A lot of Americans are intensely focused on Iran and rising oil prices right now, which is completely understandable.
In fact, as I explained last week, elevated energy prices will ripple through our economy and our lives in myriad ways.
We will pay more for gas. We will pay more for food. We will pay more for many goods, because of rising materials costs … rising shipping costs … or both.
There is no debate about any of this. It’s only a matter of magnitude and duration.
Although it might be hard to see the connection between gas and electricity, the reality is that the two are very linked.
And when we look at the energy sector — especially American utility bills — the increases will only magnify existing pain.
Just consider that the average residential U.S. electricity bill has already risen roughly 30% since 2021 … much of it due to competing demand from AI-related data centers.
According to a study from Bloomberg News, if a new data center goes up near your house, your electricity bill goes up as much as 267%.
That means we have several interrelated pain points — what’s happening in the Middle East …
What has already been happening at home on both the inflation and economic fronts …
And the AI bubble I’ve been warning about.
It’s ironic.
If AI fails to deliver big results as promised, we will almost certainly see a major crash in the stock market.
And even if AI succeeds, we will see massive job losses and soaring energy costs … which could end up being worse for most Americans.
Think about it.
Investors believe in the AI narrative so blindly … and they’ve plowed so much money into the so-called Magnificent 7 stocks … that those technology names now account for roughly one third of the S&P 500.
But it doesn’t stop there.
Investors have also been willing to pay much higher prices for non-technology stocks because they believe AI will ultimately increase profits at those companies, too.
If we don’t see results, all these assumptions and expectations will go up in smoke. Quickly.
It won’t just crash stocks, either.
We’re already seeing cracks in so-called private credit market funds — bundles of loans tied to things like AI data centers.
These highly illiquid investments are very much like the CDOs that brought our entire financial system to the brink as the housing bubble popped.
In other words, we have a ‘90s style public market bubble and a mid-2000s style private debt problem both premised on AI delivering bigly.
If it doesn’t, look out.
And if it does?
Maybe the bubble keeps inflating. But probably at the expense of everyday Americans.
We’ve already been seeing rounds of AI-driven layoffs.
I’m talking about more than 4,000 people gone from Block (XYZ) in a single day …
30,000 from Amazon (AMZN) just since last October …
Meta (META) saying it could slash up to 20% of its workforce …
And HSBC Holdings (HSBC) recently announcing plans to shed as many as 20,000 banking jobs.
Maybe some of these positions were redundant and AI is just the cover.
But I don’t think anyone disputes that massive cuts will happen if AI continues to improve rapidly.
Indeed, we’ve heard people like Sam Altman and Elon Musk openly discuss the idea of MOST work functions disappearing because of artificial intelligence.
If you’re picturing some weird dystopian future, where robots have taken over and there’s never enough energy … well, yeah, that’s kind of what it sounds like if AI succeeds.
In his post-meeting Q&A last week, Jerome Powell said,
“Stagflation refers to a situation like the 1970s, when both unemployment and inflation were very high.
“Today, unemployment is close to its long-run average, and inflation is not at a level that high.”
The war in Iran is already threatening to stretch things back to a true stagflation situation.
If AI succeeds, it could force us to come up with a new word entirely.
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