Economist Paul Krugman and I are very worried. He titled a recent Substack post, “Getting Ready to Party Like It’s 2008,” the last time there was a global financial meltdown. Putting foxes in charge of the hen house is a recipe for economic disaster.
The Trump family business is heavily invested in cryptocurrencies and earned more than $800 million from the sale of crypto assets in the first six months of 2025. This includes investments from foreign governments and firms seeking to influence U.S. government policies.
Meanwhile Trump’s AI and Crypto Czar David Sachs provides White House access to tech industry billionaires while pushing to eliminate government regulatory obstacles to A.I. Sacks personally benefits from his tech investments including stakes in software and hardware companies with ties to artificial intelligence. Trump calls him an unpaid “special government employee” and he receives ethics waivers because of conflicts of interests that would otherwise be impermissible.
We have seen the results of this kind of “irrational exuberance,” a phrase coined by former Federal Reserve chair Alan Greenspan before the 1990s Dot.com bubble burst, because no watchdog was on duty.
On Sept. 15, 2008 Lehman Brothers, one of the world’s largest financial services companies, filed for bankruptcy and the entire U.S. financial system was shaken. Lehman Brothers had invested heavily in sub-prime or risky mortgages and its bankruptcy was the largest in U.S. history. The bankruptcy was followed by a downward economic spiral with a massive bank run reminiscent of the economic collapse that precipitated the Great Depression in the 1930s. Only a federal bailout of the major banks including $8 trillion from the Federal Reserve prevented another depression.
Krugman believes a number of signs indicate there will soon be to another financial collapse of the magnitude of the one in 2008. He points to largely unregulated cryptocurrencies and “stable coins” and an AI bubble that has driven stock prices to record highs but has failed to show how massive investments in data centers will ever turn a profit or even repay the money that has been poured into their construction and maintenance.
Tether is one of the most suspicious of the stable coins that support cryptocurrencies. Tether stable coins are supposed to be pegged to the U.S. dollar to ensure the value of cryptocurrencies. A report from S&P Global Ratings questioned the quality of Tether’s assets, described the company as “highly secretive,” and warned that there was no way to assess its claims to be financially stable. On a scale of 1 to 5 with 1 being “very strong,” it rated Tether’s assets a 5 or “weak.” The Economist argues its major function is to launder money from criminal enterprises.
So far Tether has gotten away with dangerous economic practices for two reasons. It is headquartered in El Salvador so it is not subject to U.S. regulations. In El Salvador banking guidelines are very lax and the country is controlled by an authoritarian ruler who is trying to force Salvadorans to abandon its national currency in favor of bitcoins. The second reason Tether seems to avoid scrutiny is that it has close connections to the financial company Cantor Fitzgerald formerly run by Howard Lutnick who is now Secretary of Commerce in the Trump Administration. When Lutnick resigned to take a position in government, his role at Cantor Fitzgerald was taken over by his sons. Krugman argues that in a well-regulated system this kind of cronyism would not be permitted. He calls Tether a “a 21st century version of a wildcat bank, issuing tokens while deliberately making it hard for anyone to know whether it has the resources to honor them.” Unfortunately, it is not an outlier in the crypto-stable coin industry.
The other threat to the economy is a AI-generated stock market boom reminiscent of the 1980s Savings and Loans crisis, the 1990s dot.com bubble, and the 2000s subprime mortgage fiasco. Computer chipmaker Nvidia, whose products are essential for the operation of both AI-Data Centers and cryptocurrency mining facilities, was responsible for about one-fourth of stock market gains in the first half of 2025.
AI-Data Centers and cryptocurrency mining facilities require enormous amounts of electrical power to operate driving up electrical prices for other consumers and access to volumes of water to keep of chips from melting down. With the projected growth in AI Data Centers global energy use is expected to quadruple by 2030. Open Energy Outlook Initiative predicts that data center and cryptocurrency mining growth will increase average U.S. electricity generation costs by 8% and greenhouse gas emissions by 30% by the end of the decade. A study by the MIT Media Lab found that 95% of businesses using AI see no measurable return on their investment and at the same time tech companies plan to invest hundreds of billions of dollars more on it. Meanwhile the cost for building, chip production, powering, cooling, and maintaining AI Data Centers make it unlikely they will ever be profitable.
Harris Kupperman, founder of the hedge fund Praetorian Capital, is one of the sharpest critics of the AI-boom. He believes AI Data Centers will depreciate faster than they can generate revenue. “All future cash flow, for years into the future, may also have to be funneled into data centers with fabulously negative returns on capital.” He estimates that AI datacenters built this year will face $40 billion in annual depreciation, while only generating somewhere between $15 and $20 billion in revenue.
With Trump in the White House and Congress eunuched, it is unlikely the economy will be un-Tether-ed from AI and Crypto before a collapse.
Note: Along with many others, I was puzzled why Trump pardoned former Honduran President Juan Orlando Hernández a convicted international cocaine trafficker. Paul Krugman suggests a very plausible explanation. He credits the influence of the “crypto/tech broligarchy.” The crypto-bros are heavily invested in an extra-legal Honduran off-shore island paradise known as Próspera where tech oligarchs will set the rules and bitcoin will be used instead of money. Hernández’s rightwing party is a major enabler of the project, so who cares about drug trafficking into the United States.
