The Hidden Recession Beneath The AI Bubble w/ Paul Kedrosky

In October 2024, economist Paul Kedrosky told Ed Zitron that AI capital expenditure had become so enormous it was distorting the entire global economy—not just tech stocks, but Treasury yields, inflation, world trade, and even the conduct of war. "It's almost in cancer terms metastasized across the global economy," he said. The central argument of the conversation is that AI spending, overwhelmingly concentrated on NVIDIA GPUs and financed by unprecedented debt issuance, has created an illusion of economic strength while setting the stage for a multi-year balance sheet recession that policymakers are failing to recognize.

How AI CapEx Took Over the Economy

Kedrosky traces the phenomenon from a single startling statistic: for the last 12 to 18 months, AI-related capital expenditure has accounted for between 30% and 70% of U.S. GDP growth. That alone was unusual. But the effects have since bled into other domains. The World Trade Organization recently admitted it had badly underestimated global goods trade growth—actual growth was nearly double its forecast. When the WTO investigated why, it found that 19% of all global goods trade over the previous three quarters was AI-related (mostly NVIDIA GPUs), and that AI accounted for roughly 55% of the anomalous growth. "In a sense, we've created this global illusory phenomenon that's being driven by this incredibly anomalous spendi