ANDREW BAILEY, governor of the Bank of England, has issued his strongest warning yet about the danger to the capitalist world financial system posed by the ever-expanding bubble in artificial intelligence (AI).
In his role as chairman of the international Financial Stability Board (FSB) he authored a two-page letter sent out to international finance ministers and central bank governors warning that the massive debt-fuelled investment boom in AI is on the brink of coming apart and collapsing the world stock markets leading to a global recession.
The letter to G20 finance ministers, meeting this week in North Carolina, gave the stark warning about the economic fallout that the soaring levels of debt used to fund the AI bubble ‘could amplify a future market correction.’
Typically, ‘market correction’ is the phrase used to cover the panic of central bankers that the capitalist financial world is on the brink of a massive crash.
Bailey warned that ‘stretched asset valuations’ in AI mean that investors borrowing huge amounts of money to invest in AI companies and throwing trillions of dollars at data centres, face the prospect of losing it all overnight.
Bailey said: ‘Markets remain vulnerable to a potentially disorderly correction that could spread across borders.’
He added: ‘The issue is not simply that investors are borrowing more but that leverage is interaction with high valuations and market concentration.’
The main issue is where are all the supposed profits being generated by AI actually coming from?
All the evidence produced so far indicates that the overwhelming number of companies who have invested in AI have seen very little, if any, economic gain, while the giant data centres now under construction are just hoovering up hundreds of billions of dollars for no return just the promise of untold wealth for investors sometime in the future.
Nvidia, the American giant computer chip manufacturer valued on Wall Street at $5 trillion, has relied on circular funding to sell its advanced chips.
This involves Nvidia loaning the money to computer companies to provide the finance to buy Nvidia’s own chips.
Even this is not enough however, and recently Nvidia announced it had struck a deal with six major Wall Street companies to raise over $500 billion to fund data centres.
This raises the key question for central bankers namely, is there really a demand for advanced computer chips from companies or is this debt-fuelled expansion just another gigantic financial bubble that will inevitably burst and bring down the capitalist financial world?
Bailey and his fellow central bankers clearly believe a crash is on the immediate horizon, accelerated by the mad debt-fuelled frenzy around AI which has been embraced by governments and speculators as the ‘saviour’ for a bankrupt capitalist system.
Along with the mindless optimism of the speculators, Bailey’s letter contains another warning about ‘frontier’ AI models that are ‘showing increasingly sophisticated autonomy and problem solving abilities, as well as threatening capabilities.’
The recent admission that AI models had ‘escaped’ and hacked into the systems of other companies has caused Bailey to issue a warning that uncontrolled ‘rogue’ AI systems pose a risk to the financial world saying: ‘Frontier AI may have the ability materially to alter the speed, scale and economics of cyber-risk, which could undermine market confidence system-wide, especially due to highly concentrated third-party service providers.’
In other words, Bailey is issuing a warning that AI in the hands of a tiny number of multi-billionaire companies pose a substantial risk of running wild and completely crashing Wall Street and ushering in an economic recession across the world.
The powerful working class will never allow itself to be driven back to the days of the Great Depression of the 1930s.
The only resolution to the crisis is for the working class internationally to force its trade union leaders to stop ignoring the impending crash and organise the strength of the working class in general strikes to bring down their capitalist governments and bring in workers’ governments and a socialist planned economy.
Smashing capitalism with socialist revolutions is the only way forward.
