A macroeconomics expert warns that the massive AI-driven capital raise in the US has now become the largest bubble in recent history, threatening to demolish the current financial order.
In an investor note, Julien Garran, a researcher and partner at the UK firm MacroStrategy Partnership, says investments in AI, housing, venture capital and crypto are now 17 times larger than the dot-com frenzy and 4 times the 2008 real estate bubble.
He warns that the size of the “capital misallocation” could spark a major catastrophe and change the financial world as we know it.
“Make no mistake, I think that this is the biggest and most dangerous bubble the world has ever seen… and as it unwinds it will not just threaten substantial economic malaise, it will threaten to overturn the entire globalist agenda, and the new financial order, that developed with the advent of Thatcher and Reagan in from 1979 and 1982, accelerated with the fall of the Berlin Wall in 1988, and sped up again with China’s accession into the WTO in 2002.”
Garran notes that aside from Nvidia and a handful of large language model (LLM) facilities, nearly everyone else in the AI space is losing money and relying on “drying up” capital to sustain operations.
“It is only an explosion in round-tripping from Nvidia that is keeping the bubble inflated. Nvidia’s actions are unprecedented, and I ask the critical question: ‘Why is it doing this?’ One thing is clear: Nvidia’s actions are certainly buying time for insiders to sell out at a high price.”
The macrostrategist warns that if the AI bubble bursts, the US would witness a “substantial recession” and force the Trump administration to devalue the dollar to stimulate the economy.
“The danger from this is that, if the two Nvidia effects just stop, this will take 3 percentage points (PP) of nominal GDP growth, and it will take an economy that is already at stall speed into a recession. However, the danger does not end there, because when the LLM AI bubble bursts, as I argue that it will, the risk is not just that data center growth and the Nvidia wealth effect plateau, but that they reverse, just like the Dot-com infrastructure boom and wealth effect reversed in 2001.
If that takes place, it risks taking another 3pp off GDP growth, pushing the US into a substantial recession…
That will generate a very different set of winners and losers than we have been used to; the winners will be resources and emerging markets with a burgeoning middle class, India and Vietnam. Losers will be Big Tech, platform companies and balanced funds.”
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