In the coming decade, the U.S. economy faces far more than a cyclical slowdown. At the nexus of three powerful forces soaring federal debt, lingering inflation pressures, and an all-in rush into artificial intelligence (AI) spending we are witnessing a structural shift that few institutions are fully prepared for. This isn’t just a technical adjustment; it’s a reconfiguration of how growth, risk and policy interact. A crossroads facing US policymakers and investors within the next 5 years that will make or break the US economy, occurring as a result of years of reckless policymaking, and hasty investment.
This article tackles the structural pivot point ahead of the US economy, and gives early recommendations for stock market investors on how to pivot to maximize gains and minimize losses.
Classic Debt Overhang
For decades the US governments relied on debt for spending, and it was practical. As these debts were at near 0% interest rates in the country’s currency, which is a demanded currency in global trade so no worries of currency mismatch hypothesis. This allowed the national debt for the US to rise to 38 trillion USD approximately 124% total US GDP, despite economists’ recommendations to keep the debt below 90% in order to maintain economic growth. As once the national debt reaches these levels, debt servicing levels increase to the point that it attracts resources away from productive spending. In 2025 debt servicing took the third biggest chunk of the general budget, with interest accumulating to 1 trillion USD now.
In simplified terms: governments borrow to spend, and if that borrowing reaches a point where servicing becomes heavy, new borrowing and spending get squeezed. Productivity and growth suffer.
The debt burden means that any major shock whether from inflation, a policy error or a tech correction has less fiscal cushion behind it than in prior cycles.
USD Neutralization?
It’s no secret that the US weaponized its currency, exploiting the high demand for it as the key currency in global trade. However, thanks to US aggressive policies, countries are trying to change the status quo. Countries are now changing longstanding trade deals that used the USD as the primary currency for trade with deals that allow them to trade with other currencies such Yuan, Rubel, or other countries. This is not a full on de-dollarization movement yet, but even the slightest change to the status quo that the US economy depends on will have a felt impact. Over the recent years China cut 300 billion USD treasury bonds, increasing supply in the market thus decreasing the already weakened demand for US treasury bonds from the change in trade deals. In the world of treasury, lower demands mean higher yields, raising interest, thus further aggravating the already sore US debt situation.
Dear Friend Inflation
Inflation has been treated by many as a short-term aftershock of pandemic disruption and reopening. But the story is deeper: as debt and spending rise, so too does the potential for inflationary pressures especially when paired with asset‐value expansions and speculative capital flows. It’s one of the FED’s responsibilities to handle inflation along with supporting growth, and manage debt. However, recent events have backed the FED into a corner. High inflation causes slow growth, to solve this the FED raises interest so inflation does not spiral uncontrollably. However, then the government borrows at high interest rates spiralling the debt out of control and cutting government spending. Cutting government spending leads to slow economic growth, which then pushes the FED to lower interest rates and then inflation returns and the vicious cycle continues.
AI Mania
It is in the AI arena that the most dramatic economic shifts are happening today. Massive corporate investment, elevated valuations, and tremendous optimism have converged to produce what many analysts now question: is this boom sustainable?
Furthermore, figures are showing that so far in 2025, AI revenues have reached 50 Billion USD, an impressive figure. However this figure is dwarfed by the 400 billion USD investment, these worrying figures have pushed companies like Blackrock to voice its concerns about the AI market. These claims were confirmed by figures like Sam Altman and Mark Zuckerberg, with Altman saying there is a bubble that is a “good bubble’.
Latest figures show that AI data centres now use around 4% of total US electricity, and are projected to reach 8% by 2028. This in return, requires to renovate the country’s decades old electricity infrastructure which requires debt powered government spending, which will inevitably result in higher electricity prices.
The Triad Interaction: Debt, Inflation & AI
What makes the current risk environment particularly acute is the interaction of these three forces.
A) Debt + Inflation
High public debt reduces flexibility and increases sensitivity to inflation. If inflation stays elevated, interest rates stay high, increasing debt servicing costs and reducing the room for spending. The fiscal engine becomes strapped just when the economy may be slowing.
B) Inflation + AI Spending
The AI boom is inflating asset values, driving capital flows, and raising demand for chips, data centers, energy – all of which have inflationary implications. But the productivity gains required to offset these inflationary pressures are not yet evident. As one IMF official noted, the AI investment boom is adding to inflation pressures without corresponding productivity. So the risk: you get inflated capital and spending, but muted output, which is a classic inflation combination.
C) AI Spending + Debt
When firms (and governments) redirect capital to high-tech build-outs, while the public sector is already deeply indebted, you compress the space for diversified investment. The opportunity cost rises: manufacturing, infrastructure, human capital may lose out. That structural misallocation heightens long-term fragility.
In sum: you have a heavily indebted public sector, increasing inflation pressures via elevated tech investment, and a concentration of investment in one domain (AI) with uncertain returns. This triad raises the probability not just of a slowdown, but of a correction or crisis.
How to pivot?
All of the factors mentioned in this article indicate that the U.S. is entering what’s historically a late-cycle phase growth slowing, capital costs rising, asset concentration increasing. Historically, this phase favors value, hard assets, and cash-flow-rich companies, while punishing speculative growth and debt-dependent models.
Go Long:
- Energy: AI infrastructure is massively power-hungry. Data centers are driving electricity demand growth at rates unseen since the 1990s.
- Tech (Not speculative AI): Software firms with consistent earnings, strong balance sheets, and low capital intensity can benefit from AI productivity without the CapEx burden.
- Chips Suppliers: Benefitting greatly from the AI expansion while not completely relying on it
Short:
- Long-Duration Bonds: With U.S. debt issuance accelerating and inflation sticky, long-dated Treasuries may continue under pressure.
- Over-Leveraged Tech & Speculative AI Plays:The AI bubble dynamic: astronomical valuations priced for 10+ years of flawless growth, with minimal margin for error.
- Over-Leveraged Small Caps: Many small caps are refinancing 2020–2022 debt at 2–3× higher rates. Russell 2000 companies have higher debt-to-EBITDA than large caps — a risk in “higher-for-longer” regimes.
Final Thoughts:
The United States stands at an inflection point not merely facing a cyclical downturn, but a systemic realignment of how money, technology, and productivity interconnect. The convergence of record-high debt, persistent inflation, and speculative AI exuberance forms a feedback loop that can either catalyze a new era of innovation-led growth or trigger a hard reset of the financial system. The next decade will test whether the U.S. can convert technological ambition into sustainable productivity, or whether it will repeat the mistakes of past bubbles inflating asset prices while hollowing out real value.
For investors, survival will depend on discernment: distinguishing transformative technology from inflated narratives, cash flow from conjecture, and real assets from speculative illusions.
Whether this era becomes a bubble, a reset, or a relaunch will depend not on the brilliance of AI models or the scale of spending, but on the wisdom to balance innovation with restraint. The U.S. still has the world’s deepest markets, most agile companies, and strongest innovation base but without fiscal prudence and realistic valuation, even the most advanced economy can stumble under the weight of its own excess.
