So how dangerous is that really? I assume one day we’ll finally see investors saying, “Nah, that’s a bubble. I’m not gonna see any returns from those companies - I’m selling.” Then stock prices will fall, and some investors will lose money by selling for less than they bought. After that, AI unicorns will start to lose funding and close their businesses, laying off people.
But will I - a person who does not work in the AI industry and has not invested in AI companies - be affected by this?
I don’t know the answer, but during 2008 onwards (seems like the economy didn’t fully recover until the end of Obama’s presidency), every industry slowed down. Was hard for me to get a fast food job or consistent minimum wage assembly line work through temp agencies. Things can go into vicious positive feedback loops during downturns (investors afraid to invest due to bad economic outlook -> factories and such don’t get built or expanded -> unemployment rises -> people spend less -> companies start laying off -> economic outlook worsens -> investors selling and moving to "safer’ assets -> …). The entire banking system pretty much imploded during 2008; I don’t know how much exposure banks have to AI (commercial real estate is another thing to worry about though). With any luck the AI crash would be more like the dot-com crash, which mostly just hurt one industry (but I remember my father talking about factory layoffs during that too).
My family lost a great deal of invested wealth in that 2008 crash with the death of Mellon Bank. It does not seem like a lot today but … if it had been invested in say Chase or G-S… it would have probably been double what it was by now. I am sure my dad was twisting in his coffin when that happened. I am glad he did not suffer that when it happened (he died in 2005).
One thing people didn’t mention is that I’m pretty sure the top 10% of Americans by income make up 50% of consumption because of the heavily K shaped revovery that has happened. These Americans have a large percentage of their wealth in stocks, and if the stock market crashes, they will feel less wealthy and less willing to spend, decreasing their spending, tanking the US economy.
Trump is a much bigger threat to tanking the US economy. He is working in that direction every day. Tariffs are horrible for the economy. Sure, he gets American factories built and jobs are created but things overall are going to be much more expensive for consumers.
I agree, but that’s just another factor, and it will also cause the stock market to crash, among other things.
Also, the worst thing is he won’t get American factories to be built. Maybe one or two, but no one in the right mind is going to relocate large amounts of manufacturing to the US when tariffs are coming in and out of effect all the time. Tariffs only work for increasing manufacturing if companies believe they will last a long time. If companies think a tariff will last a month or a year, there’s no point in making a factory that will take two, three years to build and then five years to become net profitable, because by the time the factories finished and the tariffs are gone, everyone that still has a factory outside of the US will just out compeat that factory with lower prices.
The best thing us poors in the US can do is eliminate our consumer debt, pay it off or do a bankruptcy and pray(hope really hard and vote) we do get a president who can effectively forgive student debt. This means no spending, strict budgeting and eliminating any and all subs, discount phone, etc. If you are already there, getting more paid work if possible.
So we agree. Poor/ middle class people only hold stocks for retirement. AI bubble popping has no effect on them. The are exactly as they were pre-AI bubble.
Only rich people care about the current stock values. Only rich people are scared of an AI bubble. Only rich people are attempting the “too big to fail” FUD. Big Tech are not banks. There is no knock on effect.
AWS have now had enough outages that any serious company has migration plans and redundancies. If Google fails then the infrastructure stays running even if the current shareholders lose their shirts. The employees that are needed to bring in cash will not lose their jobs.
You do realise that if 50% of consumption disappears then a lot of people from that 90% will loose their jobs as well. I don’t care about the 10%, I also think the income inequality in the US is insane, but the fact is that if AI stocks tank right now, poor people will feel it as well (much more so than rich people, because they can’t survive without a job and don’t have wealth as a safety net)
I don’t understand what your point is? I’m merely expanding on OP’s question and stating the fact that the way things are currently, when the AI bubble bursts poor people will feel it the most. Trickle down economics doesn’t work because if you give 100 bucks to a rich person, they’ll spend like 5 of it. If you give it to a poor person, they’ll spend all of it. But that has nothing to do with the fact that if the bubble bursts right now, poor people aren’t going to somehow get any of that money. They will loose their jobs, because the economy slowed down and nobody is buying anything and their jobs aren’t needed anymore. They will just suffer more and rich people will buy up their houses that they now have to sell at bargain prices.
They will loose their jobs, because the economy slowed down and nobody is buying anything and their jobs aren’t needed anymore
No.
The AI debt creation and investment is not of any benefit to the working class (except for a few construction workers). These data centers don’t create 1000s of jobs. Windsurf has 250 employees. Cursor has 30.
This AI bubble is not affecting general income, only assets. As it doesn’t hit income, it doesn’t hit consumption. Poor people earn and consume. They are asset poor.
A pop in the AI bubble will damage the billionaires, but not the poor.
But I’m not saying the jobs lost by AI companies collapsing is gonna cause a recession, I’m saying the AI bubble collapsing, bringing down the stock market with it, will cause a recession and loss of jobs. 35% of the S&P is made up of stocks in the top 7 US tech firms. The stock market is extremely skewed towards these 7 firms, and a large part of their current evaulation is made up from speculation of potential AI returns. When the bubble bursts, everyone who is invested in these firms will feel it. As I said, the top 10% of Americans make up 50% of consumption, can’t find a confirmation but I think that’s the highest in modern history. If this 10% suddenly looses 30-40% of their wealth because a stock market crash, this consumption will be severely affected. They won’t buy as many fancy goods, won’t go on expensive vacations, in general will do much less. We can argue whether having a class of people like that benefits the economy or not, I’d say it doesn’t, but the fact of the matter is that if the stock market were to crash because of AI companies, everyone is affected, because of how much money the 10% spend.
35% of the S&P is made up of stocks in the top 7 US tech firms. The stock market is extremely skewed towards these 7 firms, and a large part of their current evaulation is made up from speculation of potential AI returns. When the bubble bursts, everyone who is invested in these firms will feel it.
This wasn’t always true. When the bubble bursts the S&P investors will revert back to a more realistic valuation. AI bursting won’t affect LLY, JPM, WMT, COST etc.
Nothing of value has been lost. People just have the wrong anchor points.
As I said, the top 10% of Americans make up 50% of consumption, can’t find a confirmation but I think that’s the highest in modern history.
These 10% are consuming their income, not their wealth. An AI stock crash will have little to no effect on their income. (Except for the small proportion actually employed in AI research).
Your pension is tied to these companies stocks. I can pretty much guarantee that “your” pension fund owns quite a few of these stocks.
But, and this is the important part, that isn’t your pension. It is the pension for those that are retired right now. There is no saved stack of money that you earned during your life thats waiting for you. Unless there is an equal amount of tax paying workers by the time you retire, you wont be getting that pension.
I’m not sure how old you think most of us are, but I don’t think pensions are a common retirement vehicle anymore, and haven’t been for a while. 401k would probably be the modern equivalent, and it’s still running on the stock market for the majority of its life prior to beginning to withdraw.
A pension implies benefits are distributed to the person in retirement, usually with some fixed amount per month. My understanding is that in the UK, defined contribution plans are required to be invested largely in annuities by retirement, which satisfies that, whereas in the US, 401ks don’t have such restrictions. So a 401k could be depleated well before death, or be passed on to children as inheritance, unlike an annuity. There are required minimum distributions, but they don’t kick in until your 70s.
If 401ks switched to a defined benefit plan at retirement, I could see calling it a pension. But since they’re not, I think that’s misleading, and employer sponsored plan makes more sense.
When you’re able to take your pension, you can choose how and when you want the money. This usually includes the option of taking up to 25% as a tax-free lump sum and using the rest to get a guaranteed or variable income.
Looking more into it, I guess it’s similar?
The 401k typically doesn’t offer the guaranteed income, though I suppose some plans could offer annuities. You can choose to take fixed payments though, but there’s no guarantee how long that will last. I don’t know what the options are in the UK, but in the US, you can do whatever you like, as long as you withdraw the minimum (percentage of assets based on your age, starting at 73).
I see a pension as having some kind of guaranteed benefit. A 401k doesn’t have that, so it doesn’t count.
Yeah, again this is just semantics, a 401k in British English is 100% a pension. A UK defined contribution “workplace pension” is just a tax sheltered retirement account until it is annuitized, which is common and sensible but not necessary. The annuity is technically a totally different product, offered by life insurance companies (who interestingly with reference to above conversation would typically hold very little equity exposure backing it). Brits also call the equivalent to the social security retirement benefit the “state pension”. It’s a catch all for assets you use in retirement. Whether that’s used to fund an investment drawdown product or a life annuity or just taken out and splurged on a Ferrari makes no difference.
Interesting. I think people here would agree Social Security is a state pension, we just only call it by its name.
A pension specifically refers to a plan that makes consistent payments throughout retirement and stops at death (or may pass to the surviving spouse until their death). Anything else is a retirement plan if it’s tax sheltered until some age, or an investment account if it’s not.
I hear annuities are unpopular here, most seem to prefer either a dividend strategy, or sell securities as needed to cover whatever Social Security doesn’t.
I am in the US. In regard to employer based retirement, there are a few pension programs still available, mostly union based. In other corporate environments that do not offer union pensions (as they are non-union)- they offer the 401K if a for-profit or a 403B if non-profit. As you get closer to retirement, many 401K/403B recalibrate to a larger proportion of Bonds vs riskier stocks/futures. Although I also invest in some ETFs that are not pretax (only the earnings are taxable).
Right. OP’s point is that they call both defined benefit (i.e. what some union people get) and defined contribution (i.e. 401k and whatnot) a “pension.” My understanding is that a “pension” is a specific amount of money paid monthly in retirement (used to also just be the wage for certain jobs, not a retirement benefit).
A quick search yielded “defined contribution pensions”, which seems to be a mix: your contributions are invested during employment, and then you get a fixed payment in retirement.
With a 401k, there’s no fixed withdrawal in retirement unless you set one up, the only thing is a mandatory minimum withdrawal at a certain age (73?). My understanding is that wouldn’t be considered a pension since the withdrawal isn’t guaranteed or fixed, and you can withdraw everything if you so choose.
Maybe I’m wrong and a pension is a looser term there, but my understanding is that a pension needs to have a guaranteed benefit in retirement.
Pension funds are to a large extent exposed to the stock indices. Since these companies grow and grow in valuation, a larger portion of pension funds are exposed to these companies. The so-called “magnificent seven” make up about 35% of the US stock market now. A lot of people will see a large portion of their pension savings affected by this. If you are not a US citizen, you sre still likely exposed to these companies.
So how dangerous is that really? I assume one day we’ll finally see investors saying, “Nah, that’s a bubble. I’m not gonna see any returns from those companies - I’m selling.” Then stock prices will fall, and some investors will lose money by selling for less than they bought. After that, AI unicorns will start to lose funding and close their businesses, laying off people.
But will I - a person who does not work in the AI industry and has not invested in AI companies - be affected by this?
Yes, you absolutely will be effected.
In a general way, the plebs always do the heavy lifting - a universal truth since the dawn of time.
More specifically, your pension / 401k will lose a heap of money.
As the economy contracts there will be lay offs.
That means loan defaults, et cetera.
Pensions in the stock market are the hostage, and are being used as an excuse against regulations.
Fuck all of that.
I don’t know the answer, but during 2008 onwards (seems like the economy didn’t fully recover until the end of Obama’s presidency), every industry slowed down. Was hard for me to get a fast food job or consistent minimum wage assembly line work through temp agencies. Things can go into vicious positive feedback loops during downturns (investors afraid to invest due to bad economic outlook -> factories and such don’t get built or expanded -> unemployment rises -> people spend less -> companies start laying off -> economic outlook worsens -> investors selling and moving to "safer’ assets -> …). The entire banking system pretty much imploded during 2008; I don’t know how much exposure banks have to AI (commercial real estate is another thing to worry about though). With any luck the AI crash would be more like the dot-com crash, which mostly just hurt one industry (but I remember my father talking about factory layoffs during that too).
My family lost a great deal of invested wealth in that 2008 crash with the death of Mellon Bank. It does not seem like a lot today but … if it had been invested in say Chase or G-S… it would have probably been double what it was by now. I am sure my dad was twisting in his coffin when that happened. I am glad he did not suffer that when it happened (he died in 2005).
One thing people didn’t mention is that I’m pretty sure the top 10% of Americans by income make up 50% of consumption because of the heavily K shaped revovery that has happened. These Americans have a large percentage of their wealth in stocks, and if the stock market crashes, they will feel less wealthy and less willing to spend, decreasing their spending, tanking the US economy.
I think the top 10% are author of more than 50% of the spending/consumership. That is about to become larger.
Trump is a much bigger threat to tanking the US economy. He is working in that direction every day. Tariffs are horrible for the economy. Sure, he gets American factories built and jobs are created but things overall are going to be much more expensive for consumers.
I agree, but that’s just another factor, and it will also cause the stock market to crash, among other things.
Also, the worst thing is he won’t get American factories to be built. Maybe one or two, but no one in the right mind is going to relocate large amounts of manufacturing to the US when tariffs are coming in and out of effect all the time. Tariffs only work for increasing manufacturing if companies believe they will last a long time. If companies think a tariff will last a month or a year, there’s no point in making a factory that will take two, three years to build and then five years to become net profitable, because by the time the factories finished and the tariffs are gone, everyone that still has a factory outside of the US will just out compeat that factory with lower prices.
Boo hoo. Rich people become less rich.
And the poors lose their jobs but who cares lmao they should just eat cake
You are white knighting the poor to protect your own ass(ets).
Trickle down economics is bullshit
No, actually when people stop buying things and companies close down, I’m pretty sure the employees of said companies lose their jobs.
It sucks but that’s capitalism for you.
The best thing us poors in the US can do is eliminate our consumer debt, pay it off or do a bankruptcy and pray(hope really hard and vote) we do get a president who can effectively forgive student debt. This means no spending, strict budgeting and eliminating any and all subs, discount phone, etc. If you are already there, getting more paid work if possible.
But if AI pops then that doesn’t mean that people will stop buying things.
Very few people are employed by the AI industry. Most people’s income won’t change. Most people’s consumption won’t change.
Poor people don’t have money to spend on much else than food and housing. Anyone with money is going to have stocks in these companies.
Also the AI industry is Microsoft, Meta, Google, Nvidia, AMD and a few others. They employ quite a few people.
So we agree. Poor/ middle class people only hold stocks for retirement. AI bubble popping has no effect on them. The are exactly as they were pre-AI bubble.
Only rich people care about the current stock values. Only rich people are scared of an AI bubble. Only rich people are attempting the “too big to fail” FUD. Big Tech are not banks. There is no knock on effect.
AWS have now had enough outages that any serious company has migration plans and redundancies. If Google fails then the infrastructure stays running even if the current shareholders lose their shirts. The employees that are needed to bring in cash will not lose their jobs.
You do realise that if 50% of consumption disappears then a lot of people from that 90% will loose their jobs as well. I don’t care about the 10%, I also think the income inequality in the US is insane, but the fact is that if AI stocks tank right now, poor people will feel it as well (much more so than rich people, because they can’t survive without a job and don’t have wealth as a safety net)
You are talking yourself into trickle down economics. There is now plenty of evidence that this isn’t true.
There is no need to protect rich people’s wealth so that the poor don’t suffer
I don’t understand what your point is? I’m merely expanding on OP’s question and stating the fact that the way things are currently, when the AI bubble bursts poor people will feel it the most. Trickle down economics doesn’t work because if you give 100 bucks to a rich person, they’ll spend like 5 of it. If you give it to a poor person, they’ll spend all of it. But that has nothing to do with the fact that if the bubble bursts right now, poor people aren’t going to somehow get any of that money. They will loose their jobs, because the economy slowed down and nobody is buying anything and their jobs aren’t needed anymore. They will just suffer more and rich people will buy up their houses that they now have to sell at bargain prices.
No.
The AI debt creation and investment is not of any benefit to the working class (except for a few construction workers). These data centers don’t create 1000s of jobs. Windsurf has 250 employees. Cursor has 30.
This AI bubble is not affecting general income, only assets. As it doesn’t hit income, it doesn’t hit consumption. Poor people earn and consume. They are asset poor.
A pop in the AI bubble will damage the billionaires, but not the poor.
But I’m not saying the jobs lost by AI companies collapsing is gonna cause a recession, I’m saying the AI bubble collapsing, bringing down the stock market with it, will cause a recession and loss of jobs. 35% of the S&P is made up of stocks in the top 7 US tech firms. The stock market is extremely skewed towards these 7 firms, and a large part of their current evaulation is made up from speculation of potential AI returns. When the bubble bursts, everyone who is invested in these firms will feel it. As I said, the top 10% of Americans make up 50% of consumption, can’t find a confirmation but I think that’s the highest in modern history. If this 10% suddenly looses 30-40% of their wealth because a stock market crash, this consumption will be severely affected. They won’t buy as many fancy goods, won’t go on expensive vacations, in general will do much less. We can argue whether having a class of people like that benefits the economy or not, I’d say it doesn’t, but the fact of the matter is that if the stock market were to crash because of AI companies, everyone is affected, because of how much money the 10% spend.
This wasn’t always true. When the bubble bursts the S&P investors will revert back to a more realistic valuation. AI bursting won’t affect LLY, JPM, WMT, COST etc.
Nothing of value has been lost. People just have the wrong anchor points.
These 10% are consuming their income, not their wealth. An AI stock crash will have little to no effect on their income. (Except for the small proportion actually employed in AI research).
Those data centers drive up energy costs for us and increase global warming. They don’t help at all. Plus AI steals IP of creatives.
Totally agree. But this thread was talking about what happens when the AI bubble pops.
Your pension is tied to these companies stocks. I can pretty much guarantee that “your” pension fund owns quite a few of these stocks.
But, and this is the important part, that isn’t your pension. It is the pension for those that are retired right now. There is no saved stack of money that you earned during your life thats waiting for you. Unless there is an equal amount of tax paying workers by the time you retire, you wont be getting that pension.
I’m not sure how old you think most of us are, but I don’t think pensions are a common retirement vehicle anymore, and haven’t been for a while. 401k would probably be the modern equivalent, and it’s still running on the stock market for the majority of its life prior to beginning to withdraw.
Pension is the correct English term. 401k doesn’t mean anything unless you’re american.
I don’t think it is.
A pension implies benefits are distributed to the person in retirement, usually with some fixed amount per month. My understanding is that in the UK, defined contribution plans are required to be invested largely in annuities by retirement, which satisfies that, whereas in the US, 401ks don’t have such restrictions. So a 401k could be depleated well before death, or be passed on to children as inheritance, unlike an annuity. There are required minimum distributions, but they don’t kick in until your 70s.
If 401ks switched to a defined benefit plan at retirement, I could see calling it a pension. But since they’re not, I think that’s misleading, and employer sponsored plan makes more sense.
Not true of UK defined contribution, you can do what you want just like a 401k, though it may be disadvantagous for tax purposes.
It’s pretty normal in British English to use pension as a synonym for retirement account, though I can see why you don’t like that.
Really? This is what I see with a simple search:
Looking more into it, I guess it’s similar?
The 401k typically doesn’t offer the guaranteed income, though I suppose some plans could offer annuities. You can choose to take fixed payments though, but there’s no guarantee how long that will last. I don’t know what the options are in the UK, but in the US, you can do whatever you like, as long as you withdraw the minimum (percentage of assets based on your age, starting at 73).
I see a pension as having some kind of guaranteed benefit. A 401k doesn’t have that, so it doesn’t count.
Yeah, again this is just semantics, a 401k in British English is 100% a pension. A UK defined contribution “workplace pension” is just a tax sheltered retirement account until it is annuitized, which is common and sensible but not necessary. The annuity is technically a totally different product, offered by life insurance companies (who interestingly with reference to above conversation would typically hold very little equity exposure backing it). Brits also call the equivalent to the social security retirement benefit the “state pension”. It’s a catch all for assets you use in retirement. Whether that’s used to fund an investment drawdown product or a life annuity or just taken out and splurged on a Ferrari makes no difference.
Interesting. I think people here would agree Social Security is a state pension, we just only call it by its name.
A pension specifically refers to a plan that makes consistent payments throughout retirement and stops at death (or may pass to the surviving spouse until their death). Anything else is a retirement plan if it’s tax sheltered until some age, or an investment account if it’s not.
I hear annuities are unpopular here, most seem to prefer either a dividend strategy, or sell securities as needed to cover whatever Social Security doesn’t.
I am in the US. In regard to employer based retirement, there are a few pension programs still available, mostly union based. In other corporate environments that do not offer union pensions (as they are non-union)- they offer the 401K if a for-profit or a 403B if non-profit. As you get closer to retirement, many 401K/403B recalibrate to a larger proportion of Bonds vs riskier stocks/futures. Although I also invest in some ETFs that are not pretax (only the earnings are taxable).
Right. OP’s point is that they call both defined benefit (i.e. what some union people get) and defined contribution (i.e. 401k and whatnot) a “pension.” My understanding is that a “pension” is a specific amount of money paid monthly in retirement (used to also just be the wage for certain jobs, not a retirement benefit).
A quick search yielded “defined contribution pensions”, which seems to be a mix: your contributions are invested during employment, and then you get a fixed payment in retirement.
With a 401k, there’s no fixed withdrawal in retirement unless you set one up, the only thing is a mandatory minimum withdrawal at a certain age (73?). My understanding is that wouldn’t be considered a pension since the withdrawal isn’t guaranteed or fixed, and you can withdraw everything if you so choose.
Maybe I’m wrong and a pension is a looser term there, but my understanding is that a pension needs to have a guaranteed benefit in retirement.
About half of the US population is enrolled in a pension even today…
https://www.unpri.org/private-retirement-systems-and-sustainability/private-retirement-systems-and-sustainability-united-states/5990.article#%3A~%3Atext=The+US+is+the+world's+biggest+funded%2Cactive+(working)+members+and+10.3+million+retirees.
Pension funds are to a large extent exposed to the stock indices. Since these companies grow and grow in valuation, a larger portion of pension funds are exposed to these companies. The so-called “magnificent seven” make up about 35% of the US stock market now. A lot of people will see a large portion of their pension savings affected by this. If you are not a US citizen, you sre still likely exposed to these companies.
Were you affected by the dotcom bubble?
Maybe the remaining tech companies, such as Microsoft and Nvidia, might raise prices of their products to cover the losses.
nvidia cards would cost as much as a good used car.
They already do.