Nomura, an international financial institution, said in a recently released research report that the large-scale development of artificial intelligence (AI) has become an important engine of US economic growth, but it is also putting pressure on the US economy in multiple ways. If AI development suffers a setback, it may expose the rising risk premium in the United States.
The report said the risks brought by the US AI boom include rising chip and electricity prices pushing inflation higher, a surge in imports of chips and technology equipment widening the trade deficit, and large cloud computing companies issuing large amounts of bonds pushing up US Treasury yields.
In addition, due to net capital inflows and abnormal capital gains from the AI-driven rise in the US stock market, the net liability position of US international investment (that is, dollar assets held by the rest of the world) has increased significantly. According to calculations by Nomura analysts, the ratio of the net liability position of US international investment to the total net asset position of all net creditor countries has soared to 80%.
The report pointed out that because US stock market valuations are high and economic fundamentals are weakening, if AI development suffers a setback, it may trigger a major adjustment in US capital markets. Given foreign investors' large exposure to US stocks and the leverage and circular financing within the AI ecosystem, such an adjustment could turn into a "global risk-off event."
The report said some views hold that dollar assets are "irreplaceable" due to the large size of the US economy, the depth and liquidity of its capital markets, and the status of the dollar as the global reserve currency. However, the pillars on which the dominant position of dollar assets rests are weakening, and external trust in US fiscal and trade policies, security assurance policies, and the independence of the Federal Reserve has all declined.
The report pointed out that the United States still relies heavily on foreign capital inflows to make up for its continuously expanding fiscal and current account deficits, but the massive twin deficits cannot be sustained. The mounting debt burden is like a "ticking time bomb," and the related pressure is accumulating.
The report argued that given the surge in the net liability position of US international investment and the high concentration of other countries' international investment assets in the United States, moderate de-risking by foreign investors would be "enough to trigger a depreciation of the dollar."
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