We are on the Verge of Economic Catastrophe

[unapologetic]

Your source is Dr Oz, on Faux?
"What a maroon".

 

[Swammerdami]

Nothing new to report but This article from Reuters provides an eye-opening graph (shown below) which highlights an effect of the Triffin Dilemma.

Brief history review: By the 1930's the U.S. Dollar was so respected that people all around the world were selling their gold to the U.S. Treasury for what then seemed like the outrageously high price of $35 per ounce. Just a decade or two later, after the devastation of WWII, it seemed that the U.S.A. owned much of the world! Let's continue the story by quoting  Net international investment position

In 1980, the United States net international-creditor position was bigger than the total net creditor-positions of all the other countries in the world. Only six years later, in 1986, when the nation’s international investment position was at a year-end negative $107.4 billion, the U.S. became a net-debtor nation for the first time since 1914 ... By 1990, the U.S. was the world's largest debtor.

In just ten years the U.S. went from "owning much of the world" to being "the world's largest debtor"!!

The Wiki page has a table that can be sorted by NIIP as a % of GDP. At the top are well-known prosperous countries like Norway, Singapore, Switzerland, Germany, Japan. At the bottom are economic "basket cases" like Sudan, Greece, Nicaragua, and ... the USA. The U.S. NIIP is Negative $26 Trillion. As shown in the graph this is 85% of U.S. GDP. This is the NET investment position. It doesn't just mean that foreigners own $26 Trillion of U.S. real estate, stocks and bonds. It means they own $26T Plus X, where X is foreign-based assets owned by U.S. entities.

Is this a Bubble? Should we be worried that there will be a "fire sale" on U.S. assets if foreigners lose faith in U.S. governance?
I dunno. I report; you decide.

 

[bilby]

https://www.smbc-comics.com/comic/investment-2

 

[Loren Pechtel]

What's all this fuss I keep hearing about spending a billion dollars on healthcare for ill eagls (sic)? Can't some private avian 501c3 charity fund this instead of MY tax dollars? [/Emily Litella]

And I would prefer to live in a system that spends this money.

The alternative is delaying emergency treatment while identity and citizenship are determined and that will kill people. Citizens, not just illegals.

 

[Loren Pechtel]

Nothing new to report but This article from Reuters provides an eye-opening graph (shown below) which highlights an effect of the Triffin Dilemma.

Brief history review: By the 1930's the U.S. Dollar was so respected that people all around the world were selling their gold to the U.S. Treasury for what then seemed like the outrageously high price of $35 per ounce. Just a decade or two later, after the devastation of WWII, it seemed that the U.S.A. owned much of the world! Let's continue the story by quoting  Net international investment position

In 1980, the United States net international-creditor position was bigger than the total net creditor-positions of all the other countries in the world. Only six years later, in 1986, when the nation’s international investment position was at a year-end negative $107.4 billion, the U.S. became a net-debtor nation for the first time since 1914 ... By 1990, the U.S. was the world's largest debtor.

In just ten years the U.S. went from "owning much of the world" to being "the world's largest debtor"!!

The Wiki page has a table that can be sorted by NIIP as a % of GDP. At the top are well-known prosperous countries like Norway, Singapore, Switzerland, Germany, Japan. At the bottom are economic "basket cases" like Sudan, Greece, Nicaragua, and ... the USA. The U.S. NIIP is Negative $26 Trillion. As shown in the graph this is 85% of U.S. GDP. This is the NET investment position. It doesn't just mean that foreigners own $26 Trillion of U.S. real estate, stocks and bonds. It means they own $26T Plus X, where X is foreign-based assets owned by U.S. entities.

Is this a Bubble? Should we be worried that there will be a "fire sale" on U.S. assets if foreigners lose faith in U.S. governance?
I dunno. I report; you decide.

The problem here is that what you're actually showing is that people see American investments as a good thing. People think that American companies will do well. Especially from places like China where the citizens see domestic investment as unsafe. (Correctly--it's really far more about how the government will act vs the fundamentals of the company. Value is in the political winds.)

I do expect a big problem from this as The Felon plays bull in a china shop with our system, making US investment nowhere near as good at it used to be and that graph is going to do a hard snap turn.

 

[Jimmy Higgins]

According to the ADP, in the first two months of Trump's administration, the economy added about 115,000 jobs a month. Since the tariffs, over the last seven months it has added 180,000 jobs... total or about 26,000 a month.

 

[Swammerdami]

Background: In 1997 the Great Asian Financial Crisis reminded bankers worldwide of the problems of excess credit. The U.S.-dominated International Monetary Fund stepped forth to ensure that the big commercial banks would NOT bear the brunt of this disaster. Just a year later, the LTCM hedge fund went belly-up, its Nobel Prize-winning leader having never read the famous book Skies are not always blue; Distributions are not always Gaussian. Now the Federal Reserve took the lead to contain another disaster. But these were just minor crises. The End of History was upon us. Leverage upon leverage became the norm. Bernie Madoff performed his frauds while informed regulators looked away. What little regulation was left was reduced further. Wall Street traders whined when they were driving Ferraris while their colleagues all had Maseratis. Shenanigan upon shenanigan: But who cares? "We're too big too fail." And sure enough, when the house of cards came tumbling down the USG bought the most toxic assets, sacrificed home-owners and taxpayers, all to ensure that Wall St. could keep paying big bonuses.

In an effort to avoid repeats of such fiascos, the Democrats passed Dodd-Frank legislation. Much of this was eviscerated after the Tragedy in November 2016. In addition to the eviscerated regulation, a "shadow banking system" sprung up, with hedge funds, venture capitalists and "private equity" taking over much of the banks' functions but without regulation. Much of the lending done by regulated banks is made to the UNregulated shadow banks.

Crypto-currencies have some similarities to shadow banking. This especially applies to shadow-coins where financiers, including the Trump family, get access to huge sums to play with. Even when crypto and shadow transactions are non-criminal, insiders can siphon profits away with impunity using advance knowledge of which regulators have no evidence.

The head of the World Bank made a statement recently. Is he even aware of the dangers of shadow banking? All he wanted to talk about was "three bubbles": AI, Crypto, Debt. Trump is ballooning U.S. debt, ballooning Crypto, and is meddling with AI. Make America Great Again!

I read articles and watch YouTubes hoping to get a clue about the financial future. One pundit is worried about liquidity crises. I think FedRes has demonstrated that it will flood its Member Banks with all the liquidity they need. They not only force new money down banks' throats but pay them inflated interest:

The Federal Reserve had 11 consecutive quarterly operating losses as of August 2025, starting in the fourth quarter of 2022.

Except for a minor aberration in 1919, these are the first losses in FedRes history.

I've given up on trying to guess the financial future. I do think I finally figured out one thing: Why long-term interest rates remain reasonable despite probable devaluation. It's because the huge money stock has to go somewhere! Gold, Bitcoin, Stocks, and some of it goes into bonds. If bonds are inflated in value, it's because Gold, Cryptos and Stocks are all inflated too.

The last two webpages I clicked on really pissed me off.

(1) A Professor Emeritus^* babbled boringly about the pending devaluations, but I used the Fast Forward facility to find his "punch-line." He mentioned that the Legendary Sage of Omaha is mostly holding cash, and then advised listeners to do SOMETHING (anything?) with their cash. He IGNORED that, after praising Buffett, he advised listeners to do the opposite of Buffett. (It's a paradox that when there's a risk of inflation, CASH may be the best option! Stay liquid so you can re-direct the funds quickly when fear strikes.)

* - I used to think "Emeritus" was a distinction of honor. But maybe it sometimes means "This guy has no personal life so we let him hang out in the faculty lounge."

(2) Nothing new, but I hadn't checked the markets for a few days and clicked when I saw a headline that implied the Great Crash had begun! The NASDAQ-100 plummeted a breath-taking TWO percent on Monday, collapsing all the way down to the (record-setting) levels not seen for almost two weeks. (It did bounce back and is now only 1½% away from its all-time high.) Gold took a nose-dive as well. It hasn't been this cheap since ... October.
Scary bold-face. Hate to imagination the consternation if QQQ falls THREE percent.

 

[Swammerdami]

According to the ADP, in the first two months of Trump's administration, the economy added about 115,000 jobs a month. Since the tariffs, over the last seven months it has added 180,000 jobs... total or about 26,000 a month.

Alí Bustamante, an economics professor at the University of New Orleans, said
“Just two years ago, we basically had an economy where we had to add about 250,000 jobs a month to achieve break-even employment.”

Reduced immigration is the main reason for the sudden drop in employment figures, IIUC.

 

[Swammerdami]

Publicly held debt is already at 99% of GDP and is on track to hit 107% by 2029, breaking the record set after the end of World War II. Debt service alone is more than $11 billion a week, or 15% of federal spending in the current fiscal year.

In a Project Syndicate op-ed last week, [renowned economist Jeff] Frankel went down the list of possible debt solutions:
* faster economic growth
* lower interest rates
* default
* inflation
* financial repression, and
* fiscal austerity.

While faster growth is the most appealing option, it’s not coming to the rescue due to the shrinking labor force, he said. AI will boost productivity, but not as much as would be needed to rein in U.S. debt.

Frankel also said the previous era of low rates was a historic anomaly that’s not coming back, and default isn’t plausible given already-growing doubts about Treasury bonds as a safe asset, especially after President Donald Trump’s “Liberation Day” tariff shocker.

Relying on inflation to shrink the real value of U.S. debt would be just as bad as a default, and financial repression would require the federal government to essentially force banks to buy bonds with artificially low yields, he explained.

“There is one possibility left: severe fiscal austerity,” Frankel added.

How severe? A sustainable U.S. debt trajectory would entail elimination of nearly all defense spending or almost all non-defense discretionary outlays, he estimated. For the foreseeable future, Democrats are unlikely to slash top programs, while Republicans are likely to use any fiscal breathing room to push for more tax cuts, Frankel said.

“Eventually, in the unforeseeable future, austerity may be the most likely of the six possible outcomes,” he warned. “Unfortunately, it will probably come only after a severe fiscal crisis. The longer it takes for that reckoning to arrive, the more radical the adjustment will need to be.”

The austerity forecast echoes an earlier note from Oxford Economics, which said the expected insolvency of the Social Security and Medicare trust funds by 2034 will serve as a catalyst for fiscal reform. In Oxford’s view, lawmakers will seek to prevent a fiscal crisis in the form of a precipitous drop in demand for Treasury bonds, sending rates soaring. But that’s only after lawmakers try to take the more politically expedient path by allowing Social Security and Medicare to tap general revenue that funds other parts of the federal government.

“However, unfavorable fiscal news of this sort could trigger a negative reaction in the US bond market, which would view this as a capitulation on one of the last major political openings for reforms,” Bernard Yaros, lead U.S. economist at Oxford Economics, wrote. “A sharp upward repricing of the term premium for longer-dated bonds could force Congress back into a reform mindset.”

Ray Dalio says ‘a little bit of everything’ is needed to prevent a debt crisis—but such a deal would require bipartisan agreement, so is unlikely to happen.

 

[lostone]

AI also threatens our economy and could lead to widespread loss of jobs. Many of those people, those who are over 50, would have a very hard time finding new jobs that fit their skills and/or retraining themselves, at their age.

MIT study claims AI could currently replace 12% of total US jobs market

One in nine US workers could be displaced by AI

www.techradar.com

 

[Jimmy Higgins]

I think it is going to much much worse than that, but that is down the road.

 

[SLD]

AI also threatens our economy and could lead to widespread loss of jobs. Many of those people, those who are over 50, would have a very hard time finding new jobs that fit their skills and/or retraining themselves, at their age.

MIT study claims AI could currently replace 12% of total US jobs market

One in nine US workers could be displaced by AI

www.techradar.com

Is the answer AI communism?

Would AI-Enabled Communism Work?

Daron Acemoglu thinks recent breakthroughs pose new challenges to old assumptions about optimal economic organization.

www.project-syndicate.org

 

[lostone]

If too many people become unemployed and unemployable due to AI, our economic system may collapse. What happens after that is anybody's guess. I have no idea what will to predict what will happen, should that come to pass. Nice too see that some deep thinkers are giving serious thought to what might follow. Having seen humanity in action for 80 some years, I am not optimistic about how any newly minted economic system will work out. A new version of feudalism might be the BEST that we could hope for; something much worse being more likely, IMHO. SNAFU or FUBAR, as the old WW II saying went.

 

[Colonel Sanders]

The "AI Bubble" is a wish made by people who either refuse to accept or don't understand just how deeply embedded it already is within every aspect of the economy, governmental functions, and defense. It may or may not cause job loss, but its value as an asset isn't going anywhere. Dire predictors of collapse are a penny a dozen. They can be found from the kids shouting about "late stage capitalism" all the way up to economics professors and even those who have deep, real life experience in things economic.

The first group can safely be ignored. Hell, they should be ignored.

The second group sometimes provide insight into possibilities.

The third group wants to be on tv and sell books. There's good money in fear.

There will always be some measure of volatility in markets. History proves it. However, it always bounces back no matter how hard the downtown, and tech will play a part in any future recovery.

 

[SLD]

The "AI Bubble" is a wish made by people who either refuse to accept or don't understand just how deeply embedded it already is within every aspect of the economy, governmental functions, and defense. It may or may not cause job loss, but its value as an asset isn't going anywhere. Dire predictors of collapse are a penny a dozen. They can be found from the kids shouting about "late stage capitalism" all the way up to economics professors and even those who have deep, real life experience in things economic.

The first group can safely be ignored. Hell, they should be ignored.

The second group sometimes provide insight into possibilities.

The third group wants to be on tv and sell books. There's good money in fear.

There will always be some measure of volatility in markets. History proves it. However, it always bounces back no matter how hard the downtown, and tech will play a part in any future recovery.

I’m not so sure about your last point. We only really have about 150 years of modern capitalism history of the markets. That may seem like a lot, but it isn’t compared to the long history of humanity. Indeed these last 150 years represent an anomaly in human history that may not be repeated, probably cannot be repeated. The changes we’ve seen have almost all been due to technological advances that are not necessarily going to be repeated, even with AI. Are we really going to find ways to transport ourselves quicker around the globe? Probably not. A Star Trek technological society is nice, but probably unrealistic. The laws of physics constrain AI as much as it constrains us.

 

[Swammerdami]

The "AI Bubble" is a wish made by people who either refuse to accept or don't understand just how deeply embedded it already is within every aspect of the economy, governmental functions, and defense. It may or may not cause job loss, but its value as an asset isn't going anywhere. Dire predictors of collapse are a penny a dozen....

There will always be some measure of volatility in markets. History proves it. However, it always bounces back no matter how hard the downtown, and tech will play a part in any future recovery.

If by "AI Bubble" you refer to the high stock prices of the "Magnificent Seven" and what retail investors should do, here is what I've gleaned from reading opinions of the "smart guys."

* AI WILL come to dominate human society. AI is already producing some things (e.g. computer code) much faster than humans can. AI is already a reason why young college grads have trouble finding a job, and is improving rapidly. "Super-intelligence" may be hard to define but is likely to arrive by the 2030's.

* But just as the Internet eventually came to dominate society (with Alphabet, Meta and Amazon highly profitable) but only after a "bubble" bursting in 2000-2002, so there may (soon?) be a sharp fall in the prices of some AI-related shares.

* Some of the Magnificent Seven are cash machines one needn't hurry to sell. Warren Buffett, the value investor and very cautious Oracle of Omaha recently bought a large stake in Alphabet.

* NVIDIA and Palantir, on the other hand, while raking in cash at present do not have guaranteed hardware monopolies.

 

[RVonse]

The last two webpages I clicked on really pissed me off.

(1) A Professor Emeritus^* babbled boringly about the pending devaluations, but I used the Fast Forward facility to find his "punch-line." He mentioned that the Legendary Sage of Omaha is mostly holding cash, and then advised listeners to do SOMETHING (anything?) with their cash. He IGNORED that, after praising Buffett, he advised listeners to do the opposite of Buffett. (It's a paradox that when there's a risk of inflation, CASH may be the best option! Stay liquid so you can re-direct the funds quickly when fear strikes.)

* - I used to think "Emeritus" was a distinction of honor. But maybe it sometimes means "This guy has no personal life so we let him hang out in the faculty lounge."

(2) Nothing new, but I hadn't checked the markets for a few days and clicked when I saw a headline that implied the Great Crash had begun! The NASDAQ-100 plummeted a breath-taking TWO percent on Monday, collapsing all the way down to the (record-setting) levels not seen for almost two weeks. (It did bounce back and is now only 1½% away from its all-time high.) Gold took a nose-dive as well. It hasn't been this cheap since ... October.
Scary bold-face. Hate to imagination the consternation if QQQ falls THREE percent.

I believe Warren Buffett is right but IMO he is mostly only correct only about himself. Because unlike the average working stiff, Buffet has the knowledge and connections to make good on a large chest of powder when it is needed. The rest of us would never have opportunity nor knowledge just what to buy during a moment of market fear.

And the other dimension no one ever mentions is time. How much time goes by before not not putting cash to something earning more than inflation? What will we say about Buffetts strategy if he holds large amounts of cash for the next 10 years? or 30 years? Its already been a spectacular long time before we have had a real recession.

 

[Jimmy Higgins]

The "AI Bubble" is a wish made by people who either refuse to accept or don't understand just how deeply embedded it already is within every aspect of the economy, governmental functions, and defense. It may or may not cause job loss, but its value as an asset isn't going anywhere.

First, the AI Bubble at the moment, I think is similar, in part to the Internet Bubble, with a notable difference of, there ain't that many companies left, so it isn't a thing such as a trillion AI IPOs happening. But rather, the money in the stock market is blowing Nvidia to what... a 25 price/sales ratio? Which is most certainly high!

The other aspect to AI is that AI needs to make something called "money". Merely being AI doesn't mean money. That hasn't been established yet and the existing AI is very early AI, no where near prime time.

So it isn't crazy to suggest that there is an AI bubble, but all that really means is that some stock value will drop for the few circle jerk companies involved in AI.

Dire predictors of collapse are a penny a dozen. They can be found from the kids shouting about "late stage capitalism" all the way up to economics professors and even those who have deep, real life experience in things economic.

AI's biggest improvement is unemploying lots of people. That is where the money savings are.

 

[lostone]

Dangerous if true....

MSN

 

[Colonel Sanders]

The "AI Bubble" is a wish made by people who either refuse to accept or don't understand just how deeply embedded it already is within every aspect of the economy, governmental functions, and defense. It may or may not cause job loss, but its value as an asset isn't going anywhere. Dire predictors of collapse are a penny a dozen....

There will always be some measure of volatility in markets. History proves it. However, it always bounces back no matter how hard the downtown, and tech will play a part in any future recovery.

If by "AI Bubble" you refer to the high stock prices of the "Magnificent Seven" and what retail investors should do, here is what I've gleaned from reading opinions of the "smart guys."

* AI WILL come to dominate human society. AI is already producing some things (e.g. computer code) much faster than humans can. AI is already a reason why young college grads have trouble finding a job, and is improving rapidly. "Super-intelligence" may be hard to define but is likely to arrive by the 2030's.

* But just as the Internet eventually came to dominate society (with Alphabet, Meta and Amazon highly profitable) but only after a "bubble" bursting in 2000-2002, so there may (soon?) be a sharp fall in the prices of some AI-related shares.

* Some of the Magnificent Seven are cash machines one needn't hurry to sell. Warren Buffett, the value investor and very cautious Oracle of Omaha recently bought a large stake in Alphabet.

* NVIDIA and Palantir, on the other hand, while raking in cash at present do not have guaranteed hardware monopolies.

I don't really disagree with you on anything of substance. I do think that Nvidia will continue to dominate and grow. So there's that for some pedantic, worthless response.