Four years into the AI surge, the promised productivity boom is exposed as an asset-backed consumption binge, characterized by rising trade deficits and massive imports of hardware and power infrastructure. Instead of exporting high-margin APIs, the U.S. is financing this consumption by selling off financial assets, creating a scenario where spending consistently exceeds domestic production.
Markets reward truly extraordinary businesses with premiums far above book value — but today, everybody seems “extraordinary.” Humans struggle to accept absurdity and instead rationalize contradictions. Increasingly, LLMs do the same: rather than confronting irrational valuations, they manufacture coherence. If you refuse to “fudge the absurd,” you eventually end up living mentally on the other side of the mirror. Laugh or cry, your choice.
The Minsky clean-up is not unique to today or the US. A similar dynamic occurred in the UK in 1825 after post-war debt led to changes in gilt coupons. Today’s SPAC boom echoes past speculative excesses. As always, the cycle turns when credit tightens. Cutting gilt coupons has two key effects: it shifts relative yields and disrupts credit markets.