The real problem is continued socialization of risk when the inevitable bailouts come. The government is basically telling everyone to take crazy risks, because if the risk is big enough, we'll bail you all out.
> The government is basically telling everyone to take crazy risks, because if the risk is big enough, we'll bail you all out.
This is the widespread sentiment, yes, and why the bubble is so crazy. The feeling a lot of people have is; even if shit hits the fan, rather than let stocks/assets decrease in value relative to cash, governments will just print money and keep stocks/assets "stable" while making cash worthless. The US proved they're willing to do this during COVID. What you're betting on by holding assets despite the bubble is that they're willing to do it again.
Yeah, but can they afford it? The government's debt obligations and inflation made it possible, the circumstances have changed considerably. They could wreck the economy for a long time by doing something like that again (particularly if it isn't a war or something).
The people in control of the economy are not affected by the state of the economy. There is no incentive for them not to gamble because there is no downside. If they win, they get even more money and power. If they lose, they'll still have their yachts and land and hobby rocket, newspaper, and social media companies.
Putin the magnificent has said "whoever leads in AI will rule the world". So it is a war. An arms race. Weirdly being run by private capital cuz there was no incentive(unlike during WW2/Cold War) to fund a state run Manhattan Project for AI.
Watch what happens if a breakthrough comes out of China, Russia or a shed in Nigeria. What is happening on Wall Street or who is loosing cash or jobs will drop instantly down the list of priorities. Money will be printed to the moon.
I think rather than there being "no state inventive", its that there is already private incentive, so there's not enough reason for the state to get heavily involved outside of maybe providing some additional capital. Private companies are already putting in the effort and taking on much of the risk, the government can just step in later after the results show.
Of course not, but with the Fed always standing at the ready to print more money, the answer is yes. The downside is persistent inflation. Inflation and default are two sides of the same coin.
I would really hope that nobody considers AI companies to be foundational to the economy the way the housing market is. I know there is going to be people crying in Congress with "Think of the 401ks!" but I really want the hype men to feel some pain this time.
It's really a shame that it's really the regular people who are going to suffer the majority of the harm when this bubble pops, as the Wall Street insiders get off mostly scot free yet again but I really don't want the government trying to prop up these assholes again.
That's true of every bubble. It's the best thing around until it suddenly isn't.
Don't forget that bubble popping doesn't necessarily mean that the sector is dead. The Dot Com bubble popped but people are still selling things on websites. It just means the hype and unrealistic expectations come crashing down to Earth. AI is going to be with us from now on, but it won't become a God with unlimited productivity next year.
> I would really hope that nobody considers AI companies to be foundational to the economy
The way people in the US government has been speaking and acting goes against that hope. Instead, it seems to be unanimous that AI will be the foundation of the economy, the US can't lose its leadership on it for even a second (because when it takes over, it will take over in a second), and it's worth breaking every rule, spending every cent to keep, and cannibalizing every other industry if necessary.
Honestly, you have to deal with the delusional con-man in power ASAP.
https://www.derekthompson.org/p/this-is-how-the-ai-bubble-wi... Goes into good detail on how the bubble has infiltrated everywhere. Like if you went into a REIT thinking it was safe from the bubble, nope a significant portion of your investment is in the data center buildout
It seems like an (ugly?) truth that if you don't want to be exposed to bubbles, you have to take lower-return investments, by definition. Because the bubble is raising the high bar of what kind of return people expect on investment, so if you try to get close to that, you're going to end up affected by the bubble.
The problem, of course, that no one wants to take a lower return on investment.
Yeah, but I guess the point is that it is so big you can't escape it, it's everywhere. So the fallout will not be limited to a segment of the economy, it's going to hurt everywhere.
And the reason nobody wants to take a lower return on investment is that doing so is trying to time the market.
Let's say you heard Trump's talk of tariffs, got spooked when he won the election, and moved your investments. The S&P 500 has gone up ~33% since election day. How much growth can you realistically miss before correctly hedging against a crash still net loses you money?
And that's assuming you pick the correct hedge. If the US economy well and truly crashes beyond return, to the point where the S&P 500 is actual garbage that will not recover in the next 5-10 years, that might bode poorly for the dollar, so that's it for your treasuries, money market funds, CDs, etc. Gold is always an option, until it's at an all time high because just as the economy is roaring along a ton of people are nervous. So, you can invest in gold, but it's expensive, which means it could actually dip if we get stability. Ok, so you invest in foreign markets - but the Global Financial Crisis was global, the Great Depression was global, everything was global.
What do you actually hedge in? Oil? Well, the rapid development of green energy might actually, finally render that an unsafe investment. Green energy? Think again, the president is on a crusade against it. There's literally nothing that's actually a safe investment, and even if you did find a safe investment, the big crash might not happen until everyone else riding the wave has doubled or tripled their investment, by which point they'll be on par or even above you post crash. I'm actually very happy I'm nowhere near retiring, since regardless of how else you feel of the current governing of the US, I think it would be hard to argue that they're fighting a war against conventional wisdom, and that makes investing very scary.
I can’t see the case where we won’t need more data centers in the future even if AI is a bubble as more work load is generated and even if it is a bubble. There are real world use cases where you will need ML and inference even if you don’t need to spend money on training.
Why would the government bail out AI companies? They didn’t bail out the dot-com bubble. Bailing out the auto industry was about the UAW. Bailing out financial institutions went with programs to keep people from being foreclosed on and losing their homes. The AI bubble doesn’t have those incentives and is mostly (all?) private company valuations.
I think you could make an argument either way and have an equal chance of being right. Either Trump et al get bribed/flattered/are personally exposed to the fallout and bail out their fellow class members or he gets angry about it and decides to make heads roll via his increasingly captured and controlled DOJ. I still agree it's more likely the former than the latter but I can see the path that leads to the latter.
It came out soon after AOL acquired Tine Warner in 2001 that they artificially inflated income to prop their stock up for the merger to go through. No one was punished for it.
"Heads will roll" just means "severe punishments will be administered". It doesn't necessarily imply the punishments will be illicit, illegitimate, or even fatal.
