20261016 Alles nur heiße Luft?

The Wrong-Way-Risk

This isn’t about a few coins, but at least 1.4 trillion dollars — and we’re really talking about trillions, as in the English term “trillions.” And in terms of content, it’s once again about the AI bubble, which has continued to inflate endlessly this year as well. It only looks good on paper: one side has a bulging order book, the other has plenty of fresh capital. However, if you take a closer look at the matter — as Bernd Müller did at Telepolis.de in the article linked below — you have to become skeptical.

Just like with the infamous pyramid schemes, the money circulates in a loop. This works as long as enough money is sucked in by the hype and new investors jump on the seemingly well-oiled bandwagon. But this process is always finite. Telepolis.de writes: The International Monetary Fund (IMF) has crunched the numbers. The result: According to their calculations, there have been 14 deals of this kind since 2023, involving approximately $300 billion in equity, $650 billion in debt, and commitments for future revenue totaling $1.4 trillion.

Much to the IMF’s chagrin, this enormous sum is concentrated in just a few companies rather than being based on a broad foundation and functional products. The linked article explains this circular AI financial cycle using tables and graphs.

And then there’s the “wrong-way risk.” In the financial world, this term describes the unintended interdependence of risks. The IMF defines the term as follows: Investments and loans to these companies would “lose value precisely when the associated future revenues are impaired.”

This is precisely the scenario looming over the AI industry. Everything hinges on just a few players. Bernd Müller writes: “The investment shrinks, the loan becomes uncertain, and the firmly planned cloud or chip revenues fail to materialize. The revenue promise therefore secures nothing; it shares the debtor’s fate” — and in his article, he paints a vivid picture of the resulting disruption to the cash flow.

Whether or not the crash — allegedly predicted for October 31 on (anti-)social media — will actually happen, emerging markets in the Global South are already suffering from high interest rates and the difficulty of finding investors to address their (local) problems amid the current hype surrounding AI investments. For emerging markets, this development means at best a standstill, but often even hunger and hardship. The IMF describes the reckless leverage (leveraged bets) on AI stocks in a background analysis on leverage in the AI ecosystem.

None of this has much to do with sound economic policy anymore, and certainly not with the call for “well-being” for people — a principle even the economic liberal Adam Smith advocated, as we learned at the conference of the Privacy Platform.

Translated with DeepL.com (free version)