Every tech product appears to be adding artificial intelligence (AI) into their software and AI development accounts for 2% of the GDP. But a 2025 MIT study found that 95% of AI initiatives offer no return on investment. At the same time, there is no clear timeline from when we will cross from hemorrhaging cash to AI profitability. 

Speculation around AI has overlaid the illusion of opportunity on top of growing stagnation. In other words, the issue isn’t the boom-bust cycle itself, or even its scale. A larger issue is the underlying stagflation, that, when combined with the boom-bust of the technology bubble, will amplify economic stressors. 

Let’s break it down. 

Understanding Stagflation

There are three components to stagflation: High inflation, growing unemployment, and slow growth. Unlike a recession, stagflation is not part of the economic cycle—it’s an anomaly, an economic illness. And it’s difficult to cure. 

Consider this:

• Reducing inflation means rising interest rates. This deepens unemployment and slows growth.
• Increasing GDP growth requires lower interest rates, which increases inflation. If unemployment is already high, low interest rates won’t stimulate sufficient spending to foster growth.
• Boosting employment means increasing job opportunities, but this can also trigger inflationary pressures.

In other words, stagflation is a synonym for being between a rock and a hard place. There’s rarely an easy way out. 

You may be wondering if our current economy really does fit the bill for something as complex as stagnation. Unfortunately, the numbers speak for themselves:

• High inflation: Inflation hovers at 3.4% for the past 12 months overall, but cost increases from the Iran War and supply chain disruptions continue to pain consumers 
• High unemployment: The Bureau of Labor Statistics reported unemployment to be a mere 4.1% in July 2026, but an independent study from the Ludwig Institute for Shared Economic Prosperity found the real number to be closer to 24.9% when accounting for people who have stopped looking and poverty wages.  
• Low GDP growth: Currently, our GDP growth is rapidly outpaced by the deficit and hinges significantly on tech investments, professional services, finance, real estate, and insurance. 

Over the last hundred years, we’ve only had a handful of stagflation periods, usually as a result of war or monetary policy shifts—both of which are already present today. Let’s briefly look at three examples:

• 1969-1970, the Guns and Butter era was one of the shorter stagflation periods. Named for President Johnson’s investments in the Vietnam War and reformed welfare programs, high inflation intersected with a major credit crisis when Penn Central went bankrupt.
  
  
• Only a few years later, 1973-75, we saw another stagflation event. The combination of the OPEC oil crisis, the collapse of Bretton Woods, global harvest failures, and loosening of wage-price controls caused industrial production to plummet and drove inflation to almost 11%.

• The most memorable event was in the 1980s. Between the results of the Islamic Revolution in Iran, inflation from the previous decade, new credit controls, among other factors, inflation soared. Federal Reserve Chairman Volcker made an unpopular decision to raise interest rates to 18% to curb equally high inflationary numbers.

These stagflations preoccupied monetary policy for nearly two decades before issuing in a greater period of stability. While many domestic issues played a part, geopolitics played a pivotal role in economics at home. 

Today, however, we have additional pressures to exacerbate economic risks. 

The Bigger Picture: AI, the Deficit, and the Dollar

Stagnation is a significant problem given continuing inflation, slow growth, and growing unemployment. However, this potential event is compounded by the AI Boom, the deficit, and dollar solvency. 

1. AI Bubble

Industry overvaluation and tech bubbles aren’t anything new. Most of us remember the DotCom bubble, for example, or the housing crisis in 2007-2008. But the differences between previous capital expenditure (CapEx) bubbles and the current potential AI bubble are critical: 

• The national debt has never outpaced revenue to this degree. Past events occurred with the debt ratio less than 40% of income. That number is over 100% today, a threshold not seen until WWII.
• Gold typically outperforms currencies and long-term assets in these scenarios, but the US no longer holds the most reserves. 
• Another significant asset, the US oil reserves, is depleting quickly and running on fumes. 
• As mentioned above, we are potentially in a severe stagnation period, making it challenging to pass policies that can address the aftermath of a bubble without encouraging inflation or slowing GDP growth. 

Essentially, if the AI boom collapses, this will directly affect not only the markets, but potentially US government solvency. The main intersecting factor here is the state of the national debt. 

2. The Deficit 

Currently, the US Federal debt/GDP is at 100%. Previous CapEx bubble bursts, one of which being the Electrification Boom that overlapped with the Great Depression, saw this rate to be less than 40%. 

As the national deficit grows faster than the economy, inflation continues to mount, inflationary pressures drive up costs but prevent wages from accommodating those higher costs. 

At the same time, fewer investors are attracted to Treasury bonds and notes. Geopolitics and shifting monetary policies create volatility, and that's the last thing investors want. 

3. Stocks and solvency

Stocks keep going up and up…but the number of shareholders is shrinking. At the same time, stock market returns are completely disconnected from the economy fundamentals. Meaning, when speculation ends, so too does market stability. 

When stocks fall, many of which are tech and AI-related stocks, the deficit becomes a more pressing matter. Borrowing costs balloon as the deficit grows, not only leading to a potential recession, but it can call US solvency into question. Between the weakening dollar, inability to efficiently preserve gold reserves, and volatility from monetary policy shifts, we are treading uncertain waters. 

Waiting for the Shoe to Drop

The market can’t go up forever. Wealth management isn’t just about gains, but preserving wealth in the face of great volatility. For investors, it’s better to avoid “timing the market,” especially today. 

Stagflation is already a tough ride. But we are entering an era of US fiscal policy that feels unchartered. The risks are high, and we, more than ever, cannot rely on historical returns to pinpoint sound investments. And while AI and related tech investments are holding us up (for now), the lack of profitability means the industry might be overvalued. If and when it crashes, the consequences will ripple through the economy. A cornered Treasury will have a difficult time remedying the situation without exacerbating the underlying issues. 

In times like these, it’s common to focus on fixed-assets and hard investments. Gold, for example, feels safer than liquid cash. Readying an emergency-fund, limiting big-purchases, and building for caution can help mitigate risks, even if you cannot eliminate or predict all of them. 

More than ever, it's an important time to check-in with spouses, trusted friends, and advisors to flesh out a financial plan for long-term inflation and instability. If you’d like a no-commitment, second opinion from a fiduciary advisor, please get in touch. 

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