So when I look at this entire landscape, it seems to me that some of the basic conditions of a financial crisis are at least starting to fall into place:

1. We have a big story about why “this time is different” — the idea that AI will change everything, and that data centers will thus earn huge returns.




2. We have a large and increasing amount of debt bei

A recent article by Fillat et al. of the Boston Fed argues that bank lending to private credit funds might pose a systemic risk to the banking system:

The meteoric rise of private credit presents important questions about the role of banks going forward and the implications for stability in the US financial system…Our analysis of Federal Reserve and

Private credit funds take some of their financing as equity, but they also borrow money. Some of this money is borrowed from banks. In 2013, only 1% of U.S. banks’ total loans to non-bank financial institutions was to private equity and private credit firms; today, it’s 14%. A recent note by Berrospide et al. of the Federal Reserve shows the rise i

Using a comprehensive dataset, covering a wide range of macroeconomic and financial variables, we demonstrate that it is the interaction of asset price bubbles and credit growth that poses the gravest risk to financial stability. These results, based on long-rung historical data, offer the first sound statistical support based on large samples for

I think it’s important to look at the telecom boom of the 1990s rather than the one in the 2010s, because the former led to a gigantic crash. The railroad boom led to a gigantic crash too, in 1873 ( before the investment peak on Kedrosky’s chart). In both cases, companies built too much infrastructure, outrunning growth in demand for that infrastru

Side note: I’m actually not sure Kedrosky is right about the height of the telecom boom. His chart shows the level of capex for 2020, when 5G and fiber infrastructure was being built out. But Doms (2004) shows U.S. telecom capex reaching $120 billion in 2000:

Capex spending for AI contributed more to growth in the U.S. economy in the past two quarters than all of consumer spending , says Neil Dutta, head of economic research at Renaissance Macro Research, citing data from the Bureau of Economic Analysis. [emphasis mine]

Investor and tech pundit Paul Kedrosky says that, as a percentage of gross domestic product, spending on AI infrastructure has already exceeded spending on telecom and internet infrastructure from the dot-com boom—and it’s still growing. He also argues that one explanation for the U.S. economy’s ongoing strength, despite tariffs, is that spending o