Part 3: Four Roads From Ruin — Governance Topology

01 Four Roads 02 Crisis Map 03 Trajectories 04 Serial Default 05 Cost Matrix 06 Recovery Clock 07 Liberty & Default 08 US Scenario Cone

Default Episodes

203

across 49 countries, 1800–2025

Most Common Road

Extend

46% of episodes — kick the can

Fastest Recovery

2.3 yr

Restructure pathway (S. Korea '97)

US Current Road

Extend

Debt/GDP 126%, yields suppressed

Graphic 01

The Four Roads

A visual taxonomy of sovereign crisis resolution. Every default, restructuring, or fiscal crisis in the dataset follows one of four pathways — each with a distinct logic, a different winner, and a different cost horizon.

Source: Sovereign Credit Database, 203 default events. Classification based on post-crisis policy mix, debt trajectory, and currency behavior.

Graphic 02

Crisis Map: 225 Years of Sovereign Default

Every documented default event plotted by year and liberty score. The pattern is clear: defaults cluster below the Event Horizon ridgeline — concentrating in both the hybrid trap zone and the tyranny well — and they come in waves — synchronized by global credit cycles.

Source: Sovereign Credit Database, 203 default events, 49 countries, 1800–2025. Bubble size: Debt/GDP at time of default.

Graphic 03

Recovery Trajectories

What happens after the crisis? Liberty, debt, and yield trajectories for key episodes — indexed to the crisis year. The path chosen at T=0 determines the shape of everything that follows.

Source: Sovereign Credit Database. Indexed trajectories: T=0 at crisis year, tracking through T+15 years where data available.

Graphic 04

The Serial Defaulters

Some countries default once and learn. Others are trapped in a cycle — the same road, the same crash, decade after decade. Venezuela: 12 defaults. Argentina: 9. The question is whether the US has joined this club.

Source: Default Catalogue, 203 events across 49 countries, 1800–2025.

Graphic 05

The Cost Matrix

Each road has a price tag. Restructuring is cheapest long-term but politically hardest. Extend & Pretend is easiest politically but compounds cost exponentially. The matrix quantifies the trade-off.

Source: Analysis of post-crisis outcomes. GDP cost = cumulative output loss vs. trend. Liberty cost = net change in liberty score. Time = years to pre-crisis yield level.

Graphic 06

Recovery Clock

How long does each road take? Measured from crisis year to the point where yields return to pre-crisis levels. Some roads are short and painful. Others are long and corrosive.

Source: Sovereign Credit Database. Recovery measured as years until yields return within 200bps of pre-crisis level.

Graphic 07

Liberty Score at Default

The relationship between political freedom and default risk is not linear — it's trimodal. Democracies rarely default. Autocracies default strategically. And the hybrid trap zone (L=20-55) constitutes a third distinct credit regime: countries with elevated but stable spreads, reduced institutional quality but functional markets, and default risk that is chronic rather than acute.

Source: 203 default events matched to liberty scores. Histogram bins: 10-point liberty ranges.

Graphic 08

The US Scenario Cone

Four possible futures for the United States, weighted by historical precedent. The road already chosen — Extend & Pretend — has a known destination. The question is whether a course correction is still possible before the country settles permanently in the hybrid trap zone or descends into the tyranny well.

⚠️ 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: Projection based on Sovereign Credit Database patterns. Probabilities from historical base rates of 91 countries at comparable positions.

Formal Probability Estimation: Four US Scenarios

The scenario probabilities are derived from three independent data sources in the Governance Topology dataset: (1) the stage transition matrix (N=1,565 transitions, 91 countries), (2) the Kaplan-Meier survival analysis (N=579 spells), and (3) the GMM component weights (K=5 BIC-optimal model, N=1,656 observations). The US currently sits at L=48 (stage S6, Liberty 35-49). Each scenario's probability is estimated by weighting the relevant base rates.

Scenario	P(scenario)	Empirical Basis	Key Assumption
Extend & Pretend	0.45	S6 5-yr retention = 69.1% (Kaplan-Meier). Transition matrix: S6 stays or adjacent moves account for majority of outcomes. Hybrid zone median survival = 9 yr, consistent with "muddling through." GMM low-hybrid component (C3, mean=32.4) weight = 0.239.	Fiscal dominance continues; no external shock forces resolution. The hybrid zone is absorptive per the survival data (median S6 duration = 9 yr).
Devalue / Inflate	0.28	S6 downward exits: P(S6->S7) = 23/84 = 27.4%, P(S6->S8) = 20/84 = 23.8%. Combined downward = 51.2% of exits. GMM tyranny components (C1+C2) weight = 0.281 + 0.177 = 0.458 of global distribution. Adjusted for US reserve-currency buffer: ~0.28.	Dollar crisis triggers inflationary spiral. Reserve currency status delays but does not prevent. Historical devalue episodes (Russia '98, Turkey '18, Venezuela '17) all from comparable liberty positions.
Restructure	0.15	Transition matrix: P(Partly Free->Free) = 42/456 = 9.2% per period. S6 upward exits: P(S6->S4 or higher) = 4/84 = 4.8%. Adjusted upward for US institutional depth and historical precedent (post-Watergate recovery): ~0.15.	Political realignment produces reform coalition. Requires institutional rebuilding comparable to post-WWII or Reconstruction. Historically exceptional but not unprecedented for the US specifically.
Austerity	0.10	Of 203 default episodes in dataset, ~15% followed pure austerity path. Austerity requires external forcing (IMF conditionality, bond market pressure). US as reserve currency issuer makes this the least likely road. S6 stage has no historical austerity precedent at this income level.	Bond market forces fiscal adjustment absent political will. Requires yield spike sufficient to force Congressional action. UK 1976 / Greece 2012 analogy, but US structural position differs.
Other / Black Swan	0.02	Residual probability for scenarios outside the four-road taxonomy: external military shock, technological disruption, pandemic-level event, or a trajectory not captured by historical precedent.	Catch-all for tail risk. No specific historical analog required.
Total	1.00

Uncertainty disclosure: These probabilities are estimates, not precise predictions. They are conditioned on the PTI score of L=48 (which diverges from published indices — see methodology note above). Under published index scores (L~65-83), the Restructure probability would increase substantially and Devalue would decrease. The transition matrix has limited resolution for countries with US-level institutional legacy; base rates drawn from a global sample of 91 countries may not fully capture US-specific structural advantages (reserve currency, institutional depth, federal system). Expected value: E[L₂₀₄₀] = 0.45(22) + 0.28(12) + 0.15(78) + 0.10(60) + 0.02(48) = 31.2.

Continued in Part 4: "The Central Banker's Independence"

Central bank independence is the last institutional guardrail between fiscal dominance and sovereign crisis. When it falls, the Extend & Pretend road becomes a one-way street.