Asset Inflation's Debt

Asset markets are inflating as the artificial intelligence (AI) frenzy steams forward to an uncertain destination. From the railway barons to the titans of tech, markets have plowed capital into land grabs when technology introduces new markets. While valuations are not as frothy as prior frenzies, the financial environment is different. Increasing tariffs are a form of consumption tax that consumers will pay, resulting in slower growth. The balance sheet of the lender of last resort is inflated due to prior rescues, and the fiscal deficit is historically high, except during recessions. The result is an economy leveraged beyond its natural rate. If technology fails to deliver the promised return promptly and inflation persists as tariffs take effect, the economy may not receive the necessary support from fiscal policy. Indeed, this time is different.