‘A feedback loop with no brake’: how an AI doomsday report shook US markets

Comments

• Old_Joe

  February 24

  1. AI agents remove all ‘friction’ in the economy

  The scenario begins with AI agents undergoing a “jump in capability”. This has already happened. Citrini refers to Anthropic’s Claude Code and OpenAI’s Codex, both of which have wowed users with their performance in recent months.
  
  The agents dent software-as-a-service companies such as Monday.com, Zapier and Asana, because they offer businesses a cheaper way to do in-house tasks , for example, managing databases and organising workflows. This forces businesses such as Oracle that rely on long-term contracts with customers into “a race to the bottom” on pricing.
  
  Meanwhile the AI agents wreak havoc elsewhere. The scenario imagines every consumer deciding to use their own personal agent to transact and conduct business. This completely sidelines companies that monetise “friction” in the economy, such as travel and estate agencies that operate as middlemen in processes such as booking holidays or buying property.
  
  Instead of using DoorDash, developers – and civilians – code up their own food delivery apps, all of which compete, fragment the market, and destroy the margins of legacy businesses. Business for Uber and other ride-sharing apps also evaporates. Instead of using Visa and Mastercard, AI agents decide to do all business in cryptocurrency, because transaction costs are cheaper. This guts traditional payment providers.
  
  To Citrini, this is a logical endpoint for tireless AI agents that have the time and capability to optimise everything. “Habitual app loyalty, the entire basis of the business model, simply didn’t exist for a machine,” it writes.
  
  In the real world, Uber, DoorDash, Mastercard and American Express shares have all fallen this week on the back of this scenario.

  
  2. Mass white-collar unemployment

  Traditional narratives about progress envision the latest technologies creating new jobs as they destroy others. Not so with AI.
  
  “AI is now a general intelligence that improves at the very tasks humans would redeploy to. Displaced coders cannot simply move to “AI management” because AI is already capable of that,” Citrini writes.
  
  Instead, white-collar workers redeploy en masse into unstable, gig-economy jobs – the writers describe a hypothetical friend of theirs laid off from Salesforce driving for Uber. This in turn suppresses wages in the sector. The layoffs meanwhile drive down consumer spending. Companies, suffering from weakening demand, decide to invest not in workers but in more AI.
  
  This is “a feedback loop with no natural brake”, Citrini writes. The consequences are far-reaching when the wallets of the 10% of US workers who account for 50% of consumer spending suddenly snap shut.
• Old_Joe

  February 24

  3. Ripples out into the broader economy

  The scenario imagines that job losses and the evisceration of software companies will ripple out into broader markets in two ways: through defaults in private credit and a mortgage crisis.
  
  Private credit firms, or lenders that are not banks, have been involved in restructuring a number of software businesses in recent years, taking out loans based on those businesses’ predicted annual revenue far into the future. The example Citrini gives is how Hellman & Friedman and Permira, an asset manager, took Zendesk, a software company, private in 2022 for $10.2bn (£7.6bn). The acquisition included a loan structured around the assumption that Zendesk’s revenue would be stable.
  
  After AI agents, that assumption is no longer holds.
  
  This leads to “the largest private credit software default” in history. It should be contained to software, writes Citrini, but it isn’t, because the capital on the balance sheets of the asset managers includes life insurance policies and “the savings of American households”.
  
  Regulators downgrade this software debt, which contributes to a 2027 crash.
  
  Meanwhile, there is a mortgage crisis. White-collar workers no longer have white-collar jobs and are unable make repayments on their home loans. “People borrowed against a future they can no longer believe in,” writes Citrini.

  
  4. Downward spirals

  All this makes the negative feedback loop worse.
  
  The first-order spiral is companies laying off workers, which weakens demand and consumer spending, which in turn leads companies to invest in more AI and lay off more workers.
  
  The second-order spiral is that the private credit turmoil and mortgage concerns mean that markets tighten, consumer confidence is shaken, there are more layoffs and more mortgage impairment. “Each reinforces the other,” writes Citrini.
  
  No financial policy tools exist to address this, because the crisis that is happening in the real economy – job losses and suppressed wages and spending – is not a result of tight financial conditions that central banks can address, but of investment in AI, which makes “human intelligence less scarce and less valuable”.
  
  The upshot is a crash in late 2027, driven by the mortgage markets. It wipes out 57% of the S&P.
• Old_Joe

  February 24 edited February 24

  5. Occupy Silicon Valley and Ghost GDP

  Citrini imagines the crash will throw governments into a crisis they will be unable to manage.
  
  “The system wasn’t designed for a crisis like this. The federal government’s revenue base is essentially a tax on human time. People work, firms pay them, the government takes a cut,” it writes.
  
  “The government needs to transfer more money to households at precisely the moment it is collecting less money from them in taxes.”
  
  AI companies, however, are doing well. The big-tech players who build and sell AI models are making fabulous sums. Because their companies make up a large share of the markets, the economy looks great on paper.
  
  Citrini has a term for this: ghost GDP, that is “output that shows up in the national accounts but never circulates through the real economy”.
  
  The social fabric frays and a movement styled after Occupy Wall Street blockades the offices of AI firms for weeks on end.
  
  Citrini’s scenario ends with a caution: “This is the first time in history the most productive asset in the economy has produced fewer, not more, jobs. Nobody’s framework fits, because none were designed for a world where the scarce input became abundant. So we have to make new frameworks. Whether we build them in time is the only question that matters.”
  
  The impact of the Citrini scenario has startled some commentators, including experts who say AI tools are not yet capable of enacting it. Stephen Innes, a managing partner at SPI Asset Management, says AI thought pieces have become market movers.
  
  “We have watched this market absorb wars, sticky inflation, banking tremors and tariff theatrics with a shrug, yet a widely circulated Substack thought piece is enough to knock it sideways,” he said.
  
  
• Anna

  February 25

  Not meaning to keep repeating myself but here it goes:
  Human is not a viable species. I will add - a viable species does not look for ways to eliminate its pursuit of survival; it survives. The flaw in human is that it cannot see that AI is a path that permits both survival and evolution. It is always blinded by, unnecessary to survival, greed and tribalism. We met AI too early. We don't understand that evolution might just be elimination of the necessity of warrior competition in favor of creative competition. If religious and other old text is considered, we have always known we cannot survive and have dwelt on describing the final days and the beyond. We are, perhaps, better creators than warriors already. Too bad we are not a viable species and will not create the next newly evolved species.
• rforno

  February 25

  @Anna excellent points. Though I would add that humanity will be the only species that ends up killing itself (thru greed, hubris, or ignorance).
  
  In terms of AI scenarios that is why my only AI-related stock investments are in energy and utilities ... AI needs both and if AI dies, people still need it, too.
• Anna

  February 25

  @rforno Yea, that's the smarter play.
• gman57

  February 25

  So it'll eat itself. Job loses lead to less spending which reduces company profits meaning they need less AI. AI soon out of a job.
• gman57

  February 25

  So what companies/industries will benefit from UBI (universal basic income). Travel and Leisure?
• rforno

  February 25

  gman57 said:

  So what companies/industries will benefit from UBI (universal basic income). Travel and Leisure?

  Consumer staples, utilities, health care, I think. UBI probably isn't enough to take the family to Disney World or the Grand Canyon....
• Sven

  February 25

  Noted that US value index has out-performed the Growth index this year. It is an inexpensive vehicle to shift away from Mag 7 and AI-related stocks.
• DrVenture

  February 25 edited February 25

  rforno said:

  @Anna excellent points. Though I would add that humanity will be the only species that ends up killing itself (thru greed, hubris, or ignorance).
  
  In terms of AI scenarios that is why my only AI-related stock investments are in energy and utilities ... AI needs both and if AI dies, people still need it, too.

  We are talking about some version of Skynet here. I have long said that I originally thought it the stuff of sci-fi fantasy. Then, I changed my mind, as everything digital evolved. You are correct that AI needs energy. But, the true turning point is when robots, controlled by AI, are able to maintain the power grid.
  
  The obvious conclusion at that point, is that humans are a total liability. Of course, at any point before that actually occurs, humans can simply pull the plug. Much sci-fi has explored that scenario. One where "thinking machines" are outlawed (or turn on humans) - Dune, Battlestart Gallactica, Warhammer, Terminator.
  
  In an overly simplistic POV, the very wealthy own stocks too. Will they be complicit in their own demise? Will the populace? Will that be the brakes?
  
  
  
  
• Old_Joe

  February 25

  I'm with @Anna- the planet would be much better off running itself without us screwing everything up.
• DrVenture

  February 26

  https://www.cnbc.com/2026/02/20/china-humanoid-robots-spring-festival-gala-unitree-tesla-ai-race.html
  
  I don't know what to make of this, which seems to start at ~4 minute mark of the video.
  
  We are doomed. lol
  
  But, if it is any consolation, so is Tesla. If their robots were doing that, it would be all over Xitter.
• Sven

  February 26

  Don’t forget the movie, iRobot. Quite amazing that robots developed a higher level of thinking - AI or consciousness ?

  In 2035, a technophobic cop investigates a crime that may have been perpetrated by a robot, which leads to a larger threat to humanity./i>

  https://imdb.com/title/tt0343818/fullcredits/
  
  
  
• DrVenture

  February 26 edited February 26

  Now I am going to be "that guy", apologies in advance.
  
  @Sven I had overlooked that one.
  
  I, Robot (movie) was based on an Asimov book. A collection of stories, really. Written in the 1940s and 1950s. Which makes it even more remarkable. Asimov was an amazing futurist. As was Arthur C Clarke. Both were decades ahead in their thinking.
  
  Yes, that distinction of actual consciousness is really tricky. We are biased, in making that determination, I suppose. We decide how to define it, with our human thumb on the scale.
• Old_Joe

  February 26 edited 6:04PM

  Yes, Asimov, Clark, and Heinlein. We're finally catching up to them.
• Observant1

  2:57AM edited 3:12AM

  AI may not currently be very effective when analyzing markets.
  Its failure to recognize obvious recent events is disconcerting.
  https://www.morningstar.com/markets/ai-can-do-many-things-market-analysis-isnt-one-them-yet
• WABAC

  9:54AM

  A detailed takedown of the Citrini scenario at the dinky linky.
  
  TLDR:

  For AI to produce a sustained negative demand shock, the economy must see a material acceleration in adoption, experience near-total labor substitution, no fiscal response, negligible investment absorption, and unconstrained scaling of compute. It is also worth recalling that over the past century, successive waves of technological change have not produced runaway exponential growth, nor have they rendered labor obsolete. Instead, they have been just sufficient to keep long-term trend growth in advanced economies near 2%. Today’s secular forces of ageing populations, climate change and deglobalization exert downward pressure on potential growth and productivity, perhaps AI is just enough to offset these headwinds. The macroeconomy remains governed by substitution elasticities, institutional response, and the persistent elasticity of human wants.

  Emphasis is in the original piece
• DrVenture

  1:14PM

  @WABAC
  
  This is historically the case, as you present.
  
  Most of my comments are a bit tongue-in-cheek. If that isn't obvious. People fear change. Change this rapid is unnerving. Hopefully, it will all lead to the same incremental growth, as in the past. We should be so lucky!
  
  I am sure that there will be big disruptions. But, I doubt we will be shooting at robot drones in a post-apocalyptic wasteland any time soon.
• WABAC

  6:01PM

  @DrVenture, not my presentation of course. I did enjoy the tone of the piece.
  
  BTW, Rekenthaler should have asked Claude.