Countries move through predictable stages:
- Hedge finance: Cash flows cover all obligations
- Speculative finance: Cash flows cover interest only
- Ponzi finance: Cash flows insufficient even for interest; survival requires rising asset prices or continued borrowing
Governments are entering stage three:
- US: $38 trillion debt, more than annual GDP
- Japan: 230% debt-to-GDP ratio
- UK: £1 in every £12 spent just servicing debt interest
As part of last week's global market sell off, the S&P fell 2.1% after Trump's Greenland threats and EU tariff announcement. A modest decline, but as asset prices fell and the potential impact on pensions and portfolios became visible, he reversed course within days.
Ponzi logic: policy responding to prevent a further cascade.
