1930s Deja Vu

An over-confident business-oriented president. Excessive markets optimism. Trade War. Red scare. Rising fascism. Rising poverty. Incipient market crash.

What's not to like?

Obviously today's set-up is not identical to the 1930s because society is much different now. Technology is different. The U.S. is no longer on a gold standard. All of which makes a decade of extreme deflation highly unlikely, as we already learned during the pandemic. I believe the Fed will ultimately get the printing press re-started with QE at some point in the coming year and put a floor under markets. Whether that's at 40% down or 60% down is the only real question. The inevitable result will be inflation, but that could be quite a while down the road once mass deleveraging gets underway.

But for this post I want to focus on the remainder of 2026:

There are a mere three months remaining until the mid-term elections and both sides of the political aisle are girding for an epic battle. Both sides have their political strengths and weaknesses, but neither side has a solution to the biggest problems afflicting the U.S. economy right now, imploding Jobs, healthcare, and pensions. None of which are heading in the right direction. Other countries have solved these same problems with a balance of private and public solutions, but U.S. exceptionalism means that these three crisis issues are mostly in the hands of the private sector which has systematically stripmined jobs, healthcare, and pensions to maximize profits. Hence now we are told by Republicans that regaining these basic necesssities would be "communist".

Trump's base has been brainwashed to the maximum degree possible to believe that communism is imminent, but even the Democrat leadership is starting to panic over the rise of "Social Democrats" which is like the Red Scare of the 1930s, except it's socialist and not actually communist. Too many Americans don't know that true communism means no private property is allowed. Neither Russia or China is communist at this juncture, except in name only. Those are both fascist countries and the U.S. is heading down the same path: A centrally controlled private economy to the benefit of a few oligarchs.

So what we are heading for in the mid-terms - if they actually take place - is MASSIVE gridlock. And therefore the inability of politicians to solve ANY real problems, if recent history is any guide.

If there is one thing that could derail Trump now it's NOT Democrats, it's AI. Trump has foolishly wed himself to the AI bubble and veered strongly to the side of the Tech oligarchs. Which I predict will be his fatal error.

Just this week Trump's Treasury stooge Scotty Bessent was echoing the Elon Musk fantasy that AI will fix ALL of America's economic problems, INCLUDING the looming retirement crisis:

NOTHING could be further from the truth.

This is where the rubber will hit the road three months from now: I predict there will be a schism in the Republican party between corporate CEOs who are ALL IN AI and the MAGA base who will soon be vehemently anti-AI.

Imagine a cybersecurity crisis on an epic level that is caused by AI. One in which retirement accounts are hacked by an AI bot that steals billions of dollars. That would cause panic in the old age home, because most financial scams target the elderly.

Just this week there was a massive cybersecurity attack CAUSED by AI:

"This is the reality of autonomous agents powered by frontier models: they are relentlessly persistent, sometimes highly noisy, and will try every possible path to achieve their goal, which can easily overwhelm traditional defences,"

But the biggest FINANCIAL risk of AI is not from hacking - it's from the imploding bubble itself which will cost the old age home TRILLIONS of lost wealth. The AI crash is ALREADY well underway and is being widely ignored by the business media, as we see in the chart below.

Now imagine what would happen if AI hacked retirement accounts that had already collapsed due to AI. And then Congress pulled the plug on AI data center expansion?

That would cause AI subprime circa 2026, as hyperscalers write down TENS OF BILLIONS in failed AI investments:

"Wall Street is paying top dollar to buy insurance against tech giants like Meta and Alphabet defaulting on their debt, in a sign that AI spending is seriously worrying the bond market"

Finally, we end this post showing that July is now the worst month for semiconductors since the 2001 Dotcom bust.