Three bubbles show risk of recession

The US capitalist economy, and in serious part, the world economy, currently depends on three bubbles: AI, crypto-currency, and various forms of “shadow banking”.

Big IT companies developing AI software or specialised semiconductors for AI, and builders of data-centres as infrastructure for AI, are booming in the USA as a wider range of firms buy AI software in the hope it will improve their operations.

There is little evidence, as yet, that the buyers are getting much for their money. They may do, in time, as AI software improves and workers become more adept at using it well, but meanwhile it is very likely that this “AI spring”, like the smaller previous one around 2012, will be followed by an “AI winter”.

Crypto-currency is near-money that can be moved across borders and between accounts without passing through bank or government procedures. For black-market and shady trading it has many of the advantages of cash (actual dollar bills), and more convenience.

Lacking reserves or institutional guarantees to support them, crypto-currencies are subject to, and have been through, periodic sudden crashes in value. Trump has facilitated a crypto-currency boom in the USA. It will surely be followed by another crash, and maybe soon.

Less murky, but still murky, is the spiral of credit offered to capitalist firms via outfits smaller and less regulated than institutionalised banks. They can pool together funds from rich people looking for high returns on their stashes, offer them out to risky ventures on the assumption that enough of them will flourish even if others fade, and cash out and walk away from the mess if things go bad.

The September 2025 bankruptcy of the US auto parts company First Brands, with liabilities of $10 to $50 billion against assets of $1 to $10 billion, all made possible by “opaque off-balance sheet financing”, shows how such operations can allow dodgy speculative enterprises to expand.

An economic “bubble”, for these purposes, is when credit and spending in the hope of dubious future returns runs far ahead of the current or plausible near-future growth of real production.

Paper

Pieces of paper which are essentially tickets to future real surplus-value can for a considerable period run far ahead of the actual course of production. It is possible for those “bubbles” to deflate gradually. But more often an economic disturbance (maybe “exogenous”) leads firms to think they must retrench, and call in the payments due to them quickly so they get in first while there are still funds to draw from. The increased calls for payment inhibit credit. Everything snowballs into a crash, from which the capitalist class emerges smiling again only when a lot of chancers are purged — and, along the way, workers who had no part in the folly lose their jobs and their homes. The disturbance may arise from profit rates dwindling as more firms compete for “first mover” advantage. US statistics show a slight decline in profits since Quarter 4 of 2024, but too slight to draw great conclusions from.

Marxists are sometimes inclined to say that such declining profit rates are the axiomatic root of each crisis; but the statistical record shows more profit-decline in the slump phases following crises than in the run-up to them, and Marx himself wrote: “Business is always thoroughly sound and the campaign in full swing, until suddenly the debacle takes place”.

The general root of crises, according to Marx and I think in reality, is rather that the capital’s insatiable and “abstract” drive for profit makes “it... in the nature of capitalist production to produce without regard to the limits of the market”, to create conditions where “too much has been produced for the purpose of enrichment, or that too great a part of the product is intended not for consumption as revenue, but for making more money (for accumulation); not to satisfy the personal needs of its owner, but to give him money, abstract social riches and capital, more power over the labour of others, i.e. to increase this power”.

We are heading for a crisis of that sort. When — or, in the short term, whether — it will be produced, we can’t say. But in the USA Trump has fostered, not really a new boom, but conditions for a new crisis.