ExclusiveWill AI-driven economic power help reduce the burden of the United States' national debt?

Welcome to Unseen Ledger, where the world of finance unveils its hidden stories. Beyond charts and numbers, we uncover the unseen forces shaping the markets. Because behind every figure, there's a truth waiting to be told. The knife-edge decision of the Bank of England, BOE. United States, the question now is whether the economic boom and strength from AI will help alleviate the U.S. public debt burden. U.S. macroeconomic instability. Government shutdown causes aviation chaos. Supreme Court skeptical of legal basis for Trump tariffs. Strategists remain net short on the USD. The knife-edge decision of the Bank of England, BOE. The Bank of England's interest rate decision today is in a knife-edge position. Currently, there is a split regarding the BOE's policy decision in the coming hours. While most investors still expect the BOE to hold the interest rate at 4.0 percent, the main reason is they want to wait for the government's budget on November 26th, where Chancellor of the Exchequer Rachel Reeves is expected to announce broad tax increases, which will reduce inflationary pressure in place of monetary policy. Markets are betting the probability of an interest rate cut down to 3.75 percent has increased to one-third, compared to only one-tenth last month. Notably, Goldman Sachs changed its forecast last week, now expecting the BOE to cut the interest rate today, June 11th. The reason the BOE's policy decision is uncertain is because U.K. inflation, 3.8 percent, remains the highest in the G7, but September inflation unexpectedly held steady, did not increase. And recent labor data shows pressures are cooling, according to Governor Andrew Bailey himself. The vote result of the 9-member Monetary Policy Committee, MPC, is expected to be very close, possibly 5 to 4, according to Evercore ISI's forecast, to hold the rate unchanged. If the BOE does not cut today, the market is almost certain they will act in December. Investors are pricing in a 60 percent probability of a cut in December. United States The question now is whether the economic boom and strength from AI will help alleviate the U.S. public debt burden. An interesting study by S&P Global Research indicates that investments in data centers and related technologies have become the dominant contributor to U.S. economic growth. Estimates indicate these activities accounted for 80 percent of the increase in final private domestic demand during the first half of 2025. In this study, S&P Global Research draws three interesting conclusions. First, while the AI race is global, the U.S. leads in data center capacity, accounting for over 40 percent of the global total. But S&P Global Research researchers expect that this share will even continue to increase. Second, moving the macroeconomic needle and driving growth. Even as higher borrowing costs and policy uncertainty have weighed on private investment generally, business investment related to AI has surged and is offsetting weakness in other areas and the economy at large. Finally, the AI revolution, including ongoing data center investment and potential larger macroeconomic payoff down the road, will inevitably raise distribution issues. This technology holds great promise, but its effects will not be uniform. Contrary to the optimistic information from S&P Global Research, CEO Jensen Huang of NVIDIA, the world's most valuable company, told the Financial Times that China will win the AI race. Mr. Huang argued that the U.S. and the West are being held back by cynicism and complex regulations. He pointed to the risk of 50 new regulations from U.S. states. Conversely, China is accelerating thanks to two factors. One, more flexible regulations, and two, massive energy subsidies. The Financial Times also confirmed that Beijing has increased energy subsidies. Huang said power is free for large data centers run by ByteDance, Alibaba, and Tencent. Winning the AI race is a key strategy for China. Their domestic AI chips, like those from Huawei or Cambricon, are currently less efficient and consume too much energy compared to NVIDIA chips. But China has tried to overcome this weakness by subsidizing energy for tech firms. Beijing is directly compensating for this technological weakness, allowing their companies to continue developing large AI models, like DeepSea, even without NVIDIA's most advanced chips. Mr. Huang's warning comes just after the Trump administration reaffirmed the ban on selling Blackwell chips, the latest generation, to China, despite the fragile trade ceasefire just reached. This shows that the technology war remains the absolute focal point in the U.S.-China competition. While the U.S. is uncertain about its ability to win the technology race in data centers and AI against China, its AI development model is simultaneously increasing the public debt burden, which is already the biggest risk in the U.S. economy. According to S&P Global Research, if the benefits of AI in the U.S. are concentrated only in a few companies and regions, it will not be enough to create a tax base or sustainable widespread growth broad enough for the economy as a whole. This creates a major policy challenge. A bifurcated economy makes it difficult for the Federal Reserve, Fed, to formulate policy. The Fed must decide whether to ease policy to support weak sectors or maintain a tight policy to control inflation that may arise from the overheating tech sector. The vicious cycle of public debt, the U.S. Treasury's $125 billion debt refunding announcement on May 11, 2025, next week, is a stark reminder of the massive scale of Washington's continuous debt financing needs. Clearly, the United States is facing yield pressure. This is a critical event for the global bond market. If demand at the auctions, measured by the bid-to-cover ratio, is weak, Treasury yields will be forced higher to attract buyers, and U.S. public debt also brings worse consequences for the global economy. Rising U.S. Treasury yields will push global borrowing costs up, tightening financial conditions for governments, businesses, and consumers worldwide. Even if the Fed does not raise interest rates, AI, antidote or catalyst for debt? The core question being asked is whether the AI boom can save the U.S. public debt situation. Optimistic scenario, long term. A productivity surge from AI, if widely distributed, could boost GDP and tax revenues, eventually reducing the debt-to-GDP ratio. This is the growing out-of-debt solution. Realistic scenario, short term. In the short term, AI-driven growth is not yet generating enough tax revenue to offset current budget deficits. Conversely, if bond yields rise due to debt pressure, it will increase the government's debt servicing costs, increasing the public debt burden, and potentially tightening capital, negatively impacting the very tech companies leading the AI race. The AI boom is a powerful macroeconomic tailwind for growth, but the Treasury's continuous debt issuance needs are a headwind that threatens to exacerbate capital costs. The market's reaction to the upcoming bond auctions will be the most critical indicator of the relative strength of these two forces. U.S. macroeconomic instability. Government shutdown causes aviation chaos. U.S. Transportation Secretary Sean Duffy, yesterday, May 11th, ordered a 10% cut in flights at 40 major U.S. airports, citing serious concerns about aviation safety. Today, the U.S. government shutdown enters its 36th day, the longest in history. Consequently, 13,000 air traffic controllers, ATC, and 50,000 Transportation Security Administration, TSA agents, are working without pay. It is worth noting that the U.S. aviation industry was already short 3,500 controllers before the shutdown. Currently, the situation has become dangerous, as by Tuesday, 20% to 40% of controllers at the largest airports have not shown up for work. The cuts will be implemented in phases, starting at 4% and increasing to 10% of flights next week, expected to affect 1,800 flights per day and 268,000 passengers per day. International flights are exempt. Stocks of major airlines like United UAL and American AAL fell about 1%. United said it would cut regional and non-hub domestic flights and apply a flexible refund policy. Supreme Court skeptical of legal basis for Trump tariffs. U.S. Supreme Court SCOTUS justices yesterday, May 11th, appeared deeply skeptical of the legal basis President Trump used to impose a series of global tariffs. The court is hearing a case brought by U.S. businesses and 12 states challenging President Trump's use of the International Emergency Economic Powers Act, IEEPA, to impose tariffs. The administration argues that the trade deficit is an economic and national security catastrophe, but the justices appeared unconvinced. If the government loses the case, it will call into question more than $50 billion in additional tariff revenue the government has collected in 2025. This is significant revenue that has helped soothe investors worried about the massive U.S. public debt. An adverse ruling would seriously complicate Trump's trade policy, threatening the reciprocal tariffs and retaliatory tariffs targeting China, Canada, and Mexico. The key point is that skepticism came even from the conservative justices, who hold a 6-3 majority on the court. Chief Justice John Roberts, a conservative, argued that imposing tariffs, taxes on Americans, has always been the core power of Congress, not the president. Justice Neil Gorsuch, a conservative, warned of power accreting to the executive branch that Congress can never get back. Justice Amy Coney Barrett, a conservative, questioned the national security rationale, asking why allies like Spain and France were also subject to tariffs. This is the first time the Supreme Court will squarely examine the legal basis of a critical part of President Trump's agenda. If the government loses, they will lose the fastest and simplest tool for imposing tariffs, IEEPA. Strategists remain net short on the USD. Foreign exchange FX strategists largely maintain a bearish view on the U.S. dollar, predicting traders will maintain a net short position throughout November. A Reuters poll ending May 11th shows two-thirds, 30 of 60, 45, of strategists believe the market will continue to bet against the USD, i.e., the USD depreciates, for the following reasons. Expectations of deep Fed cuts. The main driver is the market still betting the Federal Reserve Fed will have multiple interest rate cuts. The futures market, Great Futures, is pricing in three to four more cuts by the end of 2026, in addition to the two that have already occurred. Political risk long-term. A former Fed staffer, now chief economist at BNY Investments, warned that increasing political influence from the White House House on the Fed Board of Governors will push the policy rate pretty low and cause the USD to depreciate in 2026 and beyond. Furthermore, global geopolitical conflicts show signs of escalation. According to the Financial Times, Russian President Putin has announced he will reconsider nuclear tests as a way to respond to the U.S., which allowed nuclear tests after a 32-year hiatus. This indicates a more intense global arms race escalation. All arms races and wars always consume enormous budget resources, increase debt, and thereby erode currency value faster than any economic financial crisis. Reuters strategic analysts also forecast, median, the euro will rise to $1.21 against the USD within the next year. You've been watching Unseen Ledger, where we turn data into insight and insight into advantage. Tell us in the comments what stories or topics you'd like us to explore next. Your perspective helps shape our next episode. If today's report gave you a new way of seeing the market, please like, share, and subscribe so you never miss what's hidden behind the numbers. Unseen Ledger, where the numbers speak, we make them confess.