That "great new paper" you refer to is not about what hyper-scalers are building --not even w/i the same category. It is pie in the sky, it's literally "what if . . .?" What they are building cannot equal human cognition nor do they have any idea how to make a robot who can do what humans do every time they move. And cheaper? Oh, please.
"The problem is that this is a very narrow source of growth, and if the market stumbles for any of the reasons ticked off below, the wealth effect shifts into reverse."
I am wondering if the wealth effect is also a minor driver of non-affordability. 3.5% is small but not negligibly so. Besides, wealthy buyers, whose wealth shields them against high prices, probably mess up the price signals to the detriment of poorer buyers especially where high end goods are concerned.
Broken record department I know.... Applaud your treatment of fragility as a private balance-sheet, Minsky-style phenomenon (AI financing, private credit, wealth-effect reversal risk). but I still don't understand why you import household-budget logic onto a currency-issuing sovereign's deficit and then route today's rate moves through that logic rather than through the more obviously correct culprits you name yourself — the Iran-war inflation premium and Fed credibility under Warsh. It's not the deficit/GDP ratio that matters, it's that deficit-financed demand that doesn't add much real capacity risks adding to price pressure. But that's a functional-finance objection (spending vs. real resource slack), not a "the bond market will punish us" objection. We are SO close!!!
It is also a little worrying that most private lenders get financing from traditional commercial banks. I’m sure that commercial banks provide credit based directly or indirectly on the valuations of the portfolio businesses. If the valuations drop, credit advances from commercial banks could stop. This could cause private lenders to halt or further reduce paying out redemptions, which could cause havoc. It could also cause commercial banks to have to write down their loans to private lenders (partial charge offs) and increase their own loan loss reserves. This could have ripple effects on traditional commercial customers in the form of tighter underwriting standards.
The economy is being goosed by around $2Trillion in deficit spending. That could keep a corpse tap dancing. The probability that AI is somehow going to bump productivity up by any substantial amount in the near term is zero. There is a huge bubble in assets, and increasing wealth disparity. Political stability is now a distant quaint memory. This is not likely to end well.
The US labor force is shrinking and participation rates are dropping, largely because of Trump's deportation of workers. This is bad for government revenues and the overall economy.
If you’re a conservative investor, comsider putting some dollars in long-term, no-risk FDIC/NCUA-insured CDs while rates are still reasonably high — and may even inch-up in the next 3–4 months.
I'm puzzled by the logic that AI will greatly increase productivity, and consequentially society as a whole. Perhaps I'm more ignorant than puzzled. The "great new paper" looks interesting. One of its reference articles is "Davidson, Tom. 2021. “Could Advanced AI Drive Explosive Economic Growth?”
A relevant question. It could drive explosive electrical power growth.
The financial "tail" appears to be wagging the economic "dog". This would indicate an obvious fragility to the economy. And over the past decades this "tail" has not translated its benefit into wide-spread prosperity. We have Profits without Prosperity, the title of William Lazonick's article on stock buybacks. We have unprecedented growth of the ratio between "household net worth" to "disposable income", now at 781% compared to an average of 520% for 50 years between 1950 and 2000. I see this as $60 trillion of unnecessary wealth and a financially deprived majority. While wealth has exploded, wages have not moved an inch.
I'd be interested to hear you evaluate the proposal to redirect the profits from AI into a sovereign wealth fund, such as Bernie Sanders and others have proposed. It sounds like another name for a National Investment Authority.
Will do soon ("evaluate the proposal..."). Though one thing up front--the AI firms (or the AI divisions of otherwise profitable firms) have yet to make any profits!
Precisely. Computerization eventually led to a big increase in the productivity of the average worker, but did not lead to a big increase in the pay of the average worker. The labor share of corporate income is at a historical low I believe. The owners of AI "capital" will use is as always, to reduce labor. Eventually, maybe, they'll figure out that this causes a collapse in demand, after the fact.
I remain very concerned about what the markets will do as I intend to retire in the next few years. I just don't see all this AI investment as sustainable.
"This premium, shown below, is still pretty low in historical terms, but it’s clearly elevated, and while I think the fiscal risk here is again more of slow burn than a sudden shock" - unless or until the bond market reaches some tipping point. While theoretically an auction shouldn't fail outright, a sudden and large jump in the risk premium could be the moral equivalent of an auction failure.
I find it hard to understand why anyone (individual or government) would purchase long bonds (other than maybe TIPS) considering the current administration and republican party.
I know you don’t like the ambidextrous economist trope, you can’t resist ☺️ and you probably muse over what you would be recommending to President Harris … maybe we’re tittering on the edge of economic doom … many Americans are suffering and others cavorting in the Hamptons … is the oppressive heat climate change or the 9th Circle creeping higher?
Oh dear! And the parallel articles on food supply, water, health care and education coming soon. Some mid-term campaigns are also beginning to address this reality.
That "great new paper" you refer to is not about what hyper-scalers are building --not even w/i the same category. It is pie in the sky, it's literally "what if . . .?" What they are building cannot equal human cognition nor do they have any idea how to make a robot who can do what humans do every time they move. And cheaper? Oh, please.
"The problem is that this is a very narrow source of growth, and if the market stumbles for any of the reasons ticked off below, the wealth effect shifts into reverse."
I am wondering if the wealth effect is also a minor driver of non-affordability. 3.5% is small but not negligibly so. Besides, wealthy buyers, whose wealth shields them against high prices, probably mess up the price signals to the detriment of poorer buyers especially where high end goods are concerned.
Broken record department I know.... Applaud your treatment of fragility as a private balance-sheet, Minsky-style phenomenon (AI financing, private credit, wealth-effect reversal risk). but I still don't understand why you import household-budget logic onto a currency-issuing sovereign's deficit and then route today's rate moves through that logic rather than through the more obviously correct culprits you name yourself — the Iran-war inflation premium and Fed credibility under Warsh. It's not the deficit/GDP ratio that matters, it's that deficit-financed demand that doesn't add much real capacity risks adding to price pressure. But that's a functional-finance objection (spending vs. real resource slack), not a "the bond market will punish us" objection. We are SO close!!!
It is also a little worrying that most private lenders get financing from traditional commercial banks. I’m sure that commercial banks provide credit based directly or indirectly on the valuations of the portfolio businesses. If the valuations drop, credit advances from commercial banks could stop. This could cause private lenders to halt or further reduce paying out redemptions, which could cause havoc. It could also cause commercial banks to have to write down their loans to private lenders (partial charge offs) and increase their own loan loss reserves. This could have ripple effects on traditional commercial customers in the form of tighter underwriting standards.
The economy is being goosed by around $2Trillion in deficit spending. That could keep a corpse tap dancing. The probability that AI is somehow going to bump productivity up by any substantial amount in the near term is zero. There is a huge bubble in assets, and increasing wealth disparity. Political stability is now a distant quaint memory. This is not likely to end well.
The US labor force is shrinking and participation rates are dropping, largely because of Trump's deportation of workers. This is bad for government revenues and the overall economy.
If you’re a conservative investor, comsider putting some dollars in long-term, no-risk FDIC/NCUA-insured CDs while rates are still reasonably high — and may even inch-up in the next 3–4 months.
I'm puzzled by the logic that AI will greatly increase productivity, and consequentially society as a whole. Perhaps I'm more ignorant than puzzled. The "great new paper" looks interesting. One of its reference articles is "Davidson, Tom. 2021. “Could Advanced AI Drive Explosive Economic Growth?”
A relevant question. It could drive explosive electrical power growth.
The financial "tail" appears to be wagging the economic "dog". This would indicate an obvious fragility to the economy. And over the past decades this "tail" has not translated its benefit into wide-spread prosperity. We have Profits without Prosperity, the title of William Lazonick's article on stock buybacks. We have unprecedented growth of the ratio between "household net worth" to "disposable income", now at 781% compared to an average of 520% for 50 years between 1950 and 2000. I see this as $60 trillion of unnecessary wealth and a financially deprived majority. While wealth has exploded, wages have not moved an inch.
I'd be interested to hear you evaluate the proposal to redirect the profits from AI into a sovereign wealth fund, such as Bernie Sanders and others have proposed. It sounds like another name for a National Investment Authority.
Will do soon ("evaluate the proposal..."). Though one thing up front--the AI firms (or the AI divisions of otherwise profitable firms) have yet to make any profits!
Precisely. Computerization eventually led to a big increase in the productivity of the average worker, but did not lead to a big increase in the pay of the average worker. The labor share of corporate income is at a historical low I believe. The owners of AI "capital" will use is as always, to reduce labor. Eventually, maybe, they'll figure out that this causes a collapse in demand, after the fact.
I remain very concerned about what the markets will do as I intend to retire in the next few years. I just don't see all this AI investment as sustainable.
"This premium, shown below, is still pretty low in historical terms, but it’s clearly elevated, and while I think the fiscal risk here is again more of slow burn than a sudden shock" - unless or until the bond market reaches some tipping point. While theoretically an auction shouldn't fail outright, a sudden and large jump in the risk premium could be the moral equivalent of an auction failure.
I find it hard to understand why anyone (individual or government) would purchase long bonds (other than maybe TIPS) considering the current administration and republican party.
I know you don’t like the ambidextrous economist trope, you can’t resist ☺️ and you probably muse over what you would be recommending to President Harris … maybe we’re tittering on the edge of economic doom … many Americans are suffering and others cavorting in the Hamptons … is the oppressive heat climate change or the 9th Circle creeping higher?
Oh dear! And the parallel articles on food supply, water, health care and education coming soon. Some mid-term campaigns are also beginning to address this reality.