Debt and the America Party

Third parties are usually a joke in America, background noise you tune out. But when the world's richest man declares war on both parties, suddenly the joke isn’t funny.

Elon Musk, net worth somewhere in the stratosphere, announced the formation of the America Party on Saturday, July 6th. This wasn't random rage. It came just hours after Donald Trump signed a new federal budget that independent analysts estimate adds $3-5 trillion to the federal deficit. For Musk, it was betrayal.

Just a few months ago, Musk had entered Washington with swagger, promising to slash "at least $2 trillion" in government spending through his Department of Government Efficiency (DOGE). He brandished a chainsaw on stage, vowing to cut the debt.

But reality crushed those ambitions. DOGE managed only $170 billion in cuts – less than 10% of the target. Musk discovered what experts knew: while government waste exists, the real spending drivers – defense, Medicare, Social Security – remain politically untouchable. Politics is hard.

Musk knows the same debt cycle that destroyed every empire in history, Rome, Britain, France, all the civilizations that used to matter, now threatens America. And neither major party will stop it.

Yet dismissing Musk's new party as a billionaire's tantrum would be a mistake. This is the strategist who mobilized voters for Trump like a master marketer moves consumers. As Peter Thiel once warned: you don't bet against Elon Musk. Unless you enjoy losing money.

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Musk is risking billions in federal subsidies and contracts vital to his businesses, essentially burning his credit cards to protest America's crippling credit card debt. His strategy is surgical, not quixotic. "2 or 3 Senate seats and 8 to 10 House districts," then leverage those votes as kingmakers in budget fights, a tactic small European parties and Gilded Age American third parties perfected.

The Debt Bomb That Triggered Everything

Maybe he's right to worry. America's debt has exploded like a tech startup's valuation during a bubble in the past few years. We're already over 120% of GDP. Around the same level that we were at in World War 2, except without any world wars.

Interest payments on debt now exceed defense spending and it is growing.

If this trajectory continues, debt service will crowd out all other government functions, from social programs to infrastructure investment. The worst-case scenario looks something like Pakistan, where 50% of the federal budget goes to debt servicing, leaving no resources for essential services or development.

Most importantly, the debt also threatens America's reserve currency status, the foundation of its global power. While the dollar still dominates international trade, alternatives are starting to gain ground. Have you looked at the price of Gold and Bitcoin lately? They are shooting up. It’s not a coincidence. In fact Nassim Taleb argues that gold (very lindy) has effectively become the reserve currency. Bitcoin trades above $115,000 and growing.

Trump's approach differs fundamentally from Musk's cuts-first strategy. His plan is to grow our way out, create new industries, expand the economy, outrun the debt through prosperity

But if his plan doesn’t work, there’s a certain level of debt where things can get bad. Bad as in the US won’t actually be able to raise funds to pay debt. Taxation won’t be enough. This level is somewhere around 170-200 percent of debt to GDP. Strange things start happening at that level. Here’s a good video on that scenario.

This isn't uniquely American paralysis. France confronts massive pension obligations while citizens riot over retirement age increases. The UK's £2.4 trillion debt represents their highest burden since World War II.

America Born From Britain's Debt Crisis

Debt and America have always gone together.

America owes its existence to a debt crisis. Britain's decision to tax the North American colonies after 1763 stemmed directly from financial catastrophe. The Seven Years' War, the first modern world war, doubled London's national debt to over £130 million while saddling Britain with the peacetime cost of policing its vast new empire.

British Parliament desperately needed revenue to service this debt, like a gambling addict needing money to pay back the mob. They turned to the colonies with taxes, the Sugar Act, Stamp Act, Townshend duties, demanding Americans contribute to their own defense. American Colonists viewed these taxes as illegitimate and protested "taxation without representation." Britain's fiscal emergency became the political rupture that created the United States. The rest is history.

Debt created America. Now debt may destroy it. The circle of life, capitalism edition.

The Universal Pattern: How Debt Kills Empires

Every empire follows the same tragic arc, like a prestige television series that runs too many seasons. War or strategic overreach spikes spending, governments borrow beyond their means, rising interest payments consume the budget, and economic pain erodes legitimacy until external rivals or internal rebels finish the job.

Britain's empire provides the clearest example. World War I pushed national debt from 30% to 140% of GDP. By the mid-1920s, interest payments consumed 44% of government spending, more than defense itself. World War II delivered the killing blow, debt reached 250% of GDP in 1945. Britain survived only by accepting a $3.75 billion American loan. London granted independence to India the very next year. Game over.

• Habsburg Spain couldn't match the cost of fighting France, Dutch rebels, and Ottomans simultaneously. Madrid defaulted six times between 1557 and 1647.

• The Dutch Republic emerged from the Fourth Anglo-Dutch War with 88% of tax income going to interest payments. This fiscal straightjacket left them vulnerable to French invasion in 1795. Even the Dutch, who invented modern capitalism, couldn't escape the debt trap.

• The Ottoman Empire defaulted in 1875 after heavy borrowing for the Crimean War. The resulting European debt administration drained fiscal autonomy until the empire's dissolution. Death by a thousand cuts, administered by European bankers.

America's Turn?

Democracies have a hard time cutting debt. This is the big problem Musk and his new party will have to encounter. People vote their interests, and those interests include things like tax cuts, entitlement programs, services and general welfare. There’s also a feedback loop between the two parties. Republicans cut taxes on everyone, than the Democrats come into office and remove those tax cuts for everyone except the rich. The debt keeps building.

That doesn’t mean America fading because of this debt crisis is inevitable. Major powers go through debt crises all the time and survive them, like celebrities going through rehab, most make it out, but the addiction always comes back. Britain survived nineteenth-century debt problems before World War II finished their imperial ambitions like a final overdose. Other empires weathered several fiscal storms before the final one sank them.

We tell ourselves we're different. We have technology. We have innovation. We have the world's reserve currency. Surely that makes us immune to the forces that toppled Rome and Britain and every other empire that thought it was special. But debt is how this whole ride ends in the end.

In This Newsletter

1) Ancient wisdom vs. modern debt traps: What 3,000 years of history teaches about compound interest and personal debt

2) The Modern Jubilee: PPP loans as proof that massive debt forgiveness is possible

The Age of Personal Debt

Imagine telling a Babylonian scribe that, three millennia on, ordinary people would voluntarily sign up for life‑long interest bills just to get a roof, a degree or a phone. To most ancient societies that would have sounded like madness, because debt was the fastest road to bondage.

But we live in a world where personal debt is necessary for middle class life. National debt is upstream from personal debt. It’s the water we swim in. We think of it as normal. But it’s an extraordinary change from most of history.

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