“Everything that can be automated will be automated.”
— Robert Cannon
December 3, 2025 — Not cool. The Chicago Mercantile Exchange (CME) reported a ‘chiller plant failure’ at one of its data centers interrupted futures trading on stocks, commodities, and foreign exchange trading into Black Friday.
The same thing happened in 2019. It lasted for a few hours. And then things were back to normal. But this is the end of the month, when lots of positions are being closed out and options expiring. Financialization and digitization have allowed markets to trade around the clock and around the world seamlessly.
So much depends on data centers! In today’s note, I’ll look at the output of those data centers (AI) and whether a battle royale is shaping up in 2026.
In one corner, the natural tendency of technology to make things cheaper (deflation). In the other, exploding government liabilities as AI displaces millions of workers and turns them into dependents of the State (inflationary).
What’s the right investment strategy for this coming conflict? Stay tuned for more.
Around this time of year I would normally show you the latest version of what I’ve called ‘the most important chart in the world.’ It tells you when the $38 trillion in US government debt matures.
Normally, the Government Accounting Office publishes its annual audit of the debt figures published by the Bureau of the Fiscal Service.
The audit is a snapshot of how much pressure is building up on interest rates. Think of that $38 trillion in debt as water building up behind a dam. If too much debt matures too soon, that water spills over. The result is higher interest rates–higher borrowing costs for the US government, which tips the annual interest expense on debt over $1 trillion and consumes more tax receipts out of the government’s annual budget.
The problem this year is that the data GAO uses to prepare its report is provided by the Treasury and the Office of Management and Budget.
Because of the government shutdown in October, I’m told by my contact at GAO the report will be delayed until December or possibly January. But the data itself is public domain. So I did a thing.
I used my AI agent to reconstruct the chart for 2025 based on the publicly available data. That’s the image you see above. It breaks down US debt into bills, notes, bonds, TIPS, and cash.
What you’ll see is that nearly 50% of marketable public debt ($14.8 trillion) matures in the next two years. But fully 71% of the debt–or $21.5 trillion–matures in the next five years.
There is no hiding from this debt tsunami. The debt must be repaid or refinanced. The bigger it gets, the less likely investors are willing to buy it–at least at these interest rates.
That pushes up rates higher. And that results in one of two things (probably both)–yield curve control on the lower end of the interest rate curve and/or a resumption of bond buying by the Federal Reserve (Quantitative Easing).
I will not rehash the technical argument that Quantitative Easing is not money printing and therefore not inflationary. The numbers speak for themselves. Higher government debt levels increase inflation, which is another way of saying they accelerate the rate of dollar debasement. This is one of our big investment challenges going into 2026. But there are also opportunities.
Safety for 2026 Ahead of an AI-Induced Recession
What if AI is about to unleash a 2008 style wave of unemployment in America, recession included? The above chart shows the broadest measure of US unemployment, the U6 figure. It has unemployment at 8%, nearly twice the 4.4% ‘official’ rate last reported in September (the 43 day government shutdown means there will be no October report).
The Bureau of Labor Statistics will publish the November Employment Situation on December 16th. This is a week after the Federal Open Market Committee is scheduled to meet (and expected to cut its benchmark interest rate by 25 basis points). The employment data will be murky, and that’s before accounting for ‘seasonal’ factors related to part-time employees hired for Black Friday and Christmas.
Earlier I came across the term ‘hedonic productivity increases.’ It was used by OpenAI’s Sam Altman to describe how AI will increase productivity (output per person), lower costs (services and goods plummeting because technology is inherently deflationary), and–get this–make people happier!
Why?
Hedonics is a term I first read from one of my mentors, Dr. Kurt Richebacher. It was used to describe price adjustments which had the effect of understating inflation.
A hedonic adjustment accounted for a good or service being qualitatively better, which makes it subjective calculation. Once you accounted for that, according to its advocates, you were getting more bang for your buck (the classic example being all the bells and whistles a modern vehicle has compared to an old one).
Altman’s claim is that not only will people get more done with less with AI, they will be happier because their work is easier and…more fun. This follows a report from Anthropic, responsible for the Claude AI, that said AI increases productivity.
I will say I’m skeptical. But we’ve been told the nature of exponential change is that it comes at you faster than you can measure or observe. And if that is true, it will have consequences in 2026 for employees and investors. Big ones.
For employees–those who are not replaced by automated processes and robots–it will mean secure employment and higher wages. A small number of winners getting richer.
For those replaced by AI and robots, it will mean permanent unemployment or gig work, and political support for Universal Basic Income (an explosion in government benefits that will drive the debt to $50 trillion even faster than already expected).
If these former employees are no longer paying FICA to support Social Security benefits, you have a big problem. You have less tax money to support retirees. You also have new demands for government assistance for the unemployed. The result–a huge explosion in liabilities that can only be met by new borrowing, all of which is inflationary.
But then there’s the deflationary case currently being made by AI and tech billionaires that AI will drive down costs for everything. Yes, the price of labor may go down, they say. But quality of life and purchasing power will actually go up as prices for everything–services, goods, food, etc.–fall.
I have my doubts. More research is required. But in this ‘gentle singularity’ where work is easier and more fun, you have a real existential risk for a global system with $400 trillion in debt. How will all the interest on that debt be paid if consumer demand collapses due to sky-rocketing unemployment?
Macro-economically and mathematically speaking, you can’t have massive unemployment and soaring corporate profits. At least, you can’t have it for long. We have it right now, which accounts for the stock market’s performance…before the massive unemployment shoe drops in 2026.
Dan Denning
Bonner Private Research & Grey Swan Investment Fraternity
P.S. from Addison: Tomorrow on Grey Swan Live! the inimitable Dan Denning of Bonner Private Research — editor, investor, and as godfather to my middle son, contractually obligated to keep me honest – joins us.
Dan and I will be unpacking all of the above plus… the Fed’s pivot from tightening to easing, the rise of Dollar 2.0, and what it all means for your personal balance sheet before the next Enron or Lehman Bros. signals the historical start of the next crisis, spawn of Fed’s perpetual bubble machine.
We go live Thursday, December 4th at 2 p.m., EST 11am PST where Dan will no doubt alternate between dazzling insight and the dry wit of a man who has spent more than his share of years in the trenches with Bill.
If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.
