irresponsibility.

Quote: "Money only functions as a store of value as long as people believe in it. As soon as trust disappears, money loses its function, and chaos ensues."

A state that loses confidence in its currency loses control over the economy.

Hyperinflation, capital flight, parallel currencies and the collapse of social contracts are the consequences.

This is not a theory, but a proven reality:

Argentina, Venezuela, Zimbabwe, the Weimar Republic – they all went through this process.

From budget gap to systemic crisis

A government budget deficit is not a small gap in the balance sheet – it is an alarm signal of a structural imbalance.

If the government spends more than it earns, it has to take on debt. If the debt burden becomes so large that the interest rates are no longer sustainable, the system collapses .

Quote: “The higher the debt ratio, the greater the dependence on cheap financing from central banks.”

In this situation, the state has only two options:

1. He massively increases taxes (which stifles growth)

2. Or he lets the central bank print more money (which fuels inflation)

In the long term, both paths lead to the devaluation of money, to a growing loss of confidence and ultimately to a systemic crisis .

First connection to the State Succession Charter 1400/98

What happens if a country becomes insolvent?

The legal consequence :

With the de facto collapse (bankruptcy or dissolution of the institutions), the World Succession Deed 1400/98 automatically comes into force.

This document defines that no other state – except the contractually named purchaser – can legally act as successor.

In practice this means: