- AI will cause the world to overload on debt purportedly designed to be “safe” by our AI masters.
- In the process it will reinvent economics and finance from the ground up at least partly based on the new kids on the block of behavioral economics and finance.
- These will provide new and disturbing ways to manipulate the unsafe borrowing behaviors of consumers, investors and government.
Ultra-High Intelligence, Ultra-High Debt?
Things come down from on high for a reason. The US is straining to figure out how to raise the debt ceiling. According to S&P, global debt has hit a record $300 trillion, 350% of GDP - $37,500 per global capita of debt versus GDP per capita of just $12,000. Oh yeah, from 2007 to 2022 government debt-to-GDP leverage grew by 76%, to a total of 102%.
Oh yeah again: in the US we have just heard that US home prices fell by the most in 11 years. A recession is probably in the offing. Usually that means debt leverage grows as equity declines. Doesn’t that mean ever more horrendous levels of debt and ultimately some sort of semi-global debt defaults?
Here’s my bet. Nope. AI is actually going to save us from the brink, at least at the start. I think the not-inconsiderable influence of highly indebted governments, corporations, economics and AI nerds is going to lead to huge pressure on all of these to change the ways in which we record and handle debt so that the danger is at least apparently averted.
AI Says Trust Me!
These changes will come rapidly from the rapidly growing populations of ChatGPTs. They will invent and design new ways to record, handle and, yes, manipulate government finances and liquidity, together with matching and supportive changes in macroeconomic and microeconomc models so that theory and practice appear to be in sync, even if they are not.
We can expect to see new classes of ever-more inventive and exotic financial instruments such as derivatives emerge. These will work together with these other changes to change the global picture of debt which will, by this time, have become both incomprehensible and deeply toxic. As you might guess, this will shut up all those Chicken Littles who bemoan the end of financial discipline. Of course, that won’t prevent the inevitable financial apocalypse.
I think work is likely already ongoing in the expected think tanks and universities to do this and we can expect to see ChatGPT economic models emerge soon that will reveal this brave new world to us in the near future in all its glory.
Debt Just a Figment of Fevered Behavioral Imagination
What particular shifts in thinking are going to drive this momentous change? For the most part only ChatGPT knows but I have one hunch. That is that ChatGPT is going to independently discover that the framework provided by behavioral economics and finance is going to provide new ways to skirt the traditional guardrails for thinking about debt and prevent it from exploding in our pasty faces.
The key idea is that debt is not a “real” issue at all and, properly handled, can never damage even the apparently most vulnerable widows and orphans. It’s merely a behavioral issue, duh, so it’s all in your fevered imagination.
You can add on as much debt as you feel comfortable with, up to a point that is. And in doing the shifting it’s going to find that people can be comfortable with abnormally high levels of debt, way, way beyond the levels economists and other glitterati have predicted. This paves the way for truly astronomical levels of debt and the associated global mental breakdowns that accompany it.
If We Can Think it, We Can Do It Safely, NOT!
Here are some of the questions I can see being asked on ChatGPT now or in the near future.
- How do I buy the government of a country with nothing down?
- Can we shift populations into being comfortable with what was hitherto considered to be catastrophic levels of personal, business and government debt?
- What should the new target rates of debt to GDP be in the new New World of Debt? Are thousands of percent, OK?
- How do financiers buy whole populations? Could a financier buy the entire right-wing population of Europe or the entire Telegram user base of Russia?
- Can governments – or private institutions – end wars with new thinking about economics and finance, especially with the new behavioral angles?
- What sorts of new and alternative data do we need to get the most out of this revolution?
We wanted AI. Now you’ve got it baby.
Enjoy!