Correct! Got another 1-2 months tops

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The AI boom is already wrecking the economy, and the real bust hasn’t even started.

Imagine an auction with one bidder who’ll pay any price. He wins every lot, and everyone else goes home with nothing.

That bidder is AI, and the auction is the market for borrowed money.

Amazon, Alphabet, Meta and Oracle sold about $194 billion of bonds by early July, already 79% more than in all of 2025. Goldman puts total financing for AI-linked groups near $500 billion so far this year, and the 5 hyperscalers are expected to issue more than $1 trillion of new debt over the next few years.

When one borrower doesn’t care whether money costs 4% or 8%, rates have to keep rising until they hurt somebody who does. The 10-year just touched 5.33%, the highest since 2002. The 30-year mortgage is at 7.28%, up from 6.34% a year ago, and purchase applications are running 14% below last year.

So the people paying for the AI buildout right now are home buyers and the rate-sensitive businesses that employ millions of Americans, and almost none of them will ever own a share of Anthropic.

Now look at the TRAP the Fed is in:

They raised rates in September for the first time since 2023. A hike is supposed to slow borrowing, but it does nothing to a borrower who doesn’t care about the price. So every increase lands on the wrong target, squeezing housing harder while the data center spending carries on untouched.

And when the AI trade finally breaks, those losses stack on top of the private equity and private credit mistakes made with free money in 2021. Julien Garran makes the point that at that stage you’re facing a solvency problem, and the Fed was built to handle liquidity.

So his conclusion is that the next cleanup takes fiscal and monetary firepower together, in size, which means printing a lot of money.

And DO NOT count on a recession to rescue the rate-sensitive sectors this time.

In past downturns long yields fell and mortgages got cheaper. Julien thinks they may not fall nearly enough, because every major developed government is running big deficits at once while Japan and China step back from buying Treasuries.

That’s how you end up with the worst possible sequence:

A downturn that doesn’t bring rates down, followed by a cleanup paid for with printed money, with the bill landing on everyone holding dollars.

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