AI boom risks global financial crash, warn central bankers

https://www.telegraph.co.uk/business/2026/06/28/ai-boom-risks-global-financial-crash-central-bankers-warn/

by b-man • 24 days ago

159 213 24 days ago

telegraph.co.uk

AmazingEveryDay• 24 days ago

Is there any comprehensive list of historical warnings from central bankers?

ozgrakkurt2• 24 days ago

I just checked 2007 and 1999 reports [1] a a bit and doesn't seem like they made such obvious warnings at those times.

I don't know much about economy and I just did some ctrl + f skimming, but this new 2026 warning is obviously more clear to me.

[1] https://www.bis.org/annualeconomicreports/index.htm?annualec...

californical2• 24 days ago

I think we also would need to know how many of these warnings they gave where nothing bad happened

da-x• 24 days ago

You're on the spot, it can certainly be a self-defeating prophecy

https://en.wikipedia.org/wiki/Self-defeating_prophecy

rawgabbit• 23 days ago

The BIS report actually compares the AI boom to the dot Com bubble and earlier manias.

"Historical episodes of investment booms offer instructive parallels (Graph 11.C). The canal mania of the 1830s, the British railway mania in the 1840s, the electrification exuberance of the late 1920s (roaring 20s) and the dotcom boom of the late 90s all shared one common trait: a genuine technological breakthrough that attracted capital in excess of what commercial returns could ultimately justify. These episodes ended with an eventual reversal in investment, inducing economy-wide recessions. The scale and pace of the current AI investment boom accompanied by expectations of large productivity payoffs bear resemblance to these precedents, highlighting potential downside risks in the near term."

forgetfreeman2• 24 days ago

Pretty much. Given the levels of investment in capital and research if AI companies actually hit what they're aiming at they'd have to collapse the labor market to recoup, bricking the economy in the process. Given the levels of outside investment inflating valuations, if the bubble pops it's 2008 all over again. There's this incredibly narrow window of "just useful enough to extract rents" where everything doesn't go to shit.

senordevnyc4• 24 days ago

Extract rents? I don’t think you’re using the term rent correctly here.

chowells2• 24 days ago

No, it's correct. The best (short-term) case is that they become eternal parasites. If they fail to do that, they'll bring a lot down with them when they fall.

mountainriver2• 24 days ago

Meanwhile AI has gotten so good it can just about one shot a SaaS app.

I’m not worried about it…

byzantinegene6• 24 days ago

that is not production ready

adamtaylor_13• 24 days ago

Eh, that's not been my company's experience. Error reports are down. Performance is up clients are happy.

Pretty soon we're going to have to reckon with the fact that AI writes better code than us.

epgui• 24 days ago

What does that have to do with the article?

georgemcbay• 24 days ago

Meanwhile AI has gotten so good it can just about one shot a SaaS app.

There isn't a direct correlation between AI improvement or stagnation and whether or not the amount being spent by AI labs and the associated ecosystem will result in a financial crash.

Look into the history of railroads and the internet itself to see how massive levels of investment can result in economic crashes even when the thing being invested in produces real, widespread societal value.

One could argue that one of the nightmare economic scenarios for AI is actually that it gets too good too fast and results in a wipeout of the white collar worker that we are currently nowhere near ready to deal with given how propped up our economy is on consumer spending.

kingleopold2• 24 days ago

difference this time is they have "fiat money" and money printer. Market and all inv. bankers knows that in major crash they will print unlimited amounts so back to same prices or near them. printer is still printing and it's only goes to selected investments

samrus5• 24 days ago

Yeah but the investments arent aiming for churning out SaaS apps. Its to automate large swathes of intellectual labour. Of which only SWE has been cracked yet. There is a question mark as to if the others will crack. If they arent then these investments will collapse from speculation down to reality. That possibility is what is being discussed here

As to whether that will happen, I think that risk is real. Because claude code isnt made by the generalozed capabilities of the tech but by good old non-generalozable hueristics and rule based engines. I dont think that will scale to other feilds at the factor these investments assume. Its the bitter lesson again. It scales with deliberate and specific design, not data, so it wont scale

We learnt this with ibm watson. Deepblue achieved chess supremacy but the last mile wasnt data driven, it was heiristic driven, and so watson, its successor, couldnt scale/generalize.

My prediction is that this speculation on LLMs with harnesses will collapse since they wont scale. We'll have another winter where the reasearchers will be leaft alone long wnough to come up with the next breakthrough (probably game theory based data driven agency) which might then create what this hypecycle is speculating

byzantinegene6• 24 days ago

you mentioned a very good point about scalability. we're seeing alot of productivity gains, but only from SWEs, which are but a very small segment of the global economy. all other economic use cases require thorough last-mile development and iteration that is not too different with current automation tools.

tonmoy• 24 days ago

There’s argument to be made that SWE hasn’t been cracked either. The latest models are great at coding medium sized applications, but figuring out the requirements and consolidation of domain knowledge is something still lacking

whateverboat• 24 days ago

We will find out how much of work is given to people just so that there's a person/company associated with a technical decision. I personally think this might be quite high.

surgical_fire• 24 days ago

Of which only SWE has been cracked yet.

When did that happen?

mountainriver2• 22 days ago

You are really comparing this to Watson??

If you can fully automate software you are fully missing the point of everything you can do with that and how valuable it is

Grombobulous3• 24 days ago

So good at it that I’m right now in the process of building instead of buying.

Here’s how that plays out in the economy:

- My company spent $50 on my tokens to build this internal tool

- Anthropic spent $XXX to deliver those tokens to me.

- The company I was going to buy the tool from lost $XX,XXX per year that I would have paid them.

I dunno, kind of sounds like the economy just got smaller.

I could usually accept the idea that software getting cheaper generally increases demand for software and expands the economy surrounding it, but I’m not sure if we have precedent for what happens when software becomes positively worthless.

loeg• 24 days ago

Are you putting the $XX,XXX-50 under your mattress or investing it in something else productive?

RRWagner• 24 days ago

And if the company didn't need $XX,XXX*0.90 (or more) that you would have paid them to further develop their product and stay in business? If that other company now paid their own $50 in tokens? Maybe the overall flow of money in the economy went from $XX,XXX (you) + $XX,XXX (them) + $(not much, AI didn't exist yet) equals or is greater to $50 + $50 + ($xbillions in AI)? Dunno.

overgard5• 24 days ago

While I don't agree with your premise at all, even if it could one shot a SaaS product (a statement so vague it's meaningless) I don't think there's much of an argument for why that's economically useful. A lot of SaaS has free software/open source equivalents anyway (how else do you think the clanker's are able to plagiarize it?). People still pay for Office even though you could easily use LibreOffice, or GitHub when you could self host Forgejo. It's like when anthropic made a big deal out of making a broken compiler. Neat, so, after ingesting all of open source and burning a trillion tokens you ended up with something worse than what's already out there; and instead of doing something economically useful like giving a person money to build it or supporting the open source ecosystem, you're just wasting energy on datacenters.

triceratops• 24 days ago

Why even build SaaS apps? AI can just do what a SaaS app can

DennisP• 24 days ago

https://archive.is/xMD3t

eric_khun• 24 days ago

why am i looping back in the captcha when confirming?

wrs• 24 days ago

I think that’s what happens if you’re on Cloudflare DNS, due to a nerdy dispute they’re having with archive.is.

SilverElfin• 24 days ago

Yes now that everyone’s equity is tied to overvalued assets, it’s a problem because it can have economy wide effects like in the subprime mortgage crisis.

thot_experiment2• 24 days ago

Surely this time we'll learn our lesson and disempower the parasites that create these situations, right? Right guys?

rubyfan• 24 days ago

Next time it’ll be different though

Mistletoe• 24 days ago

"I have a feeling in a few years people are going to be doing what they always do when the economy tanks. They will be blaming immigrants and poor people." -Mark Baum, The Big Short

The scapegoats for this plan never change and have never changed in human history.

expedition323• 24 days ago

When the world goes to shit society does two things: search for a strong leader and build temples.

Dying with dignity is never in the cards.

thelastgallon4• 24 days ago

Not this time. This time, we'll bail out them out because they are too big to fail and they need the money and assets. Next time we'll definitely get them. Pinky promise.

JumpCrisscross3• 24 days ago

we'll bail out them out

If it’s after the midterms, I’m doubtful. The AI leaders—apart from Dario—have gone particularly partisan. We also have a lot more post-crisis tooling that lets us wipe equity even when bailing out. See, for example, the ‘23 bank failures.

jeffalyanak• 24 days ago

Even if one thinks we need to bail out the _companies_ to prevent more severe economic collapse, we could still arrest plenty of those who were in charge of these organizations.

Alex_L_Wood• 24 days ago

Which parasites?

henry2023• 24 days ago

The hoarders.

Gigachad2• 24 days ago

Elon Musk, Sam Altman, Jeff Bezos, Mark Zuckerberg, etc

thot_experiment2• 23 days ago

All the people with zero sum jobs that serve to shuffle money to those with leverage.

weregiraffe• 24 days ago

Yes, and then you'll build a communist paradise. It's just one purge away.

red369• 24 days ago

Always loved this from The Big Short (movie): "In the years that followed, hundreds of bankers and rating agency's executives went to jail. The SEC was completely overhauled, and Congress had no choice but to break up the big banks and regulate the mortgage and derivatives industries.

Just kidding.

Banks took the money the American people gave them, and they used it to pay themselves huge bonuses, and lobby the Congress to kill big reform. And then they blamed immigrants and poor people, and this time even teachers. And when all was said and done, only one single banker went to jail."

Edit: I see I'm not the first to quote The Big Short in reply - such a good movie (and book)!

peterbecich• 24 days ago

The narrative of the Big Short omits something big i.m.o.: encouragement of easy mortgage lending standards by Washington politicians. Is this line about the SEC the only reference to government in the movie?

simianwords4• 24 days ago

Increasingly more prominent is this new genre of activist hacker who thinks all big tech guys are bad parasites and if only they didn’t exist and we would have world peace and prosperity. That’s about the biggest virtue they know to signal.

The took the antithesis of the “great man” theory and ended up believing in a nonsensical version of it - every great thing in the world was done by normal people working 9-5. This is a kind of crude Labour Theory Of Value.

So you see these kind of comments signalling hatred in an attempt to show solidarity. But ultimately it is simply a signalling thing, a way to LARP as an activist because what else might one do as a simple rank and file employee. One wants to have a greater purpose to life and being an activist is a path for it.

rightbyte• 23 days ago

I think you might have constructed a straw man. Not working FTE to ruin society is not "activism" and many big tech companies are more or less profiteering of good will and trust and spitting out money and misery.

Havoc• 24 days ago

It’s a different crowd this time. Instead of bankers and traders with fin instruments its Silicon Valley growth first sane economics later playbook just scaled up to dangerous levels

0xbadcafebee• 24 days ago

"Claude, how do I become a prepper?"

NDlurker• 24 days ago

Step 1. Get a Costco or Sam's Club membership

ElProlactin3• 24 days ago

Step 2. Buy COST stock on margin.

gregjw• 24 days ago

same as it ever was

usernametaken29• 24 days ago

Wishful thinking has it that we rally our representatives to let OpenAI and consorts rot. The last thing people should do is bail these delusional people out. Let them have it worse then WeWorks and let’s see if their self crowned AGI can help them out of their misery

skeledrew2• 24 days ago

Well there's also the fact that fundamentally and ultimately, AI is incompatible with the economic system. Capitalism is rooted in human labour having positive economic value, and hence demand. AI will ultimately automate all labour, making the economic value 0. Eventually capital generation will simply die and the system crashes.

cmiles8• 24 days ago

There’s no question we’re in a massive AI bubble, the only question is how do we get out of it without wiping out the broader economy.

Gigachad2• 24 days ago

It's ether going to be one catastrophic crash or decades of stagnation and decline.

didicndj38482• 24 days ago

living standards, but not asset prices

didicndj38482• 24 days ago

I think it’ll be the printing press, not least because of moonshot executive pay tied to $price

infamouscow• 24 days ago

My guillotine & rope startup is going to make a killing (no pun intended).

overgard5• 24 days ago

I'm not usually for arguments of "this money could have been better spent elsewhere", but here's a thought experiment. Lets say instead of injecting $2 trillion and counting into a few AI companies, we instead injected $2 trillion dollars into things like infrastructure (real infrastructure, not GPU warehouses), education, helping out communities ravaged by globalization (I doubt most people on Hacker News venture outside of coastal areas, but if you want to make a REAL difference as an entrepreneur why not look at parts of the country that are struggling and figure out how you could make a difference there? You know, instead of trying to just ruin the economy for the sake of the already-obscenely-wealthy). I'm not saying all those ventures would succeed, but I think that amount of money put towards boring-but-real problems would make a much bigger positive impact for everyone.

anonymousiam• 24 days ago

It all sounds great, but unfortunately human nature is that money attracts corruption, so how could a $2T injection be managed in a way that ensures everything is square, without adding significant overhead to the spending?

Governments are often just as bad at this as private entities are.

kibibu• 24 days ago

If white collar crime was actually punished then this wouldn't be such a regular occurrence

imtringued2• 24 days ago

It's quite easy. The money you "inject" needs to have demurrage.

You can then give all of the $2 trillion demurrage dollars directly to the most corrupt individual on the planet and it won't matter.

There are two scenarios:

1. The recipient keeps the money: It will automatically be returned. 2. The recipient spends the money: It has flown from the most corrupt individual on the planet to a less corrupt individual.

If we assume that each transaction allows the next recipient to make a decision on how to best spend the money, it would automatically spread out, since it cannot stagnate and pool up at any given individual.

Short term corruption doesn't pay, because accumulating excess money that you don't need via corruption just means your demurrage fee is higher.

Investing or lending money means giving it to someone that needs it more than you do and since the demurrage defeats the zero lower bound, it is rational to do so even at 0% interest since it allows you to avoid the demurrage.

And here is something that isn't intuitive for people whose mental model assumes permanent capital scarcity. If supply and demand on the money capital markets are balanced out, the expected interest rate is 0%.

Lower capital costs mean that products can be cheaper now. It is also much easier to invest into long term projects, e.g. against climate change, since the investment only needs to break even rather than growing the economy even further.

Oh yeah, also you now get full employment, like classical economic theory predicts. No more automation scare and feeling like the economy is trying to get rid of you or justify removing working class humans or being hostile to them.

The absence of unemployment makes welfare unattractive, which in turn means that governments will simultaneously have more tax payments and less welfare expenses simultaneously. All welfare should be paid out as demurrage currency in all countries. It's completely logical.

Since capital markets are now fair, it is possible to reduce total debt by paying off loans, whereas with permanent money the holder of money can always decide "I'll spend it later" thereby delaying the possibility of paying off a debt using that money, which is implicitly an extension of the duration of the debt. Given an infinite holding duration, the expected duration of the corresponding debt is obviously infinite too (eternal growing debt woooo).

Oh and it could have saved pension systems if it had been adopted ahead of time. Pension systems collapse because shrinking populations yield less output in the future but permanent money tells you that you can build a time machine to take labor from today and just teleport it straight into the future. Who needs young people working for you, if you can let the money work for you instead! Everyone knows the value of a dollar bill is backed by a humanoid robot inside the dollar bill that can perform exactly one dollar of work.

qsera2• 24 days ago

I don't think we don't really know how to do many of these things you list even if we have infinite funds. There is a real chance that we will mess things even more if we have infinite funds...

conception• 24 days ago

Of course we do, we were doing them until about the mid-70s and then the ultra-wealthy figured out how to game the system and we got “Greed is Good” Geckos running things since.

vlian20882• 24 days ago

because that's not how this world works, and neither it should. most people figure that out in their early teens.

and fyi, that 2t is not tax money, it's someone's money.

Johnny_Bonk• 24 days ago

And why’s that?

jrflowers• 24 days ago

“This is how the world should work” I say once I read that the handful of entities engineering global economic calamity are privately held. I interrupt my chat bot girlfriend’s detailed but deeply incorrect summary of yesterday’s news to type “Only a literal child would want to go to a school.” “That is so true! You’re really on to something brilliant there! To get a head start before we drill down on this further I’ve deleted the contacts group ‘School Friends’.”

I don’t know what she’s talking about. I’ve never had a contact group with that title. Out the window my car is doing donuts on an old baseball diamond.

overgard5• 24 days ago

It is someone's money -- our money. Where do you think institutional investors get their money from?

christiangenco• 24 days ago

My understanding of injecting money in education is that it's proven to be extremely ineffective at improving outcomes.

Schools just hire more administrators and build nicer gyms.

kevin_thibedeau3• 24 days ago

You have to wait 20 years for the returns to society. Public education was enormously successful when it was introduced in the 19th century. There's just no profit in waiting for second order effects to kick in.

saulpw• 24 days ago

Well yes, you have to spend the money wisely. How could we construct a system so that we have 2x as many teachers (thereby halving the classroom size)? That would have a lot of good second-order effects beyond test scores.

kjkjadksj• 24 days ago

What about into research grants?

watutalkinbout• 24 days ago

Maybe don't just 'inject' it.

Maybe use it to increase outcomes.

piva003• 24 days ago

Investment in education is one of the best ROI a society can have. Quite surprising that in the USA this relationship has been eroded by schools spending in sports and admin, in most other developed countries it's a quite direct relationship between more investments -> better educational outcomes.

LCRVYSB• 24 days ago

Injecting money into education is how the US got to the moon. (https://en.wikipedia.org/wiki/National_Defense_Education_Act)

And, school administrators are the opposite of what's needed in schools: the US needs better teacher pay and more teachers -- the ones who actually teach students.

Short of that however, yes, we get philanthropic failures such as Zuckerberg's attempt in silicon valley, and basically any attempt throughout Africa as examples. Throwing laptops at the problem doesn't work, neither does external donations that get funneled to the wrong places.

rayiner8• 24 days ago

we instead injected $2 trillion dollars into things like infrastructure (real infrastructure, not GPU warehouses), education, helping out communities ravaged by globalization

Even excluding military spending, US governments spend $2 trillion every 10 weeks.

nativeit2• 24 days ago

How? The annual federal budget is roughly $7T.

ElProlactin3• 24 days ago

Just to be clear: you're talking about federal and state non-military spending.

And about 10% of this is interest. So over the course of a year, the US is paying about $1.25 trillion in interest at the federal and state level.

jiggawatts• 24 days ago

Not to mention that data centres are infrastructure!

Other nations are falling behind and will be at a real disadvantage soon.

dogwalker5000• 24 days ago

People invest in what would get them the highest ROI. No one is really thinking about “improving the world”* when they invest.

What’s scary about the AI boom is people over investing and not being able to recoup their investment which will lead to knock on effects - companies going bankrupt and people losing jobs, savings gone, … etc.

* As ESG has shown, not everyone agrees on what is considered “improving”.

BenFranklin1002• 24 days ago

For context, the US alone spends annually a bit more than $2T on Social Security, Medicare, and Medicaid. That money is widely dispersed both geographically and socioeconomically. $2T is not as much as one may think. I think we should let investors put their private money where they wish.

Also, as an aside, the benefits of globalization on the balance far outweigh the drawbacks. Globalization has been the primary force pulling 3rd world countries out of poverty over the last 80 years.

simianwords4• 24 days ago

You are comparing flow with a static amount. 2 trillion is the market cap of AI companies right?

overgard5• 24 days ago

You're equating on-going expenses with new investments, which is just not the same thing.

If "$2T is not as much as you think", and yet we could fund literally tens of thousands of more interesting projects with this money, then we are severely misusing capital in general. My point still stands that we're pouring more money into a technology than ever before, and yet it's a technology that's been a net NEGATIVE socially so far.

fragmede• 24 days ago

I mean, you want to be annoyed at something, be annoyed at Apple for investing 3x the Marshall plan into China, instead of America.

neonstatic3• 24 days ago

China is showing the world how it's done. Check out how many nuclear reactors they have built in the last 10 years. Turns out having a government that plans long term and actually delivers what they said they would makes a huge difference.

simianwords4• 24 days ago

China glazing is strange. I think they are a cool country but they would have killed to be in the forefront in the AI race. There’s something obviously right that America is doing.

goalieca• 24 days ago

Central planning in China is leading to many terrible problems from a collapsed real estate market to a debt that’s 300% of GDP and accelerating. Yes, they often deliver with focus and determination but this can work sideways too.

FWIW, we have a similar problem in Canada where the federal government makes large investments and plans that backfire terribly.

raincole2• 24 days ago

It won't make much difference. The US has a lot of problem, but "not spending enough money" isn't one.

The US government spend a lot on healthcare ($5.3 in 2024)[0]. More than most European countries per capita. But many people still feel that the US hardly has healthcare at all. Pouring more money without a full structural overhaul will likely make things worse.

And the $2T you mentioned is investors' money, which means that your plan is actually to increase tax by $2T and pour it into a system proven inefficient.

[0] https://www.healthaffairs.org/doi/10.1377/hlthaff.2025.01683

nirui• 24 days ago

...instead of injecting $2 trillion and counting into a few AI companies...

Similar to the "why we spend money exploring space when there are hungry people on Earth?" question, I don't think this is a This Or That argument.

People and companies have different interests, some don't/can't care about education etc so they don't invest in those fields. Forcing these people/companies to invest in areas they don't interested in usually results in bad outcomes that is way worse than just let them be.

But some, do invest in education or civil infrastructure projects. It's not as hot, because... well, usually it makes less money from those things.

The core problem is still that, it is hard to figure out how to invest in such way that it could help the disadvantaged people, while at the same time maintaining a 10 or even 100x growth in the next 5 years.

From the company's perspective, there's no dilemma here, it's 100x growth potential ahead of everything else.

seany• 24 days ago

Just return the taxes instead

tasuki• 24 days ago

but if you want to make a REAL difference as an entrepreneur why not look at parts of the country that are struggling

Why not parts of the world even? There are more countries than "the country". Some of us here aren't even from "the country".

thelastgallon4• 24 days ago

This is 100 manhattan projects. Lots and lots and lots of things that can be done. Reminds me of the quote "water water everywhere not a drop to drink" ==> Money, money everywhere, not a cent goes towards something remotely useful.

1) Could've added nifty features to roads (rf beacons?) and make it super easy to build autonomous vehicles. This would've solved so many problems, but most importantly 45,000 lives every year and millions of accidents.

2) Could've given the money to farmers who are getting ethanol subsidies today to add panels, supply tons of power to the grid, creating permanent income to the farmers instead of handouts every year.

3) Could've built many Universities permanently free which is feasible with an endowment that large.

4) Could've built walking/biking infrastructure in most cities, which would help reduce healthcare expenses. Most of the expenses today are lifestyle/metabolic diseases.

5) Could've switched the entire country to clean energy, exporting ALL of the oil and create a sovereign wealth fund.

6) Could've built a city for homeless people with homes, excess energy production (solar) providing the function of a UBI, a massive hospital with health and mental health facilities, de-addiction centers. New city in the middle of nowhere where land is dirt cheap. Army corps of engineers could execute this.

7) Rehabilitate prison (not like George Carlins suggestion of Kansas: https://www.youtube.com/watch?v=PkMrFIv_QHk), but more like nordic countries.

8) Build solar over all the interstates.

scoofy6• 24 days ago

You are describing altruistic gifts, not investment meant to generate a return.

All this money is being deployed to try and turn a dime into a dollar.

The biggest area I can see where money could be deployed into building something useful -- while generating a positive return -- is real estate development in cities with massive housing shortages. That's basically not allowed in the same cities. In large part, because people who yearn for an more altruistic world care very much about their own quality of life and property values than they do about the well-being of their community in the long run.

expedition323• 24 days ago

It's private money. At least in my country the government isn't giving a single cent to AI outside of fundamental research projects. If companies want to bet all their money at roulette they are free to do so.

sleight42• 23 days ago

I was going to say: develop practical widely deployed fusion energy far far faster.

Not sure about all of your choices in particular but "100 Manhattan projects" caps it all nicely.

dzink• 24 days ago

We are 81 years away from the end of World War II. The baby boomers born after are the ripest target of financial sharks aiming to get a chunk of their retirements. People will be liquidating to settle estates, to pay inheritance taxes in large numbers. The AI boom feels like a stealthy rug-pull from other assets that are likely to tank from retirement withdrawals and into something that may last a little past the boomer assets wave.

ReflectedImage2• 24 days ago

Well assuming it's successful, there will be a large number of companies who's value will be reassessed as the token cost to replicate and run the business.

Multi-million dollar companies will be reduced into multi thousand dollar companies.

The CEOs will be replaced with teenagers in garages with their parent's credit cards.

If it stalls, then China will undercut the whole AI market with cheap electricity and crash the US stock market.

So what exactly is the win scenario here?

nativeit2• 24 days ago

I can’t help but notice the “if it stalls” still assumes AI is successful, only that China beats the US. What if AI in general can’t do any of the things you mention?

ReflectedImage2• 23 days ago

I didn't mention anything? But I'll answer your question anyway.

Be it software, artwork, essays, graphic design or movie clips. There is a market for shipping cheap junk.

lowsong• 24 days ago

It's obvious to more people every day that "AI" has never delivered on what it promised. Until now nobody cared because the costs were cheap and it pays to appear cutting edge. Now the price is rising, and the delayed cost of AI-addiction and broken outputs are starting to sting. Not that employers care about the individual harms of course, but a workforce so deep in collective delusion that they can't see the train coming is only useful when the market is delusional too.

Once this snaps, and it will snap suddenly, companies will be climbing over each other to rip out AI as fast as possible. They won't call it that, of course, you're not going to get a CEO on the news talking about how they made a mistake and it was wrong to invest so much in AI tech. But they'll mean it.

The win scenario is that the crash reduces "AI" use to near zero. Spat out into the graveyard of VC hype like blockchain and metaverse before it. Banished to an eternal unlife of scammers running call centre scams, deepfake porn producers, and the occasional "we made AI safe!" startup trying to reignite the bubble again. While companies with their business on the line clamber to announce that they don't use it.

Eddy_Viscosity2• 23 days ago

The AI companies will be bailed out by the government, resulting in inflation and lost purchasing power for regular people while investors keep all their gains. Classic wealth transfer.

segmondy• 24 days ago

no matter what, success or not the bubble is going to bust, it has inflated so much, the risk of it deflating slowly is a pipe dream. if AI doesn't turn into AGI, global financial crash. if AI turns into AGI and tons of people are out of work, global financial crash too.

JumpCrisscross3• 24 days ago

it has inflated so much, the risk of it deflating slowly is a pipe dream. if AI doesn't turn into AGI, global financial crash

Whether overvaluation can deflate gradually or suddently has to do entirely with debt and almost nothing to do with magnitude. AI is, currently, mostly equity financed.

notnullorvoid2• 24 days ago

It's going to be a lot worse if these companies IPO before the crash.

The US gov should dissolve Anthropic and OpenAI tomorrow. Failing that they should block them from going public.

JumpCrisscross3• 24 days ago

The BIS report: https://www.bis.org/publ/arpdf/ar2026e1.pdf

"The five largest hyperscalers are set to spend over a trillion US dollars on AI-related capital expenditure from 2025 through 2026. These commitments are outpacing earnings and the free cash flow of these firms, leading some to issue debt to raise additional financing (Graph 11.A). This investment race may be partly driven by the perception that only a small number of players with superior technology will ultimately dominate the market shares. The intense competition raises the risk of firms over-committing resources to investment projects with still uncertain returns, leaving all firms vulnerable to disappointments in AI payoffs. Model analysis based on such contest motives highlights the downside risk of current AI exuberance. As competitive pressure drives capex higher, the net economic surplus – the total payoff less investment costs – declines for the sector as a whole and could turn negative in adverse scenarios (Graph 11.B). Disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted investment bust, with potential knock-on effects on financial conditions (see below).

Another risk is that the AI boom runs into a supply side roadblock. The AI build- out has recently been facing growing bottlenecks in electricity, advanced semiconductors and grid equipment. Fast-growing demand for computing power is already pressuring electricity prices and input costs, with potential spillovers to inflation. Looking ahead, these temporary shortages may also amplify over-investment, as firms attempt to lock in future capacity through long-dated contracts that further expose them to any disappointments in demand.

...

Should inflation rise significantly or AI-led investment turn to a bust, the macroeconomic consequences could be amplified by existing financial vulnerabilities. A tightening of policy rates needed to contain inflation could precipitate a sharp pullback in asset prices after a prolonged period of exuberant risk-taking, triggering disruptive macro-financial feedback loops. A reversal of AI optimism could likewise have major financial consequences, given AI firms’ rising leverage and growing footprint in credit markets. Vulnerabilities extend to their supplier ecosystem, including engineering, procurement and construction (EPC) contractors whose balance sheets are comparatively weak, leaving them exposed to any capex pullback by hyperscalers.

...

A sharp repricing of equity risk could prompt a reassessment of corporate credit risk and lead to tighter credit conditions more broadly.1 Indeed, broad indices of credit spreads tend to correlate negatively with stock market returns (Graph 14.A), more so for the high-yield than the investment grade segment. While large, synchronised corrections in both markets are rare, there are notable precedents such as the Great Financial Crisis and the March 2020 dash for cash episode. A repricing of risk this time, whether triggered by higher interest rates or an AI bust, has the potential to be similarly disruptive by triggering a corporate credit freeze with wider implications for aggregate investment."

Fire-Dragon-DoL• 24 days ago

How do you prepare for such thing? Do you sell all stocks now? Then what?

scoofy6• 24 days ago

I sold in May. I'm in the largest cash position (t-bills) I've ever had. I might be completely wrong. I just looked at the situation with the oil crisis, and without any obvious way to end it, I just figure, if there was every a more obvious "sell in May and go away" year, this is it.

Maybe I miss out on some gains and buy back in December or January. Maybe I'll increase my Berkshire position. I don't know. But companies tend to push the bad news till the end of the year, and boy, howdy there could be some bad news this year.

Freedumbs3• 24 days ago

If we assume the play is the same as MAGA 1, the economic fallout happens post-2028. They'll keep inflating the bubble until MAGA cedes power. If that occurs.

AI boom risks global financial crash, warn central bankers

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