I was reviewing the book the Big Debt Crisis the other day and realised the severity of the US’ debt level and the same goes for most other countries in the world. However, one question did come to my mind. If all of these countries are all indebted to each other, who’s the net lender?

So I did a bit of digging and prepared this newsletter for you all. This piece should contain info on where national debt comes from, who lends the money, why governments don’t usually pay it all back, what the big risks are, and how this ties into real estate cycles and investing in stocks. By the end, this should give one a clear guide on how to think, plan, and take small steps to protect one’s money.

I care because this affects jobs, schools, health care, home prices, interest rates, pensions, and the money in your pocket. When countries borrow too much, it can make life harder for almost everyone. I want you to feel less confused and more in control. Understanding this stuff helps you make smarter money choices.

Governments spend money on things like roads, schools, military, and help when disasters happen. When they spend more than they collect in taxes, they borrow money. The total amount they owe is called national or sovereign debt.

This debt is like an IOU. It comes in many forms, often as government bonds that promise to pay back interest and later return the amount borrowed (the principal).

It’s not a single person or some secret group. The lenders are a mix of many types of people and institutions:

For a long time, money used to be backed by gold or something physical. In 1971, that link was cut. After that, money became “fiat” — its value comes from trust in the government.

Governments learned they could borrow a lot by issuing bonds. If people trust the country’s economy and government, they buy those bonds. Over time, countries and companies and people borrowed more and more. Today global debt (government, corporate, household) is many times larger than the total value of everything produced in a year.

Governments often “roll over” debt. When a bond comes due, they issue a new bond to pay the old one. This keeps the debt level but doesn’t fully pay it off. As long as the government can pay the interest and people trust it, this system can go on for a very long time. Also when a country prints money, it reduces the value of their currency and hence the debt denominated in that currency too. This is how the US has been sustaining such high level of debt for so long. Let me explain.

When debt becomes too large, governments have only three options:

The U.S. will not default. And It will not tolerate austerity at scale.

So it chooses inflation and financial repression:

Debt doesn’t disappear. It becomes less valuable in real terms.

Interest payments on government debt are paid from taxes. Those payments often flow to banks, pension funds, and wealthy bondholders.

Over time this can increase wealth inequality: taxpayers fund interest that benefits those who already own financial assets.

Similar cases occur when the Federal Reserve prints money to buy government debt.

Real estate markets generally move in long cycles: boom, peak, bust, recovery. The long wave of roughly 18 years helps time major turning points.

During the boom phase, credit is loose, prices rise, and people build lots of property. Debt grows. The bust often comes when credit tightens or when a big shock hits. Banks can collapse, and property values fall.

The 18.6-year idea isn’t a magic number but a useful pattern. It warns us that after long booms come corrections. The memory notes mention this pattern and how leading indicators like credit growth and bank behavior foreshadow cycle turns.

For investors and homeowners, recognizing where we are in the 18.6-year cycle can help you make safer choices—buy when prices are low and avoid large debts near the peak.

If you find this article interesting, please let us know your thoughts down below here. We also have have other similar articles on our website too.

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Talk soon,

Ace — Smart X Capital’s Founder