When the Bond Vigilantes Sleep · A Five-Part Analysis
Part 2 of 5
The Game of Three Players
Every sovereign credit outcome is decided by the balance of power between government, bankers, and the public. When the deal breaks, the question is not whether someone pays — but who.
The Core Pattern
73%
of defaults occur under oligarchic or autocratic deals
Deal Migrations
41
countries changed deal type since 2000
Highest Conflict
US 2025
Conflict index: 87 — highest of any major sovereign
The Key Ratio
3.2×
Default risk under populist vs. democratic deals
Graphic 01
The Trilateral Framework
Calomiris & Haber's "Fragile by Design" insight: banking systems are not designed by economists — they are bargains struck between three players with competing interests.
Source: Framework adapted from Calomiris & Haber (2014). Data: Sovereign Credit Database, 91 countries, 1800–2025.
Graphic 02
The Four Deals
Every country's sovereign-banking relationship falls into one of four deal types. The type determines who gets credit, who bears risk, and who pays in a crisis.
Source: Sovereign Credit Database. Deal classification: Liberty >65 + Debt/GDP <80 = Democratic; Liberty >65 + Debt/GDP ≥80 = Populist; Liberty ≤65 + Tyranny <50 = Oligarchic; Liberty ≤65 + Tyranny ≥50 = Autocratic.
Graphic 03
Power Rivers
How the balance between government, public, and chaos shifts over time. Each band's width shows the relative power of each player. Smooth rivers mean stable deals. Turbulence signals regime change.
Source: Sovereign Credit Database. Stacked areas: Liberty (public power), Tyranny (government power), Chaos (power vacuum). Sum = 100 at each point.
Graphic 04
Deal Migration Map
Where countries have moved between deal types since 2000. The direction of migration — toward or away from democratic deals — is the single best predictor of sovereign credit trajectory.
Source: Sovereign Credit Database. Arrows show deal type at nearest year to 2000 → 2025. Only countries with data at both endpoints shown.
Graphic 05
The Conflict Index
A composite measure of trilateral tension: how much the three players' interests diverge. High conflict = unstable deal = mispricing risk. In the tristable framework, high-conflict states often stabilize in the hybrid trap zone rather than collapsing directly. The US now has the highest conflict index of any major sovereign.
Source: Sovereign Credit Database. Conflict index = (|ΔLiberty 10yr| × 0.4) + (Chaos × 0.3) + (|Debt/GDP − median| × 0.2) + (Deal instability × 0.1). Normalized 0–100.
Graphic 06
Who Pays When the Deal Breaks
The deal type predicts the crisis resolution pathway. In democratic deals, costs are shared. In autocratic deals, the public absorbs losses silently. In populist deals, future taxpayers pay. In oligarchic deals, everyone pays — except the oligarchs.
Source: Analysis of 203 default events, 1800–2025. Classification by deal type at time of default.
Graphic 07
Force Field Analysis
Eight countries dissected: the forces pushing toward and away from sovereign stability. Each arrow represents a measurable pressure — its length proportional to magnitude, direction toward stability or crisis.
Source: Sovereign Credit Database + Human Capabilities Index. Forces derived from Liberty trajectory, Debt dynamics, Yield behavior, Institutional quality, and External pressures.
Graphic 08
The American Exception
The United States is attempting something no consolidated democracy has survived: a simultaneous collapse in public power while maintaining the world's most complex financial system. The three-player balance has never been this unstable — the tristable framework suggests the US may be entering the hybrid trap zone, a third credit regime between democratic stability and autocratic collapse.
⚠️ METHODOLOGY NOTE: The PTI score of L≈48 reflects the author's real-time institutional assessment incorporating executive action pace through early 2026. Published indices score the US higher: Freedom House 83/100 (2024 report), V-Dem LDI ≈0.65–0.72 (scaled: ~65–72). The divergence reflects the PTI's faster update cycle, weighting toward institutional constraint erosion, and incorporation of events post-dating published index coverage. All claims should be evaluated under both the author's PTI and established indices.
Source: Sovereign Credit Database. US data, 35 observations, 1800–2025. Conflict index computed at each observation point.
Continued in Part 3: "Four Roads From Ruin"
When the deal breaks, countries face four resolution pathways: Extend & Pretend, Restructure, Austerity, or Devalue. Each path has a different cost — and a different winner among the three players.