➡ When the dollar weakens, assets we consider safe can fail first, leading to a loss of wealth in sovereign debt crises. This is due to three main factors: enforcement, where assets like real estate depend on a chain of institutions that can weaken; the difference between nominal and real value, where assets may seem to increase in value but actually just keep pace with inflation; and mobility, where assets are only safe if they don’t need to be moved. This situation can lead to long-term damage and loss of options, trapping people in a declining financial situation.
➡ The article discusses how high debt and changing rules can trap wealth, making it difficult to move or control. It suggests that traditional safe assets like real estate, stocks, and gold may not be as safe in a high debt environment. The article proposes a new framework for evaluating assets, considering their permission level, mobility, and how easy they are to extract from. It emphasizes the importance of understanding the structure of the system and adapting to changes, rather than waiting for a crisis or trying to predict one.

When the dollar breaks, assets you think are the safest don’t protect you. They fail first. And that’s not a theory. It’s how every monetary system in history actually unravels. So I want to show you how people actually lose wealth in sovereign debt crises, why so-called safe assets turn into traps, and why this time looks nothing like 2008. Now I’ve spent my career studying macro cycles, monetary systems, and how wealth actually survives stress. And if you stay until the end, I’ll show you the one mistake almost everyone makes right before things break. So let’s go.

All right, so jumping right in. Here’s why this actually matters to you, right? This isn’t some abstract macro discussion. This isn’t about winning an argument on Twitter. This directly affects your money. It affects your security and the options that you’re going to have over the next decade. And most people think that the risk shows up like as a sudden crash. Like one morning you wake up, the dollar’s gone, everything’s on fire, and it’s obvious what to do. But historically, that’s not how this plays out. The real damage happens quietly, over time, while people still feel safe.

Right now we’re in a sovereign debt environment. And that’s not an opinion, right? That’s the math. The US federal debt has passed $38 trillion. The interest on that debt is now one of the top three largest line items in the federal budget. It’s larger than the national defense in some quarters. Now, of course, the interest has to be paid before anything else. So when people say, we’re going to grow our way out of it, where the Fed’s just going to handle it, that ignores how these systems actually resolve themselves because they don’t resolve just by default, they resolve by debasement.

And debasement doesn’t show up as a headline event. It shows up as a higher tax. It shows up as shrinking insurance coverage, declining services, new rules, new fees, new friction. And that’s the part that most people completely miss because while everyone is watching the dollar, they’re not watching what’s happening to the assets they’re hiding in. You see, homes that look valuable on paper, they’re harder to ensure. Savings that are in interest are losing purchasing power. Assets that can’t move can’t exit. They can’t defend themselves when the rules change. And the cost of misunderstanding this isn’t short term volatility.

It’s long term damage. You don’t lose everything in a day, but you do lose optionality slowly. And by the time you realize it, you’re trapped. Okay, so that’s why this matters. But let’s take a look at sort of what I would call the official story. The story most people are told is pretty straightforward. The US dollar is the world’s reserve currency. It’s backed by the largest economy on earth. It’s backed by the deepest capital markets, the strongest military. And because of that, the US has more room to maneuver than any country in history.

When debt gets high, the thinking goes that you know, we have options. We can grow our way out of it. We can manage inflation. The Federal Reserve can raise rates, they can cut rates, they can expand the balance sheet, they can contract it. If things get really unstable, then money can flow into the dollar, not out of it. And of course, if inflation shows up, there are safe assets, right? Real estate, gold, Bitcoin, other hard assets, things that have worked before. Now, this framework didn’t come out of nowhere. It’s grounded in history, right? After World War II, the US came out as the dominant industrial and financial power.

Bretton Woods put the dollar at the center of the global system. And even after we left the gold standard in 1971, the dollar stayed dominant because global trade, oil markets and the financial plumbing were all dollar denominated. So when people say the dollar is not going to fail, what they really mean is that the systems that survived a lot, right? It survived inflation in the 70s, right? It didn’t kill it, survived the tech bubble in 2000, the great financial crash, like COVID didn’t kill it. So if you zoom out history, the logic seems pretty reasonable.

Smart people believe this story because parts of it are true. Reserve currencies don’t just collapse overnight. They don’t just disappear. And that’s exactly why this framework feels so comfortable. But this is where the problem actually starts. Okay, so there’s three cracks forming that break this story completely apart. And these are not hypotheticals or predictions. These are things that are already happening. So let’s start with crack number one, which is enforcement. Now this is the most important one. It’s the one that most people probably have never thought of. They completely ignore. Let’s say like real estate, for example, right? Real estate is not a self contained asset.

It only works if a whole chain of institutions work with it. You need courts, police, fire protection, insurance markets, permitting utilities. And if any of that chain weakens, the asset weakens, right? Even if the price hasn’t caught up yet. And this isn’t theoretical again, right? Like just take a look at what happened in California and the fires that we had up in Pacific Palisades. Let’s say that you had properties that were worth millions of dollars on paper, prime real estate, highly desirable zip codes, but then fire hits the state and the city fire protection broke down.

There was no water. There wasn’t enough manpower and the entire area burned down. Then insurance coverage disappeared or becomes prohibitively expensive. And then after the damage, homeowners can’t even rebuild. Permits got delayed, approvals got tied up, regulation stack on top of more regulations. So you end up in this situation where someone technically owns a valuable asset, but you can’t ensure it. You can’t rebuild it and you can’t realistically use it. So at that point, what do you actually own? This is the enforcement problem. Ownership isn’t just a deed. Ownership is the ability to use, defend and restore an asset when something goes wrong like this.

Now, real estate only feels like a hard asset because the state has historically been strong enough to enforce and support it. But in a sovereign debt crisis, in a sovereign debt environment, that same state is under pressure, right? The budgets are tight, services degrade, extraction increases, not because anybody woke up evil, but because the math forces it. And when that happens, assets that are fixed in place and dependent on enforcement become the easiest targets. So that’s crack number one. Crack number two is the difference between nominal value and real value. You see, most people look at prices only in dollars.

And of course, in dollar terms, assets look like they’ve done great. But dollars themselves, they’ve been changing. So to understand what’s actually happening, you have to change the measuring stick. Let me give you two examples. So first, let’s look at stocks. If you look at, say, the S&P 500, the benchmark, and you price it in dollars since around the year 2000. It looks like a massive success story. But if you price the S&P 500, not in dollars, but in gold, you get a completely different picture. One unit of the S&P costs roughly five to five and a half ounces of gold, which was an extreme valuation.

Today, that ratio is closer to about one to one and three quarters, same companies, same index, but a different unit of account. What that tells you is not that stocks crashed, but that over the last 20 plus years, stocks have lost purchasing power relative to hard money. So even with dividends included, a long term S&P investor has not kept up with gold from that peak, not a clean straight line. But in real terms, that dilution is obvious. Let’s look at housing. In dollar terms, US home prices their way up. But again, that’s in dollars.

What if we measure them in something else? If we take the median US home prices and compare them to the expansion of the US M2 money supply, the relationship is almost unmistakable as the money supply expanded, especially after 2010. And then dramatically after 2020 home prices rose right alongside, right? Not perfectly, not exactly, but closely enough that housing starts to look less like a wealth generator and more like an expression of monetary expansion. In other words, homes didn’t get more valuable. The measuring stick got bigger. So on paper, looking at the S&P 500 or homes, you feel richer.

But in real terms, you’ve mostly just kept pace with inflation, while taking on more leverage, more taxes, more insurance risk, and more regulatory exposure. That’s the second crack. All right, and crack number three is mobility. And let’s talk about this one. It’s important, right? Almost nobody really thinks through this one. You see, most assets people call safe are safe only if you don’t have to move. They live inside one jurisdiction under one set of rules, one enforcement regime. And that includes, say, physical gold, right? Gold is valuable, of course, but it’s not very mobile, right? Especially in a crisis.

In the US, in most countries, you’re required to declare anything over $10,000 if you cross the border with it. That applies to cash, that applies to gold, it applies to valuables. And in a real crisis, those rules tighten up, not loosen. And we’ve seen this before. Like for example, when families had to flee Iran during the 1979 revolution, many of them couldn’t take their gold with them. The borders were closed, assets were seized, capital controls went up overnight. Same thing in countless other crises of sense, people technically own their assets, but they couldn’t move them.

And when you can’t move your wealth, you don’t control it. Now bring that back to today. When people are forced to leave countries, whether because of political instability, financial collapse, capital controls, they don’t flee with gold bars, they flee with what they can move. This is why capital controls matter so much. They don’t announce collapse, they quietly trap capital, limits on transfers, limits on withdrawals, reporting requirements, forced conversions, everything still looks legal, it looks orderly, but the mobility is gone. And without mobility, you don’t have optionality. So even assets that hold value in theory can fail you in practice.

If they can’t move when the rules change, that’s the third crack. And when you zoom out and you see these three cracks together, you realize that this isn’t random, right? This isn’t new. This is a pattern. Sovereign debt crises don’t usually end with dramatic collapse. They end with slow extraction. Empires don’t fall first, they hollow out first. The currency keeps working, markets keep trading, life looks kind of normal. But underneath it all, the system starts leaning harder. It leans on whatever can’t move, whatever can’t resist, whatever still looks valuable on paper, fixed assets, permissioned assets, assets tied to local enforcement.

And we’ve seen this again and again, high debt leads to more regulation, higher taxes, capital controls, and shrinking services. And again, it’s not all at once. It’s not an event. It’s piece by piece. And every time the same mistake gets repeated. People prepare for collapse when the real danger is compression. They stockpile assets that did well in the last cycle without realizing that the framework has changed. So they end up holding wealth that looks safe, it feels conservative, and is quietly being squeezed from every side. That’s the pattern, right? It’s not, it’s not about panic or chaos or pressure.

Now, once you understand that, you’ll stop asking, you know, will the dollar fail? You’ll start asking a much better question, like what breaks first when the system is under stress? Okay, so if the old story is breaking, we need to talk about the framework behind it, because this isn’t about picking the right asset, it’s about using the right lens. The old framework assumes stability, it assumes the rules stay the same. It assumes that enforcement is reliable, it assumes that the currency holds value well enough over time. Now under those conditions, traditional safe assets, they make sense, right? Real estate, stocks, bonds, gold, that framework worked for decades, which is why people trust it.

But here’s the problem. We’re no longer in a low debt, stable system environment. We’re in a sovereign debt environment. And in that environment, the assumptions behind the old framework, they all start to fail. So then you need a new framework. The new framework doesn’t ask, has this asset been safe before? It asks a different question. First, how permissioned is it? Does this asset require the state to enforce ownership, to approve usage or allow transfer? Because the more permission it needs, the more exposed it is when the system is under stress.

Second, how mobile is it? Can it move across borders? Can it exit a system when rules change? Or is it fixed in place subject to, you know, whatever comes next? Mobility isn’t just convenience. Mobility is optionality. And third, what unit of account are you measuring it in? Now, if the price is rising because the measuring stick is shrinking, that’s not wealth creation. So you have to ask whether it preserves purchasing power relative to scarce goods and real inputs. And finally, how easy is it to extract from? Is it visible? Is it taxable? Is it trapped? Because every sovereign debt cycle, governments don’t go after what can move.

They go after what’s easy. So this framework isn’t about predicting collapse. It’s about understanding pressure. When debt is high and options are limited, systems don’t break evenly. They squeeze what’s fixed, what’s permissioned, and what feels safest on paper. Okay, so with that framework in place, let’s apply it to what we’re seeing right now. Okay, now let’s actually apply this framework because this is where a lot of confusion gets cleared up. So let’s start with Bitcoin, right? People argue about Bitcoin’s price all the time. Like, that’s not the interesting part here. What matters is how it scores under this framework, right? It doesn’t rely on local enforcement.

It doesn’t need courts to validate ownership. It doesn’t need permission to move. It’s measured in its own unit of account, not one that can be expanded at will like the dollar. And that’s why it behaves differently. That’s why it’s completely different under stress, not because it’s immune to volatility, but because it’s structurally outside the system. Now look at traditional markets, stocks, bonds, real estate, they still function, but they’re increasingly driven by policy, by interest rate, by liquidity programs, regulatory decisions. And that brings us to a very important point. This is not 2008.

In 2008, the problem was leverage and solvency, right? Banks were overextended, credit froze, assets collapsed fast. That was a crash. Today, the problem is much different. Today, the system is solvent, but it’s overloaded. Debt’s too high, rates can’t stay high for that long, and growth can’t outpace obligations. So instead of a sudden collapse, you get something else. You get compression, asset prices don’t necessarily crash, they get pinned, real returns start going down, they shrink and policy becomes more aggressive. Volatility shows up in bursts, instead of breaks. And we can just look at government behavior, right? When debt gets this large, policy stops being about optimization and starts being about control, higher taxes, more reporting, more friction, not because of ideology, but because the math leaves just fewer choices.

So when you put all this together, Bitcoin’s behavior, asset price inflation, policy pressure, capital controls becoming more normalized, it’s not chaos. It’s a high debt system under stress, doing exactly what these systems always do. Okay. So with that in mind, what does this actually mean for you? Well, what it certainly doesn’t mean is trying to time a collapse, right? It doesn’t mean predicting the next crisis. And it definitely doesn’t even mean panicking, right? Those are all reactions. And reactions, they’re usually wrong or expensive. What it does mean is that the way you evaluate risk has to change.

In this environment, volatility isn’t the real danger. Volatility is visible, the volatility is priced in, the real danger is structure, right? Assets that look stable on paper, but depend heavily on enforcement, on policy, on weakening currency, that’s where people get trapped. So instead of asking, is this asset conservative, or has this worked before, you start asking better questions. What assumptions does this asset rely on? What breaks if the rules change? What happens if taxes rise, if insurance disappears? What if capital movement gets restricted? Because in a compression environment, the system doesn’t take everything at once.

It takes a little everywhere, over time, higher taxes here, lower real returns here, more friction, less optionality. And most people don’t notice it until they realize they have fewer choices than they thought. So the goal here isn’t to avoid risk entirely, because that’s impossible. The goal is to avoid being stuck, to favor optionality over rigidity, structure over yield, resilience over appearances, because in this kind of cycle, wealth doesn’t disappear overnight, but it does get boxed in. Okay, so with that perspective, let’s talk about who this is really for, and what the next step actually looks like.

Okay, so while most people, they’re still waiting for a crash, they’re watching headlines, they’re looking for a moment when everything finally breaks. But serious investors, they don’t wait for events, right? We study the structure, we understand that the biggest losses, they don’t come from panic, they come from being positioned for a world that is no longer exists. And this isn’t about being bearish, it’s not about being bullish either. It’s about recognizing that the rules are changing, slowly, maybe unevenly, and mostly without announcement. People who miss that, they keep optimizing for yield, for safety, for what worked last time.

People who see it though, optimized for optionality, for mobility, for resilience. That’s the difference. The next question isn’t what do I buy? It’s what else am I misunderstanding? So in this next video, I break down how this same compression dynamic is playing out across markets right now, why things aren’t crashing, why they’re melting, and why that matters more now than people realize. So watch that next because this story doesn’t end right here. And I’ll see you over there. [tr:trw].

See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.