Reversal of ‘excessive’ tech investments could have serious economic consequences, report finds
Debt-fuelled spending on AI is driving up the risk of a global financial crisis, central bankers have warned.
The Bank for International Settlements (BIS) said on Sunday that “excessive” spending on new AI data centres and opaque transactions risked a financial meltdown similar to the global credit crunch nearly two decades ago.
The BIS, known as the bank for central banks, said there was growing “peril” in financial markets from the complex web of financial ties between AI giants, shadow banks and data centre builders unravelling.
“Financial stability could ... be at risk in the event of an AI bust,” the BIS said. “Should hyperscalers slow or halt the aggressive pace of capex deployment, many borrowers across the supply chain could struggle to replace lost revenue and service their debt.
“The opacity of AI-sector financing compounds these vulnerabilities.”
Pablo Hernández de Cos, the BIS general manager, said there were major questions about whether the boom would benefit the wider economy and warned a reversal of “AI exuberance” could have serious economic consequences.
“One risk is that large-scale investment in AI infrastructure becomes excessive, as each firm tries to outcompete rivals and dominate market share,” he said.
“This could leave the sector more vulnerable if AI underdelivers, possibly bringing the current investment boom to an abrupt end, with large macroeconomic consequences.”
The BIS warning is one of the strongest yet on risks lurking in the AI boom. The Bank of England warned in December that share prices were now the “most stretched” they had been since the 2008 crisis....
Global economic pressure points call for policy discipline: BIS*On June 26, 2007 (i.e. pre-"Quant-quake", pre-Bear Stearns, pre-ought-eight-near-catastrohe) we posted a short little piece:
"(Off-topic) Banks' banker warns of downturn":
June 2008THE risk of a 1930s-style economic slump has been heightened by "euphoric" markets tapping cheap global credit, one of the world's pre-eminent financial institutions has said.In its annual report, the Bank for International Settlements noted that the conditions that led to the Great Depression of the 1930s and the Asian crises in the 1990s reflected the current environment.From The Age
BIS: Don't Worry, Inflation Not a Problem Because Global Economy Will Crash
May 23, 2013
Evans-Pritchard: "BIS and IMF attacks on quantitative easing deeply misguided warn monetarists"
I didn't see the BIS comments as an attack, just a heads up on what's going on.* I don't really care what the IMF says....
So yes, we listen, even if, as in that last case they can be early, the BIS seems to understand this central banking stuff.
