The world in 2026 is rife with economic, social, environmental, political and military situations frozen in a very Wile E Coyote moment where none of the currently understood laws of physics, economics or politics seem to apply.
...A housing bubble has frozen new and existing home prices far above historical affordability benchmarks in most markets, partly driven by one-time work-from-home relocation dynamics during the COVID era and mostly driven by decades of accumulated dysfunction in the housing construction industry and local zoning practices that have favored single-family dwellings that incentivized McMansions over affordable apartments and condos. Yet prices remain stuck in many markets at peak levels, despite the evaporation of below-normal mortgage interest rates, years of mass eliminations of some of the best-paying white collar jobs, seemingly unable to move downward in reaction to a lack of demand and higher adjunct costs for homeowners such as insurance, commuting costs, etc.
...A private equity credit bubble, actually at work for at least fifteen years, has flooded financial markets with hundreds of billions of dollars in new debt owed by unhealthy, poorly managed businesses. Executives leading these businesses are willfully participating in a refinancing Ponzi scheme with private equity management consultants and institutional banks that a) allows executives to retain their executive pay and lifestyle just a bit longer, b) allows private equity firms to accelerate the extraction of cash from zombie companies to the detriment of customers and shareholders, and c) allows banks to extract higher interest payments and fees from firms while hoping the firm can survive another cycle to repay the bank's loans with money from another sucker bank in the near future. Yet, despite numerous large bankruptcies triggered by this parasitic force over the last two years and extremely challenging market conditions for these zombie firms, the larger investment community seems to be ignoring the scale of the problem and holding its breath, as if not responding to the severity of the risk will eliminate the risk.
...A public debt bubble of sorts has grown in plain sight since 2000, driven by an explosion in yearly deficits caused by three ill-conceived wars, two economic disasters (the 2008 financial failure and the COVID pandemic) and two massive tax cuts benefiting primarily the wealthiest of the wealthy. This deficit spending inflated the accumulated debt from $5.7 trillion in January 2001 to $39.8 trillion in September 2026 and the current 2026 fiscal deficit is $1.9 trillion which likely does not yet accurately reflect existing and future costs of the war against Iran. Yet, the Trump Administration (using that term loosely...) believes it can not only dictate interest rates on US debt but it can leverage that control to obscure the ballooning interest drain by refinancing existing longer maturity bonds into new short term bonds floating at its dictated interest rates. Markets have publicly and vocally attempted to refute these assumptions yet the overall reaction to this policy folly remains inexplicably muted.
...An investment bubble in Artificial Intelligence has funneled hundreds of billions of dollars into highly speculative construction projects and broken pricing patterns within the semiconductor industry that have held for fifty-plus years by absorbing all available production capacity for wafers and chips and devoting it to a handful of customers. Yet no business involved in the bubble has produced audited financial results that demonstrate any business model capable of generating revenue to pay for those investments even over twenty years.
One would assume that "debunking a bubble" should be easier than making a bear argument against a business case for a specific product, company or industry at a specific point in time. If the larger theory about a bubble is correct, the bubble exists because of one or more assumptions acting exponentially over time. Debunking a bubble should be as easy as identifying a point in the business model assumptions that is circular / exponential then showing how that assumption is not holding true, causing an exponential REDUCTION in the prior evaluation of the opportunity.
One would also assume that most professional investors and those outside financial circles who merely wish to avoid being around the wreckage when the crash comes would spend some time looking for such "pins" to confirm the wisdom of staying away or altering current investments before the rest of the herd senses something upwind. Strangely, that does not seem to be evident in news and opinions in the media.
Here is an attempt at identifying two "pin" events that have already taken place regarding two of the most important bubbles addressed above regarding US debt and AI infrastructure spending. Pick your own bubble. Concoct your own theory of its most like "pin" event. Mix and match 'em. Trade 'em with your friends.
The Public Debt Bubble
As stated in the setup, the conditions for the public debt bubble within the United States have been in operation since January 2001. Those with a passing understanding of financial markets or basic exponential mathematics have been expressing concern the entire time. However, like the classic question about when an exponential algae bloom will cover half of a lake and become a concern, most investors and voters alike fail to appreciate how rapid the problem grows in later stages.
This lack of appreciation of exponential growth seems to include anyone with financial responsibility within the current Trump Administration. Since January of 2025, the Trump Administration made it clear a key tactic they would pursue regarding budgets and the debt would be to somehow lower short term interest rates (something previously thought easier to do with short term rates using a variety of market manipulations) then refinance existing longer term bonds (debt already incurred for say 10, 20 or 30 years) as shorter term bonds at those newly lower interest rates.
As a finance strategy, given that all of one's assumptions can be held true, this strategy makes perfect financial sense. As an example, consider 30-year bonds in 2010 sold with coupon rates of 4.5%. If a total of $1 trillion dollars exists in such bonds, the Treasury needs to make a 4.5% coupon payment every 6 months until roughly 2040 then pay off the full $1 trillion. Coupon payments are made every six months so a 4.5% coupon rate means 4.5% / 2 multiplied by the $1000 face value or $22.50 per $1000 bond. That $1 trillion in total bonds requires the Treasury to pay $22.5 billion in interest every six months. If that $1 trillion could be refinanced into a bond or note only paying a 3.5% coupon, in theory, the Treasury would only pay $17.5 billion every six months, a savings of $5 billion dollars or $10 billion yearly.
When this process is repeated over $39 trillion dollars and more debt is shifted into lower interest rate bonds and notes, the brilliance of the idea seems perfectly obvious. Less money spent on interest allowing either more spending on other things that get politicians re-elected or lower taxes on corporations and the wealthy who also help politicians get re-elected.
Except this financial strategy doesn't reflect the way financial markets actually function. The US Treasury issues new debt to cover ongoing operations costs every week of the year and press coverage of these sales typically leaves unsophisticated observers with the impression that for each sale, the Treasury announces the amount of debt and its desired interest rate it is willing to pay, rings a bell and the worldwide investment community comes running to devour every available bond at the "price" suggested by the Treasury. IN REALITY, the Treasury announces a "sale", specifies its expected interest rate then conducts an AUCTION in which all buyers state their price they're willing to pay (reflecting THEIR expectation about the appropriate interest rate) and the Treasury accepts whatever price results in ALL bonds being sold. It is the MARKET that ultimately sets interest rates, NOT THE TREASURY.More importantly, this strategy doesn't reflect the diminished influence the US Government and Federal Reserve Bank have within the worldwide financial system. In prior decades, the perception that the Treasury or Federal Reserve could "set" interest rates depended on an assumption that US debt was the absolute safest debt any investor could hold, WORLDWIDE. This was due to prior attestations on the part of Presidents and Congressmembers alike that all US debt will be paid in full using any available legal means to collect the funds required by such payments. Such attestations are more believable when the total amount of debt is a small percentage of the overall economy's output and a small portion of the federal government's total spending. They are also more believable when the government is led by a President who has no career track record for using bankruptcy and defaults as a core strategy for doing business. As it stands, yearly interest expense on the debt amounts to sixteen percent of the $7 trillion dollar budget. Since the US is running a deficit of $1.9 trillion, total debt and yearly interest paid will go up even if interest rates remain unchanged, causing a spiral.
The Trump Administration began shifting Treasury sales of new debt towards shorter term bills (4, 8, 13, 17 26 and 52 week maturities) and shorter term notes (mostly 2 and 5 year maturiteis) and away from longer term bonds (10, 20 and 30 years) as early as March of 2025. And the Treasury has been conducting some of these buybacks over this period as well. Again, this makes sense if the sole goal is reducing IMMEDIATE interest expenses but by shifting a larger share of total US debt into shorter terms, the larger pool of debt is exposed to much higher risk in the form of interest rate hikes in the future. And remember, the government does not set interest rates.
On August 19, 2026, Treasury Secretary Bessent proved the folly of this strategy by announcing a policy of doubling the dollar amounts of existing buyback plans between of longer term bonds already planned. The new plan would total $69 billion dollars across all maturities and $14 billion of longer term 10, 20 and 30-year bonds between September and November 5. Initially, markets DID react by this announced increase in demand of existing Treasuries by raising their prices which lowered interest rates across many maturities. At least until a few investors could do the math. Accelerating the buyback of roughly $83 billion worth of notes/bills/bonds is a spit in the ocean when total debt is $39 trillion dollars and incremental yearly debt from deficit spending is $1.9 trillion dollars. With a $1.9 trillion dollar deficit, the government is borrowing $5.25 billion EVERY DAY just for new unpaid spending.
What happened in the market? Some of the interest rates targeted by Bessent's move DID drop. About 5 "basis points" or by 0.05% or by 0.0005 in pure decimal. For about two days, before any actual buybacks were executed to take advantage of lower short term rates. The market realized this rate rigging attempt was about as practical as attempting to straighten the Leaning Tower of Pisa by putting a dime under one side of the building.
What does this failed stunt tell individuals about the future and their individual financial interests? It provided another example of the complete ineptitude of the Treasury Secretary of the United States and demonstrated that the Treasury and Federal Reserve have virtually zero ability to "dictate" any aspect of financial markets. As with poker and war, when your opponents already have reason to suspect you hold a weak hand, it is highly inadvisable to undertake optional actions which confirm your weak hand.
The Artificial Intelligence Bubble
The bubble of investment within AI software, memory and GPU chip manufacturers, data center operators, data center construction firms and associated data center network vendors relies on the following chain of supply dependencies, listed from the most direct to the indirect:
- demand for AI enriched search and analysis / coding tools (OpenAI, Anthropic, Google)
- demand for graphical processing unit (GPU) chip manufacturing (Nvidia)
- demand for memory chip manufacturing (Samsung, Micron, others)
- demand for existing data center space with existing power / water supplies (Google, Microsoft, Oracle, Meta)
- demand for new data center space requiring real estate, power, water
- approved zoning by local / state communities for new data centers
- additional power generation capacity from grid or local generators, requiring local / state approvals
This sequence has been shown to be circular and exponential because firms like Nvidia at one point in the chain are signing "investment deals" in firms operating at other points in the chain which feeds the next trip through the cycle (more investment to build more data centers which demand more chips which produces revenue for more investment to build more data centers...).
Stories abound from multiple states in which state and local governments have declared outright freezes or implemented "full cost" rules on new data center construction due to overwhelming objections from local voters. It is quite possible such moratoriums will magically end after the November 2026 elections and politicians secure their seat for another 2-4 year term to collect more private kickbacks from firms pursuing these projects. However, these freezes are not just limited to "liberal" leaning cities or states. Florida is still allowing new data centers but enacted a law taking effect July 1, 2026 requiring every project to pay full fare for all electricity consumed, rather than allowing the utility to sell power at a discount and pass the generation cost to consumer rate payers. Texas enacted a freeze preventing any new data center connection to the state's power grid until a comprehensive review of impacts to the larger grid stability can be completed. (This very well could be an example of a Republican controlled state attempting to "do something" just to get past November elections.)
Overall, there are eighteen states that have active bans against the permitting and construction of new data centers. Another eight states have legislation advancing at the state level enabling similar restrictions. Sixteen additional states have legislation being drafted that has not progressed far enough to confirm the strength of support. And none of this reflects efforts at the city or county level to adopt similar restrictions.
The quantity of existing bans and trends towards additional bans act as a wrench in the recursive investments being made by the key players in the AI realm. Without these bans, the exponential cycle would have to advance to either step #4 (connect new data center to existing grid) or step #6 (add generation capacity to existing grid) to call the bluff of AI bulls and reach a point where reality cannot be denied. You cannot double AI data center capacity if you cannot augment electricity generation.
Poof. No additional electricity? No additional data centers. No additional data centers? No demand for new servers with GPUs and memory. Drop in demand for GPUs and memory? No justification for inflated Nvidia stock? Reduced profits at Nvidia? Retracted "investments" into OpenAI. Reduced cash within OpenAI? A faster burn through cash on hand to insolvency.
These data center moratoriums shorten that "poof" cycle by one important step AND they impose a minimum amount of time before anyone can claim the prior assumptions could be resumed. If a data center isn't completely sited, zoned, permitted and contracted TODAY, it won't open its doors for at least twenty four months. These moratoriums can thus be seen as reflecting a minimum twenty four month shift into the future before the existing overall assumptions of data center growth can get back on track. Twenty four months is FAR beyond anyone's estimate of OpenAI's cash flow survivability given its current burn rate and cash on hand.
Takeaways for Individual Investors / Citizens
Is there anything "actionable" from this analysis? If all of this analysis cannot identify a specific DATE when a bubble begins to collapse or implode instantly, what is the point?
First, nothing presented here (or anywhere else) can be used to predict an exact date on ANY event. But that's not the challenge to be solved. Regardless of where you sit in your work career or investing life, there are a few key takeaways that can be stated with clarity:
Index Funds -- Most investors have SOME portion of their portfolio invested via mutual funds and many of those are likely to be stock index funds mirroring the S&P500 or NASDAQ. Previously, index funds were a simple way of maintaining diversity which protects individual investors from calamitous drops in a single stock or business sector. The two most popular index funds have become LESS diversified as top tech stocks within them have captured 90% of all growth over the last 3-4 years. While those tech leaders have grown to dominate those indexes during the AI bubble, the larger market will likely panic and temporarily flee ALL stocks for days, weeks or months after a crash, meaning these index funds will see losses across much more of the index, not just the high flying tech leaders.
THE TAKEAWAY -- If you have a large portion of assets in an index fund, gains over the last 3-4 years have primarily come from a small number of stocks that will all fall together and wipe out most of your gains. If you reallocate assets away from those index funds to alternative sectors, that may represent LESS diversification risk than the index fund until the high flying tech stocks correct. If you have index fund holdings in a 401k or IRA, you can capture gains and shift them into alternatives without incurring income taxes. Income taxes are only due upon withdrawal, giving you more latitude to rebalance without penalty. If you have shares of index funds in standard taxable accounts, you have a decision. Do you want to a) pay income taxes on actual gains while avoiding future downside exposure? or b) stay put, avoid generating a taxable distribution and hope the drop is less than the avoided tax bill and recovers at a point later when you need the money? Remember, capital gains on holdings owned longer than a year is only 15 or 20 percent but a fifty percent drop in stocks is not out of the question.
Prior Recoveries Are Not Predictors of Future Recoveries -- Investors familiar with how markets rebounded after the Internet bubble of 1997-2000, the Financial Crisis of 2007 and the COVID pandemic disruptions of 2020-2021 cannot assume the magnitude of the next correction and recovery will be similar in intensity or duration to those prior crashes. The political alliances, the financial assets and the integrity and wisdom of those in the most crucial positions within the government and financial systems are no longer present to be leverages in minimizing any crash then recovering from it within the United States. The US has alienated literally every single prior ally and has pushed prior trading partners to trade AROUND the United States. If a collapse occurs, rebuilding efforts won't be drawing in American firms for equipment and products, American firms will be competing with other countries for raw materials without trade agreements, and American firms will realize they no longer have first dibs on the smartest talent in the world in medicine, engineering and basic science.
THE TAKEAWAY -- If you are assuming that a correction would still leave you 5-10 years for your portfolio to rebound like they have after the most recent crashes, future recoveries are likely to be vastly different. Recovery times will be longer for any given desired level of recovery. This means prior rules of thumb about risk exposure between bonds and stocks ("shift more of your holdings from stocks to bonds as you near retirement") may no longer be sufficiently cautious. This is ESPECIALLY the case since even investments in both US Treasuries and corporate bonds are likely to be less safe than they have been over the past fifty years. Cash positions may likely fail to keep up with under-reported inflation but they can at least avoid a simultaneous crash in both bond and stock markets, something not normally seen in past decades.
WTH
