Crowding Out

In Downgrades and Competition For Capital I discussed how AI's insatiable appetite for funds was raising interest rates not just for AI-related debt, but also for everyone else. The impact of these rate increases will take time to become evident, as borrowers roll over existing debt or raise new debt. Below the fold I look at impacts that we don't have to wait for, because they are already happening on a large scale. Krugman Chart 1 Now, Paul Krugman's AI Versus Everything Else presents a different aspect of the competiton for capital — it is "crowding out" investment in everything else: Evidence of that crowding out is revealed by a recent article in the New York Times, which noted that the AI Boom is not being slowed by these soaring rates. Yet the spike in interest rates is being felt throughout the non-AI economy. In other words, all that money going into construction of datacenters and purchasing foreign produced semiconductors comes at the expense of investment in everything…