Treasury Draft Warns of AI Financial Bubble Risks

The internal analysis, first reported by NOTUS, marks a pivot from the White House’s public push for unrelenting AI expansion. While career analysts acknowledge that modern AI firms currently possess more stable balance sheets than the dotcom-era companies of the late 1990s, the danger lies in their interconnectedness. The report notes that if financial conditions shift or if the sector fails to deliver promised gains, the resulting instability could ripple across the entire financial system.

Economic data currently offers little reassurance. Dean Baker, senior economist at the Center for Economic and Policy Research, points out that AI’s impact on national productivity remains invisible in recent Bureau of Labor Statistics data. While current market valuations require productivity growth near 4% to justify massive infrastructure spending, actual growth is hovering closer to 1%. This lack of tangible return is mirrored in the private sector; for instance, Alibaba recently reported $1.3 billion in AI revenue against a staggering $55 billion investment plan. Richard Lin of Datastrato argues that this fundamental lack of a sustainable business model suggests the industry is not currently healthy, fueling mounting fears among Wall Street observers and policymakers alike.