A Likely Pin to the AI Bubble

@Paul Krugman might be invited to the White House to explain the present economic uncertainty, but it would make no difference. The Resident would not hear him. His “Golden Effigy” is the DOW.

All of the major stock indices reached new highs since he came into office for the second time, and this is his only economic barometer of success. This blinds him to the reality that the GDP growth the economy has experienced comes largely from tech and data center investment. He wants to drive down interest rates, not to foster increased home buying or home building, not to increase automotive plant and equipment, but to keep the stock market up. With easy short-term money, speculators feel free to borrow against their holdings. After all, you only need to make five or six percent if you’re borrowing at two, or even one-and-a half.

But as I’ve suggested before, he’s racing with the “real” economy. He’s trying to boost economic “activity” before the actual numbers on the economy show its true state. In the meantime, the Danish National Pension has just announced it is shedding U.S. Treasuries in its portfolio. Other countries have been shedding U.S. Treasuries as well. Just a couple more actions like that before the next Federal Reserve meeting will be enough to burst the tech bubble, because cheap money will no longer be available.