The entire US economy is currently being propped up by growth in the AI/tech sector. And I am convinced that LLMs are fundamentally incapable of delivering on the promises being made by the AI CEOs. That means there is a massive bubble that will eventually burst, probably taking the whole US economy with it.
Let’s say, for sake of argument, that I am a typical American. I work a job for a wage, but I’m mostly living paycheck to paycheck. I have maybe a little savings, and a retirement account with a little bit in it, but certainly not enough that I can retire anytime in the near future.
To what extent is it possible for someone like me, who doesn’t buy into the AI hype, to insulate themselves from the negative impact of the eventual collapse?
Weird question. Not clear anything you can do.
First, AI bubble means datacenter bubble. Nvidida, AMD, TSMC, Chinese equivalents will do fine, as they have options to make products for non datacenter use.
Scenarios:
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No mass corporate uptake for datacenters, or requirement to encrypt upload/download traffic to corporate owned models hosted by datacenters. Amazon/Google/MSFT can win relatively such a race if they allow private encrypted models instead of their own, and can buy distressed assets from failures. It just means slower than announced deployment rates, with only losers those datacenters who get married to losers.
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CPU enhanced AI (knowledge graphs) with/or smaller LLMs. Datacenters can still provide corporate users, but mix of regular and gpu datacenters, Datacenters can lose big if next big thing requires replacing hardware, and they were too early. Shift in winners and losers, but not an AI/datacenter bubble.
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Few of the announced datacenters are ever built, or 5 year+ delays. Public company investments will go down a little, but nothing catastrophic for big tech, who can make it up in other areas. Power company histeria is an associated bubble that does poorly. This is a very likely scenario.
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Datacenters are successful and aggressively built. No AI bubble, because government surveillance revenue is obtained, and heavy government use of LLMs to keep population pro Israel/oligarchy/militarism. A freedom and jobs bubble is not better than an AI bubble.
Meme stock mania means even the biggest losers can rebound strongly. An everyone else bubble happens whether or not AI datacenters are successful.
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It’s also funny how Lemmy is buying up this narrative.
The entire US economy is currently being propped up by growth in the AI/tech sector.
What’s happening is that Dementia Don is curb-stomping the US economy. AI investments, mainly in data centers, are the only thing that still seems promising. When you are on a trek and someone leads you through Death Valley, while pouring out all the water, you shouldn’t blame the last horse that still keeps going.
Putting the blame in the right place would certainly help, with a view toward the mid-terms.
Financially: Diversify. Make sure that you are not completely dependent on what happens in the US. But mind that Europe comes with its own imponderable risks (ie Putin). Same with China. Maybe some old leader dies and the new crew runs everything into the ground; they go to war with Taiwan, that sort of thing.
Divest and buy labubu dolls.
There is a good reason why Warren Buffet is holding so much cash right now, he will be bargain shopping soon.
Don’t have money invested in the stock market to prevent it from losing value during downturns
If you are already invested, you can be reasonably separated from the stocks that are inflating, when the bubble bursts, as long as you are diversified the overall dip will serve you.
The directly impacted industries, those AI companies, data centers, blackrock real estate which is currently heavily investing in local power generation, hardware. That kind of stuff will impact the market, but your money is in relation to units owned. That value will come back and you as a long term investor will make a multiplier on any money you lost, because you ownership, your shares continued to go up at the reduced cost.
If you need the money you have invested for living expenses, you are fucked, but long term investors come out of these recessions stronger every time.
That’s managed investment, retail investors who are highly leveraged in the affected industries will be fucked.
Also look at gold, precious metals are a ridiculously solid investment, just don’t buy them at the market highs put of panic.
The stocks that are inflating are a significant portion of the stock market.
When they crash everything will.
When that happens the only way to not lose is to not have money invested.
Right, they lose value, but you still retain ownership. As a part of the regular flow of things the money you make from those stocks gets reinvested into more ownership, something that keeps happening even when the value of those stocks fall.
As long as your ownership stays, the market will rebound and you will make a premium because the number of stocks you owned actually went up during the period of value loss.
When people talk about how much money rich people made during covid, they are largely talking about stock value, not just carpet bagging.
I’m sorry but I can only describe this mentality as cope.
The market rebounding requires diversified investors propping it up, which no longer exist.
If AI goes kaput the stock market is getting set back at least half a decade, it will rebound, over the course of a decade or so.
That’s not good for people who need a retirement, like the vast majority of people invested in the stock market
Yeah, no the market has plenty of diversification, there have been times in history where our investments as a country have been much less diverse. When the AI bubble pops, and it will, it’s gonna be just like all the other bubble pops we’ve experienced. People who didn’t sell made back those funds after every crash. The people who needed the money right then, the elderly especially, we’re totally fucked. They couldn’t wait out the dips.
I’ll grant you it’s possible this is end of the American expirement because of mixing this with Trump, but i would have to ignore every other historical example. In which case the money won’t matter at all because there will be no guaranter of American fiat currency, which means you’ll see Argentina levels of inflation, we aren’t even close to that yet.
No it’ll pop, the rich who are heavily invested will make a ton of money when investors move their funds to another bubble, we’re also in a real estate bubble! And the whole machine will keep moving.
If you’re planning for a catastrophic failure you should really be buying that gold tho, precious metals, bullets, guns, fresh water, seeds.
Buy other stocks, not American ones. They will also be affected but not as much.
If you are living paycheck to paycheck, you cant do anything.
Non-US countries are buying gold, this seems to be a good way to go.
What did you do in 2020, when everything shut for COVID?
What did you do in 2008, when the arse fell out of the housing market?
What did you do in 2000, when the dotcom bubble popped?
Chances are the answer was “just shuffle on as normal, carry on living paycheck to paycheck, possibly get a new job if you work for somebody badly affected”. Odds are your pension pot will recover by the time you need it.
What do rich people do? They gamble. Watch The Big Short. You could try that, but chances are you’ll lose money. “The markets can remain irrational longer than you can remain solvent”, as the old saying goes.
Buy low when everything crashes and wait for it to recover in 3-5 yrs.
I haven’t seen a job with a pension in the last 18 years being in the workforce.
I had a pension at my last job about 11 years ago. Then not long after I left with it fully vested congress passed a law allowing companies to creatively value pensions far lower than they should have been able to and most companies “bought out” the pensions for a fraction of their value. My pension got turned to mush, then a few month later congress passed a law “fixing the glitch” after most large corps had done their dirty work. My pension would have paid out about $800/month on retirement (likely not great depending on inflation), but their reassessment made it more like $150/month which probably won’t cover a phone bill when I am retired.
Unions and Government jobs have pensions. But if you have a 401k or any type of IRA, the same people who invest pensions are also doing that investing for you if you aren’t managing it ( IE: mutual fund and etfs) and the investments are pretty much the same for both, so if pensions tank, so will your 401k.
Gov jobs still have them
Sort of. I’m a gov worker (non fed) and mine is a joke. 1% of salary per year of service. Not very significant. The old scheme was 2.5, I think, and before that it was 30 years to full salary. I still work with people on that old one, and they’re about at the full 30. In a generation it’s gone from a nice retirement to being more like a supplement. We do pay into SS now though so I guess that’s meant to replace it.
Do you not have a pension saving scheme that gives a tax break when employers pay into it direct from your wages?
In the UK it’s pretty standard. I think it’s even a legal requirement for employers to offer it, even if the amount they put in is paltry.
In the US those’ve been almost universally replaced by 401k plans, which I assume is what they’re referring to.
I wouldn’t say the “entire US economy” is AI based.
Invest in Gold
Follow the classic financial advice of setting aside enough emergency savings for a period of unemployment and diversifying the asset classes in your investment accounts (eg, retirement, health, education savings) to align with your risk tolerance & goals.
I keep 6 months of emergency savings in a high-yield savings account & let a robo-adviser passively invest my other savings on autopilot. While that means losses with market downturns, all the advice I’ve read & studies they refer to that run simulations over historic data (including shocks, downturns, bubbles) say that impassively holding that strategy has historically come out gaining & beating inflation.
I’d be more concerned with insulating yourself against the AI bubble not popping if I were you.
The good news is the strategy works for both scenarios. Hyperlocal renaissance or bust.
Weird no one is saying this, but exchange dollars to Euros.
Had it been done back in November of last year, 1,000$ would now be worth about 1,200$.
Even if the Euro loses some value from the crash, it probably won’t be greater than 20% of the exchange difference there is now.
I dont think this is why no one is saying this. But the reason you shouldn’t do this is because of the Efficient Market Hypothesis. This is the same for basically any investment where you are trying to be “smart”, whether you are buying gold, low tech stocks, various currencies, crypto, etc. The fact is, sitting on your ass and clicking a few buttons on an investment website takes literally no effort - which is why there are trillions of dollars in investment funds trying to do it as profitably as possible. Every dollar in the market is competing to eak as much value out of every minute in the market as possible, and these dollars are very smart.
Like, if you graduated top of your class from MIT in financial analysis, you are still at an unimaginable disadvantage, because the evil capitalist hedge funds hired all your classmates, and also all the equivalent graduates for the past 40 years where they have all been competing against each other that whole time. And they have shit tons of money to spend on the best tech they can possibly afford in order to make tiny improvements in trade returns.
You can exchange dollars and euros on the open market, which means the banks and hedge funds can do that too, which means that the anticipated difference between the two is already priced in.
Great points, currency arbitrage is not something the average Joe can win at, the money they have access to is already stepped on.
I think its too late. The dollar lost 15% of its value from beginning of year… It doesnt look like it will go much lower. Its been kind of stuck for the last month.
What is hte least friction way of doing that?
Revolut
I do wonder…
With most economic crashes, the rich get even richer. This time it’s different, though.
Right now, the top 8 richest men in the world have as much wealth as the bottom 50%. Homelessness world wide is at an all time high, and a huge swath of people can’t afford all the basic necessities anymore.
If an economic crash happens now, will the 99% of the people finally wake up and just TAKE the resources from that 1%, like it or not?
What do billionaires think will happen to them once shit really hits the fan?
This time it’s different, though.
Why?
Homelessness world wide is at an all time high, and a huge swath of people can’t afford all the basic necessities anymore.
I highly doubt your homelessness stat. If it is at an all time high by any metric, it is almost certainly a statistical artifact from (1) increased homelessness in developed nations, where tracking is decent and (2) improved tracking in developing nations. Meanwhile the people who can’t afford “basic necessities” are, again, in developed nations - places where the notion of what constitutes basic necessities would be considered grand opulance in many parts of developing nations.
Instead, the majority of people in the world have seen improvements to their quality of life over the past 20, 40, and 60 years. Improved water and sanitation systems, more robust and resiliant food systems, greater access to life saving medical care, huge drops in infant mortality, hugely increased access to technology and education.
If an economic crash happens now, will the 99% of the people finally wake up and just TAKE the resources from that 1%, like it or not?
This is, quite frankly, a ridiculous fantasy. The wealth of the top 1% primarily exists not in vaults of gold bars, but in the ownership of what are intangible human constructs. Particular segments of land (lines on a map); businesses (organized structures of people); intellectual property (literally just ideas).
Elon Musk, for example, has a large portion of his wealth in Tesla. Of course, Tesla has physical assets in its factories and such. But most of the value of the company is speculative - people expecting Tesla to be wildly successful in the future. The next part of its value comes from IP - the exclusive ownership of its various inventions and innovations. And another part comes from the organizational structure itself and the knowledge and intelligence of the individuals who make up that structure. At its root, the value of Tesla is the goose that lays the golden eggs (Musk’s cult of personality and the expertise of the individuals that make up the business) and investor confidence that the goose will continue laying golden eggs. In your glorious revolution, presumably Musk will be beheaded, and all the Tesla employees will scatter to the far winds as the proletariat storms their offices. Without the stable interaction of these technical experts, no more innovation happens, and investor confidence dries up (assuming the investors weren’t also beheaded). The wealth of Tesla, then, does not go to the people, but goes up in smoke.
A revolution premised purely on taking assets from the rich has a predictable ending: in the slim chance that the revolution succeeds, even if the tangible wealth is equally distributed to the people (also a slim chance), the engine that generated that wealth has been destroyed and, deprived of the ability to generate new wealth, the people eventually spend away their windfall and are left with less than they had before they started. This sort of phenomenon was literally the impetus for Adam Smith to write The Wealth of Nations. Spain had spent a couple centuries robbing the Americas of its gold via murder and slavery - enough to literally collapse the price of gold in Europe. And yet, during Smith’s time, Spain was in dire financial straights while England was the world’s predominant economic power. Why? Because England had invested in technology and had developed industrial factories. It had invested in public and private institutions (ie, structures of people) that would continuously generate new wealth, rather than relying on hoarding gold bars.
The “glorious revolution” fantasy, meanwhile, is largely counterproductive to the actual goal of improving normal people’s lives and improving the equality of political and economic power, because it plays into the childish notion that if we just throw a big enough temper tantrum, then we will get our way. And maybe that might be true for a brief moment. It is certainly true for some children some of the time that if they yell and scream and cry enough, they will be given the ice cream they want. But they only get that ice cream because there is an adult there, listening to them cry, who has a job that makes money that they can then use to buy the ice cream. The problem is that, ice cream or not, at the end of the day the child is still a child, completely dependent on the adult to provide for all their needs and make all their important descisions. The child gains real autonomy in their lives not when they throw “The Glorious Temper Tantrum” - they gain it when they get a job outside the purview of their caregivers and are able to spend the money they make at that job on the things of their own choosing.
So, too, with average people growing out of the controlling influence of the political and economic elite. Independence is achieved via building things - communities, relationships, physical infrastructure, businesses, governments, unions - which can be relied on instead of the options presented to us by the elites. And building things takes time and effort. It doesn’t happen overnight with a few molotovs and a good photo op - that’s the narrative the elites want you to believe, the one they put in all the popular movies and tv shows, because it is the strategy that is absolutely sure to fail. The idea that The Great Battle will be followed by Happily Ever After serves the elites because it tells us that we will win when we just put in a reasonable amount of effort right at the very last moment, and then we can relax. This is not how the world works. No - the world gets better when people put in unreasonable amounts of effort right now to gradually improve things and build things bit by bit, and keep putting in that effort for years and years and years. Sure, maybe there will someday be a tipping point or a big marker in history that we can point to and say “ah, that’s when things changed”. But make no mistake - that moment can only happen, and will only lead to a better world after the fact, because of the long term, boring hard work of people who care more about building things to help their friends than destroying things to hurt their enemies.
They all have been building bunkers.
They will always be safe in the US. Americans truly are not capable of revolution.
What do you think would happen to billionaires in that scenario? The richest people in the world, who all own their own islands and mega yachts and can easily pay anyone enough money to do whatever they want?
No one is “taking” what they want from them lol.
This time it’s different, though
How? How is this fantasised about economic crash different?
When you have 10000 people to 1, a lot can be accomplished with some organization. You don’t have to get to them on their islands if you take back the mainland. Cut them off. Eventually they’ll run out of supplies, and since they’re used to getting whatever they want whenever they want, they’ll run out of something they’re accustomed to getting within days.
You act like billionaires are some smooth brained Neanderthals who will lose their mind in a few days if they can’t get their favourite smoothy lol
Wen you’re accustomed to privilege equality feels like oppression. And that’s just for us regular folk. These people live a life of luxury we’ll never understand, and they never get told ‘no’. So yeah, as dumb as it sounds, when you’ve lived a life getting everything you ever want finding out you can’t have that smoothie can have an effect.
I’m not saying that first smoothie would be the trigger point, but the idea is lack of access. Cut off the new sewage drainage from billionaire island. Cut off deliveries of any kind. They’re used to lobster and caviar at the snap of a finger. Kraft Dinner will be unacceptable. Lock them in their utopias and see how long they last.
How long until their smart homes break down and they can’t bring in IT to fix it? These things can absolutely have an effect.
Riding out economic ups and downs is really just about good personal finance. The good advice is the same in good times and bad, which is why it is good advice - in economics, you never really know when good or bad times are coming.
- Spend less
- Earn more
- Invest the difference
Your #3 is problematic.
The basis of the question is where to invest in order to avoid the coming AI crash. Your answer fails.
Truth of the matter is that predicting and determining when the stock market crashes or if a recession already happened is hard. Saying definitively “there were warning signs and I should have sold my shares” is hindsight bias. When COVID happened, everyone thought that a recession will occur and pulled out their investments. The COVID-induced recession didn’t happen and we have come with a better economy than before thanks to good handling of the economy by governments across the world. Those who sold their investments have to re-buy their shares but it is now at higher price than when they previously bought, and they missed out on potential higher profit had they stayed.
Of course, the world is not black and white and not all circumstances are the same. It is always a case by case basis and there are variables always at play. We came out well after COVID because we know that we definitely had a good leadership back then. But with economy under Trump, there is a higher chance of recession happening for obvious reasons, not just with AI bubble burst. In that case, it is still bad idea to sell all your shares because you would have to re-buy them at now premium price, but you could diversify your investments to safer countries or sectors in preparation for the high likelihood of a market crash. I have divested from US stocks and bought more European and Japanese ones, and invested in energy sector because it is more resilient even during economic troubles. I might have to rethink about my US healthcare stocks, however.
If you’re certain an “AI crash” is coming, then shorting AI companies is how you’d not only avoid the fallout but actually profit from it. That’s speculative investing though - basically gambling.
For everyone else without the ability to predict the future, the general advice stays the same: invest in low-cost, highly diversified index funds spread across sectors and regions. The markets are deeply interconnected, so it doesn’t really matter where you’re invested - when the market crashes, you’re getting hit. If you’re all in on tech, you’ll get hit hard; if you’re spread out, you’ll get hit less. But either way, you’ll feel it.
For someone in it for the long run, it doesn’t matter what the market’s doing. I just keep doing what I’ve always done - managing my finances carefully and investing my savings.
Right.
I will say also that if you want to hedge against AI, then you could invest in non-US based index funds.
Another option is to invest in something like real estate. Do the math and find something you can profit off of even with a down economy and you’ll be able to get your investment to ride out the hard times and earn in the good times. But similar to index investing, these investments should be made with an eye on long-term gains (on the order of decades).
A final option - possibly the best - is to invest in yourself. Put the money into good health (physical and mental), skills that pay dividends (like being able to cook or do your own repairs, or building a community around yourself of hard working, optimistic, and sensible individuals. Skills education can be a great investment - either going to a university (careful here with costs, but college graduates still do tend to have better lifetime earnings than non-graduates), a technical school (AI probably won’t replace plumbers for quite a while), informal self-teaching (you can learn a lot of skills just making personal projects at home or in a makerspace). And for the more ambitious, you can start your own business, which could be as simple as buying a ladder to clean people’s gutters or a snow plow attachment and truck to plow driveways and parking lots.
Hard times are coming - they always are. The people who do well in hard times are the ones with a diverse set of useful skills, a resiliant set of assets, a positive mindset, and a supportive community around them.
Shorting counts as income and you’ll be taxed on it as income. You also have a chance that no one will buy you out of the hole once it hits its mark.
Lots of risks in shorting.
While I agree with diversifying, the tariffs are fucking over the stock market hard in so many ways you cannot avoid it. Right now everyone sold their gold cuz they need money, And two days ago the tariff on China created a ripple on the precious metals. Tomorrow trump will fart some blithering assanine remark and suddenly for whatever reason lithium will take a dive for it.
Investing has become a stupid stress game.
I guess up your international market fraction (?)
If you’re certain there’s an AI crash coming then you could make a lot of money betting on it. Put your money where your mouth is and become one of the billionaires.
You could also just not invest money in AI companies.
I am not an expert per-say on AI, but I have survived economic collapses. Kinda.
Here’s what you can expect.
It will happen a lot faster and more sudden than you expect. It will be a few days of “uncertainty” and you will see reports on the market and spending and fear through investors, and then BAM everything goes deep red for a few days and then you suddenly get sent home from work.
Your job, no matter how skilled or stable or unrelated to finance or the stock market you may think it is- is NOT safe. In fact, service industry jobs are often the first to go, because when the market tanks and investors start pulling out money, one of the first, strongest effects we feel is that people with money immediately stop spending. If you install windows and doors, if you cut grass, if you clean or cook, expect people will suddenly start doing that themselves more and more. You may get laid off suddenly depending on how much reserve your company has.
There will be an immediate and overwhelming strain on state and city services. Unemployment offices, food banks, employment centers, and expect the media to create a LOT of hype around it to a destructive degree, there will be the same kinds of supermarket raiding like we saw with covid for no real good reason other than people feeling afraid.
What you should do now to prepare:
Have backup income plans. Even if modest, have some hustles ready to deploy. Get certified or see what you need to get certified ahead of time to do Uber and/or Lyft, people are going to be using ride sharing more because they won’t be able to afford to drive or make car payments. Think about other services people are going to need if they don’t have jobs - handyman work on the cheap, dog and pet care, unlicensed work you know you can do safely, etc. If you or your family can do art and crafts, set up an etsy market now before you’re strained, open it up to international customers.
SAVE MONEY, have cash savings as well as bank savings, have gold too if you can swing it. Expect any accounts that are tied to investments to be frozen or even wiped out, such as 401k’s and the like.
Whatever you can do to reduce debts and spending - pay down or pay off credit cards or cars if you can. Get your finances in order as much as you can, so figure out exactly what you’re spending and what your margins are.
Stockpile canned goods and basic survival supplies ahead of time like it’s the goddamn apocalypse. Seriously, have at least a month of dry goods and preserved food, you have some time (maybe) so start collecting canned food, sacks of dried beans and rice, toilet paper and soap, other supplies you buy regularly. This will give you a safety net if it gets bad, it’s one less [major] thing to worry about as you shift around your expenses and priorities.
Get information ahead of time about where your local DES/unemployment offices are, and what’s required to apply. Find out ALL the programs you can apply for, from, nutrition assistance to grants to stipends or tax credits for whatever your family situation is. You won’t get through on the website, it will be crashed with traffic, so be ready to go stand in line with your paperwork. You will get some number of months of benefits if you qualify (requirements vary by state) and most likely after some political contention, congress will pass emergency funding for extensions and stimulus checks. But it won’t last forever.
Go visit your nearest food bank now. Bring them some food and socks, get to know who runs things so that when it’s your time to stand in line, they know you already and have good associations.
We don’t really know how bad it could get. So get a gun. There may be civil unrest at some point. Our world is about two missed meals away from anarchy, or at the very least crime will increase and homes will get broken into, and police will likely be understaffed and overworked. You will be on your own.
