The Economy is About to Collapse | Luke Gromen

Even in an 'age of abundance' scenario where AI produces nearly-free goods, fundamental problems remain unsolved: how are property rights allocated, how are land/real estate distributed among a population with no employment income, how do you maintain rule of law and police services when pension funds become worthless in real terms, forcing civil servants to choose between legal work and extortion.

“if everybody has to get fired. In fact, the title of my report for clients last week was, "No, AI is not going to take all the white collar jobs. AI is going to take some jobs and systemic leverage will do the rest." We know exactly how this goes. What percentage of subprime mortgage holders defaulted on their loans? In the grand scheme of things, it wasn't that much.”

The most important personal preparation for the coming crisis is not financial optimization but rather development of interpersonal and communication skills, because in breakdown scenarios, the ability to negotiate, cooperate, and relate to people will be more valuable than monetary assets.

“like, I don't worry too much about your exam results anymore. I worry about uh how you how you speak to other people, like how you in you interact with other people. I think that's your most important skill right now.”

Blockbuster Video's collapse from 7,000-8,000 stores to zero in roughly 15 years (after Netflix's 1997 founding) serves as a perfect historical template for how exponential technology disruption appears slow until it's suddenly complete, predicting white-collar job displacement will feel similar.

“What else did Blockbuster Video do after Netflix?...how many blockbuster video stores are there left in America? It used to be seven or eight thousand. I think there's none...that's what people and I think that is what these tech one the guy who was running you know guardian or guard at at anthropic like quit his job two weeks ago to go write poetry in the UK and disappear off the map right I think that's what just happened”

Albert Bartlett's observation that 'the greatest shortcoming of the human race is the inability to comprehend the exponential function' applies to AI: humans are evolutionarily wired for slow change (800M people for 800 years), so rapid exponential improvement in AI capability feels implausible until it's too late.

“the physicist Albert Bartlett once said the greatest shortcoming of the human race is the inability to comprehend the exponential function. You know we as a species are uniquely tuned after 10,000 years to freaking nothing ever happening... when I apply all of those things to AI I am struck by the level of complacency around what it's going to do”

The relationship between US 10-year Treasury yields and 10-year Japanese Government Bond yields, which historically moved together (shrinking spread = yen strength), broke in late 2023-early 2024 when the spread compressed but the yen weakened instead of strengthening, signaling that markets have begun pricing in that Japanese debt saturation is near and will force either yield curve control (money printing) or bond market collapse, marking the beginning of the acute stage of the debt crisis.

“And then in the last fall something really weird and something very troubling happened which is that spread kept collapsing and the yen started weakening against the dollar”

Denial about AI capabilities among white-collar workers mirrors the exact denial that blue-collar workers expressed before China WTO: 'Chinese manufacturing is lower quality' / 'AI makes mistakes'; 'Chinese quality will never match ours' / 'AI won't handle complex tasks'—and in both cases, the capabilities improved exponentially while the deniers waited.

“It is problematic and the blue collar guys oh you know yeah the Chinese okay you know they they'll make cheap stuff really well but they're never going to move up scale well guess what they did and that's just like well AI you know it can do some of these easy tasks but It's not going to do any more complex tasks.”

Government debt in real terms will never be paid off because it will be repaid only in increasingly worthless currency, not because of mathematical impossibility of payment per se, but because the political and economic feedback loops make fiscal adjustment destructive: cutting entitlements causes asset sales and lower tax receipts; cutting defense has similar multiplier effects through leverage.

“Not in real terms. No. They'll pay every penny. Uh it will just be uh currency less and less uh valuable currency in real terms.”

In the 1990s Soviet Union, when the communist apparatchiks lost their meaning and role, they drank themselves to death and committed suicide at rates comparable to the current US rust belt crisis, demonstrating that the psychological crisis of meaning loss is not unique to Western capitalism but is a human pattern across political systems.

“In the Soviet Union in the 1990s, Soviet apparachics in that gigantic system lost their meaning. What did they do? Drank themselves to death, drugged themselves to death, shot themselves to death.”

AI-driven deflation is incompatible with a debt-based monetary system that mathematically requires inflation to remain solvent; therefore, AI productivity is a 'mathematical bookkeeping guarantee' to trigger systemic collapse.

“I keep reading these things like you know AI is going to be productivity and it's not going to take all the jobs and it's just going to drive deflation way down and I say exactly and in a debt based system that was that is a mathematical bookkeeping guarantee to blow up the entire freaking system”

Elon Musk's claim that 'you don't need to save for a pension in 10 years because money won't be needed' represents an extreme interpretation where all products become free (AI productivity → zero marginal cost), but this creates an unsolvable capital structure problem: companies have no revenue to service debt, so equity becomes worthless despite assets being infinitely valuable, creating 'Schrödinger's finance' where stock market goes to zero and infinity simultaneously.

“Let's take it to the extreme. Let's pretend every product that you access is free. Everything. How does how do all of the corporations who borrowed hundreds of billions of dollars mostly to buy back stock in America over the last 20 years, how do they repay their debt or do they even exist after that?”

People are already experiencing financial repression in the present moment through affordability crises (housing, healthcare, education), political instability (assassination of corporate executives, shootings), and the election of populist leaders—all of which are symptoms of the debt spiral's chronic phase that has been running for years, not just warnings of a future acute crisis.

“you can't go anywhere without hearing somebody talking about how the the affordability crisis across the West can't afford housing, quality food is expensive here in America. healthcare is is is uh college u when you get into uh furthermore things like political instability uh when you've got you know people like Charlie Kirk who's just trying to have a conversation get shot when you see uh the CEO of of United Healthcare assassinated in the streets of Manhattan. You see the political reactions to these things. you see the elections of of populists. These are all symptoms of that financial repression running out of room”

The historical precedent for AI-driven job displacement is China's entry into the WTO, which was functionally equivalent to a massive AI productivity shock, resulting in 35% of US manufacturing jobs being lost in seven years and never returning, accompanied by epidemic rates of suicide, alcoholism, and drug overdoses in affected communities.

“this is so reminiscent in almost every layer to when the United States let China WTO or China sended the WTO and we offshored bluecollar jobs to China. That was just an AI productivity boom. That's all it was. You know, there there's very little functional difference between an AI agent doing something in hours for no cost versus, you know, a Chinese factory worker doing something in a day instead of a couple of weeks for for, you know, uh, for basically no cost and no environmental and no regulatory. It's just a matter of degree. And I can tell you how that went. 35% of manufacturing jobs went in seven years. They never came back.”

UBI research shows that unconditional cash transfers to people without work lead to worse outcomes than expected: life quality decreases, mental health worsens, suicide rates rise—not because the money is insufficient, but because the meaning that comes from work is irreplaceable by government checks.

“There's been research on UBI. It's extremely discouraging. You know, yes, actually people end up worse off. Uh yes, they they get to live, but the quality of life decreases, the the the meaning decreases, the rates of suicide go up, mental all these problems.”

The 'April 2nd Liberation Day' incident (Trump's policy announcement causing simultaneous stock, bond, and dollar selloff—classic emerging-market capital flight behavior) was defused within 6 trading days when Treasury market dysfunction reached levels (MOVE index ~178-187) that humans cannot tolerate in a levered system, forcing policy reversal.

“stocks down, dollar down, bonds down, right? So that that is emerging market third world capital flight behavior... for like five straight trading days... and then Trump tacoed, right? Trump always chickens out. Why? Because the United States Treasury market, the deepest, most liquid market in the world, dysfunctioned so severely... Harley Bassman created the move treasury volatility index... on April 9th literally seven trading days later... he publishes the move volatility intraday index and it's like like 187 or one 178... he goes literally humans cannot deal with that kind of volatility in a leveraged system.”

White-collar workers are heavily leveraged (mortgages, car loans, credit cards, non-dischargeable student debt) with almost none owning homes free and clear, making them vulnerable to job displacement in ways blue-collar workers (now experienced in sustained job loss after offshoring) were not.

“we are in a levered system white collar work around the west I would bet what percentage of white collar workers owns their home free and clear do you think in the UK in the US and in Europe...tiny tiny tiny and those that yeah certainly among active workers right I would suspect the boomers a lot of the boomers, former white collar workers, uh probably a lot of them own their houses free and clear, but of sort of the the ones that are about to be disrupted, they almost none of them do. Almost none of them own their cars, right? Car payments are off the charts.”

AI will not take all white-collar jobs immediately, but even modest job displacement (5-10% unemployment increase) combined with the system leverage will trigger cascading defaults through the mortgage and consumer finance markets, similar to 2008 but without any backstop available at the sovereign level.

“AI is not going to take all the white collar jobs. AI is going to take some jobs and systemic leverage will do the rest. We know exactly how this goes. this is inbound, in which case it's probably going to be a brief moment of a of a sort of big whoosh down.”

The Austrian School economists were essentially correct in their long-run diagnosis (high credit growth is unsustainable), but fail in short-run timing because their recommended solutions (complete credit destruction) are politically and socially impossible for democratic governments to implement.

“The Austrian Austrian economists I've tend to find are you know they are they are very very right in the ultimate long run. They're almost always right in the long run. Uh the challenge is is this that it's you know economics is not a science no matter what the economists want to tell you. It's a branch of moral philosophy, right?”

Individual households should avoid all consumptive debt, eliminate existing debt where possible, maintain their physical health to minimize dependence on expensive healthcare systems that will become more costly, and position their finances to survive both hyperinflation and deflation scenarios by maintaining a diversified balance sheet in cash, gold, dividend-paying equities, and real estate.

“I think he can not take on any debt that is not productive. I think he can get out of debt as much as he can. Uh, and when I say not not productive, um, any kind of debt that's consumptive should be avoided, right?”

Government and corporate leadership are deliberately suppressing open acknowledgment of AI's displacement effects because: (1) admitting the crisis would destroy consumer confidence and trigger precautionary savings/spending collapse, and (2) revealing job displacement plans to employees before they're ready would cause immediate organizational collapse as people lose morale and exit, creating a dangerous management problem of timing.

“that's what's coming. And it's not going to take two years. It's going to take six months maybe until something like that happens. And you know, everyone's going to go to the bar on Friday and go, "Yeah, hey, did you hear about Joe? He, you know, he was supposed to be good for 2 years and you know what? They just got rid of his program and now he's got his student loan debt. He's got his mortgage or his apartment. He's got his car loan and he doesn't know what the heck he's going to do. What did it?" Well, probably AI.”

Gold and Bitcoin represent the only assets that will preserve value across both hyperinflation and deflationary scenarios because they have no debt attached and derive value from scarcity rather than cash flows, making them the ultimate hedge when sovereign debt unravels and fiat currency becomes suspect.

“Uh I think it's probably going to be I think it's probably more months. And the reason I think that is is you know again to quote Charlie Mer you show me an incentive I'll show you the outcome. and yeah, it's not going to last long though. I fully concede. I'm being too cute. You know the challenge is is right now it's very hard for the policy makers even if they were good second derivative thinkers and could see this and there's a couple there's one or two here and there that I think can see this but most of them can't. Most of them are just they're not very good thinkers. um even if they could see it, they've got the same sort of problem politically.”