Name: AI Bubble Now is Far WORSE Than Dot Com Bubble
Uploaded: 2025-10-25T18:06:40.000Z
Duration: 10 min 16 s
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The AI bubble is about to get a lot worse.

JP Morgan expects the Federal Reserve to cut the interest rates twice this year and one more time next year.

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That will bring the total effective interest rates to about 325%, which is considerably lower than 5.5% of their peak back in 2022.

The fact that the Federal Reserve lowered interest rates in September of this year shocked everybody.

Since the Federal Reserve is still far away from its targeted goal of NFL duration of 2%.

If the Fed lowers interest rates, that will essentially bring the treasury bill rates to about the inflation rate, which will disrupt the bond market.

The US Bond market is the backbone of the US Economy and the backbone of what makes the United States dollar the global reserve currency.

It's being held by the central banks across the globe, such as the bank of Japan, the bank of England, and

And the only reason that these banks across the globe are holding so much US Dollars is that these US Dollars are not in cash, but

rather US treasury bills, which means that they are earning interest because they hold these treasury bills.

And that's why a lot of commercial banks and central banks, instead of holding a lot of gold, they would rather hold U.S.

treasury bills since they are earning an interest that is higher than the real inflation rate.

Which means that we're consistently making money.

And whenever we need to turn those treasury bills into US dollars, we can instantly do that in the US bond market.

Every single day, about $900 billion, up to $1.5 trillion from treasury bills is converted into cash in the US bond market.

So central banks, US banks and foreign banks are not afraid.

They could be holding hundreds of billions of dollars of treasury bills that they know that they can instantly turn into US Dollars.

But this system only works earning higher interest than the inflation rate.

If inflation rate suddenly becomes higher than the interest that these banks and central banks are earning on the treasury bills, it breaks up the system.

you are making much more than the inflation rate, which is why you would hold a lot of treasury bills.

But if suddenly, if treasury bills are earning 3% while inflation is 4%, then you're consistently losing money, which means that you don't want to hold a lot of treasury bills.

This is why most of the world uses dollar as the global reserve currency and not any other currencies such as the euro, because it's simply much more profitable to hold US dollars.

So if we cut the interest rates three times by 25 basis points within the next six months.

That will bring the total interest rates or the effective interest rates to 3.25%.

The current inflation rate or the core CPI is about 3.1%.

So essentially the interest rates or the interest rates will be as much as the inflation rate.

Especially lower interest rates could even increase inflation.

And we can find ourselves in positions where inflation will be higher than the effective interest rates.

Since the Federal Reserve is the largest buyer of treasury bills, it is strong demand is going to bring down the yields on treasury bills which is going to impact everybody else.

Even if foreign nations that hold a lot of treasury bills, they will suffer as well.

Because that magnificent or huge demand by the Federal Reserve will bring down the yields which is going to impact the entire market.

The current yields on 10 year government bonds is about 3.9% or almost 4%.

But if you look at short term treasury bills, such as two year treasury bills, they're about 3.5%.

The difference between the real inflation, the core CPI and the yields on the government bonds is already very small.

And by lowering interest rates, it is going to turn the entire dynamic upside down.

Which means that holding treasury bills is going to be extremely unprofitable, profitable, especially in the long run.

Banks don't have the option to completely get rid of their government bonds because if you're a bank, you must have a considerable amount of treasury bills.

However, investors who can get rid of their treasury bills will most likely do that because you can get far more money in the stock market than losing money with treasury bills.

Which is why there is a probability that more money will be flowing from the bond market into the stock market, which is going to make the entire bubble that we have right now a lot worse.

The second problem is that the Federal Reserve is taking untraditional move.

Usually the Federal Reserve hike the interest rates to battle any kind of bubbles.

So if you go back for example, to 1990s and early 2000s, you can see that when the bubble was forming around this time, the central bank back in 1995 instantly raised the interest rates to 6%.

And if that wasn't enough, back in early 2000s, the Federal Reserve hiked the interest rates to about 6.5% to ensure that the dot com bubble is not going to get a lot bigger.

Even if that bubble is going to burst, yes, there is going to be a shock in the market.

But if we fuel this bubble, if we let this bubble to get even bigger, the catastrophic crash at the end is going to get far bigger.

So let us experience a smaller crash today than a far bigger crash tomorrow.

Which is why every single time when a bubble was formed in the market, the Federal Reserve has always hiked interest rates.

Back in 2004 and 2005, when the federal Reserve realized that the market is turning into one giant bubble, the Federal Reserve instantly hiked the interest rates to about 5.5% to prevent the bubble from getting even bigger.

Yes, at the end of the day, that bubble got so big that it almost destroyed the entire global economy.

But nonetheless, that was the policy of the Fed.

This time, when we are actually experiencing an AI bubble, the Federal Reserve is doing the absolute opposite.

Instead of hiking the interest rates to prevent that bubble from getting bigger and bigger, the Federal Reserve is about to lower interest rates, which is going to make the cost of borrowing money much cheaper, which is going to fuel that bubble to get even bigger.

Seems like this bubble is going to get a lot worse than the dot com bubble.

Imagine if the Federal Reserve back in 1999, instead of hiking the interest rates from about 4.5% to 6.5%, it would have lowered the interest rates to 3%.

The.com crash would not have happened and the dot com bubble would have grown much bigger.

It's also going to have a psychological effect.

Imagine if you were an investor in the market and you see that the Federal Reserve is lowering interest rates.

Are you going to sell your investments and be much more careful or you're anticipating that more money will enter into the market.

It is going to make it a lot more cheaper for these corporations to borrow money, which is going to continue fueling their funding, fueling those stock prices.

So why sell your stock prices when cheap money is about to enter into the economy?

After lower interest rates, there could be a period of quantitative easing.

The Fed could stop the quantitative tightening and start throwing more money into the economy.

So that psychological effect is going to push more investors to keep investing in the market, creating an even bigger bubble compared to the bubble that we have right now.

It seems like Trump has won the feud against the Federal Reserve.

Remember when Donald Trump just became the president?

Literally, for the first six to seven months of his presidency, he was insulting the chairman of the Fed as much as he could.

Jay Paul, he was literally standing every single time his run, he's like, look, the economy is very strong, inflation is very high, and

we have to do everything possible to bring that inflation down to our targeted 2%.

And every single time that Donald Trump would insult him, he's like, no, this is our objective, and

And the Federal Reserve hasn't actually achieved its objective of 2%.

Inflation is back from its 2.8%, that was the lowest back in May, to about 3.1%.

And now it seems like with lower rates, inflation is going to spike to 3.5% or even 4%.

Does that mean that the Federal Reserve is no longer independent?

Why did the Federal Reserve suddenly change its goals and now is following the desires of Donald Trump?

Now, I don't have anything against Donald Trump.

It just makes the entire situation very weird that on one side you've been shouting for almost a year that you're going to stand your ground and you will achieve the targeted inflation of 2%.

And now suddenly, your policy perfectly aligns with the policies of Donald Trump.

And that's why, if you pay attention, over the last two months, Donald Trump has never insulted Jay Paul as if they actually agreed that.

All right, Donald Trump, if you want lower interest rates, we will lower them down and to about 3%.

So that sends a very negative message to the market.

That sends a very bad message to investors that inflation will continue rising.

So do not hold cash and make sure that your money is invested somewhere.

Since inflation is going to eat it away, and

since the bond market is not providing enough returns, then the only alternative that is left for you is the stock market, which could push the market to get even bigger or which could push that bubble to get even bigger.

I don't think the market has been as complicated as it's today, because if the Fed steps in with its cheap money, yes, it is going to save the market for some time, but

However, even if the market crashes later on, it doesn't mean that every single stock is going to suffer.

So if you want to know what are the top five stocks that you should be buying that are going to survive the crash, then check out the first link in the description of this video.

Thanks for watching and I will see you in the next one.