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AI boom risks global financial crash, warn central bankers
- AmazingEveryDay 3mo agoIs there any comprehensive list of historical warnings from central bankers?
- ozgrakkurt 3mo agoI 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?annualeconomicreports_page=3 https://www.bis.org/annualeconomicreports/index.htm?annualec...
- californical 3mo agoI think we also would need to know how many of these warnings they gave where nothing bad happened
- da-x 3mo agoYou're on the spot, it can certainly be a self-defeating prophecy https://en.wikipedia.org/wiki/Self-defeating_prophecy https://en.wikipedia.org/wiki/Self-defeating_prophecy
- rawgabbit 3mo agoThe 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."
- ozgrakkurt 3mo agoThe discrepancy is that they didn't have the same reaction before 2000 and 2008 so this seems like hindsight. Also seems suspiciosly similar to LLM maxxing guys saying things like "this is just like the internet, bro" Also like someone else wrote in a comment, another aspect is that there is a very large sentiment that this is will crash this time so not sure if it could even crash like before, assuming people werent so aware of the risks in past cryses.
- forgetfreeman 3mo agoPretty 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.
- senordevnyc 3mo agoExtract rents? I don’t think you’re using the term rent correctly here.
- chowells 3mo agoNo, 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.
- gruez 3mo ago>The best (short-term) case is that they become eternal parasites. Producing a product that delivers value and people are willing to pay for makes you a "parasite"? Sure, it might cause massive disruptions to the labor market, but that's mostly orthogonal to whether it's a "parasite" or not. Mechanized farming has almost wiped out agricultural employment (compared to pre-industrial levels), but that doesn't make tractor manufacturers or fertilizer companies "parasites"
- skulk 3mo agotractor manufacturers or fertilizer companies didn't suck down the work of generations of predecessors in a questionably-legal fashion only to turn around and sell a heavily discounted version of that back to them. I'm not sure where "parasite" becomes appropriate, but your analogy is poor.
- mountainriver 3mo agoMeanwhile AI has gotten so good it can just about one shot a SaaS app. I’m not worried about it…
- byzantinegene 3mo agothat is not production ready
- adamtaylor_13 3mo agoEh, 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.
- byzantinegene 3mo agoso your company runs on a vibe-coded saas app, that sure is a confidence booster for your would-be customers.
- senordevnyc 3mo agoSounds like they’re happy.
- selimthegrim 3mo agoAnd own nothing?
- senordevnyc 3mo agoWrong cliche
- felix-the-cat 3mo agoHow will the customers know? And if it does what they need it to do, then why would they even care?
- DennisP 3mo agohttps://archive.is/xMD3t https://archive.is/xMD3t
- SilverElfin 3mo agoYes 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_experiment 3mo agoSurely this time we'll learn our lesson and disempower the parasites that create these situations, right? Right guys?
- rubyfan 3mo agoNext time it’ll be different though
- Mistletoe 3mo 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.
- expedition32 3mo agoWhen 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.
- thelastgallon 3mo agoNot 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.
- JumpCrisscross 3mo 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.
- davidw 3mo agoPeople are already sour on the economy. They are going to be in a whole mood if we get a real, serious recession.
- 0xbadcafebee 3mo ago"Claude, how do I become a prepper?"
- NDlurker 3mo agoStep 1. Get a Costco or Sam's Club membership
- ElProlactin 3mo agoStep 2. Buy COST stock on margin.
- gregjw 3mo agosame as it ever was
- usernametaken29 3mo agoWishful 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
- skeledrew 3mo agoWell 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.
- deleted 3mo ago[deleted]
- cmiles8 3mo agoThere’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.
- Gigachad 3mo agoIt's ether going to be one catastrophic crash or decades of stagnation and decline.
- didicndj3848 3mo agoliving standards, but not asset prices
- didicndj3848 3mo agoI think it’ll be the printing press, not least because of moonshot executive pay tied to $price
- infamouscow 3mo agoMy guillotine & rope startup is going to make a killing (no pun intended).
- overgard 3mo agoI'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 3mo agoIt 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 3mo agoIf white collar crime was actually punished then this wouldn't be such a regular occurrence
- conorcleary 3mo agoMostly this, everywhere, going back to every time.
- imtringued 3mo agoIt'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.
- dzink 3mo agoWe 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.
- h4kunamata 3mo ago[dead]
- ReflectedImage 3mo agoWell 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?
- nativeit 3mo agoI 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?
- ReflectedImage 3mo agoI 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 3mo agoIt'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.
- segmondy 3mo agono 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.
- JumpCrisscross 3mo 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.
- notnullorvoid 3mo agoIt'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.
- JumpCrisscross 3mo agoThe BIS report: https://www.bis.org/publ/arpdf/ar2026e1.pdf 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 3mo agoHow do you prepare for such thing? Do you sell all stocks now? Then what?
- scoofy 3mo agoI 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.
- Freedumbs 3mo agoIf 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.
- bakies 3mo agoCOVID throws a wrench into any kind of analysis in that time period
- Freedumbs 3mo agoI don't think so. Covid just provided more cover and justification for the looting programs.
- scoofy 3mo agoI don't understand this thesis beyond: "the past predicts the future"
- Freedumbs 3mo agoThere's a lot of moving parts one of which includes the destruction of the concept of truth itself, so it's tough to describe. TLDR: we get to see how powerful modern propaganda systems are compared to those that existed prior to the great depression.
- jackjd 3mo ago[flagged]