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Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

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Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#151

Post by whimsicalism »

CraigJPerry wrote: post #134
whimsicalism wrote: post #32

Earlier quoted context omitted.

I'm not giving investment advice, just commenting that our current fiscal trajectory has become completely unsustainable & dangerous and very few people seem to be seriously discussing it. Probably the closest US bond equivalent would be debt from well-run Asian countries. I would avoid fixed-income dollar denominated assets.

>> completely unsustainable in what way? as a sovereign currency issuer, the US can't ever be made to default or can it? What definition of unsustainable fits? What event could cause public debt growth to reach some kind of insurmountable maximum? It's not like private debt, when you run out of money, that is the end of the road. There is no such limit for a sovereign currency issuer. The complete settlement of outst…

Leveraging your power as "sovereign currency issuer" means monetizing the debt, aka inflating away the debt, which is disastrous in terms of what it does to purchasing power but also in terms of creditor confidence.

Please, Stephanie Kelton didn't discover some secret hack to get money for free - I would recommend learning traditional macro before going on the MMT train.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#152

Post by whimsicalism »

disgruntledphd2 wrote: post #129
whimsicalism wrote: post #51

Earlier quoted context omitted.

I think there are many smaller jurisdictions that are getting their shit together and might absorb demand - southeast Asia, Singapore obviously (but small), the Gulf. Some subsets of the EU, particularly Eastern Europe. Plus, even worse-run higher yield jurisdictions become more appealing as the US fails.

It's more about volume than anything else. You or I could invest elsewhere but where do all the foreign holders of Treasuries and US stocks put their money?

Yes, I understand your point very well. My point is two-fold, 1. that many small and stable jurisdictions can absorb excess capital even if there isn't a single stable player as large as the US, 2. it makes higher yield less stable jurisdictions more appealing on the margin. Ultimately, capital will flow away from the US if our fiscal stability is increasingly in question.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#153

Post by whimsicalism »

ajross wrote: post #122
whimsicalism wrote: post #14

AI is a risk. The thing we know is going to bite us in the butt is our continued massive sovereign debt burden and lack of any political will whatsoever to either increase taxes or reduce spending. The dollar is not going to do well this century and creditors confidence is already starting to decline. In fact, the further we go into debt - the more we are implicitly betting our society on an AI hail mary.

> massive sovereign debt burden Cost to service the debt is about 60% of what it was in the 1980's. All those bonds are long since paid off. This is a meme. Should we adjust to something more sustainable? Yes. Is the "burden" too high to bear? No, it's just not.

if you know enough to know that cost to service was higher in the 1980s as a % of govt revenue (not sure about 60%, we're actually pretty close AFAIU) then you should understand enough to know why that is not nearly the full picture.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#154

Post by array_key_first »

alphazard wrote: post #50
whimsicalism wrote: post #34

Earlier quoted context omitted.

If the US reduces the debt, it removes pressure to monetize and removes market expectation that we will monetize, which directly boosts the dollar. I also think that "rich people are scamming us" is a politically more advantageous message than "old people are scamming us".

The most important thing is eliminating the annual deficit. That sends more of a signal about the future of the country and it's currency than the total amount of debt. How it gets done is separate from that. Given that the only demographic that can comfortably weather a recession is also starting to collect social security, paid for by younger generations who would be meaningfully affected by a recession, "old peopl…

Social Security is not really relevant to the deficit, that's just a thing some politicians say because they want to dismantle the pie to take their piece. Every time someone points to SS as the source of our fiscal woes, we should be immediately skeptical.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#155

Post by array_key_first »

whimsicalism wrote: post #13
Pxtl wrote: post #7

Seems obvious. AI is useful. But it's not trillion-dollars useful, and it probably won't be.

Why is that obvious? Even with effectively complete stagnation and just existing technology + limited RLVR, I can see how this could be trillion-dollars level useful.

The monetization behind AI is on shakey grounds. Nobody is actually making any money off of it, and when they propose how to make money, we all get very scared.

It's either world-ending hard to believe conjecture, like the death of scarcity, or it's... ads. Ads. You know, the thing we're already doing?

So, it's not looking great. Maybe we will find monetization strategies, but they're certainly not present now, even by the largest players with the most to lose.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#156

Post by bigfatkitten »

dzhiurgis wrote: post #144
Delphiza wrote: post #20

Earlier quoted context omitted.

It is the financial risk that is obvious. The big players are struggling to show meaningful revenue from the investment. Because the investment is so high, the revenue numbers need to be equally high, and growing fast. The 'correction' is when (ok, if) the markets realise that the returns aren't there. The worldwide risk is that AI-led growth has been a large chunk of the US stock market growth. If it 'corrects' US g…

> big players are struggling to show meaningful revenue from the investment ChatGPT's $10b per year is not insignificant tho.

It is when compared with their capex, and where is that revenue coming from? It’s predominantly coming from other AI hopefuls incinerating capital.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#157

Post by cmurf »

array_key_first wrote: post #154
alphazard wrote: post #50

Earlier quoted context omitted.

The most important thing is eliminating the annual deficit. That sends more of a signal about the future of the country and it's currency than the total amount of debt. How it gets done is separate from that. Given that the only demographic that can comfortably weather a recession is also starting to collect social security, paid for by younger generations who would be meaningfully affected by a recession, "old peopl…

Social Security is not really relevant to the deficit, that's just a thing some politicians say because they want to dismantle the pie to take their piece. Every time someone points to SS as the source of our fiscal woes, we should be immediately skeptical.

I assume they just want to redirect the required payroll taxes into the stock market via privatization. Currently it goes into the trust fund which buys U.S. treasuries.

https://www.ssa.gov/OACT/ProgData/assets.html

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#158

Post by insane_dreamer »

dzhiurgis wrote: post #146
insane_dreamer wrote: post #142

Earlier quoted context omitted.

Because it primarily replaces existing value rather creating new value worth $1T.

What creates more value - 1 developer or 1 developer working at 10x pace?

First of all, 1 dev _producing_ at 10x pace is a myth.

But second of all, companies do not need to 10x their software production output. Rather the goal, if the 10x productivity is achieved, is to _reduce_ human labor while retaining desired levels of output.

If ultimately you're replacing humans with AI agents, you're exchanging one value for another.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#159

Post by bakeshop »

whimsicalism wrote: post #14

AI is a risk. The thing we know is going to bite us in the butt is our continued massive sovereign debt burden and lack of any political will whatsoever to either increase taxes or reduce spending. The dollar is not going to do well this century and creditors confidence is already starting to decline. In fact, the further we go into debt - the more we are implicitly betting our society on an AI hail mary.

A country that issues its own currency cannot run out of money or be forced into default in that currency. What we call the national debt is the total of money the government has created and not yet taxed back. Those dollars are private savings in another form, not a burden that must one day be repaid.

Creditors do not fund government spending; they hold safe interest-bearing assets created by it. The real risks to society are not financial but productive and ecological. What matters is whether we are using our labor, technology, and resources to meet real needs, not the size of a number on a balance sheet.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#160

Post by CraigJPerry »

whimsicalism wrote: post #151
CraigJPerry wrote: post #134

Earlier quoted context omitted.

>> completely unsustainable in what way? as a sovereign currency issuer, the US can't ever be made to default or can it? What definition of unsustainable fits? What event could cause public debt growth to reach some kind of insurmountable maximum? It's not like private debt, when you run out of money, that is the end of the road. There is no such limit for a sovereign currency issuer. The complete settlement of outst…

Leveraging your power as "sovereign currency issuer" means monetizing the debt, aka inflating away the debt, which is disastrous in terms of what it does to purchasing power but also in terms of creditor confidence. Please, Stephanie Kelton didn't discover some secret hack to get money for free - I would recommend learning traditional macro before going on the MMT train.

There's so much to unpack here. I think the first thing to agree is that we don't need a model when we can just look directly at the law.

This goes in the bin:

>> recommend learning traditional macro

It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions.

So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws.

Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference.

With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in?

Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy)

Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?)

So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this.

The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.

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