THE Bank for International Settlements (BIS), known internationally as the ‘central bank for central banks’, issued an apocalyptic warning on Sunday that the global financial system is at ‘peril’ from the debt-fuelled expansion of the Artificial Intelligence bubble.
The BIS released its flagship Annual Economic Report raising serious alarms over three interconnected issues that threaten to upend the global economy and plunge capitalism into a recessionary crash.
It identified record-high levels of public debt, increasing financial vulnerabilities in the sovereign bond markets, and the threat posed over the massive surge in the highly speculative AI industry.
What is causing panic in the BIS is the emergence of the highly ‘fragile’ and potentially ‘explosive’ relationship between public debt and the financial markets.
For decades, government bonds, sold to financial investors to finance government spending especially in the US and UK, were seen as the ultimate risk-free investment.
The BIS warns that the old traditional financial stability has been ‘severely compromised’ by the fact that over the past few years the massive supply of new debt is now held by non-bank financial intermediaries (NBFI’s), more commonly called ‘shadow banks’, comprised of highly leveraged hedge funds and private credit managers.
‘Highly leveraged’ is shorthand for hedge funds that rely on huge amounts of debt to buy up the debt of the US and UK.
Unlike traditional banks, which held government bonds as long-term investments, these hedge funds use their borrowed money to trade bonds for short-term profits thus making sovereign debt exceptionally vulnerable to these speculators suffering panic attacks at the prospect of seeing their bets collapse and pulling out, and crashing the economies of entire countries.
Adding to the instability of the capitalist financial world is the AI bubble driven by the highly speculative frenzy over artificial intelligence.
The BIS has identified the complex web of financial ties between the AI giant companies, shadow banks and the companies building the massive data centres required, as being the biggest threat to the unravelling and crashing of the capitalist world.
Giant tech companies like Open AI and Nvidia have used complicated financial transactions, including the makers of computer chips handing out loans to other companies, to buy their chips.
Shadow banks have piled into providing the money to build the mega AI data centres.
The BIS report added that ‘signs of stress are already visible’ while in fact they came out into the open last week following the floating of Musk’s Space X on the stock market, only to see its shares plunge by 25% in days.
This was accompanied by a global plunge in tech stocks on Friday after the Apple company announced it would increase its prices because the cost of chips had soared.
The AI industry needs a staggering amount of computer chips, driving the cost up.
In addition, the victory of Iran over US imperialism has accelerated this crisis.
The closure of the Strait of Hormuz has choked off supplies of helium, a by-product of liquid gas extraction, essential in the production of chips.
Iran has not just got a stranglehold on world international energy supplies. It has in its grip, the very foundations of tech empires whose bosses think they rule the world.
The US-Israeli illegal and unprovoked war against Iran has accelerated the crisis of world imperialism and brought it to the point of complete collapse into bankruptcy.
While the BIS was warning of an apocalyptic collapse into global recession, and drawing parallels with the Wall Street crash that ushered in the Great Depression of the 1930s, Andy Burnham was making his pitch to become Labour prime minister by pledging to rescue British capitalism by devolving powers to the regions.
The reformist Labour Party along with the TUC, by keeping silent about the crisis rapidly unfolding, are intent on diverting the working class from taking action against a capitalist system that has reached the end of the road and is determined to take workers and the people of the world down with it.
The powerful working class will never accept being driven back to the days of the ‘Hungry 30s’ and the time has come to put an end to capitalism with the victory of the world socialist revolution.