Author: arndxt
Compiled by: AididiaoJP, Foresight News
2025 is a turning point in the economic cycle.
The market is caught in a paradox.
Beneath the surface calm of soft landing optimism, the global economy is quietly fracturing along the lines of trade policy, credit expansion, and technological overreach.
The next misalignment in the global economy will not stem from a single failure, neither from tariffs nor from AI debt, but from the feedback loops between policy, leverage, and belief.
We are witnessing the late stages of a super cycle, where technology supports growth, fiscal populism replaces trade liberalism, and monetary trust is slowly eroding.
The prosperity has not ended, but it has begun to fracture.
This week's volatility is a microcosm of the larger picture.
The volatility index experienced its largest surge since April, driven by renewed concerns over US-China tariffs, and then retreated before the weekend as President Trump confirmed that the proposed 100% import tariffs would be "unsustainable." The stock market breathed a sigh of relief; the S&P 500 stabilized. But this relief is superficial; the deeper narrative is one of exhausted policy tools and overstretched optimism.
The Illusion of Stability
The July US-EU trade agreement was intended to anchor a fragile system.
However, it is now gradually unraveling under the influence of climate regulatory disputes and American protectionism. Washington's demand for US companies to be exempt from ESG and carbon disclosure rules highlights the widening ideological divide: Europe's decarbonization vs. America's deregulation.
Meanwhile, China's new restrictions on rare earth exports, including a ban on magnets containing trace amounts of Chinese-sourced metals, expose the strategic vulnerabilities of global supply chains. The US response: threatening to impose 100% tariffs on Chinese imports, a political stance with global consequences. Although this threat was later retracted, it reminded the market that trade has become weaponized finance, leveraged more by domestic sentiment than by economic rationality.
The World Trade Organization warns that goods trade will sharply slow by 2026, reflecting a reality: companies are no longer confidently investing in supply chains but are investing with contingency plans.
The AI Super Cycle
Meanwhile, in the AI economy, a second narrative is unfolding, one that is subtler but potentially more consequential.
We are transitioning from productive expansion to speculative finance, where "vendor financing surges and coverage thins." The pace at which mega-corporations are leveraging their balance sheets for expansion has outstripped the pace that revenue can validate, a typical sign of late-cycle exuberance.
This is not new. Of the 21 major investment booms since 1790, 18 ended in collapse, often when the quality of financing deteriorated. Today's AI capital expenditure frenzy resembles the telecom bubble of the late 1990s: real infrastructure gains entangled with credit-driven speculation. Special purpose entities, vendor financing, and structured debt—tools that once inflated mortgage-backed securities—are making a comeback, this time cloaked in "computing power" and "GPU liquidity."
The irony? The AI boom is productive, just unevenly distributed. Microsoft is financing its expansion through traditional bonds, showing confidence. CoreWeave is financing through special purpose entities, showing pressure. Both are expanding, but one is building lasting capacity; the other is building fragility.
Symptoms of Volatility
The surge in the volatility index reflects deeper market unease: policy uncertainty, concentrated stock leadership, and credit pressures beneath the surface of prosperity valuations.
As the Federal Reserve now signals rate cuts amid slowing growth, this is not stimulus but risk management. The two-year Treasury yield has fallen to its lowest level since 2022, indicating that investors are pricing in a deflation of confidence, not just interest rates. The market may still cheer every dovish turn, but each rate cut undermines the illusion that growth is self-sustaining.
Synthesis: Trade, Technology, and Trust
The connecting thread between tariff politics and AI exuberance is trust, or more precisely, the erosion of trust.
Governments no longer trust trade partners.
Investors no longer trust the consistency of policies.
Companies no longer trust demand signals, leading to overbuilding.
Gold prices breaking above $4,000 are less about inflation and more about the erosion of this belief: in fiat currency systems, in globalization, in institutional coordination. It is a hedge, but not against price, rather against policy entropy.
The Road Ahead
We are entering a "fractured prosperity": a period where nominal growth and market peaks coexist with structural vulnerabilities:
AI investment drives GDP in a manner reminiscent of 19th-century railroads.
Trade protectionism stimulates local production while consuming global liquidity.
Financial volatility oscillates between euphoria and policy panic.
At this stage, risks are cumulative.
Every tariff retraction, every capital expenditure announcement, every rate cut extends the cycle but compresses its eventual unraveling. The question is not whether the AI or trade bubble will burst, but how intertwined they have become when they do.
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