{"id":895,"date":"2026-07-06T15:41:18","date_gmt":"2026-07-06T15:41:18","guid":{"rendered":"https:\/\/modernhomejournals.com\/?p=895"},"modified":"2026-07-06T15:41:18","modified_gmt":"2026-07-06T15:41:18","slug":"treasury-has-an-internal-report-warning-about-the-dangers-of-an-ai-bubble","status":"publish","type":"post","link":"https:\/\/modernhomejournals.com\/?p=895","title":{"rendered":"Treasury Has an Internal Report Warning About the Dangers of an AI Bubble"},"content":{"rendered":"
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A draft report inside the Treasury Department is set to warn of the risks posed by the artificial intelligence market, likening key aspects of it to the dotcom bubble that upended the U.S. economy when it burst in the early 2000s.<\/p>\n

Read more D.C.\u2019s Broken 311 App Has Sparked a Debate Over Government, Tech and AI<\/a><\/p>\n

The document, the existence and contents of which have not been previously reported but was obtained by NOTUS, is a significant departure from the Trump administration\u2019s public tone, which has focused on encouraging unrelenting investment to unlock exponential growth.<\/p>\n

Career Treasury analysts found that AI firms are more deeply entrenched in the U.S. economy than their dotcom predecessors and pose significant risk to the entire system if financial conditions change, productivity goals are missed or various choke points stymie growth.<\/p>\n

A downturn in the AI market would send shockwaves throughout the entire economic ecosystem, the analysts wrote.<\/p>\n

The report concluded that the AI bubble\u2019s popping would lead to less of an immediate crash than the U.S. economy experienced with dotcoms in the early 2000s. But the analysts predicted that companies would cut back, investors would lose confidence, and the economy would grow more slowly should the industry falter. Stock markets, private credit markets, companies financing data center buildouts, cloud providers, chip manufacturers and utilities would all feel the effect, according to the report.<\/p>\n

Trump administration officials have never voiced similar unease, and a Treasury Department spokesperson dismissed the report\u2019s findings as unvetted and not representative of the agency\u2019s policies or views.<\/p>\n

\u201cThe official position of the Secretary and the U.S. Treasury is that Artificial intelligence will be a key driver of America\u2019s new Golden Age,\u201d the spokesperson said. \u201cAI has the potential to deliver unprecedented productivity gains, expand economic opportunity, and empower American workers and businesses.\u201d<\/p>\n

The report was prepared by Treasury analysts for Secretary Scott Bessent, Federal Reserve Board Chair Kevin Warsh and various federal financial regulators and offers a rare glimpse of how the Trump administration is examining the risks posed by AI. It has been completed for weeks and is awaiting formal approval before reaching its intended audience, which is eventually expected to include the public.<\/p>\n

The report stresses that AI companies maintain some fundamental differences from the businesses that dominated the dotcom boom of the late 1990s, which was defined by speculative excess and an overreliance on debt financing. Many of the top AI companies, by contrast, are more mature, profitable and maintain healthier balance sheets, which could blunt the impacts of the \u201cbubble\u201d bursting \u2014 or if it bursts at all.<\/p>\n

Still, the analysts said, AI investors are taking risks so significant that much of the financial system now rests upon AI meeting expectations for productivity gains and profitability.<\/p>\n

The Trump administration has publicly shown nothing but bullishness toward the AI industry. Bessent in a June 25 address in New York praised the largest technology firms for investing $750 billion in AI buildout this year. He favorably compared the current environment to the dotcom boom, saying AI should model its productivity goals against that era.<\/p>\n

\u201cCould we do at least that?\u201d Bessent asked. \u201cCan we do maybe more?\u201d<\/p>\n

Bessent has stressed that the primary risk posed by AI is failing to keep pace with competitor nations, and the administration has largely sought to unwind any regulatory effort<\/u><\/span> that could hold the industry back.<\/p>\n

President Donald Trump has floated procuring U.S. government stakes<\/u><\/span> in AI companies so the American public could benefit from their growth, and the White House recently began meddling in the products that AI firms like Anthropic can release.<\/p>\n

Read more After the 250th Party: Debris, \u2018Code Red\u2019 Air Quality and Patriotic Memories<\/a><\/p>\n

Fears of an AI bubble have grown over the last year, including on Capitol Hill, among some Wall Street observers and executives<\/u><\/span>, inside think tanks and even within the ranks of top AI principals<\/u><\/span>. Prominent economists and institutions, including the Bank of England \u2014 the central bank of the United Kingdom \u2014 and the head of the International Monetary Fund have also raised concerns about overvaluation of AI firms and the risks they pose to the broader economic system.<\/p>\n

The AI sector is vulnerable to funding for data centers and other infrastructure projects drying up and sustained growth expectations not being met, the analysts found in the report, saying that was reminiscent of the dotcom crash.<\/p>\n

That\u2019s because the industry is increasingly concentrated within a small number of firms, heavily reliant on private-market financing and significantly invested in infrastructure \u2014 data centers \u2014 to support its future.<\/p>\n

Supply chain issues, geopolitical tensions, electricity bottlenecks, utilities shortfalls and other concerns could all block AI\u2019s momentum.<\/p>\n

While AI companies\u2019 valuations are less speculative and generate more revenue than those in the dotcom era, the analysts said, the industry is at risk if it fails to grow as fast as it says it can, or if companies can\u2019t monetize their products.<\/p>\n

If AI companies fall short, the effects would ripple throughout the financial system as a whole, from big banks and hedge funds to private creditors, the analysts note. The largest AI firms are also all interconnected with each other and across different markets, which also points to widespread impacts if investment dries up or demand slows. In fact, fewer retail investors are backing AI than did dotcom ventures, so a sustained AI dip would have a greater impact on institutional investors fundamental to economic stability, the draft report indicates.<\/p>\n

Prominent politicians have repeatedly requested a similar type of analysis from the Treasury Department. Earlier this year, Sen. Elizabeth Warren (D-Mass.), ranking member on the Senate Banking Committee, and other Senate Democrats requested the Treasury Department demand non-public data to conduct a report on the risks of an AI debt bubble. Last month, proposed a bill requiring financial firms to disclose that information to Treasury and for the agency to report the various ways the financial world is exposed to AI companies\u2019 buildouts.<\/p>\n

The report would detail how a downturn in AI could hurt the U.S. economy and suggest regulatory action to mitigate the effects.<\/p>\n

\u201cAI and Big Tech companies are increasingly reliant on shadowy forms of debt and balance sheet magic to fund their multi-trillion dollar AI buildouts,\u201d Warren said, stating that her bill would \u201cgive regulators and Congress the information they need to identify risks early and protect our economy from another preventable financial crisis.\u201d<\/p>\n

The Treasury spokesperson said \u201cTreasury will continue working with regulators and the private sector to ensure our regulatory framework keeps pace with innovation and supports the responsible adoption of AI in ways that strengthen the U.S. financial system.\u201d<\/p>\n

In his recent New York address, Bessent noted that at a recent G7 meeting, he disagreed with other leaders who suggested risks of AI surrounded safety and job loss.<\/p>\n

\u201cI think they were slightly stunned when I said the biggest risk to AI is China getting ahead of us,\u201d he said. \u201cWe have to stay ahead.\u201d<\/p>\n

Read more It\u2019s the Summer of Sports and Politics<\/a><\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Publicly, the Trump administration is bullish about AI. Privately, some of its analysts are weighing AI against the dotcom bust.<\/p>\n","protected":false},"author":1,"featured_media":894,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26],"tags":[],"class_list":["post-895","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy"],"yoast_head":"\nTreasury Has an Internal Report Warning About the Dangers of an AI Bubble - Modern Home Journals<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/modernhomejournals.com\/?p=895\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Treasury Has an Internal Report Warning About the Dangers of an AI Bubble - Modern Home Journals\" \/>\n<meta property=\"og:description\" content=\"Publicly, the Trump administration is bullish about AI. 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