ฝึกพูดภาษาอังกฤษด้วยเทคนิค Shadowing จากวิดีโอ: To Save the Economy... We’re About to Break It

Last week, the Federal Reserve raised interest rates for the first time in three years.

The decision was unanimous.

The tally was 12 to nothing.

But not even seven weeks earlier, that exact same room couldn't agree on anything.

At the previous July meeting, the Federal Open Market Committee's vote came back 9 to 3.

And not in the direction you'd think.

Nine officials voted to leave rates alone.

Three voted to raise them.

Which means three -quarters of the committee was against the rate hikes back in July.

But by September, not a single person was.

So what changed?

The Fed Chair, Kevin Warsh, explained it at the press conference.

The inflation numbers that came in over the summer showed that inflation, quote, was not abating on its own, and monetary policy was not doing enough to restrain excess demand.

In plain English, inflation won't go away, and rates aren't high enough to slow spending.

Which also gave the bond market the validation it's been looking for.

The 10 -year Treasury, the rate almost every other interest rate on Earth gets priced off of, closed above 5%, hitting the highest level since 2007.

Since 1965, the Federal Reserve has run 11 tightening cycles, the smallest raised rates by 1 .75 % points.

The biggest, 13.

The typical one ran about a year and a half and added close to 4%.

Only one of these tightening cycles stopped at just one hike, as in they raised rates once, had a look around, and said, that's enough.

It was in March 1997.

Alan Greenspan raised rates a single time, decided that was plenty, and was back to cutting them 18 months later.

Which is basically what the Fed is telling us right now.

In its own projections, 16 of 18 officials have at least one more hike penciled in before the end of the year.

The day before the meeting, the conference board's senior U .S economist put out a brief, and the title of it was,

More Inflation Coming, The Fed Rarely Stops After One Move.

She's forecasting three in a row, September, October, December.

Researchers at the New York Fed went back and counted 14 tightening cycles between 1955 and 2009.

Of those 14 cycles, 10 were followed by a recession within 18 months of the final hike.

Then, of the remaining four, one of them led to a jump in unemployment and a credit crunch that plenty of economists, including Nobel Prize winner Milton Friedman, still count as a recession.

Which leaves three times where we achieved the highly coveted soft landing.

Three times in 50 years where America raised interest rates without f*ing up the economy.

So it's not necessarily the number that matters here, it's what one of these cycles does once it gets going.

It's about where these cycles land in the economy once they get started.

For most of the last 70 years, a rate hike got to you through a clear door.

Mortgage rates went up.

Buying a house cost more, so fewer people bought one.

Refinancing stopped making sense.

Builders slowed down.

People spent less.

And the economy cooled off.

Since the end of the Second World War, housing was the single most direct lever the Federal Reserve had.

But that lever is breaking.

Only about 40 % of American households have a mortgage at all.

And of the ones that do, 78 % are locked in below 6%.

Two -thirds are below 5.

Half are sitting under 4%.

Which means if you've got a 4 % mortgage, and today's rates sit near 7, you're not even going to consider selling.

The Fed's own report to Congress in July has a name for this.

A rate lock.

Which is a fancy way of saying people looked at today's mortgage rates, then at the mortgage rate they already have, and decided they're never moving again.

And you can see this in the sales data.

Existing homes are selling at a pace of about 4 million a year.

The 15 -year average is closer to 5.

Last year was the slowest year since 1995.

Which means the housing market is already frozen.

There isn't much left that a rate hike can slow down.

So if the Fed's favorite brake lever isn't working anymore, where do these rate hikes land?

Well, Fed Chair Kevin Warsh answered that himself 19 days before he raised rates.

He said, That's the chairman of the Federal Reserve pointing straight at the data centers.

So how much money are we actually talking about?

Well, J .P.

Morgan estimates that the global data center build -out could cost roughly $5 trillion through 2030.

A finance professor at Columbia ran the numbers on just the American side of the AI build -out.

If it gets built the way it's planned, it runs at roughly 2 .8 % of everything America produces, every year, through 2032.

For context, in the 1800s, building every railroad in America ran at about 2 .5 % of the the economy, wiring the entire country for electricity, about 1%.

The construction of the interstate highway system, about 1 .5%.

So this is the biggest thing America has ever built.

And the tech companies at the center of this are the most profitable companies that have ever existed.

So the reasonable assumption is that they're paying for it themselves.

But they're not.

The operating cash flows, selling stock, and everything they can generate on their own, all of it together, covers roughly a quarter of the $5 .5 trillion,

JP Morgan expects the other $4 trillion to be borrowed.

So where do you go when you need to find $4 trillion?

If you were thinking Nancy Pelosi's trading account, you'd be right.

But these companies decided to look somewhere else — the bond market.

From 2020 through 2024, the five tech companies in the middle of the AI bubble issued about $35 billion of bonds a year.

In 2025, $93 billion.

And by the end of July this year, seven months into the year, they're already at $132 billion a risk advisory firm called Chatham

Financial puts this year's AI infrastructure spend at more than $830 billion.

It comes out to about half the volume of the entire American investment -grade bond market, two -thirds of every leveraged loan,

and significantly more than the entire high -yield bond market put together.

It's a handful of companies in one industry trying to fit through every door in the credit market at the same time, and the numbers are only getting bigger.

Vanguard has capital spending at these companies, above a trillion dollars a year, over the next three years.

So the build -out isn't a check somebody writes, it's a standing appointment with the bond market every year for the rest of the decade.

Which means the price of money isn't a detail in this story, it's the entire story.

But before I get into that, let's take a quick pause.

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Now back to how one small change in the price of money could wreak havoc on the biggest build out in history.

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When a company sells bonds, it pays whatever the government pays to borrow, plus a little extra on top.

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That extra is called the spread.

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It's the market's way of saying how nervous it is about you paying the money back.

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This year, the spread on those five companies widened by about 30 basis

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points the rest of the investment -grade market widened by just two, so 15 times the move, on some of the most profitable companies in history.

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That's the best of the best in the market.

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Go down the stack, and it's not as polite.

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The debt that funds the actual data center projects prices about 100 basis points wider than those companies' own bonds.

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About 200 wider once you're down in junk territory.

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And near the bottom of the stack, it gets ugly.

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A few months ago, CoreWeave, one of the companies that rents out GPUs to everyone else, had a $2 .6 billion loan out for syndication.

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Halfway through, the lenders sent it back.

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The interest rate increased by a full point.

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And then came the conditions.

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The loan has to be paid down in full over its life, no big lump sum at the end.

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A coverage test, which says the cash coming in has to beat the debt payments going out by a set margin

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and a minimum cash balance.

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Which is all just the long way of saying the lenders want to make sure there's still money

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when it's their turn to get paid.

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It ended up clearing at 10 .4%.

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Over a year, CoreWeave's interest bill went from $267 million a quarter to $640.

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In the second quarter, interest alone ate $0 .42 of every dollar of adjusted earnings.

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That's the bottom of the AI market repricing in real time, while the thing is still being built.

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Which brings us to the question nobody in this industry wants to say out loud.

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At what price does this stop being worth doing?

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A compute pricing firm called Mercatus actually modeled it.

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They ran a single GPU cluster at different costs of capital.

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At 6%, it clears comfortably.

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At 10%, it barely clears.

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At 12%, the whole thing goes underwater.

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The break -even sits somewhere around 11%.

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Mercatus also breaks the buyers down by their cost of capital.

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Established companies with investment -grade balance sheets are paying 6 % to 8 % on new deals.

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Late -stage AI companies with strong revenue, 10 % to 14%.

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Earlier stage, venture -backed AI companies 15 to 20.

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Meaning the top of the market clears the breakeven.

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The middle is standing right on the breakeven line.

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And the bottom is already underwater.

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And this is a price that's also now rising.

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A borrowing cost isn't something you pay once.

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It's more like rent.

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It resets.

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And it resets two ways.

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The first one is fast.

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A lot of the debt at the bottom of this market floats.

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That core weave loan is priced off an overnight rate that moves with the Fed, plus 5 .5 points.

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All in, that's nearly 10 .5%.

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So when the Fed raised rates last week, that loan got more expensive before the next payment was even due.

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The second one is slow and structural.

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The bonds at the top of the market are fixed, but every loan matures, every bond comes due, and when it does, almost nobody pays it off.

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They roll it over and borrow it again at whatever the market is charging that morning.

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So a company

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that borrowed at a cheaper rate a few years ago isn't going to get the same rate

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when it hits the markets looking for new debt.

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The average tightening cycle since 1983 added more than 3 percentage points.

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16 of 18 Fed officials see at least one more rate hike this year.

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The conference board sees three.

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And you can't borrow all this money at once.

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This isn't an industry that's borrowing on a one -time basis

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which means the largest capital investment in American history is about to have to start paying more for the debt at once.

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This is what makes this tightening cycle different from everyone before it.

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In the past, a hike mostly landed on the demand side—the mortgages, the credit card balances, the car loans, the boring consumer stuff.

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This time, the biggest impact lands on the supply side, on companies carrying enormous debt loads, trying to build the future.

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That's the part people get wrong about a rate hike.

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For most borrowers, it doesn't break anything the day it lands.

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It breaks things later on, when somebody has to go back for more money, and that money costs more than it did last time.

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We're seeing massive demand for debt, and a rate cycle that's just getting started running at each other full speed, like they're doing the Oklahoma drill.

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And I know what a lot of you are thinking right now.

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Let the AI companies burn to the ground.

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But the problem is, the damage doesn't stay inside the industry.

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Apollo's chief economist has been tracking data center spending as a share of the economy.

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Right now, it's growing by about 0 .85 percentage points of GDP a year.

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The fastest stretch of the housing boom, from 2002 to 2005, grew at half a point a year.

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The telecom build -out of the 90s just 1 ,500 of a point.

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So the AI build -out is being built roughly twice as fast as the housing bubble was.

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And we all remember how that one ended.

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AI isn't just growing fast, it is the growth in the economy.

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This year, AI capex will be a nearly 1 .5 percentage point boost to United States economic growth.

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Private data center construction is now running at $75 billion a year, up 57 % in one year, more than doubled in two.

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Census Bureau data now shows America spends more building data centers than it spends building conventional office buildings.

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The good news is, nothing's broken yet.

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Nobody's pulling back spending.

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Nothing has stopped moving.

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But the absence of damage is also not evidence of safety.

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J .P.

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Morgan went back 20 years and plotted what the big five tech companies do with every dollar of revenue.

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In all that time, capital spending never took more than 13 cents.

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This year, it will take 41, which is almost every cent the businesses bring in.

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For the first time on the chart, free cash flow goes negative, which means every year going forward, the amount that has to be financed by debt goes up,

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and the rate it gets financed at goes up with it.

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That's where the dots actually connect for this recent rate hike decision.

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It's the kind of detail that often gets left out of traditional media because it doesn't fit into an easy to package, easy to sell headline.

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So if you find this kind of thing interesting, hit subscribe.

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Because you're probably going to keep hearing the same story about the Fed raising interest rates by a quarter of a point.

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But that's not the real story.

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The real story is that the largest build out in history, the one propping up the economy, still has to keep going back to the market for more money for the foreseeable future

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and every one of those trips is going to cost more than the last one.

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ฝึกพูดภาษาอังกฤษด้วยเทคนิค Shadowing จากวิดีโอ: To Save the Economy... We’re About to Break It

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