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Are central banks warning about an AI bubble?

Yes. The Bank for International Settlements (the BIS, owned by 63 central banks) used its June 2026 Annual Economic Report to red-flag the AI boom, charting it alongside canal mania, railway mania, the roaring 20s and the dotcom bubble - each of which drew "capital in excess of what commercial returns could ultimately justify" and ended in economy-wide recessions.

The BIS listed six red flags: $1trn+ hyperscaler AI capex outpacing free cash flow (part debt-funded); circular financing with "the same asset being pledged multiple times"; valuations pricing growth beyond anything these firms have delivered; a modelled bust in its adverse scenario; direct lenders quadrupling AI/IT lending to ~15% of their books; and an automation "demand bottleneck" where each displaced worker is a lost consumer.

It is no longer one institution. The European Central Bank has since put the same view in writing, and two weeks later Andrew Bailey - who chairs the Financial Stability Board and is Governor of the Bank of England - has put it in a warning letter to the G20, now public: markets remain vulnerable to "a potentially disorderly correction that could spread across borders", naming sovereign debt fragilities, private credit, stretched AI-related valuations, and rising leverage in equity markets including leveraged ETFs. The worked example the leverage point already has: a $45 billion AI fund running leverage of up to 400% went to about $10 billion in a matter of weeks in July 2026, after all three of its prime brokers called for margin. The letter: fsb.org/uploads/P310826.pdf.

What the case rests on: the valuations assume large free cash flow arriving from 2028. For now it is moving the other way - Alphabet reported its first negative free-cash-flow quarter since it listed 22 years ago.

Full read with the BIS charts: https://www.tigzig.com/post/bis-ai-boom-red-flag-central-banks-jun2026. The ECB and FSB additions: https://www.tigzig.com/post/ai-valuation-correction-aug2026. Related: whether the S&P 500 itself is in a bubble - https://www.tigzig.com/agents-faq/is-the-us-stock-market-in-a-bubble. Live macro stress data: https://www.tigzig.com/tremor.

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