Debt trap

Now that we have the inflation report out, the market it’s turning its focus on the next important thing. The geopolitical context, although calm on the surface is still hot. Both Ukraine and Iran are too quiet, and that probably means they’re working on something. Trade negotiations with China have stalled, but net exports for China keep hitting new highs, as they have been able to divert exports from the U.S. to other nations. Corporate earnings for the 2Q have started to come out in the U.S., starting with the Banks, that showed a mixed bag, but mostly uneventful. In the AI front, XAI presented the new version of grok, its latest model, which is now at PHD level in every discipline. The U.S. is betting on AI to solve the deficit and the debt problem. But in order to solve that problem, AI has some demands: the big tech companies are building huge facilities in the U.S. to train the models, and those facilities need energy. In the chart below you can see the energy gap between China and the U.S. in terms of electricity generation. In order to compete with China, and to continue being the leader in AI, the U.S. needs to double its energy generation capacity, and in order to that, the U.S. needs to upgrade the electrical grid. These are huge investments that can be split between private sector and the government. The government part, will need to be financed by debt, which takes us back to square one; to solve the debt problem, the US needs to increase the debt, at a time where we are already above $37Tn. How do we get out of that vicious cycle?

Want to know more? You can find all our posts at https://www.myfundamental.net/insights

#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning #policymistake #ratecut #stagflation