AI debt driven financial crisis ahead of us
The unwinding of the debt here which, just like the GFC, is much worse than what we can easily see, will be horrific.
They go through the various ways in which that could happen. None are good. They range from prolonged recession (think Japan's 'lost decade' which has lasted nearly 20 years) to depression.
There's no way to escape it, it's baked into everything at this point, but you can try and limit your exposure to the worst of it. Here's some of the things I'm working on doing myself (bearing in mind that everyone's situation is different).
Switch some or all of your AI workloads to Chinese models
The Chinese market is very competitive, very diverse and not saddled with huge amounts of debt. Added to this China is actually deploying power and data centre capacity so they are better placed to meet spikes in demand.
Decrease AI investment risk
Index funds are AI heavy. If you're not going to hold just cash, make sure your investments are in sectors which have the least to lose from an AI crash. Notice I said 'least to lose' instead of 'most to gain'. I don't think there's any winners from this crash and I think trying to find some 'The Big Short' opportunity is as risky as thinking the line will go up forever.
Decrease AI debt risk
Many money market funds are now full of repackaged AI debt. Companies can default on debt, and the AI debt will default en-mass, countries rarely do. That's because they can print money. That money may deflate, but the debt won't default. If you're holding with a 20-30 year time horizon then the current interest rates will compound nicely over that time. Anyone betting advanced economies will collapse in the next 50 is likely on drugs or mentally ill or (likely) both.
Deploy capital into crypto
Crypto is the only proper alternative to tradefi markets. There is a good chance a decent chunk of the world's investments end up in crypto post crash and they stay there. The GFC birthed the blockchain. What confidence people still have in tradefi will be sorely tested by yet-another tradefi disaster. A 1000 crypto crashes would not even approach a meaningful percent of the value tradefi destroyed via the GFC. Crypto might be wildly volatile, and risky, but it's open and fair in a way that tradefi cannot ever compete with. Winning is not about being 'great' it's about being better than your competitors.
Position yourself as sceptical of AI hype, but not sceptical of AI
Paul Krugman was right when he called the dot com boom a dangerous bubble. He was wrong when he called the internet no more useful than fax machines. AI is good tech that is (currently) way over-hyped. There's a heap of grift going on right now from consultants and companies selling the same snake-oil many sold leading up to the dot com crash. Post crash people will still want to leverage AI, so keep the receipts and use them to win out over the charlatans when the reckoning comes.
