Economic history is defined by the expansion and contraction of credit. This sequence forms a multi-decade debt super cycle. The process typically unfolds over seventy to one hundred years. It moves from a period of sound money and low debt to a terminal phase of catastrophic liability. The system is entering the final innings. Fragility is structural.
The cycle begins with a period of productive expansion. During this stage, borrowing is a tool for legitimate capital investment in infrastructure and technology. Debt levels rise in tandem with productivity. This creates a sustainable equilibrium where future income easily services existing obligations. Prosperity follows growth.
Eventually, the expansion enters a speculative bubble stage. Credit becomes decoupled from productivity as borrowing shifts from investment to consumption and the acquisition of existing financial assets. (Debt amplification refers to the use of borrowed capital to increase potential returns). Confidence increases as asset prices rise. This leads to further borrowing based on inflated valuations. The cycle accelerates now.
By late 2024, the global debt stock exceeded three hundred and twenty trillion US dollars. This represents nearly two hundred and thirty-five per cent of global GDP. Government debt is projected to hit one hundred per cent of total global output by 2029. This is an unprecedented concentration of public liability. Real yields cannot remain high in a system with such extreme debt as rising interest begins to consume the entirety of national revenue. Default is hidden; cash flows stop.
The peak of the cycle is characterized by a divergence between debt levels and the income required to service them. Central banks typically attempt to manage this gap through monetary policy. They lower interest rates to maintain liquidity. This only delays the inevitable rebalancing. When the cost of servicing debt exceeds the growth of the underlying economy, the bubble reaches its terminal limit. Pressure builds.
A "Beautiful Deleveraging" is the rare objective of policymakers. This requires a precise balance between deflationary austerity and inflationary money printing. If the rebalancing is too slow, the economy enters a prolonged depression. If it is too fast, hyperinflation destroys the currency. Most historical cycles end in a disorganized credit collapse. Stability is a temporary illusion; look away.
Systemic re-anchoring is the final phase of the super cycle. This involves the physical restructuring of the global monetary order through mandatory debt defaults and currency realignments. Productive assets are separated from the digital weight of bad debt. Position accordingly. The heavy metal of gold provides the floor for capital. Physical assets are non-negotiable.
The future of the global economy depends on the speed of this deleveraging. One path leads to a controlled settlement of obligations while the other path involves a chaotic breakdown of credit and trade that destroys the foundations of international commerce. Strategic foresight requires a recognition of the terminal status of the current system. The architecture of debt is failing. The reset is functional. Look closely.