I’m open to two vastly diverging views here:
1) Debt and deficits don’t matter because of AI
The view is that AI will make people so productive and efficient that government debt won’t be a problem. It’s a positive take on progress in a world that’s now seen many generations of positive impacts from technology.
2) We’re monetizing
The fiscal rubicon has been crossed. The Tea Party in the US is 10 years old and the whole thing is a joke now. Trump is calling to end the debt ceiling altogether and a budget that ingrains deficits at +6% of GDP is coming at a time when there is a major demographic hit coming on the fiscal side. There is no way out, DOGE is already a laughingstock.
It’s hard to believe that in 1971 the US dollar was fully backed by gold. In 50 years it’s all come undone, and the currency will inevitably face major devaluation, just like every other currency in history.
The thing is…
If you believe in either of these scenarios, you might invest in the same things. Equities are inherently inflation-protected because companies (at least ones that aren’t over-levered) have pricing power. The post-covid inflationary episode was great for stock markets if AI is transformative, the gains from productivity will be felt far before the costs of unemployment.
Along the same lines, an AI boom would be fantastic for commodity demand, especially in things like industrial metrals and anything that benefits from rising power demand
