IMF Warns of the Real AI Threat: Debt (imf.org) 65
"Along with the dangers of continuing cyberattacks, the International Monetary Fund (IMF) reports that the threat of an AI market crash is putting the global markets at risk," writes Slashdot reader databasecowgirl, citing the IMF's latest semiannual Global Financial Stability Report. Here's a summary: Three salient risks could trigger a sharp tightening of financial conditions and market turmoil. Weaker or less durable investment and profitability in artificial intelligence could lead to a correction in AI-related asset prices, amplified by rising leverage and concentrated exposures. Resurgent inflation or fiscal concerns could drive a sharp rise in sovereign bond yields, with potentially broad repercussions across financial markets. Meanwhile, increasingly sophisticated cyber threats pose growing risks as finance becomes more digital and interconnected.
Underlying financial vulnerabilities could amplify these risks and turn market stress into systemic events. Although the global banking system remains broadly resilient, pockets of weaker banks persist. Liquidity mismatches among insurers and pension funds have increased, while rising leverage and contingent liquidity risks in private credit could amplify stress.
While hedge funds support market functioning in calm times, their use of leverage and exposure to crowded trades could exacerbate market stress too and create spillovers to prime brokers. Some emerging markets have seen policy buffers erode, and frontier economies have increasingly relied on less transparent forms of financing.
Finally, although markets for tokenized assets remain small and could offer efficiency gains in several areas, they can create new channels for the buildup of leverage and mismatches in liquidity and maturity, in addition to elevating risks related to technology and infrastructure. These vulnerabilities underscore the need for policies that strengthen resilience, enhance transparency, contain excessive leverage, and improve preparedness for future shocks. The full report can be found here (PDF).
Underlying financial vulnerabilities could amplify these risks and turn market stress into systemic events. Although the global banking system remains broadly resilient, pockets of weaker banks persist. Liquidity mismatches among insurers and pension funds have increased, while rising leverage and contingent liquidity risks in private credit could amplify stress.
While hedge funds support market functioning in calm times, their use of leverage and exposure to crowded trades could exacerbate market stress too and create spillovers to prime brokers. Some emerging markets have seen policy buffers erode, and frontier economies have increasingly relied on less transparent forms of financing.
Finally, although markets for tokenized assets remain small and could offer efficiency gains in several areas, they can create new channels for the buildup of leverage and mismatches in liquidity and maturity, in addition to elevating risks related to technology and infrastructure. These vulnerabilities underscore the need for policies that strengthen resilience, enhance transparency, contain excessive leverage, and improve preparedness for future shocks. The full report can be found here (PDF).
Did AI write that buzzword bingo summary? (Score:5, Insightful)
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Look at you, Mr. Fancy Pants, using a word like "obtuse". Can you make your comment less painful to read?
The opposite of acute. What's hard about that?
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You are likely not among the intended audience of the IMF report. The report was not written for college sophomores. It is an 85 page global financial risk discussion written for business and government economics and finance professionals who understand precisely what each of those big words mean. The /. summary is simply a shortened version of the report's executive summary. Not everything written needs to be reduced to the reading level of the average high school student.
Very elitist response (Score:2)
You are likely not among the intended audience of the IMF report. The report was not written for college sophomores. It is an 85 page global financial risk discussion written for business and government economics and finance professionals who understand precisely what each of those big words mean. The /. summary is simply a shortened version of the report's executive summary. Not everything written needs to be reduced to the reading level of the average high school student.
I believe in UX/UI principles: if your audience can't figure out your UI...then you failed, not them. If a motivated reader can't follow what you're saying, then 90+% of the time, it's your failing, not their stupidity. I know many advanced and technical things, including a lot of deep dive software details. If I can't explain the topic to a motivated audience, then it's a sign I don't understand it well enough to not rely on crutches. I used to ask as an interview question "Explain $theFirstFrameworkOn
The shat is everywhere (Score:5, Funny)
Most Index funds likely have >10% exposure to AI, and there are all kinds of secondary risks, today. When Anthropic and OpenAI go public the risk likely doubles. It is incredibly hard to protect yourself.
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Ah the Meerkat daily newsletter.
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One thing thats shitting me off is my Superannuation retirement fund has far more AI exposure than I'm comfortable with. I've opted for the "conservative" plan (safer investments, lower returns) until I'm comfortable that this AI bubble is over, but even that has far too much AI shit in it, and well, my $100K (I didnt do a lot of saving in my younger life) probably isn't close to enough to get me an appointment with the fund manager. Unfortunately labor australian laws (Here theres a compulsary requirement
Re:The shat is everywhere (Score:4, Interesting)
Unfortunately labor australian laws (Here theres a compulsary requirement for employers to pay in a certain percentage of wages into super) dont let me self manage that specific retirement fund, has to be in a licensed super fund.
At some point Australian superannuation morphed from "saving for retirement" into "giving 10% of what every Australian earns to some finance bros to gamble with." Those finance bros hate the idea of YOU gambling with your money, only THEY should be allowed to.
Unfortunately, in the minds of the public superannuation is still about saving for retirement, so no meaningful changes* will be made any time soon.
* Except maybe insane ones like allowing super to be used for home deposits. But that would take us WAY offtopic.
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At some point Australian superannuation morphed from "saving for retirement" into "giving 10% of what every Australian earns to some finance bros to gamble with." Those finance bros hate the idea of YOU gambling with your money, only THEY should be allowed to.
Maybe I've been brainwashed, but how could you save for retirement without some kind of finance bro getting to clip the ticket on the way through?
But to your point, DIY via self-managed super fund is an option. And many super funds also have direct investment options.
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Unfortunately labor australian laws (Here theres a compulsary requirement for employers to pay in a certain percentage of wages into super) dont let me self manage that specific retirement fund, has to be in a licensed super fund.
Wrong. You can run a super fund yourself, if you so desire. SMSF (Self Managed Super Fund.) Ask your accountant about it. Then you can track your ability to invest in whatever vs the big guys. Many invest in real estate via SMSFs (or did.) It's not simple, but it is possible. No, you can't just open a bank account or buy shares, etc. I know people that do it and get 10% returns. The catch is you have to have the time, knowledge, and skill to do so. Plus annual accountant fees, etc.
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finance bros
The established financial industry is the exact opposite of a "finance bro". There's almost no fintechs in the super space in Australia. It's largely dominated by companies that existed before the term "finance bro" was even a thing. It sounds pedantic but it's very relevant here. Finance bros is a term almost universally used to describe young, hip, high tech, and above all *risky* endeavours. Often talking about kids who are younger than most Superfunds, many of which pre-date the internet.
to gamble with
100% of super f
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100% of super funds on the market allow you specify the risk profile, that includes very much *YOU* deciding how they use your money including investing in fixed assets only (for a low rate of return).
Sure, you can specify your risk profile. And you can "choose" for your superannuation to minimise carbon emissions, or to be "ethical." Then you read the fine print to find out the fund still invests in coal mines and sweatshops. There are weasel words in there about changing the system from within. So the super fund will still use your money however they want, but they pinky-promise to raise ethical questions at the next board meeting. There is also the standard investment caveat that "previous performance
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We would be considered in a recession if not for FANG stocks, so they are propping up the market and they are doing this on credit. So take economic activity or from AI and you have a problem. AI is betting on 1) we can replace workers and get revenue so need compute 2) much more data center spend but that is a FOMO pissing match and if people don't figure out the revenue it's there it's a bad day for everyone
Soooooo... (Score:5, Interesting)
Re:Soooooo... (Score:5, Funny)
Schadenfreude is priceless; no finite amount of money can match it.
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Where do I put my money now so I can profit ( even more than just the schadenfreude ) from Sam Altman's demise ?
Now that betting markets exist, you can place a bet on exactly that.
Panic behind closed doors (Score:4, Interesting)
I've heard from a guy involved in the bond market thst the economy is in major recession outside of the Mag7 and AI stocks.
Apparently secondary markets, insurance reinvestments, private credit, pension funds - they're so heavy in AI stocks to just beat inflation that when Sam said tokens aren't selling fast enough with the decreasing cost of generating them to turn a profit they started bracing for an Everything Crash.
Like insurance companies failing, CRE going into foreclosure, pension funds defaulting, bond-issuing companies liquidating equity to meet obligations, etc.
Treasury would have to hyperinflate to bail them all out, transferring massive wealth from the People to the Corporations, yet again.
That's gonna get spicy and probably stabby.
Re:Panic behind closed doors (Score:5, Insightful)
The economy is not the stock market.
The stock market is up. Big business is making innovations and selling them to each other.
The economy is hurting. Prices are up, and sales are down. People cannot afford the things they need.
Re: Panic behind closed doors (Score:3)
I'm not sure which correction I believe to be more accurate:
People cannot afford the things *they think* they need.
People cannot afford the things they *want*.
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like safe food, clean drinking water, affordable housing?
Things like that?
Re: Panic behind closed doors (Score:2)
Re: Panic behind closed doors (Score:2)
Nice recursion on the "affordable housing" by the way. Isn't the whole premise of a market economy that everyone wants to pay less for everything?
Expectations have risen with the quality of life (Score:2)
Re: Expectations have risen with the quality of li (Score:2)
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Given my grocery store's sales (and the region in general for my company) we're hurting. Our business is running the same, but the price of food doesn't make us more money and the price of diesel is really killing things. We've slashed hours to minimums and don't replace shifts ever.
We're not the only huge grocer that is struggling either. People must eat to survive. Last year, I even saw a nice little spreadsheet that showed the EBT benefits used at our store last year compared to this year. Most of the co
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The economy is not the stock market.
The stock market is up. Big business is making innovations and selling them to each other.
The economy is hurting. Prices are up, and sales are down. People cannot afford the things they need.
We know that the economy is not fully encompassed in the stock market, but the view of our decision makers, from the corporate C-suites to our politicians, is that whatever happens within the stock market is 100% the indicator of the entirety of the economy. There isn't enough time for them to concern themselves with the fact the plebs can't afford to eat or keep a roof over their head. I expect we'll hear the ramp-up in rhetoric against the homeless as the economy continues to grind and bind in such a way
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We don't agree often in our discourse, but I do tend to agree with this summary of yours.
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Retail sales are not down, they continue to grow. September saw a 0.8% increase in retail sales and the previous month's growth was revised upwards to a 1.3% gain. Two caveats. First, reported retail sales are in nominal terms that don't account for inflation. Second, the business press describes the economy as K shaped where the top 20% of households by income continue to spend liberally partially due to the wealth effect of stock market gains while the middle and lower income households struggle.
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"Retail sales are not down, they continue to grow..."
According to the ports of LA/LB, business is a boomin'. Tonnage this year is breaking records, as it did last year.
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CRE is in trouble but not due to AI. All those loans they took out 5 years ago at 1% are due to either be paid off (snort, snicker, tee-hee) or rolled over at 6%. That's if the banker is even willing to talk to you. the good news is she will be willing to negotiate because your building no longer pencils out and will likely be sold for less that the outstanding loan so the bank will book a loss.
As the famous song put it so well;
Gloom, despair, and agony on me
Deep, dark depression, excessive misery
If it were
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That's gonna get spicy and probably stabby.
Not in the USA. Maybe in France.
I'm Inclined To Agree (Score:3)
I'm inclined to agree with the International Monetary Fund, on this one.
Which probably means that we'll see the biggest bull market ever for the next 5 years.
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Debt doesn't scare me... (Score:2)
I laugh in the face of debt.
Debt? USA (Score:1)
Re: Debt? USA (Score:4, Insightful)
How come markets kept setting record highs since then, providing returns that have been close to ten times inflation?
Because LLMs are the new tulips.
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The stock market's value was not dominated by house flippers back then.
Today, the market is largely tulips.
A good thing underperforming is not a "threat" (Score:4, Interesting)
Debt is indeed a rising threat. Us federal debt has reached $40 trillion (greater than the total GDP), with interest payments now the second-largest expenditure after Social Security. The bill works out to $4k per person, or $12k per tax return filed.
Really consider that the first $12k on your tax return bought you nothing. Not just nothing personally, it funded no library, no road, no food stamp, it just evaporated into financial fees. And we're hitting a higher-interest era where borrowing is more expensive.
AI related growth and investment is what's been keeping the present economy floating in the wake of tariffs, accounting for something like 30-50% of recent GDP growth and hundreds of thousands of jobs.
It also the only thing that could possibly result in enough growth to offset the rising debt ratio and prevent a painful economic future. (Even then the growth will have to be on the very high end of projections.)
So it's weird to come away from that and imply AI is imposing an existential risk ("The Real AI Threat") due to "weaker or less durable investment and profitability in artificial intelligence". That's like if your take on medicine was "medical research is a catastrophic thing to get involved with, instead of curing all cancers we might only cure certain varieties, do you want a future in which you die from those cancers?"
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Closely followed by excessive money printing by the Orange One. Why should you care? Because your current wealth is about to shrink big time, and it's not coming back.
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Yes, and had Biden won, we would likely have better gas prices but the AI situation wouldn't be any different. But yeah, it's ALL Trump's fault. Doesn't that ever get old to you? I mean, do you really think everything is just sunshine and rainbows when the Dems are in or do you just hate Trump?
If you hate Trump, I get it. He's a terrible person. Worse choice we've ever made. He's really just a symptom of our problems though and he's a con-artist that took advantage of our idiocy.
Frankly, I haven't seen anyt
making debt great again (Score:4, Interesting)
"weaker or less durable investment and profitability in artificial intelligence". That's like if your take on medicine was "medical research is a catastrophic thing to get involved with, instead of curing all cancers we might only cure certain varieties, do you want a future in which you die from those cancers?"
well, you need two things:
first, tech companies need a breakthrough that makes them profitable. that's not impossible, and there is hope, but there is no real sign that that's even on the horizon. meanwhile they're burning cash and generating even more debt, chasing that breakthrough.
next, that breakthrough needs to empower business and people to be productive and profitable. growth isn't a few ai companies getting filthy rich, nor stock profits, it's the whole economy innovating and getting a productivity boost. the internet did that, and it took a while and a few crashes. however, debt kept growing, and multiplied.
so while growth is necessary, the fundamental problem and the solution isn't really growth, it's fiscal and economic policy, and governance. even if they find that holy ai-grail, without changes in policy and governance that limit or repurpose spending to facilitate growth debt will continue rising and getting more expensive. so far changes in policy have actually gone in the opposite direction.
that debt will never be repaid, ai or not. without a considerable change in policy at some point the choice will be a) default now or b) print more money and default tomorrow. actually, a) would hurt but would also be the best option for the vast majority of people. b) only makes things worse.
there's also option c) plunge the world into chaos. can't claim a debt if you're dead, right? some might think they're already at it.
Re: making debt great again (Score:2)
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Predictable sequence (Score:2)
Its a predictable sequence and the end point is that interest payments become so high that they crowd out all other government spending. At that point the government is paying interest out of new borrowing. The UK is approaching or maybe has reached this stage now, due largely to out of control public sector wages and employment and welfare payments.. This is the Ponzi stage. Total debt at this point is over 100% of GDP, and the nation is on borrowed time. Its going to stop, but its not all that predi
Talking in "tulips" (Score:2)
The usual middle-men may suffer another feedback loop that destroys the market and the ability to sell tulips and its accessory products.
A new derivative product may be worthless as it inherits all the problems of the original tulip and its market.
The IMF thinks it's clairvoyant (Score:1)
This is the same IMF that this week upgraded its forecast for the UK's growth - BEFORE the chancellor's forthcoming budget. Presumably they're assuming we're going to become an oil state again in the next 12 months. Just a small matter of plumbing.
Just use more AI (Score:2)
Can't honestly say if it was Sam Altman or Dario Amodei that said this but it's probably something they would have said if they didn't.
...and by that mechanism a $2T valuation is modest.
Full disclosure: AI wasn't used to generate the sarcasm in this post.
Let Ai solve it! (Score:2)
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AI put in total control probably would result in more equality for all. That's why it won't happen. Rich people don't have time for equality. They are rich and that makes them better then the rest of us.
Fortunately, the rich control the AI so it's not really a problem after all. The human species doesn't really need 8 billion anyway. 50 million is fine. We had a nice run! I wonder if they'll kill us with a virus or just sterilize us with a virus. It will be a virus, make no doubt. Covid showed how easy that
Re: Let Ai solve it! (Score:2)
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You mean let AI generate an answer so someone can proofread it
but government debt is perfectly acceptable (Score:1)
Righr? Government debt great and amazing! Corporate debt bad....
Same with ponzi schemes..
MLM or Ponzi system ! (Score:2)
When I look at the investisment in the AI ecosystem, I find that those look like some Ponzi schem or everyone are buying for everyone in the same fiels, they exchange the cash and share the profit, where the share holder receive only debt