Europe's Debt Ponzi Scheme 2.0—Default or Forced Loan | Martin Armstrong

During the Panic of 1893, which became a global contagion, Italy couldn't roll over its short-term debt, as it was unable to sell new bonds to pay off maturing ones. When faced with circumstances similar to what we see today, Italy did not officially default in the classic sense of failing to pay. Still, it executed a coercive debt restructuring that is widely considered a selective default or soft default in 1893–1894. This is what we refer to as a forced loan.

» We are living in a perpetual Ponzi scheme. « 

 

Italy was facing a run on its short-term debt and unable to roll over the maturing paper because there were no buyers. The Italian government, led by Prime Minister Francesco Crispi, did not formally declare a default. Instead, it passed a law (Legge 11 luglio 1894, n. 386) that forcibly converted the short-term Buoni del Tesoro into a new long-term bond. The law mandated that holders of the short-term Treasury notes could not be repaid in cash upon maturity. Instead, they were forced to exchange their maturing short-term paper for a new long-term government bond, called the “Rendita Italiana 5%” (5% Italian Annuity).

Where inmates run the asylum, insanity rules.

This new bond had a 5% coupon but was issued at a price below par (effectively giving a higher yield to compensate, somewhat, for the forced nature of the deal. Crucially, it was a perpetual bond, meaning it had no final maturity date.

The Italian government unilaterally changed the terms of its debt. Investors lent money for 30 days, expecting to be repaid in cash at the end of that term. The government broke that promise. Investors had no choice. They could not get their cash back; their only option was to accept the new long-term instrument. While they received a new security, it was illiquid (perpetual), and its value was uncertain. This action caused significant financial losses for many Italian banks and citizens who held the paper.

I would expect that Europe will do this when it can no longer issue new debt to pay off its old debt. We are living in a perpetual Ponzi scheme. There is only one way this ends, and that is a default or a forced loan. 
 

Reference:
Martin Armstrong (August 28, 2025)  - What Happens When Governments Cannot Sell Their Debt?

 

» Europe needs war as a distraction, and stablecoins are, in fact, war bonds. « 

 Martin Armstrong, August 28, 2025.

 

See also:

Martin Armstrong (July 17, 2025) - Trump’s GENIUS Act Sets the Stage for US CBDC.

 Martin Armstrong (March 21, 2025) - Europe's Date with Destiny: Collapse by 2029 is Inevitable.

Martin Armstrong (March 1, 2025) - Europe Will Go to War around May 15, Lose, and Euro Will Become Extinct.

TPR (March 11, 2025) - The ECB's Dystopian Digital Euro Dictatorship Set to Launch in October 2025.  

Major Power's Military Expenditure │ 1830 - 2007

Source: OurWorldinData.

Max Roser and Mohamed Nagdy (2016) - There are two ways in which we might want to measure military spending; the first way is spending in real terms and the second is as a percentage of GDP. Military expenditure in real terms is important since the absolute level of expenditure matters for the outcome of war. The US spending 10% of its GDP fighting a war is likely to defeat a low or middle income country spending 50% or more of its GDP. Yet, military expenditure as a percentage of GDP allows us to get a handle on the priorities and ambitions of a country. The military expenditure of a country is largely determined by the whether it is at war or not. Outside of wartime, countries continue to spend substantial sums on maintaining their military capability. [Above] are two time series plots of military expenditure in real terms; the first is in thousands of 1900 UK pounds for the period 1830-1913, the second is in thousands of 2000 US dollars for the period 1914-2007. 

The UK’s military spending as a percentage of GDP in peacetime fluctuates around 2.5%, in times of war however, military spending rises dramatically. At the height of the Second World War, the UK was spending around 53% of its GDP on its military. Such a dramatic rise is consistent with the existential danger faced by the UK during the Second World War.