Boom, or impending bust?

 

Ted Gioia is worried about the state of the economy, and the mixed signals from higher levels that are conflicting with data "on the ground".

Are we entering an AI-driven boom time like an out-of-control Monopoly game? Or will we be too broke to eat breakfast?

Let’s try to answer this question—because a lot is at stake in getting the answer right.

I see signs of economic turmoil everywhere in the real world:

• Starbucks sales are down and they are closing 100 stores.
• KFC and Pizza Hut sales are down in the US.
• Dozens of other restaurant chains are closing locations.
• Las Vegas tourism is down sharply and visitors describe it as a ghost town.
• In fact, the entire hotel and hospitality industry is shrinking.
• There are now a half million more homes for sale in the US than home buyers.
• Credit card debt is rising—and is now back at its all-time high.
• US unemployment is the highest it’s been since the pandemic.
• The jobs data was so bad that the person compiling the numbers got fired!

Companies are getting desperate, and they can’t hide it. A friend reports that Pizza Hut sent him a promotion on Tuesday morning, offering a two dollar pizza. He wondered how they could possibly make money on this deal.

And then that same day he got a notice from competitor Papa John’s, also promising a two buck pizza.

Two bucks for a pizza? Really?

This is how businesses respond when customers totally disappear. They will do anything to bring them back. Otherwise they have to shut down.

And this is a reality untouched by promises of an AI boom time. It’s everywhere in the real world where flesh-and-blood people live and work.

Mr. Gioia goes on to note five important points about the so-called AI "boom":

1. Half of the gains in the stock market are due to just five stocks.
2. These companies are betting everything on the buildout of AI data centers.
3. There’s no indication that consumers are willing to pay for this enormous infrastructure.
4. The reality is that nobody can afford the proposed AI data center buildout.
5. And there are all sorts of other warning signs—energy usage, water consumption, etc.

He concludes:

By any reasonable measure, the current trend is unsustainable. And there’s one thing I know about unsustainable trends—there’s a day of reckoning, and it’s not a happy one for the people who caused it. But, even sadder, they take down a lot of others with them when the bubble bursts.

There's more at the link, including some informative and worrying graphics to illustrate his points.

If you've followed our discussions in these pages over the past few years, you won't be surprised by any of this.  Previous administrations have spent us into near-bankruptcy, and papered over the fiscal cracks with almost unlimited treasury bond sales and other measures.  Our deficit is so high it's almost impossible to visualize:  and as always, excessive debt becomes a drag on the economy as a whole, both for those who caused it and those who simply happen to be in the same country.  Sooner or later, our economic chickens will come home to roost, and some (like myself) think that won't be long delayed.

I hope I'm wrong.  I really do.  It would be wonderful to think that President Trump will be given enough time to stave off the crisis, and do what's needed to begin restoring our economy . . . but I somehow suspect that the damage is already too great.  He'll paper over the cracks as best he can, but no matter how good his policies may be, he's not a miracle-worker.  (He also contributed to the problem by not controlling deficit spending during his first term of office.  He gets a great deal of credit for his current policies, but also a share of the blame for the mess leading up to the present situation.)

Go read Mr. Gioia's whole article.  Food for thought.

Peter