According to James Burnham's "Iron Law of Oligarchy," systems eventually serve their rulers. In government, deficit spending and subsidies are used to secure votes and donor funding, meaning leaders are incentivized to maintain the flow of money, even if it's wasteful or fraudulent, to ensure their own political survival.

Unlike past crises like 2008, the coming debt sustainability crisis will be different because the government's own balance sheet is the source of the instability. This means it will lack the capacity to bail out the market in the same way, fundamentally changing the nature of the crisis.

Markets react sharply to clear, quantifiable events like tariff announcements but are poor early-warning signals for gradual, harder-to-price risks like the erosion of democratic norms. This creates a dangerous complacency among investors and policymakers.

Despite recent concerns about private credit quality, the most rapid and substantial growth in debt since the GFC has occurred in the government sector. This makes the government bond market, not private credit, the most likely source of a future systemic crisis, especially in a rising rate environment.

Deteriorating debt fundamentals are a known long-term risk, but markets often remain complacent until a specific political event, like an election or leadership change, acts as a trigger. These upheavals force an immediate re-evaluation of what is sustainable, transforming abstract fiscal worries into concrete, costly market volatility.

Beyond headline-grabbing scandals, the most insidious impact of a kleptocratic administration is its refusal to enforce existing laws, from financial regulations to anti-corruption acts. This quiet dismantling of the legal framework fosters a culture of impunity where bad actors thrive, ultimately harming ordinary people and destabilizing the entire system.

The underlying math of U.S. debt is unsustainable, but the system holds together on pure confidence. The final collapse won't be a slow leak but a sudden 'pop'—an overnight freeze when investors collectively stop believing the government can honor its debts, a point which cannot be timed.

The massive fraud in Minnesota is framed not as mere incompetence but as a deliberate political machine. By allowing entities to siphon billions, politicians secure a loyal voting bloc and campaign donations. The fraud becomes a feature, not a bug, of a self-perpetuating system where accountability is discouraged.

Investors seek a sweet spot where government fiscal laxity is high enough to generate attractive yield premiums but not so extreme that it threatens the system's viability. This creates a market for lending to slightly imperfect, high-quality credits.