AI Data Center Investment Overheating, Insurance Companies Join, Mass Unemployment, and Credit Deterioration Create a 'Bubble'
With private equity funds and insurance companies driving the stock market upward amid overheated AI data center investment, the US Federal Reserve (FRB) has issued warnings of "prolonged high interest rates" and "further interest rate increases" due to the concealment of a bubble economy caused by mass unemployment.
Minneapolis Federal Reserve Bank President Neel Kashkari stated on September 19th, "Building AI data centers requires a lot of money, but operating them doesn't require a lot of manpower."
He added, "While the labor market appears to be slowing, risk markets appear active. The stock market continues to reach record highs. Speculative markets, such as Bitcoin and meme stocks, as well as large-cap technology stocks, are once again popular. Credit spreads continue to compress to historically low levels."
He continued, “There is a possibility that the neutral interest rate, R*, will be higher, and capital will be reallocated from labor-intensive industries to less labor-intensive industries,” and “The market will finance these investments through a higher R* (neutral interest rate), economically avoiding building new apartment buildings and instead flowing capital to higher-return investments in Silicon Valley, which will affect both the labor market and the stock market. Technology will drive rapid growth in industries that do not require much labor, resulting in a booming stock market and a sluggish employment environment,” revealing the structure of “increased unemployment during a stock boom” due to over-investment in AI. He continued, “Inflation has already reached the 3% level (the US Federal Reserve’s target is 2%), and the more likely risk between a large upward inflation surprise and a sharp further weakening of the labor market is a sharp further weakening of the labor market, and we know from past economic cycles that when the labor market weakens, it can weaken quickly and nonlinearly.”
He explained his decision to support a rate cut, saying, “This week’s FOMC (Federal Open Market Committee) meeting led us to support a cut in the federal funds rate because we believed the Committee needed to take some action to support the labor market, given the risk of a sharp increase in the unemployment rate.”
In a New York Times op-ed on the US stock market boom, Yale Law School professor Natasha Sarin wrote, “What’s worse than putting all your economic eggs in one basket is putting all your eggs in one basket and trampling on all the others.” She added, “The non-AI economy is under pressure. Tariffs are driving up inflation and dragging down growth, just as economists predicted. Hiring has stalled, and young people entering the labor market are finding it particularly difficult to find jobs. The youth unemployment rate is 10.5%, the highest it has been in almost a decade without the pandemic. This suggests that the AI boom is likely to worsen, not ease.”
Professor Sarin, a professor of law at Yale Law School and director of the Yale Budget Lab, continued, “The economy is being bolstered by a remarkable investment boom in AI. Capital spending on AI could reach 2% of GDP by 2025, up from less than 0.1% in 2022. This translates to roughly $1,800 per person invested in AI in the United States this year.”
Professor Sarin served as Deputy Assistant Secretary for Economic Policy in the Biden administration (Democrat) and as an aide to Treasury Secretary Janet Yellen (former Federal Reserve Chair).
He noted, “Without these AI investments, economic growth this year would have been around 1%. With AI investments, it’s likely to nearly double that, with just seven large tech companies accounting for nearly 60% of the S&P 500’s gains this year.”
“AI capital spending is so significant that it is influencing economic statistics, stimulating the economy, and approaching a railroad boom,” economic analyst Paul Kedrosky wrote in a report on September 18. “Based on recent data center sales figures from Nvidia, and using a standard multiplier, AI capital spending could reach 2% of U.S. GDP by 2025, while AI’s contribution to GDP growth in 2025 would be a mere 0.7%,” he added.
Professor Sharin warned of the risks, saying, “Without AI data centers to build, dollars will flow to other types of investment, and AI dominance could hold back other parts of the economy. This is similar to what happened during the internet boom of the 1990s, when small manufacturing companies struggled to access capital amidst the overflow of capital from all the dot-coms.”
He said, "It seems clear that two powerful economic forces are pulling in opposite directions. The Trump administration's trade war and attacks on the Federal Reserve are making investors wary, businesses uncertain, and weakening the economy."
He added, "The negative impact of slowing immigration on the economy is so significant that, under the existing immigrant influx model, the US economy was already projected to grow by 3% by 2034."
He continued, "History teaches us that these innovative technologies will change the world, but not without causing economic turmoil. This is the story of the dot-com bubble burst in England in the 1800s and the railroad boom. In both cases, investors piled into ultimately unprofitable ventures, as with Pets.com and several competing railroad lines. Eventually, the bubble burst, financial markets crashed, investors counted their losses, and people lost their livelihoods." He said of the recent overheated investment in AI data centers, "We could now see a massive labor migration, rapid automation could widen global inequality, and a financial crisis could loom." He added, "Just as banks prior to the financial crisis poured money into the mortgage boom, which they didn't fully understand, and then went bust, private equity-backed insurers are now pouring policyholder premiums into the energy and infrastructure investments needed for the AI boom."
In a previous report, the Minneapolis Federal Reserve President stated, "The labor market appears to be weakening, and weaker labor demand is likely a significant driver of the slowdown in job growth." He added, "Nominal wage growth continues to slow, confirming the labor market's cooling. While the labor market appears to be slowing, risk markets appear active, and stock markets continue to reach record highs."
He continued, "Technology is driving rapid growth in industries that don't require a lot of labor, leading to a booming stock market and a sluggish employment environment."
He added, "Given that foreign capital will be more expensive due to the price impact of tariffs on imports, pushing down R* (the neutral interest rate), even if the FOMC initiates multiple rounds of policy (rate) reduction, long-term interest rates may not fall significantly, and the housing market may not actually experience significant relief from rate cuts."
This appears to be a warning about a "secular trend of high interest rates" and "signs of a housing bubble rising in high prices."
The Fed chairman concluded, "Most importantly, I don't think we should follow a pre-determined path for a series of rate cuts. If the labor market proves more resilient than currently seen, or if inflation unexpectedly rises, we should be prepared to pause and maintain policy (rate cuts)."
He continued, "I would be open to further rate hikes if the economic situation warrants it," adding, "Of course, if the labor market weakens more quickly than currently anticipated, we can always move more quickly to support economic activity."
On June 20th, President Lee Jae-myung personally visited the Ulsan AI Data Center, a SK Group project.
Ha Jung-woo, Senior Secretary to the President for AI, initiated a hardline conservative policy of "creating a Korean-style chatbot government," providing each ministry with a vast government database for AI training, a task that currently struggles with a shortage of high-quality information. On October 2nd, during a meeting with Sam Altman, CEO of OpenAI, President Lee ordered the lifting of the "separation of finance and industry" to allow conglomerates to regain control of the financial market.
During his meeting with Altman, CEO of OpenAI, President Lee and SK Telecom Chairman Choi Tae-won signed a memorandum of understanding (MOU) to jointly build an AI data center in South Jeolla Province. Samsung Chairman Lee Jae-yong signed a letter of intent to jointly develop a "floating data center" off the coast of Pohang. However, the "source of funding" for these massive investments remained unclear. While Korean media outlets were overly promoting OpenAI's $500 billion Stargate project, Reuters previously reported that OpenAI's chip purchases were in the form of leases, highlighting the significant gap from the outset.
Altmann, who visited Korea to address the lack of investment funds, secretly visited Taiwan the previous day (the 30th) to sign a chip purchase agreement with Foxconn and another agreement with TWMC.
Immediately following the closed-door meeting in Taiwan, he flew back to Taiwan on a private jet to meet with President Lee. During a meeting with Samsung and SK, they exchanged non-binding letters of intent (LOI). At a senior secretary meeting on the 2nd, President Lee boasted that the stock index had surpassed 3,500 points and declared, "The stock price trend will remain steady for the time being," urging the easing of regulations on the separation of finance and industry to encourage the expansion of chaebols' access to financial markets and boost their stock prices.
The value of OpenAI, an unlisted company, has increased over the past 12 months, from $157 billion in October to $157 billion in October. It repeatedly surged to $300 billion in March.
See <OpenAI Sora App Produces False Protests Using AI to Promote Vote Fraud, Crisis of Democracy, Korea-Japan Gap, October 4, 2025>
<US Real Economy Relies on AI Data Center Construction Investment, Similar to 2001 Dot-Com Bubble, August 28, 2025>