The hyperscaler boom is crowding out other investment
Source: AI Versus Everything Else
fta:
“Crowding out” is a familiar term in economics, usually considered a consequence of government spending. When a government engages in deficit spending and the economy is at or near full employment, it drives up interest rates. That’s because, at near or full employment, the private sector is using all the available credit in the economy at the current interest rate. Therefore, in order to attract enough funds to satisfy its deficit, the government has to offer a higher interest rate. And this, in turn, leads to lower private investment. In effect, private investment is “crowded out” by the government deficit.
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Finally, how much risk is the AI boom creating in the rest of the economy? Tales of financial stress caused by high interest rates are proliferating. For example, a report in yesterday’s Wall Street Journal was titled “The surge in rates is blowing up commercial real-estate deals.” There’s a growing sense among observers I talk to that the adverse financial fallout of the AI boom for private credit and other loosely regulated parts of the financial system may be larger than many realize.
