How Countries Go Broke: The Big Cycle

The foundational concept in How Countries Go Broke, the “Big Debt Cycle” describes the long-term pattern through which economies expand, accumulate debt, reach unsustainable levels, and then deleverage or restructure. The book distinguishes it from the shorter cycle that affects individual businesses, emphasizing that the Big Debt Cycle spans decades and determines the rise and fall of nations. This model provides the analytical framework for all the book’s conclusions, illustrating how credit creation, asset inflation, and monetary responses interact across generations to shape global orders.

How Countries Go Broke defines a “beautiful deleveraging” as a deleveraging, or debt reduction process, that balances austerity, debt restructuring, wealth transfers, and money creation. The term captures the book’s central policy ideal: that governments and central banks control excesses through coordination and pragmatism rather than denial or coercion. Japan’s eventual adoption of monetary expansion in the 2010s and China’s efforts after 2021 exemplify attempts at this delicate balance.

Central bank independence is the degree to which a nation’s monetary authority operates free from direct political control. In How Countries Go Broke, central bank independence is a vital safeguard against inflationary financing and currency devaluation. Threats to central banks’ independence—especially when political pressures mount—serve as early warnings of declining confidence in money and government debt.