Investing Social Media and Updates

AI‑Driven Revenue Drop Threatens Sovereign Bonds, Raises Capital Costs

This is an incredibly thought-provoking global macro piece from @infraa_. If the gov't revenue decline from AI disruption of white collar workers isn't counter-balanced by taxation from AI productivity, we could be tip-toeing into a potential Sovereign Bond Implosion. The Fed will also need to be quick to react with potential YCC. It's a very slippery slope, but one thing is for sure, the cost of capital should be rising along with uncertainty about the future: "As I first wrote in the summer of 2024, the US can't really afford a recession. Assuming a conservative 30% decline in revenue (GFC saw a 32% decline), government revenue would fall to $3.6 trillion. Automatic stabilizers and incessant demands from the displaced white collar (politically powerful) workers would likely result in even larger expenditures for the government. The average increase in outlays between Dotcom and the GFC is 11%, with 2020 causing a 65% increase. This would likely be slightly higher than the GFC given the scale of recent government benefits programs (see: 2020). The pump has been primed and the populace now knows what can be done in times of emergency and, understandably, this will sure feel like an emergency. Assuming a modest 20% increase in expenditures, outlays would rise to $8.6 trillion, resulting in a $5 trillion nominal deficit. For perspective, gross private savings is currently $6.4 trillion, corporate profits $3.6 trillion and personal savings at $900 billion. This would be a staggeringly large burden. With GDP currently at $31.5 trillion, and assuming a 5% NGDP growth rate from the article, the deficit would climb to almost 16% of GDP."